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any forward-looking statement speaks only as of the date on which it is made , and the company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made . in addition , past results of operations are not necessarily indicative of future results . general the company 's primary source of earnings is net interest income , and its principal market risk exposure is interest rate risk . the company is not able to predict market interest rate fluctuations and its asset/liability management strategy may not prevent interest rate changes from having a material adverse effect on the company 's results of operations and financial condition . although we endeavor to minimize the credit risk inherent in the company 's loan portfolio , we must necessarily make various assumptions and judgments about the collectability of the loan portfolio based on our experience and evaluation of economic conditions . if such assumptions or judgments prove to be incorrect , the current allowance for loan losses may not be sufficient to cover loan losses and additions to the allowance may be necessary , which would have a negative impact on net income . results of operations the following presents management 's discussion and analysis of the financial condition of the company at december 31 , 2018 and 2017 , and results of operations for the company for the years ended december 31 , 2018 and 2017. this discussion should be read in conjunction with the company 's audited financial statements and the notes thereto appearing elsewhere in this annual report . summary the company recorded net income of $ 3,037,000 and net income available to common shareholders , which deducts from net income the dividends on preferred stock , of $ 2,924,000 , or $ 2.04 per fully diluted share in 2018 , compared to a net loss of $ 3,096,000 and net loss available to common shareholders of $ 3,594,000 , or ( $ 2.55 ) per fully diluted share in 2017. the company 's results for the year ended december 31 , 2017 were significantly impacted by a reduction in the corporate tax rate . on december 22 , 2017 , the president signed into law the tax reform act . the tax reform act includes a number of changes in existing tax law impacting businesses . one of the most significant changes is a permanent reduction in the corporate income tax rate from 35 % to 21 % . the rate reduction took effect on january 1 , 2018. accounting principles generally accepted in the united states of america ( “ gaap ” ) require companies to re-value their deferred tax assets and liabilities as of the date of enactment , with resulting tax effects accounted for in the reporting period of enactment . as of december 31 , 2017 , the company had net deferred tax assets of $ 11 million . the company recorded a re-valuation of its deferred tax assets and liabilities as of december 31 , 2017 , at the new rate of 21 % , based upon balances in existence at date of enactment . as a result , the company 's net deferred tax assets were written down by approximately $ 4,181,000 in the fourth quarter of 2017 with a corresponding increase in tax expense . this write down decreased earnings per share for the year by $ 2.96. although the tax reform act had a significant negative impact on the company 's earnings for 2017 because of the re-valuation of its deferred tax assets and liabilities , the reduction in the corporate tax rate to 21 % had a positive benefit to the company in 2018 and is expected to have a continued positive benefit in future periods . 31 net interest income net interest income , which represents the difference between interest earned on interest-earning assets and interest incurred on interest-bearing liabilities , is the company 's primary source of earnings . net interest income can be affected by changes in market interest rates as well as the level and composition of assets , liabilities and shareholders ' equity . net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities . the net yield on interest-earning assets ( “ net interest margin ” ) is calculated by dividing tax equivalent net interest income by average interest-earning assets . generally , the net interest margin will exceed the net interest spread because a portion of interest-earning assets are funded by various noninterest-bearing sources , principally noninterest-bearing deposits and shareholders ' equity . replace_table_token_1_th the increase in net interest income of $ 2,583,000 for the year ended december 31 , 2018 was a result of positive movements in interest income . interest income increased $ 3,770,000 with interest income on loans held for investment increasing $ 3,434,000 and interest income on investments increasing by $ 311,000. the increase in interest income on loans held for investment was attributable to an increase in average loans outstanding of $ 54,285,000 and an increase in the yield of 22 basis points . the increase in interest income on securities was due to an increase in average investment securities of $ 1,234,000 and an increase in the yield of 62 basis points . interest expense increased by $ 1,187,000 because of an increase in average interest bearing liabilities of $ 32,225,000 and an increase in the cost of interest bearing liabilities of 26 basis points . the following table illustrates average balances of total interest-earning assets and total interest-bearing liabilities for the periods indicated , showing the average distribution of assets , liabilities , shareholders ' equity and related income , expense and corresponding weighted-average yields and rates ( dollars in thousands ) . the average balances used in these tables and other statistical data were calculated using daily average balances . story_separator_special_tag if the evaluation shows that a loan is individually impaired , then a specific reserve is established for the amount of impairment . loans are grouped by similar characteristics , including the type of loan , the assigned loan classification and the general collateral type . a loss rate reflecting the expected loss inherent in a group of loans is derived based upon historical net charge-off rates , the predominant collateral type for the group and the terms of the loan . the resulting estimate of losses for groups of loans is adjusted for relevant environmental factors and other conditions of the portfolio of loans and leases , including : borrower and industry concentrations ; levels and trends in delinquencies , charge-offs and recoveries ; changes in underwriting standards and risk selection ; level of experience , ability and depth of lending management ; and national and local economic conditions . the amounts of estimated impairment for individually evaluated loans and groups of loans are added together for a total estimate of loan losses . this estimate of losses is compared to our allowance for loan losses as of the evaluation date and , if the estimate of losses is greater than the allowance , an additional provision to the allowance would be made . if the estimate of losses is less than the allowance , the degree to which the allowance exceeds the estimate is evaluated to determine whether the allowance falls outside a range of estimates . we recognize the inherent imprecision in estimates of losses due to various uncertainties and variability related to the factors used , and therefore a reasonable range around the estimate of losses is derived and used to ascertain whether the allowance is too high . if different assumptions or conditions were to prevail and it is determined that the allowance is not adequate to absorb the new estimate of probable losses , an additional provision for loan losses would be made , which amount may be material to the financial statements . 44 troubled debt restructurings a loan is accounted for as a troubled debt restructuring if we , for economic or legal reasons , grant a concession to a borrower considered to be experiencing financial difficulties that we would not otherwise consider . a troubled debt restructuring may involve the receipt of assets from the debtor in partial or full satisfaction of the loan , or a modification of terms such as a reduction of the stated interest rate or balance of the loan , a reduction of accrued interest , an extension of the maturity date or renewal of the loan at a stated interest rate lower than the current market rate for a new loan with similar risk , or some combination of these concessions . troubled debt restructurings can be in either accrual or nonaccrual status . nonaccrual troubled debt restructurings are included in nonperforming loans . accruing troubled debt restructurings are generally excluded from nonperforming loans as it is considered probable that all contractual principal and interest due under the restructured terms will be collected . troubled debt restructurings generally remain categorized as nonperforming loans and leases until a six-month payment history has been maintained . in accordance with current accounting guidance , loans modified as troubled debt restructurings are , by definition , considered to be impaired loans . impairment for these loans is measured on a loan-by-loan basis similar to other impaired loans as described above under allowance for loan losses . certain loans modified as troubled debt restructurings may have been previously measured for impairment under a general allowance methodology ( i.e . , pooling ) , thus at the time the loan is modified as a troubled debt restructuring the allowance will be impacted by the difference between the results of these two measurement methodologies . loans modified as troubled debt restructurings that subsequently default are factored into the determination of the allowance in the same manner as other defaulted loans . other real estate owned other real estate owned represents properties acquired through foreclosure or physical possession . write-downs to fair value of foreclosed assets less estimate costs to sell at the time of transfer are charged to allowance for loan losses . subsequent to foreclosure , the company periodically evaluates the value of foreclosed assets held for sale and records an impairment charge for any subsequent declines in fair value less selling costs . if fair value declines subsequent to foreclosure a valuation allowance is recorded through expense . operating costs after acquisition are expensed as incurred . the valuation allowance was $ 52,000 and $ 281,000 at december 31 , 2018 and 2017 , respectively . fair value is based on an assessment of information available at the end of a reporting period and depends upon a number of factors , including historical experience , economic conditions , and issues specific to individual properties . the evaluation of these factors involves subjective estimates and judgments that may change . assets held for sale assets held for sale at december 31 , 2018 and december 31 , 2017 included a branch building we previously closed . the company periodically evaluates the value of assets held for sale and records an impairment charge for any subsequent declines in fair value less selling costs . income taxes the company uses the asset and liability method of accounting for income taxes . under this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . if current available information raises doubt as to the realization of the deferred tax assets , a valuation allowance may be established .

capital resources shareholders ' equity at december 31 , 2018 was $ 37,133,000 , compared to $ 39,334,000 at december 31 , 2017. the $ 2,201,000 decrease in shareholders ' equity during 2018 is primarily due to the redemption of the company 's remaining 5,027 shares ( $ 5,027,000 redemption value ) of fixed rate cumulative perpetual preferred stock , series a on march 30 , 2018 which was offset by net income for the year of $ 3,037,000. the $ 4,280,000 decrease in shareholders ' equity in 2017 was primarily due to the reduction in the corporate tax rate . on december 22 , 2017 , the president signed into law the tax reform act . the tax reform act includes a number of changes in existing tax law impacting businesses . one of the most significant changes is a permanent reduction in the corporate income tax rate from 35 % to 21 % . the rate reduction took effect on january 1 , 2018. gaap requires companies to re-value their deferred tax assets and liabilities as of the date of enactment , with resulting tax effects accounted for in the reporting period of enactment . 41 the following table presents the composition of regulatory capital and the capital ratios for the bank at the dates indicated ( dollars in thousands ) . replace_table_token_12_th for more financial data and other information about capital resources refer to note 13 “ shareholders ' equity and regulatory matters ” and note 15 “ trust preferred securities ” in the “ notes to consolidated financial statements ” contained in item 8 of this form 10-k. liquidity liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss , and the ability to raise additional funds by increasing liabilities . liquidity management involves monitoring our sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits . liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control .

references throughout this report to the “ company , ” “ we , ” or “ our , ” include the activity of the predecessor defined above . we have elected to be taxed as a reit under sections 856 through 860 of the code and expect to continue to qualify as a reit . to qualify as a reit , we must meet a number of organizational and operational requirements , including a requirement that we distribute at least 90 % of our reit taxable income to our stockholders . as a reit , we will be subject to federal income tax on our undistributed reit taxable income and net capital gain and to a 4 % nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of ( 1 ) 85 % of our ordinary income , ( 2 ) 95 % of our capital gain net income and ( 3 ) 100 % of our undistributed income from prior years . we believe we qualify for taxation as a reit under the code , and we intend to continue to operate in such a manner , but no assurance can be given that we will operate in a manner so as to qualify as a reit . beginning in 2016 , taxable income from certain non-reit activities is managed through a trs and is subject to applicable federal , state , and local income and margin taxes . we have no significant taxes associated with our trs for the year ended december 31 , 2016. components of our revenues and expenses revenues rental income . our earnings are primarily attributable to the rental revenue from our multifamily properties . we anticipate that the leases we enter into for our multifamily properties will typically be for one year or less . other income . other income includes ancillary income earned from tenants such as application fees , late fees , laundry fees , utility reimbursements , and other rental related fees charged to tenants . expenses property operating expenses . property operating expenses include property maintenance costs , salary and employee benefit costs , utilities and other property operating costs . acquisition costs . acquisition costs include the costs to acquire additional properties . on october 1 , 2016 , we early adopted asu 2017-01 , which requires an entity to capitalize acquisition costs associated with an acquisition that is determined to be an acquisition of an asset as opposed to an acquisition of a business . prior to our adoption of asu 2017-01 , acquisition costs were expensed as incurred . we believe most future acquisition costs will be capitalized in accordance with asu 2017-01 ( see note 2 to our combined consolidated financial statements ) . real estate taxes and insurance . real estate taxes include the property taxes assessed by local and state authorities depending on the location of each property . insurance includes the cost of commercial , general liability , and other needed insurance for each property . property management fees . property management fees include fees paid to bh management services , llc , or bh , our property manager , or other third party management companies for managing each property ( see note 8 to our combined consolidated financial statements ) . 42 advisory and administrative fees . advisory and administrative fees include the fees paid to our adviser pursuant to the advisory agreement ( see note 8 to our combined consolidated financial stat ements ) . corporate general and administrative expenses . corporate general and administrative expenses include , but are not limited to , payments of reimbursements to the adviser for operating expenses , audit fees , legal fees , listing fees , board of director fees , equity-based compensation expense and investor relations costs . corporate general and administrative expenses and the advisory and administrative fees paid to our adviser ( including advisory and administrative fees on properties defined in the advisory agreement as new assets ) will not exceed 1.5 % of average real estate assets per calendar year ( or part thereof that the advisory agreement is in effect ) , calculated in accordance with the advisory agreement , or the expense cap . the expense cap does not limit the reimbursement by the company of expenses related to securities offerings paid by the adviser . the expense cap also does not apply to legal , accounting , financial , due diligence , and other service fees incurred in connection with mergers and acquisitions , extraordinary litigation , or other events outside the company 's ordinary course of business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of real estate assets . property general and administrative expenses . property general and administrative expenses include the costs of marketing , professional fees , general office supplies , and other administrative related costs of each property . depreciation and amortization . depreciation and amortization costs primarily include depreciation of our multifamily properties and amortization of acquired in-place leases . other income and expense interest expense . interest expense primarily includes the cost of interest expense on debt , the amortization of deferred financing costs , any prepayment penalties we may incur on the early retirement of debt , and the related impact of interest rate derivatives used to manage the company 's interest rate risk . gain on sales of real estate . gain on sales of real estate includes the gain recognized upon sales of properties . gain on sales of real estate is calculated by deducting the carrying value of the real estate and costs incurred to sell the properties from the sales prices of the properties . story_separator_special_tag the decrease in acquisition costs between the periods was due to the lower level of acquisitions completed during the period in 2015. during the years ended december 31 , 2015 and 2014 , we acquired 10 and 31 properties , respectively . acquisition costs depend on the specific circumstances of each closing and are one-time costs associated with each acquisition . 46 real estate taxes and insurance . real estate taxes and insurance costs were $ 15.2 million for the year ended december 31 , 2015 compared to $ 5.7 million for the year ended december 31 , 2014 , which was an increase of approximately $ 9.5 million . the increase between the periods was primarily due to the acquisition of 10 properties during the period in 2015. also , 31 of the 32 properties owned as of december 31 , 2014 were acquired in 2014 and therefore con tributed to real estate taxes and insurance costs for less than a full period in 2014 versus the entire period in 2015. property management fees . property management fees were $ 3.5 million for the year ended december 31 , 2015 compared to $ 1.3 million for the year ended december 31 , 2014 , which was an increase of approximately $ 2.2 million . the increase between the periods was primarily due to the acquisition of 10 properties during the period in 2015. also , 31 of the 32 properties owned as of december 31 , 2014 were acquired in 2014 and therefore contributed to property management fees for less than a full period in 2014 versus the entire period in 2015. advisory and administrative fees . advisory and administrative fees were $ 5.6 million for the year ended december 31 , 2015 compared to $ 1.7 million for the year ended december 31 , 2014 , which was an increase of approximately $ 3.9 million . the increase between the periods was due to the acquisition of 10 properties in 2015 , seven of which are defined as contributed assets and three of which are defined as new assets pursuant to the terms of the advisory agreement , which increases the basis on which the fee is earned . following the spin-off , the amount incurred during the year ended december 31 , 2015 represents the maximum fee allowed on contributed assets under the advisory agreement plus approximately $ 0.2 million of advisory and administrative fees incurred on new assets . corporate general and administrative expenses . prior to the completion of the spin-off , the company did not incur any corporate general and administrative expenses . for the year ended december 31 , 2015 , the company incurred corporate general and administrative expenses of $ 2.5 million . property general and administrative expenses . property general and administrative expenses were $ 5.4 million for the year ended december 31 , 2015 compared to $ 2.1 million for the year ended december 31 , 2014 , which was an increase of approximately $ 3.3 million . the increase between the periods was primarily due to the acquisition of 10 properties during the period in 2015. also , 31 of the 32 properties owned as of december 31 , 2014 were acquired in 2014 and therefore contributed to property general and administrative expenses for less than a full period in 2014 versus the entire period in 2015. depreciation and amortization . depreciation and amortization costs were $ 40.8 million for the year ended december 31 , 2015 compared to $ 21.6 million for the year ended december 31 , 2014 , which was an increase of approximately $ 19.2 million . the increase between the periods was primarily due to the acquisition of 10 properties in 2015. also , 31 of the 32 properties owned as of december 31 , 2014 were acquired in 2014 and therefore contributed to depreciation and amortization costs for less than a full period in 2014 versus the entire period in 2015. other income and expense interest expense . interest expense was $ 18.5 million for the year ended december 31 , 2015 compared to $ 7.3 million for the year ended december 31 , 2014 , which was an increase of approximately $ 11.2 million . the increase between the periods was primarily due to the acquisition of 10 properties in 2015 and prepayment penalties of approximately $ 0.7 million we incurred in connection with refinancing one of our fixed rate loans with a floating rate loan . also , 31 of the 32 properties owned as of december 31 , 2014 were acquired in 2014 and therefore contributed to interest expense for less than a full period in 2014 versus the entire period in 2015 . the following is a table that details the various costs included in interest expense for the years ended december 31 , 2015 and 2014 ( in thousands ) : replace_table_token_18_th 47 non-gaap measurements net operating income and same store net operating income noi is a non-gaap financial measure of performance . noi is used by investors and our management to evaluate and compare the performance of our properties to other comparable properties , to determine trends in earnings and to compute the fair value of our properties as noi is not affected by ( 1 ) the cost of funds , ( 2 ) acquisition costs , ( 3 ) advisory and administrative fees , ( 4 ) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with gaap , ( 5 ) corporate general and administrative expenses , ( 6 ) other gains and losses that are specific to us , and ( 7 ) expenses that are not reflective of the ongoing operations of the properties or are incurred on behalf of the company at the property for expenses such as legal ,

capital resources shareholders ' equity at december 31 , 2018 was $ 37,133,000 , compared to $ 39,334,000 at december 31 , 2017. the $ 2,201,000 decrease in shareholders ' equity during 2018 is primarily due to the redemption of the company 's remaining 5,027 shares ( $ 5,027,000 redemption value ) of fixed rate cumulative perpetual preferred stock , series a on march 30 , 2018 which was offset by net income for the year of $ 3,037,000. the $ 4,280,000 decrease in shareholders ' equity in 2017 was primarily due to the reduction in the corporate tax rate . on december 22 , 2017 , the president signed into law the tax reform act . the tax reform act includes a number of changes in existing tax law impacting businesses . one of the most significant changes is a permanent reduction in the corporate income tax rate from 35 % to 21 % . the rate reduction took effect on january 1 , 2018. gaap requires companies to re-value their deferred tax assets and liabilities as of the date of enactment , with resulting tax effects accounted for in the reporting period of enactment . 41 the following table presents the composition of regulatory capital and the capital ratios for the bank at the dates indicated ( dollars in thousands ) . replace_table_token_12_th for more financial data and other information about capital resources refer to note 13 “ shareholders ' equity and regulatory matters ” and note 15 “ trust preferred securities ” in the “ notes to consolidated financial statements ” contained in item 8 of this form 10-k. liquidity liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss , and the ability to raise additional funds by increasing liabilities . liquidity management involves monitoring our sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits . liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control .

references throughout this report to the “ company , ” “ we , ” or “ our , ” include the activity of the predecessor defined above . we have elected to be taxed as a reit under sections 856 through 860 of the code and expect to continue to qualify as a reit . to qualify as a reit , we must meet a number of organizational and operational requirements , including a requirement that we distribute at least 90 % of our reit taxable income to our stockholders . as a reit , we will be subject to federal income tax on our undistributed reit taxable income and net capital gain and to a 4 % nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of ( 1 ) 85 % of our ordinary income , ( 2 ) 95 % of our capital gain net income and ( 3 ) 100 % of our undistributed income from prior years . we believe we qualify for taxation as a reit under the code , and we intend to continue to operate in such a manner , but no assurance can be given that we will operate in a manner so as to qualify as a reit . beginning in 2016 , taxable income from certain non-reit activities is managed through a trs and is subject to applicable federal , state , and local income and margin taxes . we have no significant taxes associated with our trs for the year ended december 31 , 2016. components of our revenues and expenses revenues rental income . our earnings are primarily attributable to the rental revenue from our multifamily properties . we anticipate that the leases we enter into for our multifamily properties will typically be for one year or less . other income . other income includes ancillary income earned from tenants such as application fees , late fees , laundry fees , utility reimbursements , and other rental related fees charged to tenants . expenses property operating expenses . property operating expenses include property maintenance costs , salary and employee benefit costs , utilities and other property operating costs . acquisition costs . acquisition costs include the costs to acquire additional properties . on october 1 , 2016 , we early adopted asu 2017-01 , which requires an entity to capitalize acquisition costs associated with an acquisition that is determined to be an acquisition of an asset as opposed to an acquisition of a business . prior to our adoption of asu 2017-01 , acquisition costs were expensed as incurred . we believe most future acquisition costs will be capitalized in accordance with asu 2017-01 ( see note 2 to our combined consolidated financial statements ) . real estate taxes and insurance . real estate taxes include the property taxes assessed by local and state authorities depending on the location of each property . insurance includes the cost of commercial , general liability , and other needed insurance for each property . property management fees . property management fees include fees paid to bh management services , llc , or bh , our property manager , or other third party management companies for managing each property ( see note 8 to our combined consolidated financial statements ) . 42 advisory and administrative fees . advisory and administrative fees include the fees paid to our adviser pursuant to the advisory agreement ( see note 8 to our combined consolidated financial stat ements ) . corporate general and administrative expenses . corporate general and administrative expenses include , but are not limited to , payments of reimbursements to the adviser for operating expenses , audit fees , legal fees , listing fees , board of director fees , equity-based compensation expense and investor relations costs . corporate general and administrative expenses and the advisory and administrative fees paid to our adviser ( including advisory and administrative fees on properties defined in the advisory agreement as new assets ) will not exceed 1.5 % of average real estate assets per calendar year ( or part thereof that the advisory agreement is in effect ) , calculated in accordance with the advisory agreement , or the expense cap . the expense cap does not limit the reimbursement by the company of expenses related to securities offerings paid by the adviser . the expense cap also does not apply to legal , accounting , financial , due diligence , and other service fees incurred in connection with mergers and acquisitions , extraordinary litigation , or other events outside the company 's ordinary course of business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of real estate assets . property general and administrative expenses . property general and administrative expenses include the costs of marketing , professional fees , general office supplies , and other administrative related costs of each property . depreciation and amortization . depreciation and amortization costs primarily include depreciation of our multifamily properties and amortization of acquired in-place leases . other income and expense interest expense . interest expense primarily includes the cost of interest expense on debt , the amortization of deferred financing costs , any prepayment penalties we may incur on the early retirement of debt , and the related impact of interest rate derivatives used to manage the company 's interest rate risk . gain on sales of real estate . gain on sales of real estate includes the gain recognized upon sales of properties . gain on sales of real estate is calculated by deducting the carrying value of the real estate and costs incurred to sell the properties from the sales prices of the properties . story_separator_special_tag the decrease in acquisition costs between the periods was due to the lower level of acquisitions completed during the period in 2015. during the years ended december 31 , 2015 and 2014 , we acquired 10 and 31 properties , respectively . acquisition costs depend on the specific circumstances of each closing and are one-time costs associated with each acquisition . 46 real estate taxes and insurance . real estate taxes and insurance costs were $ 15.2 million for the year ended december 31 , 2015 compared to $ 5.7 million for the year ended december 31 , 2014 , which was an increase of approximately $ 9.5 million . the increase between the periods was primarily due to the acquisition of 10 properties during the period in 2015. also , 31 of the 32 properties owned as of december 31 , 2014 were acquired in 2014 and therefore con tributed to real estate taxes and insurance costs for less than a full period in 2014 versus the entire period in 2015. property management fees . property management fees were $ 3.5 million for the year ended december 31 , 2015 compared to $ 1.3 million for the year ended december 31 , 2014 , which was an increase of approximately $ 2.2 million . the increase between the periods was primarily due to the acquisition of 10 properties during the period in 2015. also , 31 of the 32 properties owned as of december 31 , 2014 were acquired in 2014 and therefore contributed to property management fees for less than a full period in 2014 versus the entire period in 2015. advisory and administrative fees . advisory and administrative fees were $ 5.6 million for the year ended december 31 , 2015 compared to $ 1.7 million for the year ended december 31 , 2014 , which was an increase of approximately $ 3.9 million . the increase between the periods was due to the acquisition of 10 properties in 2015 , seven of which are defined as contributed assets and three of which are defined as new assets pursuant to the terms of the advisory agreement , which increases the basis on which the fee is earned . following the spin-off , the amount incurred during the year ended december 31 , 2015 represents the maximum fee allowed on contributed assets under the advisory agreement plus approximately $ 0.2 million of advisory and administrative fees incurred on new assets . corporate general and administrative expenses . prior to the completion of the spin-off , the company did not incur any corporate general and administrative expenses . for the year ended december 31 , 2015 , the company incurred corporate general and administrative expenses of $ 2.5 million . property general and administrative expenses . property general and administrative expenses were $ 5.4 million for the year ended december 31 , 2015 compared to $ 2.1 million for the year ended december 31 , 2014 , which was an increase of approximately $ 3.3 million . the increase between the periods was primarily due to the acquisition of 10 properties during the period in 2015. also , 31 of the 32 properties owned as of december 31 , 2014 were acquired in 2014 and therefore contributed to property general and administrative expenses for less than a full period in 2014 versus the entire period in 2015. depreciation and amortization . depreciation and amortization costs were $ 40.8 million for the year ended december 31 , 2015 compared to $ 21.6 million for the year ended december 31 , 2014 , which was an increase of approximately $ 19.2 million . the increase between the periods was primarily due to the acquisition of 10 properties in 2015. also , 31 of the 32 properties owned as of december 31 , 2014 were acquired in 2014 and therefore contributed to depreciation and amortization costs for less than a full period in 2014 versus the entire period in 2015. other income and expense interest expense . interest expense was $ 18.5 million for the year ended december 31 , 2015 compared to $ 7.3 million for the year ended december 31 , 2014 , which was an increase of approximately $ 11.2 million . the increase between the periods was primarily due to the acquisition of 10 properties in 2015 and prepayment penalties of approximately $ 0.7 million we incurred in connection with refinancing one of our fixed rate loans with a floating rate loan . also , 31 of the 32 properties owned as of december 31 , 2014 were acquired in 2014 and therefore contributed to interest expense for less than a full period in 2014 versus the entire period in 2015 . the following is a table that details the various costs included in interest expense for the years ended december 31 , 2015 and 2014 ( in thousands ) : replace_table_token_18_th 47 non-gaap measurements net operating income and same store net operating income noi is a non-gaap financial measure of performance . noi is used by investors and our management to evaluate and compare the performance of our properties to other comparable properties , to determine trends in earnings and to compute the fair value of our properties as noi is not affected by ( 1 ) the cost of funds , ( 2 ) acquisition costs , ( 3 ) advisory and administrative fees , ( 4 ) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with gaap , ( 5 ) corporate general and administrative expenses , ( 6 ) other gains and losses that are specific to us , and ( 7 ) expenses that are not reflective of the ongoing operations of the properties or are incurred on behalf of the company at the property for expenses such as legal ,

cash flows from operating activities . during the year ended december 31 , 2016 , net cash provided by operating activities was $ 33.8 million compared to net cash provided by operating activities of $ 34.5 million for the year ended december 31 , 2015. the decrease in net cash from operating activities was mainly due to changes in net income ( loss ) , offset by changes in noncash items such as gain on sales of real estate , depreciation and amortization . cash flows from investing activities . during the year ended december 31 , 2016 , net cash used in investing activities was $ 51.9 million compared to net cash used in investing activities of $ 283.0 million for the year ended december 31 , 2015. the change in cash flows from investing activities was mainly due to the acquisition of four properties for a combined purchase price of approximately $ 175.1 million and sales of seven properties for net proceeds of approximately $ 131.8 million during the period in 2016 , compared to 56 the acquisition of 10 properties for a combined purchase price of approximately $ 277.4 million and no sales of properties during the period in 2015. the change in cash flows from investing activi ties was also due to additions to real estate investments , primarily related to our value-add program , of approximately $ 24.3 million during the period in 2016 compared to approximately $ 39.4 million during the period in 2015. cash flows from financing activities .

any income earned by our taxable reit subsidiaries will not be included in our taxable income for purposes of the 75 % or 95 % gross income tests , except to the extent such income is distributed to us as a dividend , in which case such dividend income will qualify under the 95 % , but not the 75 % , gross income test . because a taxable reit subsidiary is subject to federal income tax , and state and local income tax ( where applicable ) as a regular corporation , the income earned by our taxable reit subsidiaries generally will be subject to an additional level of tax as compared to the income earned by our other subsidiaries . outlook we seek growth in earnings , funds from operations , and cash flows primarily through a combination of the following : growth in our same-store portfolio , growth in our portfolio from property development and redevelopments and expansion of our portfolio through property acquisitions . our properties are located in some of the nation 's most dynamic , high-barrier-to-entry markets primarily in southern california , northern california , oregon , washington and hawaii , which we believe allow us to take advantage of redevelopment opportunities that enhance our operating performance through renovation , expansion , reconfiguration , and or retenanting . we evaluate our properties on an ongoing basis to identify these types of opportunities . our new development at torrey point ( previously sorrento pointe ) is close in proximity to torrey reserve campus . groundbreaking on torrey point occurred in july 2015 with development plans including two class a office buildings of approximately 88,000 square feet in the aggregate , with panoramic unobstructed views of the torrey pines state park beach , torrey reserve and the pacific ocean . projected costs of the development at torrey point are approximately $ 53 million , of which approximately $ 12 million has been incurred to date . we expect to incur the remaining costs for development of torrey point in 2016 and 2017. we expect the torrey point development to be stabilized in 2018 with an estimated stabilized cash yield of approximately 7.54 % to 8.55 % . we intend to opportunistically pursue other projects in our development pipeline including future phases of lloyd district portfolio , solana beach - highway 101 , as well as other redevelopments at solana beach corporate centre and lomas santa fe plaza . the commencement of these developments is based on , among other things , market conditions and our evaluation of 38 whether such opportunities would generate appropriate risk adjusted financial returns . our redevelopment and development opportunities are subject to various factors , including market conditions and may not ultimately come to fruition . we continue to review acquisition opportunities in our primary markets that would complement our portfolio and provide long-term growth opportunities . some of our acquisitions do not initially contribute significantly to earnings growth ; however , we believe they provide long-term re-leasing growth , redevelopment opportunities and other strategic opportunities . any growth from acquisitions is contingent on our ability to find properties that meet our qualitative standards at prices that meet our financial hurdles . changes in interest rates may affect our success in achieving earnings growth through acquisitions by affecting both the price that must be paid to acquire a property , as well as our ability to economically finance a property acquisition . generally , our acquisitions are initially financed by available cash , mortgage loans and or borrowings under our amended and restated credit facility , which may be repaid later with funds raised through the issuance of new equity or new long-term debt . same-store we have provided certain information on a total portfolio , same-store and redevelopment same-store basis . information provided on a same-store basis includes the results of properties that we owned and operated for the entirety of both periods being compared except for properties for which significant redevelopment or expansion occurred during either of the periods being compared , properties under development , properties classified as held for development and properties classified as discontinued operations . information provided on a redevelopment same-store basis includes the results of properties undergoing significant redevelopment for the entirety or portion of both periods being compared . same-store and redevelopment same-store is considered by management to be an important measure because it assists in eliminating disparities due to the development , acquisition or disposition of properties during the particular period presented , and thus provides a more consistent performance measure for the comparison of the company 's stabilized and redevelopment properties , as applicable . additionally , redevelopment same-store is considered by management to be an important measure because it assists in evaluating the timing of the start and stabilization of our redevelopment opportunities and the impact that these redevelopments have in enhancing our operating performance . while there is judgment surrounding changes in designations , we typically reclassify significant development , redevelopment or expansion properties to same-store properties once they are stabilized . properties are deemed stabilized typically at the earlier of ( 1 ) reaching 90 % occupancy or ( 2 ) four quarters following a property 's inclusion in operating real estate . we typically remove properties from same-store properties when the development , redevelopment or expansion has or is expected to have a significant impact on the property 's annualized base rent , occupancy and operating income within the calendar year . acquired properties are classified to same-store properties once we have owned such properties for the entirety of comparable period ( s ) and the properties are not under significant development or expansion . in our determination of same-store and redevelopment same-store properties , lloyd district portfolio and torrey reserve campus have been identified as redevelopment same-store properties due to the significant construction activity noted above . story_separator_special_tag with respect to the allowance for current uncollectible tenant receivables , we assess the collectability of outstanding receivables by evaluating such factors as nature and age of the receivable , past history and current financial condition of the specific tenant including our assessment of the tenant 's ability to meet its contractual lease obligations , and the status of any pending disputes or lease negotiations with the tenant . a change in the estimate of collectability of a receivable would result in a change to our allowance for doubtful accounts and corresponding bad debt expense and net income . 42 additionally , our assessment of our tenants ' abilities to meet their contractual lease obligations includes consideration of the status of collectability of current cash rents receivable , tenants ' recent and historical financial and operating results , changes in our tenants ' credit ratings , communications between our operating personnel and tenants and the extent of security deposits and letters of credits held with respect to tenants . due to the nature of the accounts receivable from straight-line rents , the collection period of these amounts typically extends beyond one year . our experience relative to unbilled straight-line rents is that a portion of the amounts otherwise recognizable as revenue is never billed to or collected from tenants due to early lease terminations , lease modifications , bankruptcies and other factors . accordingly , the extended collection period for straight-line rents along with our evaluation of tenant credit risk may result in the nonrecognition of a portion of straight-line rental income until the collection of such income is reasonably assured . if our evaluation of tenant credit risk changes indicating more straight-line revenue is reasonably collectible than previously estimated and realized , the additional straight-line rental income is recognized as revenue . if our evaluation of tenant credit risk changes indicating a portion of realized straight-line rental income is no longer collectible , a reserve and bad debt expense is recorded . correspondingly , these estimates of collectability have a direct impact on our net income . real estate depreciation and maintenance costs relating to our properties constitute substantial costs for us . land , buildings and improvements are recorded at cost . depreciation is computed using the straight-line method . estimated useful lives range generally from 30 years to a maximum of 40 years on buildings and major improvements . minor improvements , furniture and equipment are capitalized and depreciated over useful lives ranging from 3 to 15 years . maintenance and repairs that do not improve or extend the useful lives of the related assets are charged to operations as incurred . tenant improvements are capitalized and depreciated over the life of the related lease or their estimated useful life , whichever is shorter . if a tenant vacates its space prior to contractual termination of its lease , the undepreciated balance of any tenant improvements are written off if they are replaced or have no future value . our estimates of useful lives have a direct impact on our net income . if expected useful lives of our real estate assets were shortened , we would depreciate the assets over a shorter time period , resulting in an increase to depreciation expense and a corresponding decrease to net income on an annual basis . acquisitions of properties are accounted for in accordance with the authoritative accounting guidance on acquisitions and business combinations . our methodology of allocating the cost of acquisitions to assets acquired and liabilities assumed is based on estimated fair values , replacement cost and appraised values . when we acquire operating real estate properties , the purchase price is allocated to land and buildings , intangibles such as in-place leases , and to current assets and liabilities acquired , if any . such valuations include a consideration of the noncancelable terms of the respective leases as well as any applicable renewal period ( s ) . the fair values associated with below market renewal options are determined based on a review of several qualitative and quantitative factors on a lease-by-lease basis at acquisition to determine whether it is probable that the tenant would exercise its option to renew the lease agreement . these factors include : ( 1 ) the type of tenant in relation to the property it occupies , ( 2 ) the quality of the tenant , including the tenant 's long term business prospects , and ( 3 ) whether the fixed rate renewal option was sufficiently lower than the fair rental of the property at the date the option becomes exercisable such that it would appear to be reasonably assured that the tenant would exercise the option to renew . each of these estimates requires a great deal of judgment , and some of the estimates involve complex calculations . these allocation assessments have a direct impact on our results of operations because if we were to allocate more value to land , there would be no depreciation with respect to such amount . if we were to allocate more value to the buildings , as opposed to allocating to the value of tenant leases , this amount would be recognized as an expense over a much longer period of time , since the amounts allocated to buildings are depreciated over the estimated lives of the buildings whereas amounts allocated to tenant leases are amortized over the remaining terms of the leases . the value allocated to in-place leases is amortized over the related lease term and reflected as depreciation and amortization in the statement of operations . the value of above and below market leases associated with the original noncancelable lease terms are amortized to rental income over the terms of the respective noncancelable lease periods and are reflected as either an increase ( for below market leases ) or a decrease ( for above market leases ) to rental income in the statement of operations .

cash flows from operating activities . during the year ended december 31 , 2016 , net cash provided by operating activities was $ 33.8 million compared to net cash provided by operating activities of $ 34.5 million for the year ended december 31 , 2015. the decrease in net cash from operating activities was mainly due to changes in net income ( loss ) , offset by changes in noncash items such as gain on sales of real estate , depreciation and amortization . cash flows from investing activities . during the year ended december 31 , 2016 , net cash used in investing activities was $ 51.9 million compared to net cash used in investing activities of $ 283.0 million for the year ended december 31 , 2015. the change in cash flows from investing activities was mainly due to the acquisition of four properties for a combined purchase price of approximately $ 175.1 million and sales of seven properties for net proceeds of approximately $ 131.8 million during the period in 2016 , compared to 56 the acquisition of 10 properties for a combined purchase price of approximately $ 277.4 million and no sales of properties during the period in 2015. the change in cash flows from investing activi ties was also due to additions to real estate investments , primarily related to our value-add program , of approximately $ 24.3 million during the period in 2016 compared to approximately $ 39.4 million during the period in 2015. cash flows from financing activities .

any income earned by our taxable reit subsidiaries will not be included in our taxable income for purposes of the 75 % or 95 % gross income tests , except to the extent such income is distributed to us as a dividend , in which case such dividend income will qualify under the 95 % , but not the 75 % , gross income test . because a taxable reit subsidiary is subject to federal income tax , and state and local income tax ( where applicable ) as a regular corporation , the income earned by our taxable reit subsidiaries generally will be subject to an additional level of tax as compared to the income earned by our other subsidiaries . outlook we seek growth in earnings , funds from operations , and cash flows primarily through a combination of the following : growth in our same-store portfolio , growth in our portfolio from property development and redevelopments and expansion of our portfolio through property acquisitions . our properties are located in some of the nation 's most dynamic , high-barrier-to-entry markets primarily in southern california , northern california , oregon , washington and hawaii , which we believe allow us to take advantage of redevelopment opportunities that enhance our operating performance through renovation , expansion , reconfiguration , and or retenanting . we evaluate our properties on an ongoing basis to identify these types of opportunities . our new development at torrey point ( previously sorrento pointe ) is close in proximity to torrey reserve campus . groundbreaking on torrey point occurred in july 2015 with development plans including two class a office buildings of approximately 88,000 square feet in the aggregate , with panoramic unobstructed views of the torrey pines state park beach , torrey reserve and the pacific ocean . projected costs of the development at torrey point are approximately $ 53 million , of which approximately $ 12 million has been incurred to date . we expect to incur the remaining costs for development of torrey point in 2016 and 2017. we expect the torrey point development to be stabilized in 2018 with an estimated stabilized cash yield of approximately 7.54 % to 8.55 % . we intend to opportunistically pursue other projects in our development pipeline including future phases of lloyd district portfolio , solana beach - highway 101 , as well as other redevelopments at solana beach corporate centre and lomas santa fe plaza . the commencement of these developments is based on , among other things , market conditions and our evaluation of 38 whether such opportunities would generate appropriate risk adjusted financial returns . our redevelopment and development opportunities are subject to various factors , including market conditions and may not ultimately come to fruition . we continue to review acquisition opportunities in our primary markets that would complement our portfolio and provide long-term growth opportunities . some of our acquisitions do not initially contribute significantly to earnings growth ; however , we believe they provide long-term re-leasing growth , redevelopment opportunities and other strategic opportunities . any growth from acquisitions is contingent on our ability to find properties that meet our qualitative standards at prices that meet our financial hurdles . changes in interest rates may affect our success in achieving earnings growth through acquisitions by affecting both the price that must be paid to acquire a property , as well as our ability to economically finance a property acquisition . generally , our acquisitions are initially financed by available cash , mortgage loans and or borrowings under our amended and restated credit facility , which may be repaid later with funds raised through the issuance of new equity or new long-term debt . same-store we have provided certain information on a total portfolio , same-store and redevelopment same-store basis . information provided on a same-store basis includes the results of properties that we owned and operated for the entirety of both periods being compared except for properties for which significant redevelopment or expansion occurred during either of the periods being compared , properties under development , properties classified as held for development and properties classified as discontinued operations . information provided on a redevelopment same-store basis includes the results of properties undergoing significant redevelopment for the entirety or portion of both periods being compared . same-store and redevelopment same-store is considered by management to be an important measure because it assists in eliminating disparities due to the development , acquisition or disposition of properties during the particular period presented , and thus provides a more consistent performance measure for the comparison of the company 's stabilized and redevelopment properties , as applicable . additionally , redevelopment same-store is considered by management to be an important measure because it assists in evaluating the timing of the start and stabilization of our redevelopment opportunities and the impact that these redevelopments have in enhancing our operating performance . while there is judgment surrounding changes in designations , we typically reclassify significant development , redevelopment or expansion properties to same-store properties once they are stabilized . properties are deemed stabilized typically at the earlier of ( 1 ) reaching 90 % occupancy or ( 2 ) four quarters following a property 's inclusion in operating real estate . we typically remove properties from same-store properties when the development , redevelopment or expansion has or is expected to have a significant impact on the property 's annualized base rent , occupancy and operating income within the calendar year . acquired properties are classified to same-store properties once we have owned such properties for the entirety of comparable period ( s ) and the properties are not under significant development or expansion . in our determination of same-store and redevelopment same-store properties , lloyd district portfolio and torrey reserve campus have been identified as redevelopment same-store properties due to the significant construction activity noted above . story_separator_special_tag with respect to the allowance for current uncollectible tenant receivables , we assess the collectability of outstanding receivables by evaluating such factors as nature and age of the receivable , past history and current financial condition of the specific tenant including our assessment of the tenant 's ability to meet its contractual lease obligations , and the status of any pending disputes or lease negotiations with the tenant . a change in the estimate of collectability of a receivable would result in a change to our allowance for doubtful accounts and corresponding bad debt expense and net income . 42 additionally , our assessment of our tenants ' abilities to meet their contractual lease obligations includes consideration of the status of collectability of current cash rents receivable , tenants ' recent and historical financial and operating results , changes in our tenants ' credit ratings , communications between our operating personnel and tenants and the extent of security deposits and letters of credits held with respect to tenants . due to the nature of the accounts receivable from straight-line rents , the collection period of these amounts typically extends beyond one year . our experience relative to unbilled straight-line rents is that a portion of the amounts otherwise recognizable as revenue is never billed to or collected from tenants due to early lease terminations , lease modifications , bankruptcies and other factors . accordingly , the extended collection period for straight-line rents along with our evaluation of tenant credit risk may result in the nonrecognition of a portion of straight-line rental income until the collection of such income is reasonably assured . if our evaluation of tenant credit risk changes indicating more straight-line revenue is reasonably collectible than previously estimated and realized , the additional straight-line rental income is recognized as revenue . if our evaluation of tenant credit risk changes indicating a portion of realized straight-line rental income is no longer collectible , a reserve and bad debt expense is recorded . correspondingly , these estimates of collectability have a direct impact on our net income . real estate depreciation and maintenance costs relating to our properties constitute substantial costs for us . land , buildings and improvements are recorded at cost . depreciation is computed using the straight-line method . estimated useful lives range generally from 30 years to a maximum of 40 years on buildings and major improvements . minor improvements , furniture and equipment are capitalized and depreciated over useful lives ranging from 3 to 15 years . maintenance and repairs that do not improve or extend the useful lives of the related assets are charged to operations as incurred . tenant improvements are capitalized and depreciated over the life of the related lease or their estimated useful life , whichever is shorter . if a tenant vacates its space prior to contractual termination of its lease , the undepreciated balance of any tenant improvements are written off if they are replaced or have no future value . our estimates of useful lives have a direct impact on our net income . if expected useful lives of our real estate assets were shortened , we would depreciate the assets over a shorter time period , resulting in an increase to depreciation expense and a corresponding decrease to net income on an annual basis . acquisitions of properties are accounted for in accordance with the authoritative accounting guidance on acquisitions and business combinations . our methodology of allocating the cost of acquisitions to assets acquired and liabilities assumed is based on estimated fair values , replacement cost and appraised values . when we acquire operating real estate properties , the purchase price is allocated to land and buildings , intangibles such as in-place leases , and to current assets and liabilities acquired , if any . such valuations include a consideration of the noncancelable terms of the respective leases as well as any applicable renewal period ( s ) . the fair values associated with below market renewal options are determined based on a review of several qualitative and quantitative factors on a lease-by-lease basis at acquisition to determine whether it is probable that the tenant would exercise its option to renew the lease agreement . these factors include : ( 1 ) the type of tenant in relation to the property it occupies , ( 2 ) the quality of the tenant , including the tenant 's long term business prospects , and ( 3 ) whether the fixed rate renewal option was sufficiently lower than the fair rental of the property at the date the option becomes exercisable such that it would appear to be reasonably assured that the tenant would exercise the option to renew . each of these estimates requires a great deal of judgment , and some of the estimates involve complex calculations . these allocation assessments have a direct impact on our results of operations because if we were to allocate more value to land , there would be no depreciation with respect to such amount . if we were to allocate more value to the buildings , as opposed to allocating to the value of tenant leases , this amount would be recognized as an expense over a much longer period of time , since the amounts allocated to buildings are depreciated over the estimated lives of the buildings whereas amounts allocated to tenant leases are amortized over the remaining terms of the leases . the value allocated to in-place leases is amortized over the related lease term and reflected as depreciation and amortization in the statement of operations . the value of above and below market leases associated with the original noncancelable lease terms are amortized to rental income over the terms of the respective noncancelable lease periods and are reflected as either an increase ( for below market leases ) or a decrease ( for above market leases ) to rental income in the statement of operations .

cash flows comparison of the year ended december 31 , 2015 to the year ended december 31 , 2014 cash and cash equivalents were $ 39.9 million and $ 59.4 million at december 31 , 2015 and 2014 , respectively . net cash provided by operating activities increased $ 5.1 million to $ 110.7 million for the year ended december 31 , 2015 , compared to $ 105.6 million for the year ended december 31 , 2014 . the increase was primarily the result of an increase in cash net operating income from office and retail properties due to an increase in the percentage leased and a decrease in interest expense due to increased capitalized interest related to our development and redevelopment activities at torrey reserve campus , lloyd district portfolio and torrey point . net cash used in investing activities decreased $ 25.5 million to $ 127.3 million for the year ended december 31 , 2015 , compared to $ 152.8 million for the year ended december 31 , 2014 . this decrease was primarily attributable to a decrease in capital expenditures of our development and redevelopment activities at torrey reserve campus and lloyd district portfolio , which were completed in 2015 , and proceeds from the sale of rancho carmel plaza on august 6 , 2015. net cash used by financing activities was $ 2.9 million for the year ended december 31 , 2015 compared to net cash provided in financing activities of $ 57.6 million for the year ended december 31 , 2014 . the decrease in cash provided by financing activities is primarily due to repayment of our secured notes payable at the shops at kalakaua , the landmark at one market and del monte center , partially offset by proceeds from the issuance of senior guaranteed notes , series b and series c. the decrease is also attributed to less proceeds from the issuance of common stock under the atm equity program .

level 2 - observable inputs other than level 1 prices such as quoted prices for similar assets or liabilities ; quoted prices in markets with insufficient volume or infrequent transactions ( less active markets ) ; or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or level 3 - unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities . to the extent that valuation is based on models or inputs that are less observable or unobservable in the market , the determination of fair value requires more judgment . in certain cases , the inputs used to measure fair value may fall into different levels of the fair value hierarchy . in such cases , for disclosure purposes , the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement . the debt derivative , comprised of our bifurcated convertible debt features on our convertible notes , is measured at fair value using quoted market prices and estimated volatility factors based on historical prices for the company 's common stock and are classified within level 3 of the valuation hierarchy . the company purchased a collection of art work and memorabilia from art to go , inc. in october 2012 , the collection was originally valued by sports and entertainment marketing group using level 1 quoted prices . the value of the asset they assigned was $ 10,389,068 . the company noted that some of the value was not based upon any active market for identical assets , and had a second independent appraisal completed using level 2 guidelines . the valuation was completed by doty scott enterprises , inc. for purposes of this report , including any opinions required by the company , we utilized fair value defined by the international financial reporting standards ( ifrs ) and statements of financial accounting standards ( sfas ) guidelines ( international valuation standards council ( ivsc ) 2012 exposure draft on fair value measurement – ed/2012 and financial accounting standards board ( “fasb” ) in fasb asc 820 – fair value measurements and disclosures . this organization brought the value of the collection down to $ 2,972,000 , based upon observable inputs of retail price to wholesale price and in consideration that the purchase price was satisfied by the issue of preferred equities . note 8 – subsequent events between november 13 , 2013 and january 17 , 2014 , the company issued 7,027,500 shares of restricted stock for consulting services to various entities in regard to obtaining a stand by letter of credit ( “sbloc” ) , which was ultimately completed on december 15 , 2013 when the company entered into the agreement noted below . on december 15 , 2013 , the company entered into an agreement with interglobal management , llc ( “igi” ) and spartacus partners corporation ( “spartacus” ) to place 4,000,000 restricted shares at a price $ 2.50 per share ( $ 10,000,000 ) with spartacus , to be held in escrow in return for an interest in a stand by letter of credit ( “sbloc” ) of with a total value of $ 180,000,000 . on december 23 , 2013 , the company entered into a subscription agreement with spartacus partners corporation ( “spartacus” ) by which spartacus agrees to purchase $ 125,000,000 of the company 's common stock over a twelve month period . f-12 story_separator_special_tag results of operation 12 month period ended september 30 , 2013 compared to 12 month period ended september 30 , 2012 our net loss of $ 15,022,326 for the 12 month period ended september 30 , 2013 , including a loss from operations of $ 266,261 compared to net loss of $ 1,894,240 during the twelve month period ended september 30 , 2013 , of which all was an operating loss . during the twelve months periods ended september 30 , 2013 and 2012 , we generated $ 419,414 net revenues from continuing operations as compared to $ 493,442 , a reduction of 15 % primarily due to a continued soft economy . during the twelve month period ended september 30 , 2013 , we incurred operating expenses of $ 685,674 compared to $ 2,387,642 incurred during the twelve month period ended september 30 , 2012 , a decrease of $ 1,701,968 , these expenses incurred during the twelve month period ended september 30 , 2013 primarily consisted of the following : $ 598,091 in fees for professional service , including but limited to , attorneys ' fees ; fees associated with transfer agent activity and accounting and consulting services . the balance of our operating expenses $ 87,583 were for general and administrative charges . the reduction in operating expense as compared to year ended september 30 , 2012 came principally from the reduction in the use of consultants $ 525,302 for year ending september 30 , 2013 as compared to $ 2,054,850 at year end 2012. additional income was incurred during the twelve month period ended september 30 , 2013 of $ 106,499 , as compared to none in year ended september 30 , 2012. other income during the twelve month period ended september 30 , 2013 consisted of : ( i ) gain on extinguishment of debt $ 85,269 , ( ii ) gain of $ 21,230 on the sale of tradable stock held in other corporations . the company incurred a non-operating expense of $ 14,862,564. this expense represents the value of 7 , 431,000 shares of common stock issued to the holder of certain 1934 us gold treasury bonds . after issuing the shares in consideration of the purchase , the company and the seller of the bonds were unable to story_separator_special_tag level 2 - observable inputs other than level 1 prices such as quoted prices for similar assets or liabilities ; quoted prices in markets with insufficient volume or infrequent transactions ( less active markets ) ; or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or level 3 - unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities . to the extent that valuation is based on models or inputs that are less observable or unobservable in the market , the determination of fair value requires more judgment . in certain cases , the inputs used to measure fair value may fall into different levels of the fair value hierarchy . in such cases , for disclosure purposes , the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement . the debt derivative , comprised of our bifurcated convertible debt features on our convertible notes , is measured at fair value using quoted market prices and estimated volatility factors based on historical prices for the company 's common stock and are classified within level 3 of the valuation hierarchy . the company purchased a collection of art work and memorabilia from art to go , inc. in october 2012 , the collection was originally valued by sports and entertainment marketing group using level 1 quoted prices . the value of the asset they assigned was $ 10,389,068 . the company noted that some of the value was not based upon any active market for identical assets , and had a second independent appraisal completed using level 2 guidelines . the valuation was completed by doty scott enterprises , inc. for purposes of this report , including any opinions required by the company , we utilized fair value defined by the international financial reporting standards ( ifrs ) and statements of financial accounting standards ( sfas ) guidelines ( international valuation standards council ( ivsc ) 2012 exposure draft on fair value measurement – ed/2012 and financial accounting standards board ( “fasb” ) in fasb asc 820 – fair value measurements and disclosures . this organization brought the value of the collection down to $ 2,972,000 , based upon observable inputs of retail price to wholesale price and in consideration that the purchase price was satisfied by the issue of preferred equities . note 8 – subsequent events between november 13 , 2013 and january 17 , 2014 , the company issued 7,027,500 shares of restricted stock for consulting services to various entities in regard to obtaining a stand by letter of credit ( “sbloc” ) , which was ultimately completed on december 15 , 2013 when the company entered into the agreement noted below . on december 15 , 2013 , the company entered into an agreement with interglobal management , llc ( “igi” ) and spartacus partners corporation ( “spartacus” ) to place 4,000,000 restricted shares at a price $ 2.50 per share ( $ 10,000,000 ) with spartacus , to be held in escrow in return for an interest in a stand by letter of credit ( “sbloc” ) of with a total value of $ 180,000,000 . on december 23 , 2013 , the company entered into a subscription agreement with spartacus partners corporation ( “spartacus” ) by which spartacus agrees to purchase $ 125,000,000 of the company 's common stock over a twelve month period . f-12 story_separator_special_tag results of operation 12 month period ended september 30 , 2013 compared to 12 month period ended september 30 , 2012 our net loss of $ 15,022,326 for the 12 month period ended september 30 , 2013 , including a loss from operations of $ 266,261 compared to net loss of $ 1,894,240 during the twelve month period ended september 30 , 2013 , of which all was an operating loss . during the twelve months periods ended september 30 , 2013 and 2012 , we generated $ 419,414 net revenues from continuing operations as compared to $ 493,442 , a reduction of 15 % primarily due to a continued soft economy . during the twelve month period ended september 30 , 2013 , we incurred operating expenses of $ 685,674 compared to $ 2,387,642 incurred during the twelve month period ended september 30 , 2012 , a decrease of $ 1,701,968 , these expenses incurred during the twelve month period ended september 30 , 2013 primarily consisted of the following : $ 598,091 in fees for professional service , including but limited to , attorneys ' fees ; fees associated with transfer agent activity and accounting and consulting services . the balance of our operating expenses $ 87,583 were for general and administrative charges . the reduction in operating expense as compared to year ended september 30 , 2012 came principally from the reduction in the use of consultants $ 525,302 for year ending september 30 , 2013 as compared to $ 2,054,850 at year end 2012. additional income was incurred during the twelve month period ended september 30 , 2013 of $ 106,499 , as compared to none in year ended september 30 , 2012. other income during the twelve month period ended september 30 , 2013 consisted of : ( i ) gain on extinguishment of debt $ 85,269 , ( ii ) gain of $ 21,230 on the sale of tradable stock held in other corporations . the company incurred a non-operating expense of $ 14,862,564. this expense represents the value of 7 , 431,000 shares of common stock issued to the holder of certain 1934 us gold treasury bonds . after issuing the shares in consideration of the purchase , the company and the seller of the bonds were unable to

cash flows comparison of the year ended december 31 , 2015 to the year ended december 31 , 2014 cash and cash equivalents were $ 39.9 million and $ 59.4 million at december 31 , 2015 and 2014 , respectively . net cash provided by operating activities increased $ 5.1 million to $ 110.7 million for the year ended december 31 , 2015 , compared to $ 105.6 million for the year ended december 31 , 2014 . the increase was primarily the result of an increase in cash net operating income from office and retail properties due to an increase in the percentage leased and a decrease in interest expense due to increased capitalized interest related to our development and redevelopment activities at torrey reserve campus , lloyd district portfolio and torrey point . net cash used in investing activities decreased $ 25.5 million to $ 127.3 million for the year ended december 31 , 2015 , compared to $ 152.8 million for the year ended december 31 , 2014 . this decrease was primarily attributable to a decrease in capital expenditures of our development and redevelopment activities at torrey reserve campus and lloyd district portfolio , which were completed in 2015 , and proceeds from the sale of rancho carmel plaza on august 6 , 2015. net cash used by financing activities was $ 2.9 million for the year ended december 31 , 2015 compared to net cash provided in financing activities of $ 57.6 million for the year ended december 31 , 2014 . the decrease in cash provided by financing activities is primarily due to repayment of our secured notes payable at the shops at kalakaua , the landmark at one market and del monte center , partially offset by proceeds from the issuance of senior guaranteed notes , series b and series c. the decrease is also attributed to less proceeds from the issuance of common stock under the atm equity program .

level 2 - observable inputs other than level 1 prices such as quoted prices for similar assets or liabilities ; quoted prices in markets with insufficient volume or infrequent transactions ( less active markets ) ; or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or level 3 - unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities . to the extent that valuation is based on models or inputs that are less observable or unobservable in the market , the determination of fair value requires more judgment . in certain cases , the inputs used to measure fair value may fall into different levels of the fair value hierarchy . in such cases , for disclosure purposes , the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement . the debt derivative , comprised of our bifurcated convertible debt features on our convertible notes , is measured at fair value using quoted market prices and estimated volatility factors based on historical prices for the company 's common stock and are classified within level 3 of the valuation hierarchy . the company purchased a collection of art work and memorabilia from art to go , inc. in october 2012 , the collection was originally valued by sports and entertainment marketing group using level 1 quoted prices . the value of the asset they assigned was $ 10,389,068 . the company noted that some of the value was not based upon any active market for identical assets , and had a second independent appraisal completed using level 2 guidelines . the valuation was completed by doty scott enterprises , inc. for purposes of this report , including any opinions required by the company , we utilized fair value defined by the international financial reporting standards ( ifrs ) and statements of financial accounting standards ( sfas ) guidelines ( international valuation standards council ( ivsc ) 2012 exposure draft on fair value measurement – ed/2012 and financial accounting standards board ( “fasb” ) in fasb asc 820 – fair value measurements and disclosures . this organization brought the value of the collection down to $ 2,972,000 , based upon observable inputs of retail price to wholesale price and in consideration that the purchase price was satisfied by the issue of preferred equities . note 8 – subsequent events between november 13 , 2013 and january 17 , 2014 , the company issued 7,027,500 shares of restricted stock for consulting services to various entities in regard to obtaining a stand by letter of credit ( “sbloc” ) , which was ultimately completed on december 15 , 2013 when the company entered into the agreement noted below . on december 15 , 2013 , the company entered into an agreement with interglobal management , llc ( “igi” ) and spartacus partners corporation ( “spartacus” ) to place 4,000,000 restricted shares at a price $ 2.50 per share ( $ 10,000,000 ) with spartacus , to be held in escrow in return for an interest in a stand by letter of credit ( “sbloc” ) of with a total value of $ 180,000,000 . on december 23 , 2013 , the company entered into a subscription agreement with spartacus partners corporation ( “spartacus” ) by which spartacus agrees to purchase $ 125,000,000 of the company 's common stock over a twelve month period . f-12 story_separator_special_tag results of operation 12 month period ended september 30 , 2013 compared to 12 month period ended september 30 , 2012 our net loss of $ 15,022,326 for the 12 month period ended september 30 , 2013 , including a loss from operations of $ 266,261 compared to net loss of $ 1,894,240 during the twelve month period ended september 30 , 2013 , of which all was an operating loss . during the twelve months periods ended september 30 , 2013 and 2012 , we generated $ 419,414 net revenues from continuing operations as compared to $ 493,442 , a reduction of 15 % primarily due to a continued soft economy . during the twelve month period ended september 30 , 2013 , we incurred operating expenses of $ 685,674 compared to $ 2,387,642 incurred during the twelve month period ended september 30 , 2012 , a decrease of $ 1,701,968 , these expenses incurred during the twelve month period ended september 30 , 2013 primarily consisted of the following : $ 598,091 in fees for professional service , including but limited to , attorneys ' fees ; fees associated with transfer agent activity and accounting and consulting services . the balance of our operating expenses $ 87,583 were for general and administrative charges . the reduction in operating expense as compared to year ended september 30 , 2012 came principally from the reduction in the use of consultants $ 525,302 for year ending september 30 , 2013 as compared to $ 2,054,850 at year end 2012. additional income was incurred during the twelve month period ended september 30 , 2013 of $ 106,499 , as compared to none in year ended september 30 , 2012. other income during the twelve month period ended september 30 , 2013 consisted of : ( i ) gain on extinguishment of debt $ 85,269 , ( ii ) gain of $ 21,230 on the sale of tradable stock held in other corporations . the company incurred a non-operating expense of $ 14,862,564. this expense represents the value of 7 , 431,000 shares of common stock issued to the holder of certain 1934 us gold treasury bonds . after issuing the shares in consideration of the purchase , the company and the seller of the bonds were unable to story_separator_special_tag level 2 - observable inputs other than level 1 prices such as quoted prices for similar assets or liabilities ; quoted prices in markets with insufficient volume or infrequent transactions ( less active markets ) ; or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or level 3 - unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities . to the extent that valuation is based on models or inputs that are less observable or unobservable in the market , the determination of fair value requires more judgment . in certain cases , the inputs used to measure fair value may fall into different levels of the fair value hierarchy . in such cases , for disclosure purposes , the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement . the debt derivative , comprised of our bifurcated convertible debt features on our convertible notes , is measured at fair value using quoted market prices and estimated volatility factors based on historical prices for the company 's common stock and are classified within level 3 of the valuation hierarchy . the company purchased a collection of art work and memorabilia from art to go , inc. in october 2012 , the collection was originally valued by sports and entertainment marketing group using level 1 quoted prices . the value of the asset they assigned was $ 10,389,068 . the company noted that some of the value was not based upon any active market for identical assets , and had a second independent appraisal completed using level 2 guidelines . the valuation was completed by doty scott enterprises , inc. for purposes of this report , including any opinions required by the company , we utilized fair value defined by the international financial reporting standards ( ifrs ) and statements of financial accounting standards ( sfas ) guidelines ( international valuation standards council ( ivsc ) 2012 exposure draft on fair value measurement – ed/2012 and financial accounting standards board ( “fasb” ) in fasb asc 820 – fair value measurements and disclosures . this organization brought the value of the collection down to $ 2,972,000 , based upon observable inputs of retail price to wholesale price and in consideration that the purchase price was satisfied by the issue of preferred equities . note 8 – subsequent events between november 13 , 2013 and january 17 , 2014 , the company issued 7,027,500 shares of restricted stock for consulting services to various entities in regard to obtaining a stand by letter of credit ( “sbloc” ) , which was ultimately completed on december 15 , 2013 when the company entered into the agreement noted below . on december 15 , 2013 , the company entered into an agreement with interglobal management , llc ( “igi” ) and spartacus partners corporation ( “spartacus” ) to place 4,000,000 restricted shares at a price $ 2.50 per share ( $ 10,000,000 ) with spartacus , to be held in escrow in return for an interest in a stand by letter of credit ( “sbloc” ) of with a total value of $ 180,000,000 . on december 23 , 2013 , the company entered into a subscription agreement with spartacus partners corporation ( “spartacus” ) by which spartacus agrees to purchase $ 125,000,000 of the company 's common stock over a twelve month period . f-12 story_separator_special_tag results of operation 12 month period ended september 30 , 2013 compared to 12 month period ended september 30 , 2012 our net loss of $ 15,022,326 for the 12 month period ended september 30 , 2013 , including a loss from operations of $ 266,261 compared to net loss of $ 1,894,240 during the twelve month period ended september 30 , 2013 , of which all was an operating loss . during the twelve months periods ended september 30 , 2013 and 2012 , we generated $ 419,414 net revenues from continuing operations as compared to $ 493,442 , a reduction of 15 % primarily due to a continued soft economy . during the twelve month period ended september 30 , 2013 , we incurred operating expenses of $ 685,674 compared to $ 2,387,642 incurred during the twelve month period ended september 30 , 2012 , a decrease of $ 1,701,968 , these expenses incurred during the twelve month period ended september 30 , 2013 primarily consisted of the following : $ 598,091 in fees for professional service , including but limited to , attorneys ' fees ; fees associated with transfer agent activity and accounting and consulting services . the balance of our operating expenses $ 87,583 were for general and administrative charges . the reduction in operating expense as compared to year ended september 30 , 2012 came principally from the reduction in the use of consultants $ 525,302 for year ending september 30 , 2013 as compared to $ 2,054,850 at year end 2012. additional income was incurred during the twelve month period ended september 30 , 2013 of $ 106,499 , as compared to none in year ended september 30 , 2012. other income during the twelve month period ended september 30 , 2013 consisted of : ( i ) gain on extinguishment of debt $ 85,269 , ( ii ) gain of $ 21,230 on the sale of tradable stock held in other corporations . the company incurred a non-operating expense of $ 14,862,564. this expense represents the value of 7 , 431,000 shares of common stock issued to the holder of certain 1934 us gold treasury bonds . after issuing the shares in consideration of the purchase , the company and the seller of the bonds were unable to

liquidity and capital resources twelve month period ended september 30 , 2013 as of september 30 , 2013 , our current assets were $ 53,709. our current liabilities were $ 2,093 , which resulted in a working capital of $ 51,616. stockholders ' equity ( deficit ) decreased from $ ( 67,396 ) for fiscal year ended september 30 , 2012 to $ ( 3,023,616 ) for the period ended september 30 , 2013. cash flows from operating activities for the twelve month period ended september 30 , 2013 , net cash flows provided by operating activities was $ 249,008. cash flows from investing activities for the twelve month period ended september 30 , 2013 , net cash provided by investing activities was $ 21,230 cash flows from financing activities cash used in financing activities for the period was $ 303,000. plan of operation and funding the accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the united states of america , which contemplate continuation of the company as a going concern . the company has reported a net loss from operations of $ 266,261 for the twelve month period ended september 30 , 2013 , a total shareholders ' deficit of $ 3,023,616 and total current assets in excess ofcurrent liabilities of $ 51,616 as of september 30 , 2013 management expects that domestic economic conditions will improve throughout 2014. while we have been able to manage our working capital needs with cash and stock , additional financing is required in order to meet our current and projected cash flow requirements from operations .

pursuant to this strategy , we returned cash of $ 87.1 million to our stockholders in 2013 in the form of : four quarterly dividends , each $ 0.75 per share of our common stock , declared and paid totaling $ 57.4 million , and repurchases of over 412,000 shares of our common stock totaling $ 29.7 million , with authorization remaining to repurchase an additional $ 70.3 million . 28 other highlights of our fiscal 2013 performance include : increased ihop 's domestic systemwide same-restaurant sales by 2.4 % during 2013 , the first full year of growth in domestic systemwide same-restaurant sales since fiscal 2008 and the highest yearly increase since 2006 ; generated cash from operating activities of greater than $ 100 million for the fourth time in the last five years ; opened 58 new restaurants worldwide by ihop franchisees and area licensees and 26 new restaurants by applebee 's franchisees ; expanded our international footprint with restaurant openings by ihop franchisees in the philippines , kuwait and the kingdom of saudi arabia and by an applebee 's franchisee in egypt and the dominican republic ; remodeled over 500 restaurants system-wide during 2013. applebee 's and its franchisees remodeled 289 restaurants during 2013 , while ihop and its franchisees remodeled 215 restaurants . over the past three years , approximately 70 % of applebee 's restaurants and 40 % of ihop restaurants have been remodeled ; and named to fast company 's annual list of most innovative companies , ranking number two in the category of “ the world 's most innovative companies in food . ” key performance indicators in evaluating the performance of each dining concept , we consider the key performance indicators to be net franchise restaurant development and the percentage change in domestic system-wide same-restaurant sales . since we are a 99 % franchised company , expanding the number of franchise restaurants is an important driver of revenue growth . we currently do not plan to open any new applebee 's or ihop company-operated restaurants . revenue from our rental and financing operations , legacies from the previous ihop business model we operated under prior to 2003 , is subject to progressive decline over time as interest-earning balances are repaid . therefore , growth in both the number of franchise restaurants and sales at those restaurants will drive franchise revenues in the form of higher royalty revenues , additional franchise fees and , in the case of ihop restaurants , sales of proprietary pancake and waffle dry mix . an overview of our 2013 performance in these metrics is as follows : replace_table_token_7_th _ ( 1 ) franchise and area license openings , net of closings ihop 's increase of 2.4 % in domestic system-wide restaurant sales for the year ended december 31 , 2013 resulted from a higher average customer check partially offset by a decrease in customer traffic . the increase reflects sequential improvement throughout 2013 , with a decrease of 0.5 % in the first quarter of 2013 followed by increases of 1.9 % , 3.6 % and 4.5 % in the second , third and fourth quarters , respectively . the increase in the fourth quarter was the largest since the first quarter of 2006. applebee 's decrease of 0.3 % in domestic system-wide restaurant sales for the year ended december 31 , 2013 resulted from a decrease in customer traffic partially offset by an increase in average customer check . the decrease was the first annual decline in domestic system-wide restaurant sales for applebee 's since 2009. with the decrease in 2013 , applebee 's cumulative increase over the past four years is 3.2 % . applebee 's net restaurant development for the year ended december 31 , 2013 was adversely impacted by restaurant closures during 2013. applebee 's franchisees opened 26 new franchise restaurants in 2013 but closed 49 restaurants . the largest single group of closures took place in the second quarter of 2013 , when an applebee 's franchisee that owned and operated 33 restaurants located in illinois filed for bankruptcy protection . as a result of those proceedings , 15 of the restaurants were sold in june 2013 to an affiliate of an existing franchisee and operated without interruption during the transition of ownership . the remaining 18 restaurants were closed . however , we did receive termination fees of $ 3.8 million related to the closure of the 18 restaurants . we have entered into a development agreement with the new franchisee to open additional restaurants in illinois in the future . ihop franchisees and area licensees opened 58 new franchise restaurants in 2013 , with net restaurant development of 38 restaurants . the 2013 openings included three restaurants in the philippines , the first ihop franchise restaurants in the asia pacific region . over the past five years , ihop net restaurant development totaled 217 , an annual growth average of 43 restaurants per year . 29 in evaluating the performance of the consolidated enterprise , we consider the key performance indicators to be consolidated cash flows from operating activities and consolidated free cash flow ( cash from operations , plus receipts from notes , equipment contracts and other long-term receivables , minus capital expenditures , principal payments on capital leases and financing obligations and the mandatory annual repayment of 1 % of the principal balance of our term loans ) . consolidated cash flows from operating activities and consolidated free cash flow for the years ended december 31 , 2013 and 2012 were as follows : replace_table_token_8_th the primary reasons for the increase in cash flows from operating activities were lower income tax payments , lower general and administrative expenses and lower interest costs for the year ended december 31 , 2013 compared to the same period of 2012 , partially offset by lower segment profit that resulted from the refranchising of applebee 's company-operated restaurants . story_separator_special_tag ( b ) “ system-wide sales ” are retail sales at applebee 's restaurants operated by franchisees and ihop restaurants operated by franchisees and area licensees , as reported to the company , in addition to retail sales at company-operated restaurants . sales at restaurants that are owned by franchisees and area licensees are not attributable to the company . unaudited reported sales for applebee 's domestic franchise restaurants , ihop franchise restaurants and ihop area license restaurants for the years ended december 31 , 2013 , 2012 and 2011 were as follows : replace_table_token_11_th ( c ) `` sales percentage change `` reflects , for each category of restaurants , the percentage change in sales in any given fiscal year compared to the prior fiscal year for all restaurants in that category . ( d ) “ domestic same-restaurant sales percentage change ” reflects the percentage change in sales in any given fiscal period , compared to the same weeks in the prior year , for domestic restaurants that have been operated throughout both fiscal periods that are being compared and have been open for at least 18 months . because of new unit openings and restaurant closures , the domestic restaurants open throughout both fiscal periods being compared may be different from period to period . domestic same-restaurant sales percentage change does not include data on ihop area license restaurants . ( e ) the sales percentage change for applebee 's franchise and company-operated restaurants is impacted by the refranchising of 154 company-operated restaurants in 2012 , 132 company-operated restaurants during 2011 and 83 company-operated restaurants during 2010 . 36 the following tables summarize applebee 's and ihop restaurant development and franchising activity . replace_table_token_12_th replace_table_token_13_th 37 comparison of the fiscal years ended december 31 , 2013 and 2012 summary replace_table_token_14_th _ ( 1 ) percentages calculated on actual amounts , not rounded amounts presented above the completion of our transition to a 99 % franchised company in october 2012 had a significant impact on the comparison of our results of operations for the year ended december 31 , 2013 with the same period of the prior year . the most significant impact was the decline in revenues and segment profit from the applebee 's company-operated restaurants that were refranchised , partially offset by increased royalty revenues and franchise fees from the refranchised restaurants . while the total amount of segment profit declined , segment profit as a percentage of total revenue improved because royalty revenues and franchise fees produce a higher gross margin than do revenues from company-operated restaurants . a significant portion of the decline in general and administrative ( “ g & a ” ) expenses for the year ended december 31 , 2013 was due to the elimination and realignment of administrative functions associated with company-operated restaurants , as well as to the full-year effect of our staff reduction initiative implemented in the latter half of 2012. additionally , g & a expenses for the year ended december 31 , 2012 included a $ 9.1 million charge related to settlement of litigation that commenced prior to our acquisition of applebee 's . interest expense declined , in large part , due to repayment of debt with proceeds from the sale of assets of company-operated restaurants that were refranchised . revenue replace_table_token_15_th _ ( 1 ) percentages calculated on actual amounts , not rounded amounts presented above the decrease in total revenue was primarily due to the refranchising of applebee 's company-operated restaurants in 2012 , partially offset by higher franchise royalty revenues resulting from the increase in the number of applebee 's and ihop franchise restaurants . additionally , in 2013 we received a total of $ 7.8 million in termination , transfer and extension fees related to applebee 's restaurants compared to a total of $ 4.4 million in such fees in 2012 . 38 segment profit ( loss ) replace_table_token_16_th _ ( 1 ) percentages calculated on actual amounts , not rounded amounts presented above the decline in segment profit for the year ended december 31 , 2013 compared to the prior year was primarily due to the impact of the refranchising of applebee 's company-operated restaurants , completed in 2012 , on the company restaurant segment . this was partially offset by an increase in the number of applebee 's and ihop franchise restaurants , a $ 3.4 million increase in termination , transfer and extension fees related to applebee 's restaurants and a 2.4 % increase in ihop domestic same-restaurant sales . nearly 90 % of our segment profit now comes from our franchise operations . we operate our company restaurants primarily to test new remodel programs , operating procedures , products , technology , cooking platforms and service models and , accordingly , we do not anticipate these restaurants will generate a significant amount of segment profit or loss in the foreseeable future . franchise operations replace_table_token_17_th ( 1 ) effective franchise restaurants are the weighted average number of franchise restaurants open in a given fiscal period , adjusted to account for franchise restaurants open for only a portion of the period . ( 2 ) percentages calculated on actual amounts , not rounded amounts presented above . the increase in applebee 's franchise revenue was attributable to higher royalty revenue resulting from a 5.4 % increase in the number of effective franchise restaurants and to termination fees associated with the closure of certain applebee 's franchise restaurants . these favorable changes were partially offset by a decrease in fees associated with franchisee-to-franchisee sales of applebee 's franchise restaurants and 0.3 % decrease in applebee 's domestic same-restaurant sales . 39 applebee 's effective franchise restaurants increased by 102 due to the full-year effect in 2013 of refranchising 154 applebee 's company-operated restaurants during 2012 ( 17 in the first quarter , 98 in the third quarter and 39 in the fourth quarter ) , partially offset by a

liquidity and capital resources twelve month period ended september 30 , 2013 as of september 30 , 2013 , our current assets were $ 53,709. our current liabilities were $ 2,093 , which resulted in a working capital of $ 51,616. stockholders ' equity ( deficit ) decreased from $ ( 67,396 ) for fiscal year ended september 30 , 2012 to $ ( 3,023,616 ) for the period ended september 30 , 2013. cash flows from operating activities for the twelve month period ended september 30 , 2013 , net cash flows provided by operating activities was $ 249,008. cash flows from investing activities for the twelve month period ended september 30 , 2013 , net cash provided by investing activities was $ 21,230 cash flows from financing activities cash used in financing activities for the period was $ 303,000. plan of operation and funding the accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the united states of america , which contemplate continuation of the company as a going concern . the company has reported a net loss from operations of $ 266,261 for the twelve month period ended september 30 , 2013 , a total shareholders ' deficit of $ 3,023,616 and total current assets in excess ofcurrent liabilities of $ 51,616 as of september 30 , 2013 management expects that domestic economic conditions will improve throughout 2014. while we have been able to manage our working capital needs with cash and stock , additional financing is required in order to meet our current and projected cash flow requirements from operations .

pursuant to this strategy , we returned cash of $ 87.1 million to our stockholders in 2013 in the form of : four quarterly dividends , each $ 0.75 per share of our common stock , declared and paid totaling $ 57.4 million , and repurchases of over 412,000 shares of our common stock totaling $ 29.7 million , with authorization remaining to repurchase an additional $ 70.3 million . 28 other highlights of our fiscal 2013 performance include : increased ihop 's domestic systemwide same-restaurant sales by 2.4 % during 2013 , the first full year of growth in domestic systemwide same-restaurant sales since fiscal 2008 and the highest yearly increase since 2006 ; generated cash from operating activities of greater than $ 100 million for the fourth time in the last five years ; opened 58 new restaurants worldwide by ihop franchisees and area licensees and 26 new restaurants by applebee 's franchisees ; expanded our international footprint with restaurant openings by ihop franchisees in the philippines , kuwait and the kingdom of saudi arabia and by an applebee 's franchisee in egypt and the dominican republic ; remodeled over 500 restaurants system-wide during 2013. applebee 's and its franchisees remodeled 289 restaurants during 2013 , while ihop and its franchisees remodeled 215 restaurants . over the past three years , approximately 70 % of applebee 's restaurants and 40 % of ihop restaurants have been remodeled ; and named to fast company 's annual list of most innovative companies , ranking number two in the category of “ the world 's most innovative companies in food . ” key performance indicators in evaluating the performance of each dining concept , we consider the key performance indicators to be net franchise restaurant development and the percentage change in domestic system-wide same-restaurant sales . since we are a 99 % franchised company , expanding the number of franchise restaurants is an important driver of revenue growth . we currently do not plan to open any new applebee 's or ihop company-operated restaurants . revenue from our rental and financing operations , legacies from the previous ihop business model we operated under prior to 2003 , is subject to progressive decline over time as interest-earning balances are repaid . therefore , growth in both the number of franchise restaurants and sales at those restaurants will drive franchise revenues in the form of higher royalty revenues , additional franchise fees and , in the case of ihop restaurants , sales of proprietary pancake and waffle dry mix . an overview of our 2013 performance in these metrics is as follows : replace_table_token_7_th _ ( 1 ) franchise and area license openings , net of closings ihop 's increase of 2.4 % in domestic system-wide restaurant sales for the year ended december 31 , 2013 resulted from a higher average customer check partially offset by a decrease in customer traffic . the increase reflects sequential improvement throughout 2013 , with a decrease of 0.5 % in the first quarter of 2013 followed by increases of 1.9 % , 3.6 % and 4.5 % in the second , third and fourth quarters , respectively . the increase in the fourth quarter was the largest since the first quarter of 2006. applebee 's decrease of 0.3 % in domestic system-wide restaurant sales for the year ended december 31 , 2013 resulted from a decrease in customer traffic partially offset by an increase in average customer check . the decrease was the first annual decline in domestic system-wide restaurant sales for applebee 's since 2009. with the decrease in 2013 , applebee 's cumulative increase over the past four years is 3.2 % . applebee 's net restaurant development for the year ended december 31 , 2013 was adversely impacted by restaurant closures during 2013. applebee 's franchisees opened 26 new franchise restaurants in 2013 but closed 49 restaurants . the largest single group of closures took place in the second quarter of 2013 , when an applebee 's franchisee that owned and operated 33 restaurants located in illinois filed for bankruptcy protection . as a result of those proceedings , 15 of the restaurants were sold in june 2013 to an affiliate of an existing franchisee and operated without interruption during the transition of ownership . the remaining 18 restaurants were closed . however , we did receive termination fees of $ 3.8 million related to the closure of the 18 restaurants . we have entered into a development agreement with the new franchisee to open additional restaurants in illinois in the future . ihop franchisees and area licensees opened 58 new franchise restaurants in 2013 , with net restaurant development of 38 restaurants . the 2013 openings included three restaurants in the philippines , the first ihop franchise restaurants in the asia pacific region . over the past five years , ihop net restaurant development totaled 217 , an annual growth average of 43 restaurants per year . 29 in evaluating the performance of the consolidated enterprise , we consider the key performance indicators to be consolidated cash flows from operating activities and consolidated free cash flow ( cash from operations , plus receipts from notes , equipment contracts and other long-term receivables , minus capital expenditures , principal payments on capital leases and financing obligations and the mandatory annual repayment of 1 % of the principal balance of our term loans ) . consolidated cash flows from operating activities and consolidated free cash flow for the years ended december 31 , 2013 and 2012 were as follows : replace_table_token_8_th the primary reasons for the increase in cash flows from operating activities were lower income tax payments , lower general and administrative expenses and lower interest costs for the year ended december 31 , 2013 compared to the same period of 2012 , partially offset by lower segment profit that resulted from the refranchising of applebee 's company-operated restaurants . story_separator_special_tag ( b ) “ system-wide sales ” are retail sales at applebee 's restaurants operated by franchisees and ihop restaurants operated by franchisees and area licensees , as reported to the company , in addition to retail sales at company-operated restaurants . sales at restaurants that are owned by franchisees and area licensees are not attributable to the company . unaudited reported sales for applebee 's domestic franchise restaurants , ihop franchise restaurants and ihop area license restaurants for the years ended december 31 , 2013 , 2012 and 2011 were as follows : replace_table_token_11_th ( c ) `` sales percentage change `` reflects , for each category of restaurants , the percentage change in sales in any given fiscal year compared to the prior fiscal year for all restaurants in that category . ( d ) “ domestic same-restaurant sales percentage change ” reflects the percentage change in sales in any given fiscal period , compared to the same weeks in the prior year , for domestic restaurants that have been operated throughout both fiscal periods that are being compared and have been open for at least 18 months . because of new unit openings and restaurant closures , the domestic restaurants open throughout both fiscal periods being compared may be different from period to period . domestic same-restaurant sales percentage change does not include data on ihop area license restaurants . ( e ) the sales percentage change for applebee 's franchise and company-operated restaurants is impacted by the refranchising of 154 company-operated restaurants in 2012 , 132 company-operated restaurants during 2011 and 83 company-operated restaurants during 2010 . 36 the following tables summarize applebee 's and ihop restaurant development and franchising activity . replace_table_token_12_th replace_table_token_13_th 37 comparison of the fiscal years ended december 31 , 2013 and 2012 summary replace_table_token_14_th _ ( 1 ) percentages calculated on actual amounts , not rounded amounts presented above the completion of our transition to a 99 % franchised company in october 2012 had a significant impact on the comparison of our results of operations for the year ended december 31 , 2013 with the same period of the prior year . the most significant impact was the decline in revenues and segment profit from the applebee 's company-operated restaurants that were refranchised , partially offset by increased royalty revenues and franchise fees from the refranchised restaurants . while the total amount of segment profit declined , segment profit as a percentage of total revenue improved because royalty revenues and franchise fees produce a higher gross margin than do revenues from company-operated restaurants . a significant portion of the decline in general and administrative ( “ g & a ” ) expenses for the year ended december 31 , 2013 was due to the elimination and realignment of administrative functions associated with company-operated restaurants , as well as to the full-year effect of our staff reduction initiative implemented in the latter half of 2012. additionally , g & a expenses for the year ended december 31 , 2012 included a $ 9.1 million charge related to settlement of litigation that commenced prior to our acquisition of applebee 's . interest expense declined , in large part , due to repayment of debt with proceeds from the sale of assets of company-operated restaurants that were refranchised . revenue replace_table_token_15_th _ ( 1 ) percentages calculated on actual amounts , not rounded amounts presented above the decrease in total revenue was primarily due to the refranchising of applebee 's company-operated restaurants in 2012 , partially offset by higher franchise royalty revenues resulting from the increase in the number of applebee 's and ihop franchise restaurants . additionally , in 2013 we received a total of $ 7.8 million in termination , transfer and extension fees related to applebee 's restaurants compared to a total of $ 4.4 million in such fees in 2012 . 38 segment profit ( loss ) replace_table_token_16_th _ ( 1 ) percentages calculated on actual amounts , not rounded amounts presented above the decline in segment profit for the year ended december 31 , 2013 compared to the prior year was primarily due to the impact of the refranchising of applebee 's company-operated restaurants , completed in 2012 , on the company restaurant segment . this was partially offset by an increase in the number of applebee 's and ihop franchise restaurants , a $ 3.4 million increase in termination , transfer and extension fees related to applebee 's restaurants and a 2.4 % increase in ihop domestic same-restaurant sales . nearly 90 % of our segment profit now comes from our franchise operations . we operate our company restaurants primarily to test new remodel programs , operating procedures , products , technology , cooking platforms and service models and , accordingly , we do not anticipate these restaurants will generate a significant amount of segment profit or loss in the foreseeable future . franchise operations replace_table_token_17_th ( 1 ) effective franchise restaurants are the weighted average number of franchise restaurants open in a given fiscal period , adjusted to account for franchise restaurants open for only a portion of the period . ( 2 ) percentages calculated on actual amounts , not rounded amounts presented above . the increase in applebee 's franchise revenue was attributable to higher royalty revenue resulting from a 5.4 % increase in the number of effective franchise restaurants and to termination fees associated with the closure of certain applebee 's franchise restaurants . these favorable changes were partially offset by a decrease in fees associated with franchisee-to-franchisee sales of applebee 's franchise restaurants and 0.3 % decrease in applebee 's domestic same-restaurant sales . 39 applebee 's effective franchise restaurants increased by 102 due to the full-year effect in 2013 of refranchising 154 applebee 's company-operated restaurants during 2012 ( 17 in the first quarter , 98 in the third quarter and 39 in the fourth quarter ) , partially offset by a

debt modification costs in 2011 , we incurred costs paid to third parties of $ 4.0 million in connection with an amendment to our credit agreement that were expensed in accordance with u.s. gaap guidance for debt modifications . there were no such costs in 2012 . income tax provision we recorded a tax provision of $ 67.2 million in 2012 as compared to a tax provision of $ 29.8 million in 2011 . the change was primarily due to the increase in our pretax book income . the 2012 effective tax rate of 34.5 % applied to pretax book income was lower than the statutory federal tax rate of 35 % primarily related to a reduction in state deferred taxes as a result of the refranchising and sale of applebee 's company-operated restaurants and compensation-related tax credits . liquidity and capital resources of the company credit facilities in october 2010 , we entered into a credit agreement with a group of lenders and financial institutions ( the `` credit agreement '' ) that established a senior secured credit facility ( the “ credit facility ” ) consisting of a $ 900 million term facility ( the “ term facility ” ) maturing in october 2017 and a $ 50 million senior secured revolving credit facility ( the “ revolving facility ” ) maturing in october 2015. the credit agreement also provides for an uncommitted incremental facility that permits us , subject to certain conditions , to increase the credit facility by up to $ 250 million , provided that the aggregate amount of the commitments under the revolving facility may not exceed $ 150 million .

we expect that the majority of our development expenses over the next two years will support the advancement of dare-bv1 , ovaprene and sildenafil cream , 3.6 % . to date , we have not obtained any regulatory approvals for any of our product candidates , commercialized any of our product candidates or generated any revenue . we are subject to several risks common to clinical-stage biopharmaceutical companies , including dependence on key individuals , competition from other companies , the need to develop commercially viable products in a timely and cost-effective manner , and the need to obtain adequate additional capital to fund the development of product candidates . we are also subject to several risks common to other companies in the industry , including rapid technology change , regulatory approval of products , uncertainty of market acceptance of products , competition from substitute products and larger companies , compliance with government regulations , protection of proprietary technology , dependence on third parties , and product liability . in addition , the covid-19 pandemic continues to rapidly evolve . we do not yet know the full extent of its potential effects on our business , including the anticipated aggregate costs for development of our product candidates , on our anticipated timelines for the development of our product candidates , or on the supply chain for our clinical supplies . however , these effects could have a material adverse impact on our business and financial condition . recent events microchips acquisition on november 20 , 2019 , we acquired microchips biotech , inc. via a merger . we issued an aggregate of approximately 3.0 million shares of our common stock to the holders of shares of microchips ' capital stock outstanding immediately prior to the effective time of the merger and we agreed to pay them : ( 1 ) contingent consideration of up to $ 46.5 million upon the achievement of specified funding , product development and regulatory milestones ; ( 2 ) contingent consideration of up to $ 55 .0 million upon the achievement of specified amounts of aggregate net sales of products incorporating the intellectual property we acquired in the merger ; ( 3 ) tiered royalty payments based on annual net sales of such products ; and ( 4 ) a percentage of sublicense revenue related to such products . we expect that approximately $ 1.0 million of the contingent consideration may become payable through 2021 . for additional information regarding this transaction , see “ item 1. business-microchips acquisition ” in part i of this report . 58 license agreement with bayer healthcare on january 10 , 2020 we entered into a license agreement with bayer healthcare llc regarding the further development and commercialization of ovaprene in the u.s. we received a $ 1.0 million upfront payment from bayer and bayer will support us in development and regulatory activities by providing the equivalent of two experts to advise us in clinical , regulatory , preclinical , commercial , cmc and product supply matters . bayer , in its sole discretion , has the right to make the license effective by paying us an additional $ 20.0 million , referred to as the “ clinical trial and manufacturing activities fee ” such license would be exclusive with regard to the commercialization of ovaprene for human contraception in the u.s. and co-exclusive with us with regard to development . we will also be entitled to receive ( a ) milestone payments totaling up to $ 310.0 million if all such milestones are achieved , ( b ) tiered royalties starting in the low double digits based on annual net sales of ovaprene during a calendar year , subject to customary royalty reductions and offsets , and ( c ) a percentage of sublicense revenue . for additional information regarding the bayer license agreement , see “ item 1. business-license agreements-bayer healthcare license agreement ” in part i of this report . financial overview revenue to date we have not generated any revenue . in the future , and if we are successful in advancing our product candidates through late stages of clinical development , we may generate revenue from license fees , milestone payments , research and development payments in connection with strategic partnerships , as well as royalties and commercial milestones resulting from the sale of products . our ability to generate such revenue will depend on the successful clinical development of our product candidates , the receipt of regulatory approvals to market such products and the eventual successful commercialization of product candidates . if we fail to complete the development of product candidates in a timely manner , or to receive regulatory approval for such product candidates , our ability to generate future revenue and our results of operations would be materially adversely affected . research and development expenses research and development expenses include research and development costs for our product candidates and transaction costs related to our acquisitions . we recognize all research and development expenses as they are incurred . research and development expenses consist primarily of : expenses incurred under agreements with consultants and clinical trial sites that conduct research and development activities on our behalf ; laboratory and vendor expenses related to the execution of nonclinical studies and clinical trials ; contract manufacturing expenses , primarily for the production of clinical supplies ; transaction costs related to acquisitions of companies , technologies and related intellectual property , and other assets ; internal costs that are associated with activities performed by our research and development organization and generally benefit multiple programs . in 2019 , our research and development expenses consisted primarily of costs associated with continued development of dare-bv1 , ovaprene , sildenafil cream 3.6 % and dare-hrt1 . story_separator_special_tag the impairment test is performed assuming that we operate in a single operating segment and reporting unit . a goodwill impairment is the amount by which a reporting unit 's carrying value exceeds its fair value , not to exceed the carrying 60 amount of goodwill . when impaired , the carrying value of goodwill is written down to fair value . any excess of the reporting unit goodwill carrying value over the fair value is recognized as impairment loss . we assessed goodwill at december 31 , 2017 , determined there was an impairment and recognized an impairment charge of approximately $ 7.5 million in the consolidated statement of operations and comprehensive loss for the year ended december 31 , 2017 , and reduced our goodwill carrying value from approximately $ 12.7 million to $ 5.2 million on our consolidated balance sheet as of december 31 , 2017 . see note 2 , “ acquisitions , ” of the notes to consolidated financial statements appearing in this report for a discussion of our goodwill analysis . we assessed goodwill at march 31 , 2018 , determined there was an impairment and recognized an impairment charge of approximately $ 5.2 million in the interim consolidated statement of operations and comprehensive loss for the three months ended march 31 , 2018. as of march 31 , 2018 , the goodwill carrying value on our consolidated balance sheet was written off in its entirety . business combinations assets acquired and liabilities assumed as part of a business acquisition are recorded at their estimated fair value at the date of acquisition . the excess of the total purchase consideration over the fair value of assets acquired and liabilities assumed is recorded as goodwill . determining fair value of identifiable assets , particularly intangibles , and liabilities acquired also requires management to make estimates , which are based on all available information and , in some cases , assumptions with respect to the timing and amount of future revenue and expenses associated with an asset . acquired in-process research and development expense we have acquired , and may continue to acquire , the rights to develop new product candidates . payments to acquire a new product candidate , as well as future milestone payments associated with asset acquisitions which are deemed probable of achievement , are immediately expensed as acquired in-process research and development provided that the product candidate has not achieved regulatory approval for marketing and , absent obtaining such approval , has no alternative future use . results of operations comparison of the years ended december 31 , 2019 and 2018 the following table summarizes our consolidated results of operations for the years ended december 31 , 2019 and 2018 , together with the changes in those items in dollars : replace_table_token_1_th revenues we did not recognize any revenue for the years ended december 31 , 2019 or 2018 . 61 general and administrative the increase of $ 609,601 in general and administrative expenses from 2018 to 2019 was primarily attributable to : ( i ) an increase in personnel costs of approximately $ 482,000 reflecting the hiring of additional employees which resulted in increased salary , benefit and bonus expenses , ( ii ) an increase in stock-based compensation expense of approximately $ 241,000 , ( iii ) an increase in insurance costs of approximately $ 102,000 , ( iv ) an increase in rent expense of approximately $ 79,000 due to the addition of two leases acquired in conjunction with the acquisition of microchips , ( v ) an increase of approximately $ 38,000 of advertising and marketing expenses , and ( vi ) an increase of approximately $ 48,000 in expense related to conferences and seminars . those increases were partially offset by a decrease of approximately $ 410,000 in expenses for accounting , legal , and professional services . research and development the increase of approximately $ 2.1 million in research and development expenses from 2018 to 2019 was primarily attributable to ( i ) an increase in costs related to development activities of approximately $ 2.3 million for dare-bv1 , ovaprene , dare-hrt1 , dare-frt1 and sildenafil cream , 3.6 % , ( ii ) an increase in personnel costs of approximately $ 875,000 reflecting the hiring of additional employees which resulted in increased salary , benefit and bonus expenses , and ( iii ) an increase in stock-based compensation expense of approximately $ 82,000 . those increases were partially offset by ( x ) an increase in grant funding recorded as a reduction to research and development expense related to ovaprene of approximately $ 894,000 , ( y ) a decrease in costs related to development activities of approximately $ 285,000 for dare-vva1 , and ( z ) a decrease in costs related to pre-clinical development activities of approximately $ 40,000. we expect research and development expense to increase significantly in 2020 as we continue to develop our product candidates and as we achieve development milestones for which we have related payment obligations . license expenses the $ 91,666 decrease in license expenses from 2018 to 2019 was attributable to a decrease in license fees paid . during 2018 , we paid $ 625,000 in connection with entering into license agreements for dare-hrt1 , sildenafil cream , 3.6 % and dare-bv1 . during 2019 , we accrued or paid $ 533,334 of license fees due under our license agreements related to dare-bv1 and dare-hrt1 . goodwill impairment expense the goodwill impairment expense for the year ended december 31 , 2018 was due to our determination that the carrying amount of our goodwill exceeded its estimated fair value . see note 2 , “ acquisitions , ” of the notes to consolidated financial statements appearing in this report for a discussion of our goodwill analysis . other income the decrease of $ 62,447 in interest income from 2018 to 2019 was primarily due to a decrease in

debt modification costs in 2011 , we incurred costs paid to third parties of $ 4.0 million in connection with an amendment to our credit agreement that were expensed in accordance with u.s. gaap guidance for debt modifications . there were no such costs in 2012 . income tax provision we recorded a tax provision of $ 67.2 million in 2012 as compared to a tax provision of $ 29.8 million in 2011 . the change was primarily due to the increase in our pretax book income . the 2012 effective tax rate of 34.5 % applied to pretax book income was lower than the statutory federal tax rate of 35 % primarily related to a reduction in state deferred taxes as a result of the refranchising and sale of applebee 's company-operated restaurants and compensation-related tax credits . liquidity and capital resources of the company credit facilities in october 2010 , we entered into a credit agreement with a group of lenders and financial institutions ( the `` credit agreement '' ) that established a senior secured credit facility ( the “ credit facility ” ) consisting of a $ 900 million term facility ( the “ term facility ” ) maturing in october 2017 and a $ 50 million senior secured revolving credit facility ( the “ revolving facility ” ) maturing in october 2015. the credit agreement also provides for an uncommitted incremental facility that permits us , subject to certain conditions , to increase the credit facility by up to $ 250 million , provided that the aggregate amount of the commitments under the revolving facility may not exceed $ 150 million .

we expect that the majority of our development expenses over the next two years will support the advancement of dare-bv1 , ovaprene and sildenafil cream , 3.6 % . to date , we have not obtained any regulatory approvals for any of our product candidates , commercialized any of our product candidates or generated any revenue . we are subject to several risks common to clinical-stage biopharmaceutical companies , including dependence on key individuals , competition from other companies , the need to develop commercially viable products in a timely and cost-effective manner , and the need to obtain adequate additional capital to fund the development of product candidates . we are also subject to several risks common to other companies in the industry , including rapid technology change , regulatory approval of products , uncertainty of market acceptance of products , competition from substitute products and larger companies , compliance with government regulations , protection of proprietary technology , dependence on third parties , and product liability . in addition , the covid-19 pandemic continues to rapidly evolve . we do not yet know the full extent of its potential effects on our business , including the anticipated aggregate costs for development of our product candidates , on our anticipated timelines for the development of our product candidates , or on the supply chain for our clinical supplies . however , these effects could have a material adverse impact on our business and financial condition . recent events microchips acquisition on november 20 , 2019 , we acquired microchips biotech , inc. via a merger . we issued an aggregate of approximately 3.0 million shares of our common stock to the holders of shares of microchips ' capital stock outstanding immediately prior to the effective time of the merger and we agreed to pay them : ( 1 ) contingent consideration of up to $ 46.5 million upon the achievement of specified funding , product development and regulatory milestones ; ( 2 ) contingent consideration of up to $ 55 .0 million upon the achievement of specified amounts of aggregate net sales of products incorporating the intellectual property we acquired in the merger ; ( 3 ) tiered royalty payments based on annual net sales of such products ; and ( 4 ) a percentage of sublicense revenue related to such products . we expect that approximately $ 1.0 million of the contingent consideration may become payable through 2021 . for additional information regarding this transaction , see “ item 1. business-microchips acquisition ” in part i of this report . 58 license agreement with bayer healthcare on january 10 , 2020 we entered into a license agreement with bayer healthcare llc regarding the further development and commercialization of ovaprene in the u.s. we received a $ 1.0 million upfront payment from bayer and bayer will support us in development and regulatory activities by providing the equivalent of two experts to advise us in clinical , regulatory , preclinical , commercial , cmc and product supply matters . bayer , in its sole discretion , has the right to make the license effective by paying us an additional $ 20.0 million , referred to as the “ clinical trial and manufacturing activities fee ” such license would be exclusive with regard to the commercialization of ovaprene for human contraception in the u.s. and co-exclusive with us with regard to development . we will also be entitled to receive ( a ) milestone payments totaling up to $ 310.0 million if all such milestones are achieved , ( b ) tiered royalties starting in the low double digits based on annual net sales of ovaprene during a calendar year , subject to customary royalty reductions and offsets , and ( c ) a percentage of sublicense revenue . for additional information regarding the bayer license agreement , see “ item 1. business-license agreements-bayer healthcare license agreement ” in part i of this report . financial overview revenue to date we have not generated any revenue . in the future , and if we are successful in advancing our product candidates through late stages of clinical development , we may generate revenue from license fees , milestone payments , research and development payments in connection with strategic partnerships , as well as royalties and commercial milestones resulting from the sale of products . our ability to generate such revenue will depend on the successful clinical development of our product candidates , the receipt of regulatory approvals to market such products and the eventual successful commercialization of product candidates . if we fail to complete the development of product candidates in a timely manner , or to receive regulatory approval for such product candidates , our ability to generate future revenue and our results of operations would be materially adversely affected . research and development expenses research and development expenses include research and development costs for our product candidates and transaction costs related to our acquisitions . we recognize all research and development expenses as they are incurred . research and development expenses consist primarily of : expenses incurred under agreements with consultants and clinical trial sites that conduct research and development activities on our behalf ; laboratory and vendor expenses related to the execution of nonclinical studies and clinical trials ; contract manufacturing expenses , primarily for the production of clinical supplies ; transaction costs related to acquisitions of companies , technologies and related intellectual property , and other assets ; internal costs that are associated with activities performed by our research and development organization and generally benefit multiple programs . in 2019 , our research and development expenses consisted primarily of costs associated with continued development of dare-bv1 , ovaprene , sildenafil cream 3.6 % and dare-hrt1 . story_separator_special_tag the impairment test is performed assuming that we operate in a single operating segment and reporting unit . a goodwill impairment is the amount by which a reporting unit 's carrying value exceeds its fair value , not to exceed the carrying 60 amount of goodwill . when impaired , the carrying value of goodwill is written down to fair value . any excess of the reporting unit goodwill carrying value over the fair value is recognized as impairment loss . we assessed goodwill at december 31 , 2017 , determined there was an impairment and recognized an impairment charge of approximately $ 7.5 million in the consolidated statement of operations and comprehensive loss for the year ended december 31 , 2017 , and reduced our goodwill carrying value from approximately $ 12.7 million to $ 5.2 million on our consolidated balance sheet as of december 31 , 2017 . see note 2 , “ acquisitions , ” of the notes to consolidated financial statements appearing in this report for a discussion of our goodwill analysis . we assessed goodwill at march 31 , 2018 , determined there was an impairment and recognized an impairment charge of approximately $ 5.2 million in the interim consolidated statement of operations and comprehensive loss for the three months ended march 31 , 2018. as of march 31 , 2018 , the goodwill carrying value on our consolidated balance sheet was written off in its entirety . business combinations assets acquired and liabilities assumed as part of a business acquisition are recorded at their estimated fair value at the date of acquisition . the excess of the total purchase consideration over the fair value of assets acquired and liabilities assumed is recorded as goodwill . determining fair value of identifiable assets , particularly intangibles , and liabilities acquired also requires management to make estimates , which are based on all available information and , in some cases , assumptions with respect to the timing and amount of future revenue and expenses associated with an asset . acquired in-process research and development expense we have acquired , and may continue to acquire , the rights to develop new product candidates . payments to acquire a new product candidate , as well as future milestone payments associated with asset acquisitions which are deemed probable of achievement , are immediately expensed as acquired in-process research and development provided that the product candidate has not achieved regulatory approval for marketing and , absent obtaining such approval , has no alternative future use . results of operations comparison of the years ended december 31 , 2019 and 2018 the following table summarizes our consolidated results of operations for the years ended december 31 , 2019 and 2018 , together with the changes in those items in dollars : replace_table_token_1_th revenues we did not recognize any revenue for the years ended december 31 , 2019 or 2018 . 61 general and administrative the increase of $ 609,601 in general and administrative expenses from 2018 to 2019 was primarily attributable to : ( i ) an increase in personnel costs of approximately $ 482,000 reflecting the hiring of additional employees which resulted in increased salary , benefit and bonus expenses , ( ii ) an increase in stock-based compensation expense of approximately $ 241,000 , ( iii ) an increase in insurance costs of approximately $ 102,000 , ( iv ) an increase in rent expense of approximately $ 79,000 due to the addition of two leases acquired in conjunction with the acquisition of microchips , ( v ) an increase of approximately $ 38,000 of advertising and marketing expenses , and ( vi ) an increase of approximately $ 48,000 in expense related to conferences and seminars . those increases were partially offset by a decrease of approximately $ 410,000 in expenses for accounting , legal , and professional services . research and development the increase of approximately $ 2.1 million in research and development expenses from 2018 to 2019 was primarily attributable to ( i ) an increase in costs related to development activities of approximately $ 2.3 million for dare-bv1 , ovaprene , dare-hrt1 , dare-frt1 and sildenafil cream , 3.6 % , ( ii ) an increase in personnel costs of approximately $ 875,000 reflecting the hiring of additional employees which resulted in increased salary , benefit and bonus expenses , and ( iii ) an increase in stock-based compensation expense of approximately $ 82,000 . those increases were partially offset by ( x ) an increase in grant funding recorded as a reduction to research and development expense related to ovaprene of approximately $ 894,000 , ( y ) a decrease in costs related to development activities of approximately $ 285,000 for dare-vva1 , and ( z ) a decrease in costs related to pre-clinical development activities of approximately $ 40,000. we expect research and development expense to increase significantly in 2020 as we continue to develop our product candidates and as we achieve development milestones for which we have related payment obligations . license expenses the $ 91,666 decrease in license expenses from 2018 to 2019 was attributable to a decrease in license fees paid . during 2018 , we paid $ 625,000 in connection with entering into license agreements for dare-hrt1 , sildenafil cream , 3.6 % and dare-bv1 . during 2019 , we accrued or paid $ 533,334 of license fees due under our license agreements related to dare-bv1 and dare-hrt1 . goodwill impairment expense the goodwill impairment expense for the year ended december 31 , 2018 was due to our determination that the carrying amount of our goodwill exceeded its estimated fair value . see note 2 , “ acquisitions , ” of the notes to consolidated financial statements appearing in this report for a discussion of our goodwill analysis . other income the decrease of $ 62,447 in interest income from 2018 to 2019 was primarily due to a decrease in

liquidity and capital resources plan of operations and future funding requirements we prepared the accompanying consolidated financial statements on a going concern basis , which assumes that we will realize our assets and satisfy our liabilities in the normal course of business . in addition , we have a history of losses from operations , we expect negative cash flows from our operations to continue for the foreseeable future , and we expect that our net losses will continue for at least the next several years as we develop our existing product candidates and seek to acquire , license or develop additional product candidates . these circumstances raise substantial doubt about our ability to continue as a going concern . the accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and reclassification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty of our ability to remain a going concern . at december 31 , 2019 , our accumulated deficit was approximately $ 44.0 million , our cash and cash equivalents were approximately $ 4.8 million , and our working capital was approximately $ 0.8 million . for the year ended december 31 , 2019 , we incurred a net loss of $ 14.3 million and had negative cash flow from operations of approximately $ 13.3 million . the cash used to fund our operations comes from a variety of sources . in april 2019 , we received gross proceeds of approximately $ 5.8 million , and net proceeds of approximately $ 5.2 million after deducting underwriting 62 discounts and offering expenses , in an underwritten public offering . in november 2019 , we received approximately $ 6.1 million in cash and cash equivalents in connection with our acquisition of microchips . during 2019 , we received approximately $ 1.0 million under an existing grant from the national institutes of health that funded a portion of the postcoital clinical study costs of ovaprene .

customers for optical communications products include network equipment manufacturers such as alcatel-lucent , ciena , cisco systems , ericsson , fujitsu , hewlett-packard , huawei , ibm , nokia siemens networks , and tellabs . customers for jdsu commercial lasers include amada , asml , beckman coulter , becton dickinson , disco , electro scientific industries , and han 's laser . customers for photovoltaic products include amplifier research , ets-lindgren , nanjing xinning optoelectronics automation and siemens . advanced optical technologies the aot business segment leverages its core technology strengths in optics and materials science to manage light and or color effects for a wide variety of markets—from product security to space exploration . aot consists of the authentication solutions group , the custom optics products group , and the flex products group . the authentication solutions group provides multilayer authentication solutions that include overt , covert , forensic , and digital technologies for protection from product and document counterfeiting and tampering . these solutions , many of which leverage aot color-shifting and holographic technologies , safeguard brands in the secure document , transaction card , pharmaceutical , consumer electronics , printing/imaging supplies , licensing , and fast-moving consumer goods industries . the custom optics group produces precise , high-performance , optical thin-film coatings for a variety of applications in government and aerospace , biomedical , display , office automation , entertainment , and other emerging markets . these applications include night-vision goggles , satellite solar covers , medical instrumentation , information displays , office equipment , computer-driven projectors , 3d cinema and gesture recognition . the flex products group includes custom color solutions , a product line of unique solutions for product finishes and a wide variety of decorative packaging . these include innovative , optically-based , light-management solutions that provide product enhancement for brands in the pharmaceutical , automotive , consumer electronics , and fast-moving consumer goods industries . the group 's high-end printing services produce labels for a wide variety of commercial and industrial products , and its color-shifting pigments protect the currencies of more than 90 countries including china , the european union , and the united states . 35 the aot business segment serves customers such as 3m , dolby , kingston , lockheed martin , northrup grumman , pan pacific , and sicpa . leading issuers of transaction cards such as mastercard and american express . also , pharmaceutical companies worldwide use aot business segment solutions to protect their brands . overview net revenue in fiscal 2011 increased 32.3 % , or $ 440.6 million , to $ 1,804.5 million from $ 1,363.9 million in fiscal 2010. net revenue in fiscal 2011 consisted of $ 803.0 million , or approximately 44.5 % of net revenue , from commtest , $ 770.8 million , or approximately 42.7 % of net revenue , from ccop , and $ 230.7 million , or approximately 12.8 % of net revenue , from aot . commtest net revenue excludes $ 11.7 million related to fair value adjustments of acquired deferred revenue . gross margin in fiscal 2011 increased 3.7 percentage points to 43.8 % from 40.1 % in fiscal 2010. the increase in gross margin was primarily related to lower infrastructure costs , benefits from economies of scale resulting from increased sales volumes , favorable product mix in commtest and ccop , and the introduction of new products in commtest and ccop in the last two years , as well as products acquired through the nsd acquisition . r & d expense in fiscal 2011 increased 37.2 % , or $ 65.0 million , to $ 239.9 million from $ 174.9 million in fiscal 2010. the increase is primarily due to additional investment associated with the nsd acquisition and an increased investment in organic r & d projects . as a percentage of revenue , r & d expense slightly increased to 13.3 % from 12.8 % in fiscal 2010. sg & a expense in fiscal 2011 increased 14.2 % , or $ 54.2 million , to $ 437.1 million from $ 382.9 million in fiscal 2010. the increase is primarily a result of higher selling costs due to increased revenue and an increased investment in information technology , together with increases associated with the nsd acquisition . as a percentage of revenue , sg & a expenses decreased to 24.2 % from 28.1 % in fiscal 2010. recently issued accounting pronouncements in june 2011 , the financial accounting standards board ( `` fasb `` ) issued amended guidance on the presentation of comprehensive income . the amended guidance eliminates one of the presentation options provided by current u.s. gaap that is to present the components of other comprehensive income as part of the statement of changes in stockholders ' equity . in addition , it gives an entity the option to present the total of comprehensive income , the components of net income , and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements . this guidance is effective for us in the third quarter of fiscal 2012 , and will be applied retrospectively . we are currently evaluating the disclosure impact of the adoption of this guidance on our consolidated financial statements . in may 2011 , the fasb issued amended guidance on fair value measurement and related disclosures . the new guidance clarified the concepts applicable for fair value measurement and requires new disclosures , with a particular focus on level 3 measurements . this guidance is effective for us in the third quarter of fiscal 2012 , and will be applied prospectively . we do not anticipate a material impact on our consolidated financial statements as a result of the adoption of this amended guidance . story_separator_special_tag circumstances which could trigger a review include , but are not limited to : significant decreases in the market price of the asset ; significant adverse changes in the business climate or legal factors ; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset ; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset ; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life . recoverability is assessed based on the carrying amounts of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset , as well as specific appraisals in certain instances . an impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value . income taxes in accordance with the authoritative guidance on accounting for income taxes , we recognize income taxes using an asset and liability approach . this approach requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . the measurement of current and deferred taxes is based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated . the authoritative guidance provides for recognition of deferred tax assets if the realization of such deferred tax assets is more likely than not to occur . with the exception of certain international jurisdictions , we have determined that at this time it is more likely than not that deferred tax assets 41 attributable to the remaining jurisdictions will not be realized , primarily due to uncertainties related to our ability to utilize our net operating loss carryforwards before they expire . accordingly , we have established a valuation allowance for such deferred tax assets . if there is a change in our ability to realize our deferred tax assets , then our tax provision may decrease in the period in which we determine that realization is more likely than not . the authoritative guidance on accounting for uncertainty in income taxes clarifies the accounting for uncertainty in income taxes recognized in an entity 's financial statements and prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return . additionally , it provides guidance on recognition , classification , and disclosure of tax positions . we are subject to income tax audits by the respective tax authorities in all of the jurisdictions in which we operate . the determination of tax liabilities in each of these jurisdictions requires the interpretation and application of complex and sometimes uncertain tax laws and regulations . we recognize liabilities based on our estimate of whether , and the extent to which , additional tax liabilities are more likely than not . if we ultimately determine that the payment of such a liability is not necessary , then we reverse the liability and recognize a tax benefit during the period in which the determination is made that the liability is no longer necessary . the recognition and measurement of current taxes payable or refundable and deferred tax assets and liabilities requires that we make certain estimates and judgments . changes to these estimates or a change in judgment may have a material impact on our tax provision in a future period . restructuring accrual in accordance with authoritative guidance on accounting for costs associated with exit or disposal activities , generally costs associated with restructuring activities are recognized when they are incurred . however , in the case of leases , the expense is estimated and accrued when the property is vacated . given the significance of , and the timing of the execution of such activities , this process is complex and involves periodic reassessments of estimates made at the time the original decisions were made , including evaluating real estate market conditions for expected vacancy periods and sub-lease rents . a liability for post-employment benefits for workforce reductions related to restructuring activities is recorded when payment is probable , the amount is reasonably estimable , and the obligation relates to rights that have vested or accumulated . we continually evaluate the adequacy of the remaining liabilities under our restructuring initiatives . although we believe that these estimates accurately reflect the costs of our restructuring plans , actual results may differ , thereby requiring us to record additional provisions or reverse a portion of such provisions . pension and other postretirement benefits the funded status of our retirement-related benefit plans is recognized in the consolidated balance sheets . the funded status is measured as the difference between the fair value of plan assets and the benefit obligation at fiscal year end , the measurement date . for defined benefit pension plans , the benefit obligation is the projected benefit obligation ( `` pbo `` ) and for the nonpension postretirement benefit plan the benefit obligation is the accumulated postretirement benefit obligation ( `` apbo `` ) . the pbo represents the actuarial present value of benefits expected to be paid upon retirement . the apbo represents the actuarial present value of postretirement benefits attributed to employee services already rendered . the fair value of plan assets represents the current market value of cumulative company contributions made to an irrevocable trust fund , held for the sole benefit of participants . unfunded or partially funded plans , with the benefit obligation exceeding the fair value of plan assets , are aggregated and recorded as a retirement and

liquidity and capital resources plan of operations and future funding requirements we prepared the accompanying consolidated financial statements on a going concern basis , which assumes that we will realize our assets and satisfy our liabilities in the normal course of business . in addition , we have a history of losses from operations , we expect negative cash flows from our operations to continue for the foreseeable future , and we expect that our net losses will continue for at least the next several years as we develop our existing product candidates and seek to acquire , license or develop additional product candidates . these circumstances raise substantial doubt about our ability to continue as a going concern . the accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and reclassification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty of our ability to remain a going concern . at december 31 , 2019 , our accumulated deficit was approximately $ 44.0 million , our cash and cash equivalents were approximately $ 4.8 million , and our working capital was approximately $ 0.8 million . for the year ended december 31 , 2019 , we incurred a net loss of $ 14.3 million and had negative cash flow from operations of approximately $ 13.3 million . the cash used to fund our operations comes from a variety of sources . in april 2019 , we received gross proceeds of approximately $ 5.8 million , and net proceeds of approximately $ 5.2 million after deducting underwriting 62 discounts and offering expenses , in an underwritten public offering . in november 2019 , we received approximately $ 6.1 million in cash and cash equivalents in connection with our acquisition of microchips . during 2019 , we received approximately $ 1.0 million under an existing grant from the national institutes of health that funded a portion of the postcoital clinical study costs of ovaprene .

customers for optical communications products include network equipment manufacturers such as alcatel-lucent , ciena , cisco systems , ericsson , fujitsu , hewlett-packard , huawei , ibm , nokia siemens networks , and tellabs . customers for jdsu commercial lasers include amada , asml , beckman coulter , becton dickinson , disco , electro scientific industries , and han 's laser . customers for photovoltaic products include amplifier research , ets-lindgren , nanjing xinning optoelectronics automation and siemens . advanced optical technologies the aot business segment leverages its core technology strengths in optics and materials science to manage light and or color effects for a wide variety of markets—from product security to space exploration . aot consists of the authentication solutions group , the custom optics products group , and the flex products group . the authentication solutions group provides multilayer authentication solutions that include overt , covert , forensic , and digital technologies for protection from product and document counterfeiting and tampering . these solutions , many of which leverage aot color-shifting and holographic technologies , safeguard brands in the secure document , transaction card , pharmaceutical , consumer electronics , printing/imaging supplies , licensing , and fast-moving consumer goods industries . the custom optics group produces precise , high-performance , optical thin-film coatings for a variety of applications in government and aerospace , biomedical , display , office automation , entertainment , and other emerging markets . these applications include night-vision goggles , satellite solar covers , medical instrumentation , information displays , office equipment , computer-driven projectors , 3d cinema and gesture recognition . the flex products group includes custom color solutions , a product line of unique solutions for product finishes and a wide variety of decorative packaging . these include innovative , optically-based , light-management solutions that provide product enhancement for brands in the pharmaceutical , automotive , consumer electronics , and fast-moving consumer goods industries . the group 's high-end printing services produce labels for a wide variety of commercial and industrial products , and its color-shifting pigments protect the currencies of more than 90 countries including china , the european union , and the united states . 35 the aot business segment serves customers such as 3m , dolby , kingston , lockheed martin , northrup grumman , pan pacific , and sicpa . leading issuers of transaction cards such as mastercard and american express . also , pharmaceutical companies worldwide use aot business segment solutions to protect their brands . overview net revenue in fiscal 2011 increased 32.3 % , or $ 440.6 million , to $ 1,804.5 million from $ 1,363.9 million in fiscal 2010. net revenue in fiscal 2011 consisted of $ 803.0 million , or approximately 44.5 % of net revenue , from commtest , $ 770.8 million , or approximately 42.7 % of net revenue , from ccop , and $ 230.7 million , or approximately 12.8 % of net revenue , from aot . commtest net revenue excludes $ 11.7 million related to fair value adjustments of acquired deferred revenue . gross margin in fiscal 2011 increased 3.7 percentage points to 43.8 % from 40.1 % in fiscal 2010. the increase in gross margin was primarily related to lower infrastructure costs , benefits from economies of scale resulting from increased sales volumes , favorable product mix in commtest and ccop , and the introduction of new products in commtest and ccop in the last two years , as well as products acquired through the nsd acquisition . r & d expense in fiscal 2011 increased 37.2 % , or $ 65.0 million , to $ 239.9 million from $ 174.9 million in fiscal 2010. the increase is primarily due to additional investment associated with the nsd acquisition and an increased investment in organic r & d projects . as a percentage of revenue , r & d expense slightly increased to 13.3 % from 12.8 % in fiscal 2010. sg & a expense in fiscal 2011 increased 14.2 % , or $ 54.2 million , to $ 437.1 million from $ 382.9 million in fiscal 2010. the increase is primarily a result of higher selling costs due to increased revenue and an increased investment in information technology , together with increases associated with the nsd acquisition . as a percentage of revenue , sg & a expenses decreased to 24.2 % from 28.1 % in fiscal 2010. recently issued accounting pronouncements in june 2011 , the financial accounting standards board ( `` fasb `` ) issued amended guidance on the presentation of comprehensive income . the amended guidance eliminates one of the presentation options provided by current u.s. gaap that is to present the components of other comprehensive income as part of the statement of changes in stockholders ' equity . in addition , it gives an entity the option to present the total of comprehensive income , the components of net income , and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements . this guidance is effective for us in the third quarter of fiscal 2012 , and will be applied retrospectively . we are currently evaluating the disclosure impact of the adoption of this guidance on our consolidated financial statements . in may 2011 , the fasb issued amended guidance on fair value measurement and related disclosures . the new guidance clarified the concepts applicable for fair value measurement and requires new disclosures , with a particular focus on level 3 measurements . this guidance is effective for us in the third quarter of fiscal 2012 , and will be applied prospectively . we do not anticipate a material impact on our consolidated financial statements as a result of the adoption of this amended guidance . story_separator_special_tag circumstances which could trigger a review include , but are not limited to : significant decreases in the market price of the asset ; significant adverse changes in the business climate or legal factors ; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset ; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset ; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life . recoverability is assessed based on the carrying amounts of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset , as well as specific appraisals in certain instances . an impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value . income taxes in accordance with the authoritative guidance on accounting for income taxes , we recognize income taxes using an asset and liability approach . this approach requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . the measurement of current and deferred taxes is based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated . the authoritative guidance provides for recognition of deferred tax assets if the realization of such deferred tax assets is more likely than not to occur . with the exception of certain international jurisdictions , we have determined that at this time it is more likely than not that deferred tax assets 41 attributable to the remaining jurisdictions will not be realized , primarily due to uncertainties related to our ability to utilize our net operating loss carryforwards before they expire . accordingly , we have established a valuation allowance for such deferred tax assets . if there is a change in our ability to realize our deferred tax assets , then our tax provision may decrease in the period in which we determine that realization is more likely than not . the authoritative guidance on accounting for uncertainty in income taxes clarifies the accounting for uncertainty in income taxes recognized in an entity 's financial statements and prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return . additionally , it provides guidance on recognition , classification , and disclosure of tax positions . we are subject to income tax audits by the respective tax authorities in all of the jurisdictions in which we operate . the determination of tax liabilities in each of these jurisdictions requires the interpretation and application of complex and sometimes uncertain tax laws and regulations . we recognize liabilities based on our estimate of whether , and the extent to which , additional tax liabilities are more likely than not . if we ultimately determine that the payment of such a liability is not necessary , then we reverse the liability and recognize a tax benefit during the period in which the determination is made that the liability is no longer necessary . the recognition and measurement of current taxes payable or refundable and deferred tax assets and liabilities requires that we make certain estimates and judgments . changes to these estimates or a change in judgment may have a material impact on our tax provision in a future period . restructuring accrual in accordance with authoritative guidance on accounting for costs associated with exit or disposal activities , generally costs associated with restructuring activities are recognized when they are incurred . however , in the case of leases , the expense is estimated and accrued when the property is vacated . given the significance of , and the timing of the execution of such activities , this process is complex and involves periodic reassessments of estimates made at the time the original decisions were made , including evaluating real estate market conditions for expected vacancy periods and sub-lease rents . a liability for post-employment benefits for workforce reductions related to restructuring activities is recorded when payment is probable , the amount is reasonably estimable , and the obligation relates to rights that have vested or accumulated . we continually evaluate the adequacy of the remaining liabilities under our restructuring initiatives . although we believe that these estimates accurately reflect the costs of our restructuring plans , actual results may differ , thereby requiring us to record additional provisions or reverse a portion of such provisions . pension and other postretirement benefits the funded status of our retirement-related benefit plans is recognized in the consolidated balance sheets . the funded status is measured as the difference between the fair value of plan assets and the benefit obligation at fiscal year end , the measurement date . for defined benefit pension plans , the benefit obligation is the projected benefit obligation ( `` pbo `` ) and for the nonpension postretirement benefit plan the benefit obligation is the accumulated postretirement benefit obligation ( `` apbo `` ) . the pbo represents the actuarial present value of benefits expected to be paid upon retirement . the apbo represents the actuarial present value of postretirement benefits attributed to employee services already rendered . the fair value of plan assets represents the current market value of cumulative company contributions made to an irrevocable trust fund , held for the sole benefit of participants . unfunded or partially funded plans , with the benefit obligation exceeding the fair value of plan assets , are aggregated and recorded as a retirement and

liquidity and capital resources our cash investments are made in accordance with an investment policy approved by the audit committee of our board of directors . in general , our investment policy requires that securities purchased be rated a-1/p-1 , a/a2 or better . securities that are downgraded subsequent to purchase are evaluated and may be sold or held at management 's discretion . no security may have an effective maturity that exceeds 37 months , and the average duration of our holdings may not exceed 18 months . at any time , no more than 5 % of the investment portfolio may be concentrated in a single issuer other than the u.s. government or u.s. agencies . our investments in debt securities and marketable equity securities are primarily classified as available-for-sale investments or trading securities and are recorded at fair value . the cost of securities sold is based on the specific identification method . unrealized gains and losses on available-for-sale investments are reported as a separate component of stockholders ' equity . we did not hold any investments in auction rate securities , mortgage backed securities , collateralized debt obligations , or variable rate demand notes at july 2 , 2011 and virtually all debt securities held were of investment grade ( at least bbb-/baa3 ) . as of july 2 , 2011 , approximately 85 % of our cash , cash equivalents , and short-term investments were held in the u.s. as of july 2 , 2011 , the majority of our cash investments have maturities of 90 days or less and are of high credit quality . during fiscal 2011 , we recognized $ 0.2 million of investment losses and can provide no assurances that the value or the liquidity of our other investments will not also be impacted by adverse conditions in the financial markets . in addition , we maintain cash balances in operating accounts that are with third party financial institutions . these balances in the u.s. may exceed the 58 federal deposit insurance corporation ( `` fdic '' ) insurance limits .

the company uses `` evaluation stage `` to describe exploration stage properties that contain mineralized material and on which operators are engaged in the search for reserves . we do not conduct mining operations nor are we required to contribute to capital costs ( except as contractually obligated to as part of the mt . milligan transaction described in part i , item i , business , of this report ) , exploration costs , environmental costs or other mining costs on the properties in which we hold royalty interests . during the fiscal year ended june 30 , 2011 , we focused on the management of our existing royalty interests and the acquisition of royalty and similar interests . our financial results are primarily tied to the price of gold , silver , copper , nickel and other metals , as well as production from our producing stage royalty interests . the price of gold , silver , copper , nickel and other metals have fluctuated in recent years . the marketability and the price of gold , silver , copper , nickel and other metals are influenced by numerous factors beyond the control of the company and may have a material and adverse effect on the company 's results of operations and financial condition . for the fiscal years ended june 30 , 2011 , 2010 and 2009 , gold , silver , copper and nickel price averages and percentage of royalty revenues by metal were as follows : replace_table_token_16_th operators ' production estimates by royalty for calendar year 2011 we received annual production estimates from many of the operators of our producing mines during the first calendar quarter of 2011. the following table shows such production estimates for our principal producing properties for calendar 2011 as well as the actual production reported to us by the various operators through june 30 , 2011. the estimates and production reports are prepared by the operators of the mining properties . we do not participate in the preparation or calculation of the operators ' estimates or production reports and have not independently assessed or verified the accuracy of such information . please refer to part i , item 2 , properties , for further discussion on updates at certain of our principal producing and development stage properties . 31 operators ' production estimate by royalty for calendar year 2011 and reported production principal producing properties for the period january 1 , 2011 through june 30 , 2011 replace_table_token_17_th ( 1 ) there can be no assurance that production estimates received from our operators will be achieved . please refer to our cautionary language regarding forward-looking statements following this md & a , as well as the risk factors identified in part i , item 1a , of this report for information regarding factors that could affect actual results . ( 2 ) reported production relates to the amount of metal sales , subject to our royalty interests , for the period january 1 , 2011 through june 30 , 2011 , as reported to us by the operators of the mines . ( 3 ) minefinders estimated that calendar 2011 production for gold would be between 65,000 ounces and 70,000 ounces of gold and silver production would be between 3.3 million ounces and 3.5 million ounces of silver . ( 4 ) st andrew estimates that calendar 2011 gold production will be between 23,000 and 26,000 ounces of gold compared to earlier guidance of 45,000 ounces and 50,000 ounces of gold . reported production for the six months ended june 30 , 2011 includes approximately 1,400 gold ounces attributable to the quarter ended december 31 , 2010 , as reported to us by the operator . ( 5 ) alamos estimates that calendar 2011 gold production will be between 145,000 and 160,000 ounces of gold compared to earlier guidance of 160,000 and 175,000 ounces of gold . ( 6 ) goldcorp estimates that calendar 2011 gold production will be 250,000 ounces compared to earlier guidance of 350,000 ounces . goldcorp has not provided production estimates for silver , lead and zinc since april 2010 . 32 ( 7 ) quadra estimates that calendar 2011 gold production will be between 25,000 and 30,000 ounces of gold compared to earlier guidance of 45,000 ounces and 50,000 ounces of gold . quadra estimates that copper production will be between 105 million pounds and 120 million pounds of copper . ( 8 ) the company did not receive calendar 2011 production guidance from the operator . historical production the following table discloses historical production for the past three fiscal years for the principal producing properties that are subject to our royalty interests , as reported to us by the operators of the mines : historical production ( 1 ) by royalty principal producing properties for the fiscal years ended june 30 , 2011 , 2010 and 2009 replace_table_token_18_th ( 1 ) historical production relates to the amount of metal sales , subject to our royalty interests for each fiscal year presented , as reported to us by the operators of the mines . ( 2 ) production began during our fiscal year 2011 . ( 3 ) royalty acquired in february 2010 as part of the acquisition of irc . 33 critical accounting policies listed below are the accounting policies that the company believes are critical to its financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset , liability , revenue or expense being reported . please refer to note 2 of the notes to consolidated financial statements for a discussion on recently adopted and issued accounting pronouncements . story_separator_special_tag these increases were partially offset during the period by a decrease in production at robinson . general and administrative expenses increased to $ 19.5 million for the fiscal year ended june 30 , 2010 , from $ 12.0 million for the fiscal year ended june 30 , 2009. the increase was primarily due to an increase in non-cash stock-based compensation expense allocated to general and administrative expense during the period of approximately $ 4.4 million , an increase in general corporate costs of approximately $ 1.5 million and an increase in accounting and tax related expenses of approximately $ 1.0 million . our non-cash stock-based compensation , which is also included within general and administrative expenses was $ 7.3 million for the fiscal year ended june 30 , 2010 , compared to $ 2.9 million for the fiscal year ended june 30 , 2009. the increase was primarily due to an increase in the number of performance share awards the company had estimated would vest . depreciation , depletion and amortization expense increased to $ 53.8 million for the fiscal year ended june 30 , 2010 , from $ 32.6 million for the fiscal year ended june 30 , 2009. increased production at taparko , peñasquito , dolores and leeville resulted in additional depletion expense of approximately $ 14.7 million during the period . also , the producing royalties acquired as part of the irc acquisition resulted in additional depletion expense of approximately $ 5.5 million from the acquisition date through june 30 , 2010. as discussed in note 3 to the notes to consolidated financial statements , the company incurred approximately $ 19.4 million in severance and acquisition related costs associated with the irc transaction . these one-time , non-recurring costs were related to financial advisory , legal , accounting , tax and consulting services associated with the irc transaction as well as severance related payments as part of the termination of irc 's officers and certain employees upon acquisition of irc . interest and other income increased to $ 6.4 million for the fiscal year ended june 30 , 2010 , from $ 3.2 million for the fiscal year ended june 30 , 2009. the increase was primarily due to a $ 5.9 million gain on distributions of gold inventory attributable to non-controlling interests . the increase was partially off-set by ( i ) a decrease in our average invested cash during fiscal year 2010 when compared to fiscal year 2009 , and ( ii ) a decrease in the interest rates associated with our invested cash . interest and other expense increased to $ 3.8 million for the fiscal year ended june 30 , 2010 , from $ 1.0 million for the fiscal year ended june 30 , 2009. the increase was primarily due to an increase in interest expense associated with the outstanding balances on the company 's debt facilities , as discussed in note 8 of the notes to consolidated financial statements . during the fiscal year ended june 30 , 2010 , we recognized income tax expense totaling $ 14.2 million compared with $ 21.9 million during the fiscal year ended june 30 , 2009. this resulted in an effective tax rate of 32.5 % during the current period , compared with 34.6 % in the prior period . the decrease in the effective tax rate for june 30 , 2010 is primarily related to ( i ) less pre-tax income as a result of the one-time royalty portfolio gain in june 30 , 2009 , ( ii ) an increase in the depletion allowance , and ( iii ) an increase in the income attributable to non-controlling interests . the tax rate for june 30 , 2010 also included non-deductible acquisition related costs and increases in reserves for income tax contingencies as a result of uncertain tax positions acquired during the year . without the 43 costs incurred as a result of the irc transaction , the effective tax rate would have been 29.5 % for the year ended june 30 , 2010. forward-looking statements cautionary `` safe harbor `` statement under the private securities litigation reform act of 1995 : with the exception of historical matters , the matters discussed in this report are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projections or estimates contained herein . such forward-looking statements include statements regarding projected production estimates and estimates pertaining to timing and commencement of production from the operators of our royalty properties ; the adequacy of financial resources and funds to cover anticipated expenditures for general and administrative expenses as well as costs associated with exploration and business development and capital expenditures , and our expectation that substantially all our revenues will be derived from royalty interests . factors that could cause actual results to differ materially from these forward-looking statements include , among others : changes in gold and other metals prices on which our royalties and similar interests are paid or prices associated with the primary metals mined at properties where we hold interests ; the production at or performance of properties where we hold interests ; decisions and activities of the operators of properties where we hold interests ; the ability of operators to bring projects into production and operate in accordance with feasibility studies ; liquidity or other problems our operators may encounter ; unanticipated grade and geological , metallurgical , processing or other problems at the properties where we hold interests ; mine operating and ore processing facility problems , pit wall or tailings dam failures , natural catastrophes such as floods or earthquakes and access to raw materials , water and power ; changes in project parameters as plans of the operators are refined ; changes in estimates of reserves and mineralization by the operators of properties where we hold interests ; economic and market conditions ; future financial needs ; federal , state and foreign legislation

liquidity and capital resources our cash investments are made in accordance with an investment policy approved by the audit committee of our board of directors . in general , our investment policy requires that securities purchased be rated a-1/p-1 , a/a2 or better . securities that are downgraded subsequent to purchase are evaluated and may be sold or held at management 's discretion . no security may have an effective maturity that exceeds 37 months , and the average duration of our holdings may not exceed 18 months . at any time , no more than 5 % of the investment portfolio may be concentrated in a single issuer other than the u.s. government or u.s. agencies . our investments in debt securities and marketable equity securities are primarily classified as available-for-sale investments or trading securities and are recorded at fair value . the cost of securities sold is based on the specific identification method . unrealized gains and losses on available-for-sale investments are reported as a separate component of stockholders ' equity . we did not hold any investments in auction rate securities , mortgage backed securities , collateralized debt obligations , or variable rate demand notes at july 2 , 2011 and virtually all debt securities held were of investment grade ( at least bbb-/baa3 ) . as of july 2 , 2011 , approximately 85 % of our cash , cash equivalents , and short-term investments were held in the u.s. as of july 2 , 2011 , the majority of our cash investments have maturities of 90 days or less and are of high credit quality . during fiscal 2011 , we recognized $ 0.2 million of investment losses and can provide no assurances that the value or the liquidity of our other investments will not also be impacted by adverse conditions in the financial markets . in addition , we maintain cash balances in operating accounts that are with third party financial institutions . these balances in the u.s. may exceed the 58 federal deposit insurance corporation ( `` fdic '' ) insurance limits .

the company uses `` evaluation stage `` to describe exploration stage properties that contain mineralized material and on which operators are engaged in the search for reserves . we do not conduct mining operations nor are we required to contribute to capital costs ( except as contractually obligated to as part of the mt . milligan transaction described in part i , item i , business , of this report ) , exploration costs , environmental costs or other mining costs on the properties in which we hold royalty interests . during the fiscal year ended june 30 , 2011 , we focused on the management of our existing royalty interests and the acquisition of royalty and similar interests . our financial results are primarily tied to the price of gold , silver , copper , nickel and other metals , as well as production from our producing stage royalty interests . the price of gold , silver , copper , nickel and other metals have fluctuated in recent years . the marketability and the price of gold , silver , copper , nickel and other metals are influenced by numerous factors beyond the control of the company and may have a material and adverse effect on the company 's results of operations and financial condition . for the fiscal years ended june 30 , 2011 , 2010 and 2009 , gold , silver , copper and nickel price averages and percentage of royalty revenues by metal were as follows : replace_table_token_16_th operators ' production estimates by royalty for calendar year 2011 we received annual production estimates from many of the operators of our producing mines during the first calendar quarter of 2011. the following table shows such production estimates for our principal producing properties for calendar 2011 as well as the actual production reported to us by the various operators through june 30 , 2011. the estimates and production reports are prepared by the operators of the mining properties . we do not participate in the preparation or calculation of the operators ' estimates or production reports and have not independently assessed or verified the accuracy of such information . please refer to part i , item 2 , properties , for further discussion on updates at certain of our principal producing and development stage properties . 31 operators ' production estimate by royalty for calendar year 2011 and reported production principal producing properties for the period january 1 , 2011 through june 30 , 2011 replace_table_token_17_th ( 1 ) there can be no assurance that production estimates received from our operators will be achieved . please refer to our cautionary language regarding forward-looking statements following this md & a , as well as the risk factors identified in part i , item 1a , of this report for information regarding factors that could affect actual results . ( 2 ) reported production relates to the amount of metal sales , subject to our royalty interests , for the period january 1 , 2011 through june 30 , 2011 , as reported to us by the operators of the mines . ( 3 ) minefinders estimated that calendar 2011 production for gold would be between 65,000 ounces and 70,000 ounces of gold and silver production would be between 3.3 million ounces and 3.5 million ounces of silver . ( 4 ) st andrew estimates that calendar 2011 gold production will be between 23,000 and 26,000 ounces of gold compared to earlier guidance of 45,000 ounces and 50,000 ounces of gold . reported production for the six months ended june 30 , 2011 includes approximately 1,400 gold ounces attributable to the quarter ended december 31 , 2010 , as reported to us by the operator . ( 5 ) alamos estimates that calendar 2011 gold production will be between 145,000 and 160,000 ounces of gold compared to earlier guidance of 160,000 and 175,000 ounces of gold . ( 6 ) goldcorp estimates that calendar 2011 gold production will be 250,000 ounces compared to earlier guidance of 350,000 ounces . goldcorp has not provided production estimates for silver , lead and zinc since april 2010 . 32 ( 7 ) quadra estimates that calendar 2011 gold production will be between 25,000 and 30,000 ounces of gold compared to earlier guidance of 45,000 ounces and 50,000 ounces of gold . quadra estimates that copper production will be between 105 million pounds and 120 million pounds of copper . ( 8 ) the company did not receive calendar 2011 production guidance from the operator . historical production the following table discloses historical production for the past three fiscal years for the principal producing properties that are subject to our royalty interests , as reported to us by the operators of the mines : historical production ( 1 ) by royalty principal producing properties for the fiscal years ended june 30 , 2011 , 2010 and 2009 replace_table_token_18_th ( 1 ) historical production relates to the amount of metal sales , subject to our royalty interests for each fiscal year presented , as reported to us by the operators of the mines . ( 2 ) production began during our fiscal year 2011 . ( 3 ) royalty acquired in february 2010 as part of the acquisition of irc . 33 critical accounting policies listed below are the accounting policies that the company believes are critical to its financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset , liability , revenue or expense being reported . please refer to note 2 of the notes to consolidated financial statements for a discussion on recently adopted and issued accounting pronouncements . story_separator_special_tag these increases were partially offset during the period by a decrease in production at robinson . general and administrative expenses increased to $ 19.5 million for the fiscal year ended june 30 , 2010 , from $ 12.0 million for the fiscal year ended june 30 , 2009. the increase was primarily due to an increase in non-cash stock-based compensation expense allocated to general and administrative expense during the period of approximately $ 4.4 million , an increase in general corporate costs of approximately $ 1.5 million and an increase in accounting and tax related expenses of approximately $ 1.0 million . our non-cash stock-based compensation , which is also included within general and administrative expenses was $ 7.3 million for the fiscal year ended june 30 , 2010 , compared to $ 2.9 million for the fiscal year ended june 30 , 2009. the increase was primarily due to an increase in the number of performance share awards the company had estimated would vest . depreciation , depletion and amortization expense increased to $ 53.8 million for the fiscal year ended june 30 , 2010 , from $ 32.6 million for the fiscal year ended june 30 , 2009. increased production at taparko , peñasquito , dolores and leeville resulted in additional depletion expense of approximately $ 14.7 million during the period . also , the producing royalties acquired as part of the irc acquisition resulted in additional depletion expense of approximately $ 5.5 million from the acquisition date through june 30 , 2010. as discussed in note 3 to the notes to consolidated financial statements , the company incurred approximately $ 19.4 million in severance and acquisition related costs associated with the irc transaction . these one-time , non-recurring costs were related to financial advisory , legal , accounting , tax and consulting services associated with the irc transaction as well as severance related payments as part of the termination of irc 's officers and certain employees upon acquisition of irc . interest and other income increased to $ 6.4 million for the fiscal year ended june 30 , 2010 , from $ 3.2 million for the fiscal year ended june 30 , 2009. the increase was primarily due to a $ 5.9 million gain on distributions of gold inventory attributable to non-controlling interests . the increase was partially off-set by ( i ) a decrease in our average invested cash during fiscal year 2010 when compared to fiscal year 2009 , and ( ii ) a decrease in the interest rates associated with our invested cash . interest and other expense increased to $ 3.8 million for the fiscal year ended june 30 , 2010 , from $ 1.0 million for the fiscal year ended june 30 , 2009. the increase was primarily due to an increase in interest expense associated with the outstanding balances on the company 's debt facilities , as discussed in note 8 of the notes to consolidated financial statements . during the fiscal year ended june 30 , 2010 , we recognized income tax expense totaling $ 14.2 million compared with $ 21.9 million during the fiscal year ended june 30 , 2009. this resulted in an effective tax rate of 32.5 % during the current period , compared with 34.6 % in the prior period . the decrease in the effective tax rate for june 30 , 2010 is primarily related to ( i ) less pre-tax income as a result of the one-time royalty portfolio gain in june 30 , 2009 , ( ii ) an increase in the depletion allowance , and ( iii ) an increase in the income attributable to non-controlling interests . the tax rate for june 30 , 2010 also included non-deductible acquisition related costs and increases in reserves for income tax contingencies as a result of uncertain tax positions acquired during the year . without the 43 costs incurred as a result of the irc transaction , the effective tax rate would have been 29.5 % for the year ended june 30 , 2010. forward-looking statements cautionary `` safe harbor `` statement under the private securities litigation reform act of 1995 : with the exception of historical matters , the matters discussed in this report are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projections or estimates contained herein . such forward-looking statements include statements regarding projected production estimates and estimates pertaining to timing and commencement of production from the operators of our royalty properties ; the adequacy of financial resources and funds to cover anticipated expenditures for general and administrative expenses as well as costs associated with exploration and business development and capital expenditures , and our expectation that substantially all our revenues will be derived from royalty interests . factors that could cause actual results to differ materially from these forward-looking statements include , among others : changes in gold and other metals prices on which our royalties and similar interests are paid or prices associated with the primary metals mined at properties where we hold interests ; the production at or performance of properties where we hold interests ; decisions and activities of the operators of properties where we hold interests ; the ability of operators to bring projects into production and operate in accordance with feasibility studies ; liquidity or other problems our operators may encounter ; unanticipated grade and geological , metallurgical , processing or other problems at the properties where we hold interests ; mine operating and ore processing facility problems , pit wall or tailings dam failures , natural catastrophes such as floods or earthquakes and access to raw materials , water and power ; changes in project parameters as plans of the operators are refined ; changes in estimates of reserves and mineralization by the operators of properties where we hold interests ; economic and market conditions ; future financial needs ; federal , state and foreign legislation

debt ( 1 ) $ 237,641 $ 20,335 $ 217,306 $ — $ — total $ 237,641 $ 20,335 $ 217,306 $ — $ — ( 1 ) amounts represent principal ( $ 226.1 million ) and estimated interest payments ( $ 11.5 million ) assuming no early extinguishment . for information on our contractual obligations , see note 8 of the notes to consolidated financial statements under part ii , item 8 , `` financial statements and supplementary data '' of this report . royal gold believes it will be able to fund all existing obligations from net cash provided by operating activities . results of operations fiscal year ended june 30 , 2011 , compared with fiscal year ended june 30 , 2010 for the fiscal year ended june 30 , 2011 , we recorded net income available to royal gold common stockholders of $ 71.4 million , or $ 1.29 per basic and diluted share , compared to net income of $ 21.5 million , or $ 0.49 per basic and diluted share , for the fiscal year ended june 30 , 2010. the increase in our earnings per share during the fiscal year ended june 30 , 2011 was primarily attributable to an increase in royalty revenue , as discussed further below . the increase is also attributable to a decrease in one-time international royalty corporation ( `` irc '' ) severance and acquisition related costs of approximately $ 19.4 million , which were incurred during the period ended june 30 , 2010. these increases were partially offset by an increase in our total costs and expenses , which are each further discussed below .

due to the variability in the drivers of the assumptions used in this process , estimates of the portfolio 's inherent risks and overall collectability change with changes in the economy , individual industries , and borrowers ' ability and willingness to repay their obligations . the degree to which any particular assumption affects the allowance for loan losses depends on the severity of the change and its relationship to the other assumptions . key judgments used in determining the allowance for loan losses for individual commercial loans include credit quality indicators , collateral values and estimated cash flows for impaired loans . for pools of loans the company considers the historical net loss experience , and as necessary , adjustments to address current events and conditions , considerations regarding economic uncertainty , and overall credit conditions . the historical loss factors incorporate a rolling twelve quarter look-back period for each loan segment in order to reduce the volatility associated with improperly weighting short-term fluctuations . the process of determining the level of the allowance for loan losses requires a high degree of judgment . any downward trend in the economy , regional or national , may require the company to increase the allowance for loan losses resulting in a negative impact on the results of operations and financial condition . # 27 a. overview the following discussion and analysis focuses on and reviews our results of operations for each of the years in the three-year period ended december 31 , 2018 and our financial condition as of december 31 , 2018 and 2017 . the discussion below should be read in conjunction with the selected quarterly and annual information set forth above and the consolidated financial statements and other financial data presented elsewhere in this report . when necessary , prior-year financial information has been reclassified to conform to the current-year presentation . summary of 2018 financial results : net income for 2018 of $ 36.3 million increased 23.7 % over the results for 2017 . diluted earnings per share ( `` eps `` ) for 2018 was $ 2.50 , an increase of $ 0.46 , or 22.5 % from eps in 2017 . financial performance ratios were strong for 2018 , including the return on average equity ( `` roe `` ) of 13.96 % , compared to 12.14 % for 2017 year , and return on average assets ( `` roa `` ) for 2018 of 1.27 % compared to 1.09 % for 2017 . factors contributing to the positive results for the current year compared to the comparable year are as follows : net interest income on a gaap basis increased 8.2 % to $ 84.0 million primarily due to the increase in total interest and dividend income of $ 11.8 million . net interest margin on a gaap basis improved to 3.07 % for 2018 as compared to 3.02 % for 2017 . interest and fees on loans increased $ 11.4 million for 2018 mainly due to strong loan growth and higher market rates . interest expense increased $ 5.5 million as a result of 4.6 % deposit growth , higher market rates and some shifting in the overall funding mix toward higher costing sources . consistent with prior years , seasonal municipal deposits increased in the fourth quarter . noninterest income , including net gains on securities , increased $ 1.3 million in 2018 mainly due to an $ 838 thousand increase in income from fiduciary activities , an increase of $ 543 thousand in service fee revenue , and the increase in the net gain on securities . total noninterest expense increased by $ 2.4 million , in 2018 primarily due to the $ 1.1 million increase in salaries and employee benefits and $ 1.0 million increase in other operating expenses , which included increased loan costs combined with increased spending on technology . in addition to the above , the provision for income taxes decreased $ 1.5 million , or 14.3 % , due to the reduction in tax rates as a result of the tax act . the changes in net income , net interest income and net interest margin between the current and prior year are discussed in detail under the heading `` results of operations , `` beginning on page 29 . 2018 regulatory reform : the economic growth act , was signed into law may 24 , 2018. some of its provisions were written to take effect immediately ; others have later specified effective dates and still others are open-ended , to be implemented by rule-making . see the discussion of this item under c. supervision and regulation , `` 2018 regulatory reform `` for further details . the tax act was enacted on december 22 , 2017. the company has recorded and reported the effects of the law 's impacts in its financial statements for the periods ended december 31 , 2018 and december 31 , 2017. see note 15 , income taxes , to the notes to our consolidated financial statements for more information . regulatory capital and increase in stockholders ' equity : as of december 31 , 2018 , we continued to exceed by a substantial amount all required minimum capital ratios under the bank regulatory capital rules at both the holding company and bank levels . at that date , both of our banks , as well as our holding company , continued to qualify as `` well-capitalized `` under the capital classification guidelines as defined by the current bank regulatory capital rules . because of our continued profitability and strong asset quality , our regulatory capital levels throughout recent years have consistently remained well in excess of the various required regulatory minimums in effect from time to time , as they do at present . story_separator_special_tag we recorded a $ 2.6 million provision for loan losses for 2018 , compared to the $ 2.7 million provision for 2017 . the level of the 2018 provision was impacted primarily by the growth in loan balances and the decline in nonperforming loans during 2018 . our analysis of the method we employ for determining the amount of the loan loss provision is explained in detail in notes 2 , summary of significant accounting policies , and 5 , loans , to the notes to our consolidated financial statements . summary of the allowance and provision for loan losses ( dollars in thousands ) ( loans , net of unearned income ) replace_table_token_17_th # 35 allocation of the allowance for loan losses ( dollars in thousands ) replace_table_token_18_th the allowance for loan losses increased to $ 20.2 million at year-end 2018 from $ 18.6 million at year-end 2017 , an increase of 8.7 % . however , the loan portfolio increased at an even faster rate during 2018 ( the portfolio at year-end 2018 was up by 12.6 % compared to year-end 2017 ) , with the result that the allowance for loan losses as a percentage of period-end total loans declined to 0.92 % at year-end 2018 from 0.95 % at year-end 2017 , a decrease of 3.16 % . a variety of factors were considered in evaluating the adequacy of the allowance for loan losses at december 31 , 2018 and the provision for loan losses for the year , including : factors leading to an increase in the provision for loan losses : loan growth in all portfolio segments an increase in classified commercial and commercial real estate loans factors leading to a decrease in the provision for loan losses : a slight decrease in the qualitative loss factor for consumer loans a decrease in the qualitative and historical loss factors for residential real estate loans see note 5 , loans , to the notes to our consolidated financial statements for a complete list of all the factors used to calculate the provision for loan losses , including the factors that did not change during the year . most of our adversely classified loans ( special mention and substandard - see our definition for these classifications in note 5 , loans , to the notes to our consolidated financial statements ) continued to perform under their contractual terms . iii . noninterest income the majority of our noninterest income constitutes fee income from services , principally fees and commissions from fiduciary services , deposit account service charges , insurance commissions , net gains ( losses ) on securities transactions and other recurring fee income . analysis of noninterest income ( dollars in thousands ) replace_table_token_19_th 2018 compared to 2017 : total noninterest income in 2018 was $ 28.9 million , an increase of $ 1.3 million , or 4.7 % , from total noninterest income of $ 27.6 million for 2017 . income from fiduciary activities increased from 2017 to 2018 by $ 838 thousand due to nonrecurring fee income related to the settlement of estates as well as an increase in wealth management fees related to portfolio valuation as a result of the performance in the equity market . equity markets performed favorably for the first three quarters of 2018 before the decline experienced in the fourth quarter of 2018. assets under trust administration and investment management at december 31 , 2018 were $ 1.386 billion , a decrease of $ 67.2 million , or 4.6 % , from the prior year-end balance of $ 1.453 billion . fees for other services to customers ( primarily service charges on deposit accounts , revenues related to the sale of mutual funds to our customers by third party providers , income from debit card transactions , and servicing income on sold loans ) were $ 10.1 million for 2018 , an increase of $ 543 thousand , or 5.7 % , from 2017 . the principal cause of the increase was an increase in income from debit card transactions , offset in part by a decline in fee income from service charges on deposit accounts and overdraft fee income . # 36 insurance commissions decreased by $ 724 thousand , or 8.4 % from 2017 to 2018 mainly due to the increased competition for commercial clients in the company 's markets . net gain on securities in 2018 was the change in the fair value of equity investments of $ 213 thousand , while the net loss on securities in 2017 was a net loss from securities transactions of $ 448 thousand . net gains on the sales of loans decreased in 2018 to $ 135 thousand , from $ 546 thousand in 2017 , a decrease of $ 411 thousand , or 75.3 % due to a change in strategy to retain more loans in 2018 as residential real estate market interest rates increased . the reduced gain is consistent with the amount of total loans sold between the two years , which decreased from $ 17.2 million in 2017 to $ 4.3 million in 2018 , a 75.1 % decrease . the rate at which mortgage loan originations are sold in future periods will depend on various circumstances , including prevailing mortgage rates , other lending opportunities , capital and liquidity needs , and the ready availability of a market for such sales . the company is unable to predict what the retention rate of such loans in future periods may be , although the retention rates have increased in each of the last three years . servicing rights are generally retained for loans originated and sold , which also generates additional noninterest income in subsequent periods ( fees for other services to customers ) . other operating income increased by $ 397 thousand , or 42.8 % between the two years mainly due to the recognition of a small gain from the investment in

debt ( 1 ) $ 237,641 $ 20,335 $ 217,306 $ — $ — total $ 237,641 $ 20,335 $ 217,306 $ — $ — ( 1 ) amounts represent principal ( $ 226.1 million ) and estimated interest payments ( $ 11.5 million ) assuming no early extinguishment . for information on our contractual obligations , see note 8 of the notes to consolidated financial statements under part ii , item 8 , `` financial statements and supplementary data '' of this report . royal gold believes it will be able to fund all existing obligations from net cash provided by operating activities . results of operations fiscal year ended june 30 , 2011 , compared with fiscal year ended june 30 , 2010 for the fiscal year ended june 30 , 2011 , we recorded net income available to royal gold common stockholders of $ 71.4 million , or $ 1.29 per basic and diluted share , compared to net income of $ 21.5 million , or $ 0.49 per basic and diluted share , for the fiscal year ended june 30 , 2010. the increase in our earnings per share during the fiscal year ended june 30 , 2011 was primarily attributable to an increase in royalty revenue , as discussed further below . the increase is also attributable to a decrease in one-time international royalty corporation ( `` irc '' ) severance and acquisition related costs of approximately $ 19.4 million , which were incurred during the period ended june 30 , 2010. these increases were partially offset by an increase in our total costs and expenses , which are each further discussed below .

due to the variability in the drivers of the assumptions used in this process , estimates of the portfolio 's inherent risks and overall collectability change with changes in the economy , individual industries , and borrowers ' ability and willingness to repay their obligations . the degree to which any particular assumption affects the allowance for loan losses depends on the severity of the change and its relationship to the other assumptions . key judgments used in determining the allowance for loan losses for individual commercial loans include credit quality indicators , collateral values and estimated cash flows for impaired loans . for pools of loans the company considers the historical net loss experience , and as necessary , adjustments to address current events and conditions , considerations regarding economic uncertainty , and overall credit conditions . the historical loss factors incorporate a rolling twelve quarter look-back period for each loan segment in order to reduce the volatility associated with improperly weighting short-term fluctuations . the process of determining the level of the allowance for loan losses requires a high degree of judgment . any downward trend in the economy , regional or national , may require the company to increase the allowance for loan losses resulting in a negative impact on the results of operations and financial condition . # 27 a. overview the following discussion and analysis focuses on and reviews our results of operations for each of the years in the three-year period ended december 31 , 2018 and our financial condition as of december 31 , 2018 and 2017 . the discussion below should be read in conjunction with the selected quarterly and annual information set forth above and the consolidated financial statements and other financial data presented elsewhere in this report . when necessary , prior-year financial information has been reclassified to conform to the current-year presentation . summary of 2018 financial results : net income for 2018 of $ 36.3 million increased 23.7 % over the results for 2017 . diluted earnings per share ( `` eps `` ) for 2018 was $ 2.50 , an increase of $ 0.46 , or 22.5 % from eps in 2017 . financial performance ratios were strong for 2018 , including the return on average equity ( `` roe `` ) of 13.96 % , compared to 12.14 % for 2017 year , and return on average assets ( `` roa `` ) for 2018 of 1.27 % compared to 1.09 % for 2017 . factors contributing to the positive results for the current year compared to the comparable year are as follows : net interest income on a gaap basis increased 8.2 % to $ 84.0 million primarily due to the increase in total interest and dividend income of $ 11.8 million . net interest margin on a gaap basis improved to 3.07 % for 2018 as compared to 3.02 % for 2017 . interest and fees on loans increased $ 11.4 million for 2018 mainly due to strong loan growth and higher market rates . interest expense increased $ 5.5 million as a result of 4.6 % deposit growth , higher market rates and some shifting in the overall funding mix toward higher costing sources . consistent with prior years , seasonal municipal deposits increased in the fourth quarter . noninterest income , including net gains on securities , increased $ 1.3 million in 2018 mainly due to an $ 838 thousand increase in income from fiduciary activities , an increase of $ 543 thousand in service fee revenue , and the increase in the net gain on securities . total noninterest expense increased by $ 2.4 million , in 2018 primarily due to the $ 1.1 million increase in salaries and employee benefits and $ 1.0 million increase in other operating expenses , which included increased loan costs combined with increased spending on technology . in addition to the above , the provision for income taxes decreased $ 1.5 million , or 14.3 % , due to the reduction in tax rates as a result of the tax act . the changes in net income , net interest income and net interest margin between the current and prior year are discussed in detail under the heading `` results of operations , `` beginning on page 29 . 2018 regulatory reform : the economic growth act , was signed into law may 24 , 2018. some of its provisions were written to take effect immediately ; others have later specified effective dates and still others are open-ended , to be implemented by rule-making . see the discussion of this item under c. supervision and regulation , `` 2018 regulatory reform `` for further details . the tax act was enacted on december 22 , 2017. the company has recorded and reported the effects of the law 's impacts in its financial statements for the periods ended december 31 , 2018 and december 31 , 2017. see note 15 , income taxes , to the notes to our consolidated financial statements for more information . regulatory capital and increase in stockholders ' equity : as of december 31 , 2018 , we continued to exceed by a substantial amount all required minimum capital ratios under the bank regulatory capital rules at both the holding company and bank levels . at that date , both of our banks , as well as our holding company , continued to qualify as `` well-capitalized `` under the capital classification guidelines as defined by the current bank regulatory capital rules . because of our continued profitability and strong asset quality , our regulatory capital levels throughout recent years have consistently remained well in excess of the various required regulatory minimums in effect from time to time , as they do at present . story_separator_special_tag we recorded a $ 2.6 million provision for loan losses for 2018 , compared to the $ 2.7 million provision for 2017 . the level of the 2018 provision was impacted primarily by the growth in loan balances and the decline in nonperforming loans during 2018 . our analysis of the method we employ for determining the amount of the loan loss provision is explained in detail in notes 2 , summary of significant accounting policies , and 5 , loans , to the notes to our consolidated financial statements . summary of the allowance and provision for loan losses ( dollars in thousands ) ( loans , net of unearned income ) replace_table_token_17_th # 35 allocation of the allowance for loan losses ( dollars in thousands ) replace_table_token_18_th the allowance for loan losses increased to $ 20.2 million at year-end 2018 from $ 18.6 million at year-end 2017 , an increase of 8.7 % . however , the loan portfolio increased at an even faster rate during 2018 ( the portfolio at year-end 2018 was up by 12.6 % compared to year-end 2017 ) , with the result that the allowance for loan losses as a percentage of period-end total loans declined to 0.92 % at year-end 2018 from 0.95 % at year-end 2017 , a decrease of 3.16 % . a variety of factors were considered in evaluating the adequacy of the allowance for loan losses at december 31 , 2018 and the provision for loan losses for the year , including : factors leading to an increase in the provision for loan losses : loan growth in all portfolio segments an increase in classified commercial and commercial real estate loans factors leading to a decrease in the provision for loan losses : a slight decrease in the qualitative loss factor for consumer loans a decrease in the qualitative and historical loss factors for residential real estate loans see note 5 , loans , to the notes to our consolidated financial statements for a complete list of all the factors used to calculate the provision for loan losses , including the factors that did not change during the year . most of our adversely classified loans ( special mention and substandard - see our definition for these classifications in note 5 , loans , to the notes to our consolidated financial statements ) continued to perform under their contractual terms . iii . noninterest income the majority of our noninterest income constitutes fee income from services , principally fees and commissions from fiduciary services , deposit account service charges , insurance commissions , net gains ( losses ) on securities transactions and other recurring fee income . analysis of noninterest income ( dollars in thousands ) replace_table_token_19_th 2018 compared to 2017 : total noninterest income in 2018 was $ 28.9 million , an increase of $ 1.3 million , or 4.7 % , from total noninterest income of $ 27.6 million for 2017 . income from fiduciary activities increased from 2017 to 2018 by $ 838 thousand due to nonrecurring fee income related to the settlement of estates as well as an increase in wealth management fees related to portfolio valuation as a result of the performance in the equity market . equity markets performed favorably for the first three quarters of 2018 before the decline experienced in the fourth quarter of 2018. assets under trust administration and investment management at december 31 , 2018 were $ 1.386 billion , a decrease of $ 67.2 million , or 4.6 % , from the prior year-end balance of $ 1.453 billion . fees for other services to customers ( primarily service charges on deposit accounts , revenues related to the sale of mutual funds to our customers by third party providers , income from debit card transactions , and servicing income on sold loans ) were $ 10.1 million for 2018 , an increase of $ 543 thousand , or 5.7 % , from 2017 . the principal cause of the increase was an increase in income from debit card transactions , offset in part by a decline in fee income from service charges on deposit accounts and overdraft fee income . # 36 insurance commissions decreased by $ 724 thousand , or 8.4 % from 2017 to 2018 mainly due to the increased competition for commercial clients in the company 's markets . net gain on securities in 2018 was the change in the fair value of equity investments of $ 213 thousand , while the net loss on securities in 2017 was a net loss from securities transactions of $ 448 thousand . net gains on the sales of loans decreased in 2018 to $ 135 thousand , from $ 546 thousand in 2017 , a decrease of $ 411 thousand , or 75.3 % due to a change in strategy to retain more loans in 2018 as residential real estate market interest rates increased . the reduced gain is consistent with the amount of total loans sold between the two years , which decreased from $ 17.2 million in 2017 to $ 4.3 million in 2018 , a 75.1 % decrease . the rate at which mortgage loan originations are sold in future periods will depend on various circumstances , including prevailing mortgage rates , other lending opportunities , capital and liquidity needs , and the ready availability of a market for such sales . the company is unable to predict what the retention rate of such loans in future periods may be , although the retention rates have increased in each of the last three years . servicing rights are generally retained for loans originated and sold , which also generates additional noninterest income in subsequent periods ( fees for other services to customers ) . other operating income increased by $ 397 thousand , or 42.8 % between the two years mainly due to the recognition of a small gain from the investment in

debt , to the consolidated financial statements for additional information on federal home loan bank advances , including call provisions . 2 see note 10 , debt , to the consolidated financial statements for additional information on junior subordinated obligations issued to unconsolidated subsidiary trusts ( trust preferred securities ) . 3 see note 18 , leases , to the consolidated financial statements for additional information on our operating lease obligations . 4 see note 13 , retirement benefit plans , to the consolidated financial statements for additional information on our retirement benefit plans . # 49 h. fourth quarter results we reported net income of $ 8.76 million for the fourth quarter of 2018 , an increase of $ 687 thousand , or 8.5 % , from the net income of $ 8.07 million we reported for the fourth quarter of 2017 . diluted earnings per common share for the fourth quarter of 2018 were $ 0.60 , up from $ 0.56 during the fourth quarter of 2017 . the net change in earnings between the two quarters was due to the following : ( a ) a $ 1.34 million increase in net interest income , ( b ) a $ 47thousand increase in noninterest income , ( c ) an $ 511 thousand decrease in the provision for loan losses , ( d ) a $ 838 thousand increase in noninterest expense , and ( e ) a $ 376 thousand increase in the provision for income taxes .

the patent license agreement provides lg display a non-exclusive , royalty bearing portfolio license to make and sell oled displays under the company 's patent portfolio . the patent license calls for license fees , prepaid royalties and running royalties on licensed products . the agreements include customary provisions relating to warranties , indemnities , confidentiality , assignability and business terms . the agreements provide for certain other minimum obligations relating to the volume of materials sales anticipated over the life of the agreements as well 31 as minimum royalty revenue to be generated under the patent license agreement . the company expects to generate revenue under these agreements that are predominantly tied to lg display 's sales of oled licensed products . the oled commercial supply agreement provides for the sales of materials for use by lg display , which may include phosphorescent dopants and host materials . technology development and support revenue is revenue earned from government contracts , development and technology evaluation agreements and commercialization assistance fees , which includes reimbursements by government entities for all or a portion of the research and development costs we incur in relation to our government contracts . revenues are recognized proportionally as research and development costs are incurred , or as defined milestones are achieved . while we have made significant progress over the past few years developing and commercializing our family of oled technologies ( including our pholed , toled , foled technologies ) and materials , and have generated net income over the past three years , we incurred significant losses prior to this period , resulting in an accumulated deficit of $ 73.6 million as of december 31 , 2015 . we anticipate fluctuations in our annual and quarterly results of operations due to uncertainty regarding , among other factors : the timing , cost and volume of sales of our oled materials ; the timing of our receipt of license fees and royalties , as well as fees for future technology development and evaluation ; the timing and magnitude of expenditures we may incur in connection with our ongoing research and development and patent-related activities ; and the timing and financial consequences of our formation of new business relationships and alliances . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect our reported assets and liabilities , revenues and expenses , and other financial information . actual results may differ significantly from our estimates under other assumptions and conditions . we believe that our accounting policies related to revenue recognition and deferred revenue , inventories , the valuation and recoverability of acquired technology , stock-based compensation , income taxes and our supplemental executive retirement plan , as described below , are our “ critical accounting policies ” as contemplated by the sec . these policies , which have been reviewed with our audit committee , are discussed in greater detail below . revenue recognition and deferred revenue material sales relate to the company 's sale of its oled materials for incorporation into its customers ' commercial oled products or for their oled development and evaluation activities . material sales are recognized at the time of shipment or at time or delivery , and the passage of title , depending upon the contractual agreement between the parties . we receive non-refundable advance license and royalty payments under certain commercial , development and technology evaluation agreements with our customers . these payments may include royalty and license fees made pursuant to license agreements and certain material supply agreements . amounts received are deferred and classified as either current or non-current deferred revenue based upon current contractual remaining terms ; however , based upon on-going relationships with customers , as well as future agreement extensions and other factors , amounts classified as current may not be recognized as revenue over the next twelve months . the company evaluates these agreements quarterly , and if it is determined that there is no appreciable likelihood of executing a commercial license agreement with the customer or if a customer terminates the relationship prior to the expiration of its term , the previous deferred amount will recognized as revenue in the corresponding period . for arrangements with extended payment terms where the fee is not fixed and determinable , we recognize revenue when the payment is due and payable . royalty revenue and license fee revenue included as part of commercial supply agreements are recognized when earned and the amount is fixed and determinable . if we used different estimates for the useful life of the licensed technology , or if fees are fixed and determinable , reported revenue during the relevant period would differ . technology development and support revenue is revenue earned from government contracts , development and technology evaluation agreements and commercialization assistance fees , which includes reimbursements by the u.s. government for all or a portion of the research and development expenses we incur related to our government contracts . revenue is recognized proportionally as research and development expenses are incurred or as defined milestones are achieved . in order to ascertain the revenue associated with these contracts for a period , we estimate the proportion of related research and development expenses incurred and whether defined milestones have been achieved . different estimates would result in different revenues for the period . 32 the company records taxes billed to customers and remitted to various governmental entities on a gross basis in both revenues and cost of material sales in the consolidated statements of income . story_separator_special_tag the increase in operating income was due to : an increase in revenue of $ 44.4 million , which includes increases in both material sales and royalty and license fees , partially offset by a $ 3.0 million dollar decrease in technology development and support revenue ; offset by an increase in operating expenses of $ 24.0 million , which includes a $ 12.4 million increase in the cost of material sales , a $ 3.4 million increase in selling , general and administrative expenses and a $ 6.9 million increase in research and development expenses , all of which are described below . we had net income of $ 41.9 million ( or $ 0.90 per basic and diluted share ) for the year ended december 31 , 2014 , compared to net income of $ 74.1 million ( or $ 1.61 per basic and diluted share ) for the year ended december 31 , 2013 . the decrease in net income was primarily due to : recording income tax expense of $ 17.5 million in 2014 compared to the recognition of a tax benefit of $ 35.0 million in 2013 , resulting from the release of income tax valuation allowances ; offset by an increase in operating income of $ 20.4 million . we had adjusted net income of $ 32.6 million ( or $ 0.71 per adjusted basic share and $ 0.70 per adjusted diluted share ) for the year ended december 31 , 2013. this non-gaap measure excludes the effect of the tax valuation allowance releases described above . see the discussion of non-gaap measures in item 6 ( selected financial data ) of this report . revenue the following table details our revenues for the years ended december 31 , 2014 and 2013 ( amounts in thousands ) : replace_table_token_14_th total revenue for the year ended december 31 , 2014 increased by $ 44.4 million compared to the year ended december 31 , 2013 . the increase in our revenue was primarily the result of increased materials sales and royalty and license fees . 37 material sales the following table details our revenues derived from material sales for the years ended december 31 , 2014 and 2013 ( amounts in thousands ) : replace_table_token_15_th commercial material sales for the year ended december 31 , 2014 increased by $ 29.4 million compared to the year ended december 31 , 2013 , primarily reflecting increased commercial chemical sales resulting from the adoption of our technology and materials in the marketplace by display manufacturers . developmental material sales for the year ended december 31 , 2014 increased by $ 1.8 million compared to the year ended december 31 , 2013 , primarily reflecting increased number of grams sold of development materials for our customer 's evaluation , manufacture , and development activities . this increase was offset , to some extent , by a change in sales mix from development to commercial . material sales included sales of both phosphorescent emitter and host materials . material sales were comprised of the following for the years ended december 31 , 2014 and 2013 ( amounts in thousands ) : replace_table_token_16_th phosphorescent emitter sales for the year ended december 31 , 2014 increased by $ 24.0 million compared to the year ended december 31 , 2013 . the increase in our phosphorescent emitter sales was primarily due to an increase in commercial phosphorescent emitter sales and developmental phosphorescent emitter sales . host material sales for the year ended december 31 , 2014 increased by $ 7.2 million compared to the year ended december 31 , 2013 . the increase in our host material sales was primarily due to an increase in the number of grams sold as well as the collection of pass through tax settlements of $ 3.9 million with a japanese customer related to certain host sales in japan . these increases were offset by a decrease in the average price per gram sold . our customers are not required to purchase our host materials in order to utilize our phosphorescent emitter materials and the host materials business is more competitive than the phosphorescent material sales business . royalty and license fees royalty and license fees were as follows for the years ended december 31 , 2014 and 2013 ( amounts in thousands ) : replace_table_token_17_th royalty and license fees for the year ended december 31 , 2014 increased by $ 16.2 million compared to the year ended december 31 , 2013 . this increase reflects the receipt and therefore recognition of $ 50.0 million of license fee payments under our patent and license agreement with sdc , compared to $ 40.0 million in the prior period . the increase was also related to an increase in license fees attributable to material sales to certain customers . 38 technology development and support revenue technology development and support revenue were as follows for the years ended december 31 , 2014 and 2013 ( amounts in thousands ) : replace_table_token_18_th technology development and support revenue is revenue earned from government contracts , development and technology evaluation agreements and commercialization assistance fees , which includes reimbursements by the u.s. government for all or a portion of the research and development expenses we incur related to our government contracts . technology development and support revenue for the year ended december 31 , 2014 decreased by $ 3.0 million compared to year ended december 31 , 2013 . the decrease is primarily related to the smaller number of government contracts and due to the timing of revenue recognition for certain customers . cost of material sales cost of commercial material sales were as follows for the years ended december 31 , 2014 and 2013 ( amounts in thousands ) : replace_table_token_19_th cost of commercial material sales for the year ended december 31 , 2014 increased 12.4 million from the year ended december 31 , 2013 . the increase in our cost of commercial

debt , to the consolidated financial statements for additional information on federal home loan bank advances , including call provisions . 2 see note 10 , debt , to the consolidated financial statements for additional information on junior subordinated obligations issued to unconsolidated subsidiary trusts ( trust preferred securities ) . 3 see note 18 , leases , to the consolidated financial statements for additional information on our operating lease obligations . 4 see note 13 , retirement benefit plans , to the consolidated financial statements for additional information on our retirement benefit plans . # 49 h. fourth quarter results we reported net income of $ 8.76 million for the fourth quarter of 2018 , an increase of $ 687 thousand , or 8.5 % , from the net income of $ 8.07 million we reported for the fourth quarter of 2017 . diluted earnings per common share for the fourth quarter of 2018 were $ 0.60 , up from $ 0.56 during the fourth quarter of 2017 . the net change in earnings between the two quarters was due to the following : ( a ) a $ 1.34 million increase in net interest income , ( b ) a $ 47thousand increase in noninterest income , ( c ) an $ 511 thousand decrease in the provision for loan losses , ( d ) a $ 838 thousand increase in noninterest expense , and ( e ) a $ 376 thousand increase in the provision for income taxes .

the patent license agreement provides lg display a non-exclusive , royalty bearing portfolio license to make and sell oled displays under the company 's patent portfolio . the patent license calls for license fees , prepaid royalties and running royalties on licensed products . the agreements include customary provisions relating to warranties , indemnities , confidentiality , assignability and business terms . the agreements provide for certain other minimum obligations relating to the volume of materials sales anticipated over the life of the agreements as well 31 as minimum royalty revenue to be generated under the patent license agreement . the company expects to generate revenue under these agreements that are predominantly tied to lg display 's sales of oled licensed products . the oled commercial supply agreement provides for the sales of materials for use by lg display , which may include phosphorescent dopants and host materials . technology development and support revenue is revenue earned from government contracts , development and technology evaluation agreements and commercialization assistance fees , which includes reimbursements by government entities for all or a portion of the research and development costs we incur in relation to our government contracts . revenues are recognized proportionally as research and development costs are incurred , or as defined milestones are achieved . while we have made significant progress over the past few years developing and commercializing our family of oled technologies ( including our pholed , toled , foled technologies ) and materials , and have generated net income over the past three years , we incurred significant losses prior to this period , resulting in an accumulated deficit of $ 73.6 million as of december 31 , 2015 . we anticipate fluctuations in our annual and quarterly results of operations due to uncertainty regarding , among other factors : the timing , cost and volume of sales of our oled materials ; the timing of our receipt of license fees and royalties , as well as fees for future technology development and evaluation ; the timing and magnitude of expenditures we may incur in connection with our ongoing research and development and patent-related activities ; and the timing and financial consequences of our formation of new business relationships and alliances . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect our reported assets and liabilities , revenues and expenses , and other financial information . actual results may differ significantly from our estimates under other assumptions and conditions . we believe that our accounting policies related to revenue recognition and deferred revenue , inventories , the valuation and recoverability of acquired technology , stock-based compensation , income taxes and our supplemental executive retirement plan , as described below , are our “ critical accounting policies ” as contemplated by the sec . these policies , which have been reviewed with our audit committee , are discussed in greater detail below . revenue recognition and deferred revenue material sales relate to the company 's sale of its oled materials for incorporation into its customers ' commercial oled products or for their oled development and evaluation activities . material sales are recognized at the time of shipment or at time or delivery , and the passage of title , depending upon the contractual agreement between the parties . we receive non-refundable advance license and royalty payments under certain commercial , development and technology evaluation agreements with our customers . these payments may include royalty and license fees made pursuant to license agreements and certain material supply agreements . amounts received are deferred and classified as either current or non-current deferred revenue based upon current contractual remaining terms ; however , based upon on-going relationships with customers , as well as future agreement extensions and other factors , amounts classified as current may not be recognized as revenue over the next twelve months . the company evaluates these agreements quarterly , and if it is determined that there is no appreciable likelihood of executing a commercial license agreement with the customer or if a customer terminates the relationship prior to the expiration of its term , the previous deferred amount will recognized as revenue in the corresponding period . for arrangements with extended payment terms where the fee is not fixed and determinable , we recognize revenue when the payment is due and payable . royalty revenue and license fee revenue included as part of commercial supply agreements are recognized when earned and the amount is fixed and determinable . if we used different estimates for the useful life of the licensed technology , or if fees are fixed and determinable , reported revenue during the relevant period would differ . technology development and support revenue is revenue earned from government contracts , development and technology evaluation agreements and commercialization assistance fees , which includes reimbursements by the u.s. government for all or a portion of the research and development expenses we incur related to our government contracts . revenue is recognized proportionally as research and development expenses are incurred or as defined milestones are achieved . in order to ascertain the revenue associated with these contracts for a period , we estimate the proportion of related research and development expenses incurred and whether defined milestones have been achieved . different estimates would result in different revenues for the period . 32 the company records taxes billed to customers and remitted to various governmental entities on a gross basis in both revenues and cost of material sales in the consolidated statements of income . story_separator_special_tag the increase in operating income was due to : an increase in revenue of $ 44.4 million , which includes increases in both material sales and royalty and license fees , partially offset by a $ 3.0 million dollar decrease in technology development and support revenue ; offset by an increase in operating expenses of $ 24.0 million , which includes a $ 12.4 million increase in the cost of material sales , a $ 3.4 million increase in selling , general and administrative expenses and a $ 6.9 million increase in research and development expenses , all of which are described below . we had net income of $ 41.9 million ( or $ 0.90 per basic and diluted share ) for the year ended december 31 , 2014 , compared to net income of $ 74.1 million ( or $ 1.61 per basic and diluted share ) for the year ended december 31 , 2013 . the decrease in net income was primarily due to : recording income tax expense of $ 17.5 million in 2014 compared to the recognition of a tax benefit of $ 35.0 million in 2013 , resulting from the release of income tax valuation allowances ; offset by an increase in operating income of $ 20.4 million . we had adjusted net income of $ 32.6 million ( or $ 0.71 per adjusted basic share and $ 0.70 per adjusted diluted share ) for the year ended december 31 , 2013. this non-gaap measure excludes the effect of the tax valuation allowance releases described above . see the discussion of non-gaap measures in item 6 ( selected financial data ) of this report . revenue the following table details our revenues for the years ended december 31 , 2014 and 2013 ( amounts in thousands ) : replace_table_token_14_th total revenue for the year ended december 31 , 2014 increased by $ 44.4 million compared to the year ended december 31 , 2013 . the increase in our revenue was primarily the result of increased materials sales and royalty and license fees . 37 material sales the following table details our revenues derived from material sales for the years ended december 31 , 2014 and 2013 ( amounts in thousands ) : replace_table_token_15_th commercial material sales for the year ended december 31 , 2014 increased by $ 29.4 million compared to the year ended december 31 , 2013 , primarily reflecting increased commercial chemical sales resulting from the adoption of our technology and materials in the marketplace by display manufacturers . developmental material sales for the year ended december 31 , 2014 increased by $ 1.8 million compared to the year ended december 31 , 2013 , primarily reflecting increased number of grams sold of development materials for our customer 's evaluation , manufacture , and development activities . this increase was offset , to some extent , by a change in sales mix from development to commercial . material sales included sales of both phosphorescent emitter and host materials . material sales were comprised of the following for the years ended december 31 , 2014 and 2013 ( amounts in thousands ) : replace_table_token_16_th phosphorescent emitter sales for the year ended december 31 , 2014 increased by $ 24.0 million compared to the year ended december 31 , 2013 . the increase in our phosphorescent emitter sales was primarily due to an increase in commercial phosphorescent emitter sales and developmental phosphorescent emitter sales . host material sales for the year ended december 31 , 2014 increased by $ 7.2 million compared to the year ended december 31 , 2013 . the increase in our host material sales was primarily due to an increase in the number of grams sold as well as the collection of pass through tax settlements of $ 3.9 million with a japanese customer related to certain host sales in japan . these increases were offset by a decrease in the average price per gram sold . our customers are not required to purchase our host materials in order to utilize our phosphorescent emitter materials and the host materials business is more competitive than the phosphorescent material sales business . royalty and license fees royalty and license fees were as follows for the years ended december 31 , 2014 and 2013 ( amounts in thousands ) : replace_table_token_17_th royalty and license fees for the year ended december 31 , 2014 increased by $ 16.2 million compared to the year ended december 31 , 2013 . this increase reflects the receipt and therefore recognition of $ 50.0 million of license fee payments under our patent and license agreement with sdc , compared to $ 40.0 million in the prior period . the increase was also related to an increase in license fees attributable to material sales to certain customers . 38 technology development and support revenue technology development and support revenue were as follows for the years ended december 31 , 2014 and 2013 ( amounts in thousands ) : replace_table_token_18_th technology development and support revenue is revenue earned from government contracts , development and technology evaluation agreements and commercialization assistance fees , which includes reimbursements by the u.s. government for all or a portion of the research and development expenses we incur related to our government contracts . technology development and support revenue for the year ended december 31 , 2014 decreased by $ 3.0 million compared to year ended december 31 , 2013 . the decrease is primarily related to the smaller number of government contracts and due to the timing of revenue recognition for certain customers . cost of material sales cost of commercial material sales were as follows for the years ended december 31 , 2014 and 2013 ( amounts in thousands ) : replace_table_token_19_th cost of commercial material sales for the year ended december 31 , 2014 increased 12.4 million from the year ended december 31 , 2013 . the increase in our cost of commercial

liquidity and capital resources our principle sources of liquidity are our cash and cash equivalents and our short-term investments . as of december 31 , 2015 , we had cash and cash equivalents of $ 97.5 million and short-term investments of $ 298.0 million , for a total of $ 395.5 million . this compares to cash and cash equivalents of $ 45.4 million and short-term investments of $ 243.1 million , for a total of $ 288.5 million , as of december 31 , 2014 providing for a total liquidity increase of $ 107.0 million . the increase in cash and cash equivalents of $ 52.1 million was primarily due to cash provided by operating activities , partially offset by cash used in investing activities and financing activities . cash provided by operating activities was $ 113.6 million for the year ended december 31 , 2015 , compared to $ 47.3 million for the year ended december 31 , 2014 . the increase in cash provided by operating activities was primarily due to the following : the receipt of $ 48.8 million from customers for prepaid royalty and license fees recognized as deferred revenue ; and the impact of the timing of net inventory purchases of $ 21.8 million . cash used in investing activities was $ 58.6 million for the year ended december 31 , 2015 , compared to $ 42.3 million for the year ended december 31 , 2014 . the increase in cash used in investing activities was mainly due to the timing of maturities and purchases of investments resulting in net purchases of $ 53.5 million for the year ended december 31 , 2015 , compared to net purchases of $ 36.2 million for the year ended december 31 , 2014 .

our revenues per customer on a monthly basis vary based on the amount of energy produced by our energy systems and the published price of energy ( electricity , natural gas or oil ) from our customers ' local energy utility that month . our revenues commence as new energy systems become operational . as of december 31 , 2014 , we had 123 energy systems operational . in some cases the customer may choose to own the energy system rather than have it owned by american dg energy . in this case , we account for revenue and costs using the percentage-of-completion method of accounting . under the percentage-of-completion method of accounting , revenues are recognized by applying percentages of completion to the total estimated revenues for the respective contracts . costs are recognized as incurred . the percentages of completion are determined by relating the actual cost of work performed to date to the current estimated total cost at completion of the respective contracts . when the estimate on a contract indicates a loss , the company 's policy is to record the entire expected loss , regardless of the percentage of completion . the excess of contract costs and profit recognized to date on the percentage-of-completion accounting method in excess of billings is recorded as unbilled revenue . billings in excess of related costs and estimated earnings is recorded as deferred revenue . customers may buy out their long-term obligation under energy contracts and purchase the underlying equipment from the company . any resulting gain on these transactions is recognized over the payment period in the accompanying consolidated statements of operations . revenues from operation and maintenance services , including shared savings are recorded when provided and verified . we have experienced total net losses since inception of approximately $ 35.2 million . for the foreseeable future , we expect to experience continuing operating losses and negative cash flows from operations as our management executes our current business plan . the cash and cash equivalents available at december 31 , 2014 will , we believe , provide sufficient working capital to meet our anticipated expenditures including installations of new equipment for the next twelve months ; however , as we continue to grow our business by adding more energy systems , the cash requirements will increase . we believe that our cash and cash equivalents available at december 31 , 2014 and our ability to control certain costs , including those related to general and administrative expenses , will enable us to meet our anticipated cash expenditures through march 31 , 2016. beyond march 31 , 2016 , we may need to raise additional capital through a debt financing or equity offering to meet our operating and capital needs . there can be no assurance , however , that we will be successful in our fundraising efforts or that additional funds will be available on acceptable terms , if at all . if we are unable to raise additional capital in 2016 we may need to terminate certain of our employees and adjust our current business plan . financial considerations may cause us to modify planned deployment of new energy systems and we may decide to suspend installations until we are able to secure additional working capital . we will evaluate possible acquisitions of , or investments in , businesses , technologies and products that are complementary to our business . however , we are not currently engaged in such discussions . the company 's operations are comprised of one business segment . our business is selling energy in the form of electricity , heat , hot water and cooling to our customers under long-term sales agreements . related party transactions see `` note 8 - related parties `` to the consolidated financial statements contained herin . results of operations 17 american dg energy inc. fiscal year ended december 31 , 2014 compared with fiscal year ended december 31 , 2013 revenues revenues in 2014 were $ 8,567,553 compared to $ 7,461,880 for the same period in 2013 , an increase of $ 1,105,673 or 14.8 % . the increase in revenues was primarily due to higher energy production and units operational in the united kingdom ( uk ) . our on-site utility energy revenues in 2014 increased to $ 7,808,933 compared to $ 7,164,226 for the same period in 2013 , an increase of $ 644,707 or 9.0 % . as part of our on-site utility energy revenue , the revenue recognized from demand response activity was $ 247,518 and $ 112,405 , for the years ended december 31 , 2014 and 2013 , respectively . our turnkey and other revenues in 2014 increased to $ 758,620 compared to $ 297,654 for the same period in 2013 . the revenue from our turnkey projects can vary substantially per period . during 2014 , we operated 123 energy systems , at 69 locations , representing 8,186 kw of installed electricity plus thermal energy , compared to 109 energy systems at 64 locations , representing 7,278 kw of installed electricity plus thermal energy for the same period in 2013 . the revenue per customer on a monthly basis is based on the sum of the amount of energy produced by our energy systems , which is derived by the monthly published price of energy ( electricity , natural gas or oil ) from our customers ' local utility , less the discounts we provide our customers . our revenues commence as new energy systems become operational . cost of sales cost of sales , including depreciation , in 2014 was $ 8,481,780 compared to $ 6,245,598 for the same period in 2013 , an increase of $ 2,236,182 or 35.8 % . story_separator_special_tag under certain energy contracts , the customer directly acquires the fuel to power the systems and receives credit for that expense from the company . the credit is recorded as a reduction of revenue and as reduction of cost of fuel . revenues from operation , including shared savings are recorded when provided and verified . maintenance service revenue is recognized over the term of the agreement and is billed on a monthly basis in arrears . customers may buy out their long-term obligation under energy contracts and purchase the underlying equipment from the company . any resulting gain on these transactions is recognized over the payment period in the accompanying consolidated statements of operations . in some cases , the customer may choose to own the energy system rather than have it owned by american dg energy . in this case , the company accounts for revenue , or turnkey revenue , and costs using the percentage-of-completion method of accounting . under the percentage-of-completion method of accounting , revenues are recognized by applying percentages of completion to the total estimated revenues for the respective contracts . costs are recognized as incurred . the percentages of completion are determined by relating the actual cost of work performed to date to the current estimated total cost at completion of the respective contracts . when the estimate on a contract indicates a loss , the company 's policy is to record the entire expected loss , regardless of the percentage of completion . the excess of contract costs and profit recognized to date on the percentage-of-completion accounting method in excess of billings is recorded as unbilled revenue . billings in excess of related costs and estimated earnings is recorded as deferred revenue . at times the company will enter into a sales arrangement with a customer to construct and sell an energy system and provide energy and maintenance services over the term of the contract . based on the fact that the company sells each deliverable to other customers on a stand-alone basis , the company has determined that each deliverable has a stand-alone value . additionally , there are no rights of return relative to the delivered items ; therefore , each deliverable is considered a separate unit of accounting . revenue is allocated to each element based upon its relative fair value which is determined based on the estimated price of the deliverables when sold on a standalone basis . revenue related to the construction of the energy system is recognized using the percentage-of-completion method as the unit is being constructed . revenue from the sale of energy is recognized when electricity , heat , and chilled water is produced by the energy system , and revenue from maintenance services is recognized over the term of the maintenance agreement . the company is able to participate in the demand response market . demand response programs provide payments for either the reduction of electricity usage or low capacity utilization throughout a utility territory . for the year ended december 31 , 2014 and 2013 , the revenue recognized from demand response activity was $ 247,518 and $ 112,405 , respectively . income taxes as part of the process of preparing its consolidated financial statements , the company is required to estimate its income taxes in each of the jurisdictions in which it operates . this process involves the company estimating its actual current tax exposure together with assessing temporary differences resulting from differing treatment of items , such as depreciation and certain accrued liabilities for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included within the company 's consolidated balance sheet . the company must then assess the likelihood that its 22 american dg energy inc. deferred tax assets will be recovered from future taxable income and to the extent it believes that recovery is not likely , the company must establish a valuation allowance . the company is allowed to recognize the tax benefits of uncertain tax positions only where the position is “ more likely than not ” to be sustained assuming examination by tax authorities . the amount recognized is the amount that represents the largest amount of tax benefit that is greater than 50 % likely of being ultimately realized . a liability is recognized for any benefit claimed , or expected to be claimed , in a tax return in excess of the benefit recorded in the financial statements , along with any interest and penalties ( if applicable ) on that excess . in addition , the company is required to provide a tabular reconciliation of the change in the aggregate unrecognized tax benefits claimed , or expected to be claimed , in tax returns and disclosure relating to the accrued interest and penalties for unrecognized tax benefits . discussion is also required for those uncertain tax positions where it is reasonably possible that the estimate of the tax benefit will change significantly in the next twelve months . impact of new accounting pronouncements in may 2014 , the fasb issued asu 2014-09 , “ revenue from contracts with customers ( topic 606 ) , ” to clarify the principles for recognizing revenue and to develop a common revenue standard for gaap and the international financial reporting standards . this guidance supersedes previously issued guidance on revenue recognition and gives a five step process an entity should follow so that the entity recognizes revenue that depicts 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 new guidance will be effective for our fiscal 2017 reporting period and must be applied either retrospectively during each prior reporting period presented or retrospectively with the cumulative effect of initially applying this guidance recognized at the date of the initial application . early adoption is not

liquidity and capital resources our principle sources of liquidity are our cash and cash equivalents and our short-term investments . as of december 31 , 2015 , we had cash and cash equivalents of $ 97.5 million and short-term investments of $ 298.0 million , for a total of $ 395.5 million . this compares to cash and cash equivalents of $ 45.4 million and short-term investments of $ 243.1 million , for a total of $ 288.5 million , as of december 31 , 2014 providing for a total liquidity increase of $ 107.0 million . the increase in cash and cash equivalents of $ 52.1 million was primarily due to cash provided by operating activities , partially offset by cash used in investing activities and financing activities . cash provided by operating activities was $ 113.6 million for the year ended december 31 , 2015 , compared to $ 47.3 million for the year ended december 31 , 2014 . the increase in cash provided by operating activities was primarily due to the following : the receipt of $ 48.8 million from customers for prepaid royalty and license fees recognized as deferred revenue ; and the impact of the timing of net inventory purchases of $ 21.8 million . cash used in investing activities was $ 58.6 million for the year ended december 31 , 2015 , compared to $ 42.3 million for the year ended december 31 , 2014 . the increase in cash used in investing activities was mainly due to the timing of maturities and purchases of investments resulting in net purchases of $ 53.5 million for the year ended december 31 , 2015 , compared to net purchases of $ 36.2 million for the year ended december 31 , 2014 .

our revenues per customer on a monthly basis vary based on the amount of energy produced by our energy systems and the published price of energy ( electricity , natural gas or oil ) from our customers ' local energy utility that month . our revenues commence as new energy systems become operational . as of december 31 , 2014 , we had 123 energy systems operational . in some cases the customer may choose to own the energy system rather than have it owned by american dg energy . in this case , we account for revenue and costs using the percentage-of-completion method of accounting . under the percentage-of-completion method of accounting , revenues are recognized by applying percentages of completion to the total estimated revenues for the respective contracts . costs are recognized as incurred . the percentages of completion are determined by relating the actual cost of work performed to date to the current estimated total cost at completion of the respective contracts . when the estimate on a contract indicates a loss , the company 's policy is to record the entire expected loss , regardless of the percentage of completion . the excess of contract costs and profit recognized to date on the percentage-of-completion accounting method in excess of billings is recorded as unbilled revenue . billings in excess of related costs and estimated earnings is recorded as deferred revenue . customers may buy out their long-term obligation under energy contracts and purchase the underlying equipment from the company . any resulting gain on these transactions is recognized over the payment period in the accompanying consolidated statements of operations . revenues from operation and maintenance services , including shared savings are recorded when provided and verified . we have experienced total net losses since inception of approximately $ 35.2 million . for the foreseeable future , we expect to experience continuing operating losses and negative cash flows from operations as our management executes our current business plan . the cash and cash equivalents available at december 31 , 2014 will , we believe , provide sufficient working capital to meet our anticipated expenditures including installations of new equipment for the next twelve months ; however , as we continue to grow our business by adding more energy systems , the cash requirements will increase . we believe that our cash and cash equivalents available at december 31 , 2014 and our ability to control certain costs , including those related to general and administrative expenses , will enable us to meet our anticipated cash expenditures through march 31 , 2016. beyond march 31 , 2016 , we may need to raise additional capital through a debt financing or equity offering to meet our operating and capital needs . there can be no assurance , however , that we will be successful in our fundraising efforts or that additional funds will be available on acceptable terms , if at all . if we are unable to raise additional capital in 2016 we may need to terminate certain of our employees and adjust our current business plan . financial considerations may cause us to modify planned deployment of new energy systems and we may decide to suspend installations until we are able to secure additional working capital . we will evaluate possible acquisitions of , or investments in , businesses , technologies and products that are complementary to our business . however , we are not currently engaged in such discussions . the company 's operations are comprised of one business segment . our business is selling energy in the form of electricity , heat , hot water and cooling to our customers under long-term sales agreements . related party transactions see `` note 8 - related parties `` to the consolidated financial statements contained herin . results of operations 17 american dg energy inc. fiscal year ended december 31 , 2014 compared with fiscal year ended december 31 , 2013 revenues revenues in 2014 were $ 8,567,553 compared to $ 7,461,880 for the same period in 2013 , an increase of $ 1,105,673 or 14.8 % . the increase in revenues was primarily due to higher energy production and units operational in the united kingdom ( uk ) . our on-site utility energy revenues in 2014 increased to $ 7,808,933 compared to $ 7,164,226 for the same period in 2013 , an increase of $ 644,707 or 9.0 % . as part of our on-site utility energy revenue , the revenue recognized from demand response activity was $ 247,518 and $ 112,405 , for the years ended december 31 , 2014 and 2013 , respectively . our turnkey and other revenues in 2014 increased to $ 758,620 compared to $ 297,654 for the same period in 2013 . the revenue from our turnkey projects can vary substantially per period . during 2014 , we operated 123 energy systems , at 69 locations , representing 8,186 kw of installed electricity plus thermal energy , compared to 109 energy systems at 64 locations , representing 7,278 kw of installed electricity plus thermal energy for the same period in 2013 . the revenue per customer on a monthly basis is based on the sum of the amount of energy produced by our energy systems , which is derived by the monthly published price of energy ( electricity , natural gas or oil ) from our customers ' local utility , less the discounts we provide our customers . our revenues commence as new energy systems become operational . cost of sales cost of sales , including depreciation , in 2014 was $ 8,481,780 compared to $ 6,245,598 for the same period in 2013 , an increase of $ 2,236,182 or 35.8 % . story_separator_special_tag under certain energy contracts , the customer directly acquires the fuel to power the systems and receives credit for that expense from the company . the credit is recorded as a reduction of revenue and as reduction of cost of fuel . revenues from operation , including shared savings are recorded when provided and verified . maintenance service revenue is recognized over the term of the agreement and is billed on a monthly basis in arrears . customers may buy out their long-term obligation under energy contracts and purchase the underlying equipment from the company . any resulting gain on these transactions is recognized over the payment period in the accompanying consolidated statements of operations . in some cases , the customer may choose to own the energy system rather than have it owned by american dg energy . in this case , the company accounts for revenue , or turnkey revenue , and costs using the percentage-of-completion method of accounting . under the percentage-of-completion method of accounting , revenues are recognized by applying percentages of completion to the total estimated revenues for the respective contracts . costs are recognized as incurred . the percentages of completion are determined by relating the actual cost of work performed to date to the current estimated total cost at completion of the respective contracts . when the estimate on a contract indicates a loss , the company 's policy is to record the entire expected loss , regardless of the percentage of completion . the excess of contract costs and profit recognized to date on the percentage-of-completion accounting method in excess of billings is recorded as unbilled revenue . billings in excess of related costs and estimated earnings is recorded as deferred revenue . at times the company will enter into a sales arrangement with a customer to construct and sell an energy system and provide energy and maintenance services over the term of the contract . based on the fact that the company sells each deliverable to other customers on a stand-alone basis , the company has determined that each deliverable has a stand-alone value . additionally , there are no rights of return relative to the delivered items ; therefore , each deliverable is considered a separate unit of accounting . revenue is allocated to each element based upon its relative fair value which is determined based on the estimated price of the deliverables when sold on a standalone basis . revenue related to the construction of the energy system is recognized using the percentage-of-completion method as the unit is being constructed . revenue from the sale of energy is recognized when electricity , heat , and chilled water is produced by the energy system , and revenue from maintenance services is recognized over the term of the maintenance agreement . the company is able to participate in the demand response market . demand response programs provide payments for either the reduction of electricity usage or low capacity utilization throughout a utility territory . for the year ended december 31 , 2014 and 2013 , the revenue recognized from demand response activity was $ 247,518 and $ 112,405 , respectively . income taxes as part of the process of preparing its consolidated financial statements , the company is required to estimate its income taxes in each of the jurisdictions in which it operates . this process involves the company estimating its actual current tax exposure together with assessing temporary differences resulting from differing treatment of items , such as depreciation and certain accrued liabilities for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included within the company 's consolidated balance sheet . the company must then assess the likelihood that its 22 american dg energy inc. deferred tax assets will be recovered from future taxable income and to the extent it believes that recovery is not likely , the company must establish a valuation allowance . the company is allowed to recognize the tax benefits of uncertain tax positions only where the position is “ more likely than not ” to be sustained assuming examination by tax authorities . the amount recognized is the amount that represents the largest amount of tax benefit that is greater than 50 % likely of being ultimately realized . a liability is recognized for any benefit claimed , or expected to be claimed , in a tax return in excess of the benefit recorded in the financial statements , along with any interest and penalties ( if applicable ) on that excess . in addition , the company is required to provide a tabular reconciliation of the change in the aggregate unrecognized tax benefits claimed , or expected to be claimed , in tax returns and disclosure relating to the accrued interest and penalties for unrecognized tax benefits . discussion is also required for those uncertain tax positions where it is reasonably possible that the estimate of the tax benefit will change significantly in the next twelve months . impact of new accounting pronouncements in may 2014 , the fasb issued asu 2014-09 , “ revenue from contracts with customers ( topic 606 ) , ” to clarify the principles for recognizing revenue and to develop a common revenue standard for gaap and the international financial reporting standards . this guidance supersedes previously issued guidance on revenue recognition and gives a five step process an entity should follow so that the entity recognizes revenue that depicts 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 new guidance will be effective for our fiscal 2017 reporting period and must be applied either retrospectively during each prior reporting period presented or retrospectively with the cumulative effect of initially applying this guidance recognized at the date of the initial application . early adoption is not

cash used in operating activities was $ 782,660 in 2014 compared to $ 1,553,257 for the same period in 2013 . the company 's short and long-term receivables balance , including unbilled revenue , increased to $ 1,156,944 , in 2014 compared to $ 1,046,385 at december 31 , 2013 , reducing $ 110,559 of cash due to increased sales . amounts due to the company from related parties decreased to $ 39,682 in 2014 compared to $ 304,288 at december 31 , 2013 , increasing cash $ 264,606 . our inventory decreased to $ 1,153,927 in 2014 compared to $ 2,246,335 at december 31 , 2013 , supplying $ 1,092,408 of cash . accounts payable decreased to $ 605,530 in 2014 , compared to $ 871,079 at december 31 , 2013 , requiring $ 265,549 of cash . the amount due to related party increased to $ 630,805 in 2014 , compared to $ 178,216 at december 31 , 2013 , providing $ 452,589 of cash . during 2014 , the investing activities of the company 's operations were expenditures for the purchase of property , plant and equipment for energy system installations . the company used $ 5,649,433 for purchases and installation of energy systems , net of rebates and incentives of $ 27,500 . the company 's financing activities provided $ 8,453,717 of cash in 2014 from the issuance of convertible debentures by eurosite power , the sale of the company 's common stock , the sale of common stock by eurosite power , a related party loan to eurosite power , offset by share repurchases of common stock by the company and eurosite power and distributions to noncontrolling interest . the company 's on-site utility energy program allows customers to reduce both their energy costs and site carbon production by deploying combined heat and power technology on its customers ' premises at no capital cost to the customer . therefore the company 's business model is capital intensive as the company owns the on-site utility equipment .

in the fourth quarter of 2020 , increases in covid-19 cases and the implementation of heightened restrictions on in-person dining in many markets , as well as other factors , resulted in a slowdown in the total case volume recovery trend that we saw in the third quarter of 2020. total case volume decreased 11.0 % for the 53 weeks ended january 2 , 2021 compared to the 52 weeks ended december 28 , 2019. recent activity and sector perspectives we are optimistic about the long-term prospects for our business . us foods operates in a large and essential industry with a highly diversified set of end consumers . while some of our core customer groups ( such as restaurants , hospitality and education ) have been more significantly affected by the impacts of the covid-19 pandemic , other customer groups ( such as healthcare , government , retail and cash and carry ) have been less significantly affected . although the timetable for returning to normalcy is unknown , we believe that our case volumes will increase over time as vaccine distribution increases and the effects of the covid-19 pandemic dissipate , consumer demand for food prepared away from home increases , educational institutions resume in-person learning , and the hospitality industry recovers . as one of the largest companies in our industry , we believe we are well positioned for long-term success as the fragmented nature of our industry and the current environment create new opportunities for companies with the size and resources of us foods . we believe we are differentiated from many of our competitors on a number of fronts including our national footprint , diversified multi-channel 25 platform , strong technology capabilities and value-added service offerings , all of which have allowed us to continue to serve our customers during these unprecedented conditions . during these difficult times , we are proactively supporting our customers by helping our restaurant and hospitality customers adapt to social distancing restrictions with tools and resources to build and manage carryout and delivery capabilities . in light of the covid-19 pandemic , we have developed additional innovative services , such as customer education webinars on the coronavirus aid , relief and economic security act ( the “ cares act ” ) , assistance with recovery plans for location re-openings , and the creation of unique pantry kits to allow restaurants to continue servicing consumers . our product development efforts remain in full force and we continue to deliver product innovations that resonate with our customers . in response to the covid-19 pandemic and ensuing decrease in total case volume , we have evolved our business focus and cost structure . we have taken a number of steps to secure new customer relationships and expand our market share , reduce fixed and variable operating costs on a temporary and permanent basis , and strengthen our liquidity position . we also have the ability to take further cost reduction actions on a temporary basis depending upon the duration of the covid-19 pandemic and its impact on our business , results of operations and financial condition . even so , there is no certainty that such measures , or any additional actions that we may take in the future , will be successful in mitigating the impact of the pandemic on our business , results of operations or financial condition . on march 27 , 2020 , president trump signed into law the cares act . the cares act , among other things , includes provisions relating to deferment of employer-side social security payments , net operating loss carryback periods , modifications to the net interest deduction limitations , technical corrections to tax depreciation methods for qualified improvement property and federally backed loans to qualifying small-businesses . us foods has benefited from certain provisions under the cares act and many of our customers are benefiting from the federally backed small business loan program . in addition , on december 27 , 2020 , president trump signed into law the consolidated appropriations act , 2021 ( the “ december 2020 relief bill ” ) . the december 2020 relief bill , among other things , expands the federally backed small business loan program that was introduced as part of the cares act , which we expect will further benefit many of our customers . it is currently unclear if or how us foods may indirectly benefit from the december 2020 relief bill , but we continue to examine the impact of the december 2020 relief bill on our business , results of operations and financial condition . the impact of the covid-19 pandemic is fluid and continues to evolve , and therefore , we can not currently predict the extent to which our business , results of operations or financial condition will ultimately be impacted . in particular , we can not predict the extent to which the covid-19 pandemic will affect our business , results of operation or financial condition in the long term because the duration and severity of the pandemic and its negative impact on the economy ( including our customers ) is unclear . the impact of the covid-19 pandemic on us will also be dependent on : the resiliency of the restaurant and hospitality industry and consumer spending more broadly ; actions taken by national , state and local governments to contain the disease or treat its impact , including travel restrictions and bans , social distancing requirements , required closures of non-essential businesses and aid and economic stimulus efforts ; widespread vaccination of the american public resulting in increased willingness by consumers to consume food away from home , travel and attend sporting and other events ; and any prolonged economic recession resulting from the pandemic . story_separator_special_tag 31 operating expenses operating expenses , comprised of distribution , selling and administrative costs and restructuring costs and asset impairment charges , decreased $ 92 million , or 2.4 % , to $ 3,796 million in fiscal year 2020. operating expenses as a percentage of net sales were 16.6 % in fiscal year 2020 , compared to 15.0 % in fiscal year 2019. the decrease in operating expenses is primarily due to the negative impact of covid-19 on total case volume , the related impact of cost actions put into place , and a $ 17 million gain on the sale of excess land . these decreases were partially offset by operating expenses for the food group and smart foodservice of $ 514 million , a $ 47 million increase in the provision for doubtful accounts reflecting the collection risk associated with our customer base as a result of covid-19 , $ 30 million of restructuring costs associated with work force reductions , and $ 9 million of asset impairment charges . the $ 9 million of asset impairment charges relate to the decline in fair value of certain trade names acquired as part of the food group acquisition primarily due to the adverse impact of covid-19 on forecasted earnings and the discount rate utilized in our valuation models . operating ( loss ) income our operating loss was $ 77 million in fiscal year 2020 , compared to operating income of $ 699 million in fiscal year 2019. operating loss as a percentage of net sales was 0.3 % in fiscal year 2020 , while operating income as a percentage of net sales was 2.7 % in fiscal year 2019. the decrease in operating income was due to the factors discussed in the relevant sections above . other ( income ) expense—net other ( income ) expense—net includes components of net periodic benefit costs ( credits ) , exclusive of the service cost component associated with our defined benefit and other postretirement plans . we recognized other income—net of $ 21 million in fiscal year 2020 , primarily due to the improved funded status of our defined benefit pension plan as of december 28 , 2019. we recognized other expense—net of $ 4 million in fiscal year 2019 , including $ 12 million of non-cash settlement costs resulting from payments to settle benefit obligations with participants in our defined benefit pension plan . interest expense—net interest expense—net increased $ 54 million in fiscal year 2020 , primarily due to an increase in our indebtedness to finance the food group and smart foodservice acquisitions and to strengthen our liquidity position at the onset of the covid-19 pandemic , which were partially offset by a decrease in benchmark interest rates in fiscal year 2020 as compared to fiscal year 2019. income taxes our effective income tax rate for fiscal year 2020 of 23 % varied from the 21 % federal corporate income tax rate , primarily as a result of state income taxes and the recognition of various discrete tax items . these discrete tax items included a tax expense of $ 2 million primarily related to an increase in an unrecognized tax benefit and a tax expense of $ 1 million , primarily related to a tax benefit shortfall associated with share-based compensation . our effective income tax rate for fiscal year 2019 of 25 % varied from the 21 % federal corporate income tax rate , primarily as a result of state income taxes and the recognition of various discrete tax items . these discrete tax items included a tax benefit of $ 4 million primarily related to excess tax benefits associated with share-based compensation . net ( loss ) income our net loss was $ 226 million in fiscal year 2020 , compared to net income of $ 385 million in fiscal year 2019. the decrease in net income was due to the relevant factors discussed above . liquidity and capital resources our ongoing operations and strategic objectives require working capital and continuing capital investment . our primary sources of liquidity include cash provided by operations , as well as access to capital from bank borrowings and other types of debt and financing arrangements . in response to the impact of the covid-19 pandemic , in fiscal year 2020 and early 2021 , we took actions aimed at strengthening our liquidity by increasing cash on hand and preserving financial flexibility in light of the economic and business uncertainty resulting from the pandemic . in particular : in march 2020 , we borrowed an aggregate of $ 300 million under the former accounts receivable financing facility ( the “ abs facility ” ) and $ 700 million under the abl facility ; on april 24 , 2020 , we borrowed an aggregate principal amount of $ 700 million under the 2020 incremental term loan facility , the proceeds of which were used to finance , in part , the smart foodservice acquisition ; 32 on april 28 , 2020 , we issued $ 1.0 billion aggregate principal amount of 6.25 % senior secured notes due 2025 ( the “ secured notes ” ) , the proceeds of which were used to repay $ 400 million in principal amount of the 2020 incremental term loan facility and the balance of the net proceeds were used for general corporate purposes ; on may 1 , 2020 , we used $ 542 million of cash on hand to repay all of our outstanding borrowings under the abs facility in full and terminated the abs facility ; in connection with the repayment and termination of the abs facility , we transitioned the accounts receivable that secured the abs facility to the collateral pool that secures the abl facility ; on may 4 , 2020 , we entered into an amendment to the credit agreement governing the abl facility pursuant to which certain of our lenders agreed to increase their aggregate commitments by $

cash used in operating activities was $ 782,660 in 2014 compared to $ 1,553,257 for the same period in 2013 . the company 's short and long-term receivables balance , including unbilled revenue , increased to $ 1,156,944 , in 2014 compared to $ 1,046,385 at december 31 , 2013 , reducing $ 110,559 of cash due to increased sales . amounts due to the company from related parties decreased to $ 39,682 in 2014 compared to $ 304,288 at december 31 , 2013 , increasing cash $ 264,606 . our inventory decreased to $ 1,153,927 in 2014 compared to $ 2,246,335 at december 31 , 2013 , supplying $ 1,092,408 of cash . accounts payable decreased to $ 605,530 in 2014 , compared to $ 871,079 at december 31 , 2013 , requiring $ 265,549 of cash . the amount due to related party increased to $ 630,805 in 2014 , compared to $ 178,216 at december 31 , 2013 , providing $ 452,589 of cash . during 2014 , the investing activities of the company 's operations were expenditures for the purchase of property , plant and equipment for energy system installations . the company used $ 5,649,433 for purchases and installation of energy systems , net of rebates and incentives of $ 27,500 . the company 's financing activities provided $ 8,453,717 of cash in 2014 from the issuance of convertible debentures by eurosite power , the sale of the company 's common stock , the sale of common stock by eurosite power , a related party loan to eurosite power , offset by share repurchases of common stock by the company and eurosite power and distributions to noncontrolling interest . the company 's on-site utility energy program allows customers to reduce both their energy costs and site carbon production by deploying combined heat and power technology on its customers ' premises at no capital cost to the customer . therefore the company 's business model is capital intensive as the company owns the on-site utility equipment .

in the fourth quarter of 2020 , increases in covid-19 cases and the implementation of heightened restrictions on in-person dining in many markets , as well as other factors , resulted in a slowdown in the total case volume recovery trend that we saw in the third quarter of 2020. total case volume decreased 11.0 % for the 53 weeks ended january 2 , 2021 compared to the 52 weeks ended december 28 , 2019. recent activity and sector perspectives we are optimistic about the long-term prospects for our business . us foods operates in a large and essential industry with a highly diversified set of end consumers . while some of our core customer groups ( such as restaurants , hospitality and education ) have been more significantly affected by the impacts of the covid-19 pandemic , other customer groups ( such as healthcare , government , retail and cash and carry ) have been less significantly affected . although the timetable for returning to normalcy is unknown , we believe that our case volumes will increase over time as vaccine distribution increases and the effects of the covid-19 pandemic dissipate , consumer demand for food prepared away from home increases , educational institutions resume in-person learning , and the hospitality industry recovers . as one of the largest companies in our industry , we believe we are well positioned for long-term success as the fragmented nature of our industry and the current environment create new opportunities for companies with the size and resources of us foods . we believe we are differentiated from many of our competitors on a number of fronts including our national footprint , diversified multi-channel 25 platform , strong technology capabilities and value-added service offerings , all of which have allowed us to continue to serve our customers during these unprecedented conditions . during these difficult times , we are proactively supporting our customers by helping our restaurant and hospitality customers adapt to social distancing restrictions with tools and resources to build and manage carryout and delivery capabilities . in light of the covid-19 pandemic , we have developed additional innovative services , such as customer education webinars on the coronavirus aid , relief and economic security act ( the “ cares act ” ) , assistance with recovery plans for location re-openings , and the creation of unique pantry kits to allow restaurants to continue servicing consumers . our product development efforts remain in full force and we continue to deliver product innovations that resonate with our customers . in response to the covid-19 pandemic and ensuing decrease in total case volume , we have evolved our business focus and cost structure . we have taken a number of steps to secure new customer relationships and expand our market share , reduce fixed and variable operating costs on a temporary and permanent basis , and strengthen our liquidity position . we also have the ability to take further cost reduction actions on a temporary basis depending upon the duration of the covid-19 pandemic and its impact on our business , results of operations and financial condition . even so , there is no certainty that such measures , or any additional actions that we may take in the future , will be successful in mitigating the impact of the pandemic on our business , results of operations or financial condition . on march 27 , 2020 , president trump signed into law the cares act . the cares act , among other things , includes provisions relating to deferment of employer-side social security payments , net operating loss carryback periods , modifications to the net interest deduction limitations , technical corrections to tax depreciation methods for qualified improvement property and federally backed loans to qualifying small-businesses . us foods has benefited from certain provisions under the cares act and many of our customers are benefiting from the federally backed small business loan program . in addition , on december 27 , 2020 , president trump signed into law the consolidated appropriations act , 2021 ( the “ december 2020 relief bill ” ) . the december 2020 relief bill , among other things , expands the federally backed small business loan program that was introduced as part of the cares act , which we expect will further benefit many of our customers . it is currently unclear if or how us foods may indirectly benefit from the december 2020 relief bill , but we continue to examine the impact of the december 2020 relief bill on our business , results of operations and financial condition . the impact of the covid-19 pandemic is fluid and continues to evolve , and therefore , we can not currently predict the extent to which our business , results of operations or financial condition will ultimately be impacted . in particular , we can not predict the extent to which the covid-19 pandemic will affect our business , results of operation or financial condition in the long term because the duration and severity of the pandemic and its negative impact on the economy ( including our customers ) is unclear . the impact of the covid-19 pandemic on us will also be dependent on : the resiliency of the restaurant and hospitality industry and consumer spending more broadly ; actions taken by national , state and local governments to contain the disease or treat its impact , including travel restrictions and bans , social distancing requirements , required closures of non-essential businesses and aid and economic stimulus efforts ; widespread vaccination of the american public resulting in increased willingness by consumers to consume food away from home , travel and attend sporting and other events ; and any prolonged economic recession resulting from the pandemic . story_separator_special_tag 31 operating expenses operating expenses , comprised of distribution , selling and administrative costs and restructuring costs and asset impairment charges , decreased $ 92 million , or 2.4 % , to $ 3,796 million in fiscal year 2020. operating expenses as a percentage of net sales were 16.6 % in fiscal year 2020 , compared to 15.0 % in fiscal year 2019. the decrease in operating expenses is primarily due to the negative impact of covid-19 on total case volume , the related impact of cost actions put into place , and a $ 17 million gain on the sale of excess land . these decreases were partially offset by operating expenses for the food group and smart foodservice of $ 514 million , a $ 47 million increase in the provision for doubtful accounts reflecting the collection risk associated with our customer base as a result of covid-19 , $ 30 million of restructuring costs associated with work force reductions , and $ 9 million of asset impairment charges . the $ 9 million of asset impairment charges relate to the decline in fair value of certain trade names acquired as part of the food group acquisition primarily due to the adverse impact of covid-19 on forecasted earnings and the discount rate utilized in our valuation models . operating ( loss ) income our operating loss was $ 77 million in fiscal year 2020 , compared to operating income of $ 699 million in fiscal year 2019. operating loss as a percentage of net sales was 0.3 % in fiscal year 2020 , while operating income as a percentage of net sales was 2.7 % in fiscal year 2019. the decrease in operating income was due to the factors discussed in the relevant sections above . other ( income ) expense—net other ( income ) expense—net includes components of net periodic benefit costs ( credits ) , exclusive of the service cost component associated with our defined benefit and other postretirement plans . we recognized other income—net of $ 21 million in fiscal year 2020 , primarily due to the improved funded status of our defined benefit pension plan as of december 28 , 2019. we recognized other expense—net of $ 4 million in fiscal year 2019 , including $ 12 million of non-cash settlement costs resulting from payments to settle benefit obligations with participants in our defined benefit pension plan . interest expense—net interest expense—net increased $ 54 million in fiscal year 2020 , primarily due to an increase in our indebtedness to finance the food group and smart foodservice acquisitions and to strengthen our liquidity position at the onset of the covid-19 pandemic , which were partially offset by a decrease in benchmark interest rates in fiscal year 2020 as compared to fiscal year 2019. income taxes our effective income tax rate for fiscal year 2020 of 23 % varied from the 21 % federal corporate income tax rate , primarily as a result of state income taxes and the recognition of various discrete tax items . these discrete tax items included a tax expense of $ 2 million primarily related to an increase in an unrecognized tax benefit and a tax expense of $ 1 million , primarily related to a tax benefit shortfall associated with share-based compensation . our effective income tax rate for fiscal year 2019 of 25 % varied from the 21 % federal corporate income tax rate , primarily as a result of state income taxes and the recognition of various discrete tax items . these discrete tax items included a tax benefit of $ 4 million primarily related to excess tax benefits associated with share-based compensation . net ( loss ) income our net loss was $ 226 million in fiscal year 2020 , compared to net income of $ 385 million in fiscal year 2019. the decrease in net income was due to the relevant factors discussed above . liquidity and capital resources our ongoing operations and strategic objectives require working capital and continuing capital investment . our primary sources of liquidity include cash provided by operations , as well as access to capital from bank borrowings and other types of debt and financing arrangements . in response to the impact of the covid-19 pandemic , in fiscal year 2020 and early 2021 , we took actions aimed at strengthening our liquidity by increasing cash on hand and preserving financial flexibility in light of the economic and business uncertainty resulting from the pandemic . in particular : in march 2020 , we borrowed an aggregate of $ 300 million under the former accounts receivable financing facility ( the “ abs facility ” ) and $ 700 million under the abl facility ; on april 24 , 2020 , we borrowed an aggregate principal amount of $ 700 million under the 2020 incremental term loan facility , the proceeds of which were used to finance , in part , the smart foodservice acquisition ; 32 on april 28 , 2020 , we issued $ 1.0 billion aggregate principal amount of 6.25 % senior secured notes due 2025 ( the “ secured notes ” ) , the proceeds of which were used to repay $ 400 million in principal amount of the 2020 incremental term loan facility and the balance of the net proceeds were used for general corporate purposes ; on may 1 , 2020 , we used $ 542 million of cash on hand to repay all of our outstanding borrowings under the abs facility in full and terminated the abs facility ; in connection with the repayment and termination of the abs facility , we transitioned the accounts receivable that secured the abs facility to the collateral pool that secures the abl facility ; on may 4 , 2020 , we entered into an amendment to the credit agreement governing the abl facility pursuant to which certain of our lenders agreed to increase their aggregate commitments by $

cash flows the following table presents condensed highlights from our consolidated statements of cash flows for fiscal years 2020 and 2019 : replace_table_token_7_th operating activities cash flows provided by operating activities decreased $ 347 million to $ 413 million in fiscal year 2020. the year-over-year decrease was primarily attributable to the decline in operating results driven by the impact of covid-19 on our results , and the associated impact on the company 's working capital requirements resulting from lower total case volume and lower inventories . investing activities cash flows used in investing activities in fiscal year 2020 included the $ 972 million cash purchase price for the acquisition of smart foodservice and cash expenditures of $ 189 million for fleet replacement and investments in information technology , as well as new construction and or expansion of distribution facilities . cash flows used in investing activities in fiscal year 2019 included the $ 1.8 billion cash purchase price for the acquisition of the food group and cash expenditures of $ 258 million for fleet replacement and investments in information technology , as well as new construction and expansion of distribution facilities . during fiscal year 2019 , we sold three food group distribution facilities for aggregate proceeds of $ 94 million and sold certain excess properties for aggregate proceeds of $ 6 million during fiscal year 2019. we expect total cash capital expenditures in fiscal year 2021 to be between $ 290 million and $ 305 million , exclusive of approximately $ 35 million to $ 45 million of capital expenditures under our fleet financing leases . we expect to fund our capital expenditures with available cash or cash generated from operations and through fleet financing .

shareholders ' equity was $ 815.0 million at june 30 , 2018 compared to $ 745.3 million at june 30 , 2017 . working capital increased $ 52.7 million from june 30 , 2017 to $ 625.5 million at june 30 , 2018 . the current ratio was 2.4 to 1 at june 30 , 2018 and 2.8 to 1 at june 30 , 2017 . applied monitors several economic indices that have been key indicators for industrial economic activity in the united states . these include the industrial production ( ip ) and manufacturing capacity utilization ( mcu ) indices published by the federal reserve board and the purchasing managers index ( pmi ) published by the institute for supply management ( ism ) . historically , our performance correlates well with the mcu , which measures productivity and calculates a ratio of actual manufacturing output versus potential full capacity output . when manufacturing plants are running at a high rate of capacity , they tend to wear out machinery and require replacement parts . 15 the mcu ( total industry ) and ip indices gradually increased during fiscal 2018 correlating with the overall growth in the industrial economy . the ism pmi registered 60.2 in june 2018 , an increase from the june 2017 revised reading of 56.7. a reading above 50 generally indicates expansion . the index readings for the months during the current quarter , along with the revised indices for previous quarter ends , were as follows : replace_table_token_2_th year ended june 30 , 2018 vs. 2017 the following table is included to aid in review of applied 's statements of consolidated income . replace_table_token_3_th sales in fiscal 2018 were $ 3.1 billion , which was $ 479.5 million or 18.5 % above the prior year , with sales from acquisitions accounting for $ 264.7 million or 10.2 % of the increase , and favorable foreign currency translation accounting for an increase of $ 16.0 million or 0.6 % . there were 251.5 selling days in fiscal 2018 and 252.5 selling days in fiscal 2017 . excluding the impact of businesses acquired and the impact of foreign currency translation , sales were up $ 198.8 million or 7.7 % during the year , of which 5.9 % is from the service center based distribution segment and 2.1 % is from the fluid power & flow control segment , offset by a 0.3 % decrease due to one less sales day . the following table shows changes in sales by reportable segment . replace_table_token_4_th sales of our service center based distribution segment , which operates primarily in mro markets , increased $ 166.0 million , or 7.6 % . acquisitions within this segment increased sales by $ 3.6 million or 0.2 % , and favorable foreign currency translation increased sales by $ 16.0 million or 0.7 % . excluding the impact of businesses acquired and the impact of foreign currency translation , sales increased $ 146.4 million or 6.7 % , driven by an increase of 7.0 % from operations , offset by a 0.3 % decrease due to one less sales day . sales of our fluid power & flow control segment increased $ 313.5 million or 75.8 % . acquisitions within this segment increased sales $ 261.1 million or 63.2 % . excluding the impact of businesses acquired , sales increased $ 52.4 million or 12.7 % , driven by an increase of 13.1 % from operations , offset by a 0.4 % decrease due to one less sales day . 16 the following table shows changes in sales by geographical area . other countries includes mexico , australia , new zealand , and singapore . replace_table_token_5_th sales in our u.s. operations increased $ 432.5 million or 19.8 % , with acquisitions adding $ 261.1 million or 12.0 % . excluding the impact of businesses acquired , u.s. sales were up $ 171.4 million or 7.8 % , of which 8.2 % is growth from operations , offset by a 0.4 % decrease due to one less sales day . sales from our canadian operations increased $ 21.6 million or 8.6 % , and favorable foreign currency translation increased canadian sales by $ 11.3 million or 4.5 % . excluding the impact of foreign currency translation , canadian sales were up $ 10.3 million or 4.1 % , of which 3.7 % is growth from operations , and the remaining 0.4 % increase is due to one additional sales day . consolidated sales from our other country operations increased $ 25.4 million or 16.0 % compared to the prior year . acquisitions added sales of $ 3.6 million or 2.3 % and favorable foreign currency translation increased other country sales by $ 4.7 million or 2.9 % . excluding the impact of businesses acquired and the impact of foreign currency translation , other country sales were up $ 17.1 million or 10.8 % compared to the prior year , driven by an increase from operations of 11.0 % , offset by a decrease of 0.2 % due to one less sales day in australia , new zealand , and singapore . the sales product mix for fiscal 2018 was 67.9 % industrial products and 32.1 % fluid power/flow control products compared to 71.5 % and 28.5 % , respectively , in the prior year . our gross profit margin increased to 28.8 % in fiscal 2018 compared to 28.4 % in fiscal 2017 due to the acquisition of fcx , which favorably impacted the gross profit margin by 38 basis points in fiscal 2018 . the following table shows the changes in sd & a . story_separator_special_tag the goodwill impairment increased the effective tax rate for fiscal 2016 by 27.1 % . the remaining decrease in the effective tax rate was primarily due to the adoption of asu 2016-09 in the first quarter of fiscal 2017 , which requires excess tax benefits and deficiencies resulting from stock-based compensation awards vesting and exercises to be recognized in the income statement . during fiscal 2017 , $ 2.4 million of net excess tax benefits were recognized as a reduction of income tax expense , which decreased the effective income tax rate for fiscal 2017 by 1.4 % . all undistributed earnings of our foreign subsidiaries were considered to be permanently reinvested at june 30 , 2017 and 2016. as a result of the factors addressed above , net income for fiscal 2017 increased $ 104.3 million from fiscal 2016. net income per share was $ 3.40 per share for fiscal 2017 compared to $ 0.75 for fiscal 2016. fiscal 2017 results included a positive impact on earnings per share of $ 0.56 per share related to the tax benefit recorded for the worthless stock deduction . fiscal 2016 results included negative impacts on earnings per share of $ 1.62 per share for goodwill impairment charges and $ 0.16 per share for restructuring charges . net income per share was favorably impacted by lower weighted average common shares outstanding in fiscal 2017 as a result of our share repurchase program . at june 30 , 2017 , we had a total of 552 operating facilities in the united states , puerto rico , canada , mexico , australia , new zealand , and singapore , versus 559 at june 30 , 2016. the number of company employees was 5,554 at june 30 , 2017 and 5,569 at june 30 , 2016. liquidity and capital resources our primary source of capital is cash flow from operations , supplemented as necessary by bank borrowings or other sources of debt . at june 30 , 2018 we had total debt obligations outstanding of $ 966.1 million compared to $ 292.0 million at june 30 , 2017 . management expects that our existing cash , cash equivalents , funds available under the revolving credit and uncommitted shelf facilities , and cash provided from operations , will be sufficient to finance normal working capital needs in each of the countries we operate in , payment of dividends , investments in properties , facilities and equipment , and the purchase of additional company common stock . management also believes that additional long-term debt and line of credit financing could be obtained based on the company 's credit standing and financial strength . the company 's working capital at june 30 , 2018 was $ 625.5 million compared to $ 572.8 million at june 30 , 2017 . the current ratio was 2.4 to 1 at june 30 , 2018 and 2.8 to 1 at june 30 , 2017 . story_separator_special_tag style= `` page-break-after : always `` / > the weighted average interest rate on the amount outstanding under the revolving credit facility as of june 30 , 2018 was 3.93 % . at june 30 , 2017 , the company had $ 120.3 million outstanding under the term loan in the previous credit facility agreement , which carried a variable interest rate tied to libor and was 2.25 % as of june 30 , 2017 . no amount was outstanding under the revolver as of june 30 , 2017 . unused lines under this facility , net of outstanding letters of credit of $ 2.4 million to secure certain insurance obligations , totaled $ 247.6 million at june 30 , 2017 . additionally , the company had letters of credit outstanding with a separate bank , not associated with either revolving credit agreement , in the amount of $ 2.7 million as of june 30 , 2018 and june 30 , 2017 , respectively , in order to secure certain insurance obligations . at june 30 , 2018 and june 30 , 2017 , the company had borrowings outstanding under its unsecured shelf facility agreement with prudential investment management of $ 170.0 million . fees on this facility range from 0.25 % to 1.25 % per year based on the company 's leverage ratio at each quarter end . the `` series c `` notes have a principal amount of $ 120.0 million and carry a fixed interest rate of 3.19 % , and are due in equal principal payments in july 2020 , 2021 , and 2022. the `` series d `` notes have a principal amount of $ 50.0 million , carry a fixed interest rate of 3.21 % , and are due in equal principal payments in october 2019 and 2023. as of june 30 , 2018 , $ 50.0 million in additional financing was available under this facility . in 2014 , the company assumed $ 2.4 million of debt as a part of the headquarters facility acquisition . the 1.50 % fixed interest rate note is held by the state of ohio development services agency , maturing in may 2024. at june 30 , 2018 and 2017 , $ 1.4 million and $ 1.7 million was outstanding , respectively . the new credit facility and the unsecured shelf facility contain restrictive covenants regarding liquidity , net worth , financial ratios , and other covenants . at june 30 , 2018 , the most restrictive of these covenants required that the company have net indebtedness less than 4.25 times consolidated income before interest , taxes , depreciation and amortization . at june 30 , 2018 , the company 's indebtedness was less than 3.0 times consolidated income before interest , taxes , depreciation and amortization . the company was in compliance with all financial covenants at june 30 , 2018 . accounts receivable analysis the following table is included to aid in analysis of accounts receivable and the associated provision for losses

cash flows the following table presents condensed highlights from our consolidated statements of cash flows for fiscal years 2020 and 2019 : replace_table_token_7_th operating activities cash flows provided by operating activities decreased $ 347 million to $ 413 million in fiscal year 2020. the year-over-year decrease was primarily attributable to the decline in operating results driven by the impact of covid-19 on our results , and the associated impact on the company 's working capital requirements resulting from lower total case volume and lower inventories . investing activities cash flows used in investing activities in fiscal year 2020 included the $ 972 million cash purchase price for the acquisition of smart foodservice and cash expenditures of $ 189 million for fleet replacement and investments in information technology , as well as new construction and or expansion of distribution facilities . cash flows used in investing activities in fiscal year 2019 included the $ 1.8 billion cash purchase price for the acquisition of the food group and cash expenditures of $ 258 million for fleet replacement and investments in information technology , as well as new construction and expansion of distribution facilities . during fiscal year 2019 , we sold three food group distribution facilities for aggregate proceeds of $ 94 million and sold certain excess properties for aggregate proceeds of $ 6 million during fiscal year 2019. we expect total cash capital expenditures in fiscal year 2021 to be between $ 290 million and $ 305 million , exclusive of approximately $ 35 million to $ 45 million of capital expenditures under our fleet financing leases . we expect to fund our capital expenditures with available cash or cash generated from operations and through fleet financing .

shareholders ' equity was $ 815.0 million at june 30 , 2018 compared to $ 745.3 million at june 30 , 2017 . working capital increased $ 52.7 million from june 30 , 2017 to $ 625.5 million at june 30 , 2018 . the current ratio was 2.4 to 1 at june 30 , 2018 and 2.8 to 1 at june 30 , 2017 . applied monitors several economic indices that have been key indicators for industrial economic activity in the united states . these include the industrial production ( ip ) and manufacturing capacity utilization ( mcu ) indices published by the federal reserve board and the purchasing managers index ( pmi ) published by the institute for supply management ( ism ) . historically , our performance correlates well with the mcu , which measures productivity and calculates a ratio of actual manufacturing output versus potential full capacity output . when manufacturing plants are running at a high rate of capacity , they tend to wear out machinery and require replacement parts . 15 the mcu ( total industry ) and ip indices gradually increased during fiscal 2018 correlating with the overall growth in the industrial economy . the ism pmi registered 60.2 in june 2018 , an increase from the june 2017 revised reading of 56.7. a reading above 50 generally indicates expansion . the index readings for the months during the current quarter , along with the revised indices for previous quarter ends , were as follows : replace_table_token_2_th year ended june 30 , 2018 vs. 2017 the following table is included to aid in review of applied 's statements of consolidated income . replace_table_token_3_th sales in fiscal 2018 were $ 3.1 billion , which was $ 479.5 million or 18.5 % above the prior year , with sales from acquisitions accounting for $ 264.7 million or 10.2 % of the increase , and favorable foreign currency translation accounting for an increase of $ 16.0 million or 0.6 % . there were 251.5 selling days in fiscal 2018 and 252.5 selling days in fiscal 2017 . excluding the impact of businesses acquired and the impact of foreign currency translation , sales were up $ 198.8 million or 7.7 % during the year , of which 5.9 % is from the service center based distribution segment and 2.1 % is from the fluid power & flow control segment , offset by a 0.3 % decrease due to one less sales day . the following table shows changes in sales by reportable segment . replace_table_token_4_th sales of our service center based distribution segment , which operates primarily in mro markets , increased $ 166.0 million , or 7.6 % . acquisitions within this segment increased sales by $ 3.6 million or 0.2 % , and favorable foreign currency translation increased sales by $ 16.0 million or 0.7 % . excluding the impact of businesses acquired and the impact of foreign currency translation , sales increased $ 146.4 million or 6.7 % , driven by an increase of 7.0 % from operations , offset by a 0.3 % decrease due to one less sales day . sales of our fluid power & flow control segment increased $ 313.5 million or 75.8 % . acquisitions within this segment increased sales $ 261.1 million or 63.2 % . excluding the impact of businesses acquired , sales increased $ 52.4 million or 12.7 % , driven by an increase of 13.1 % from operations , offset by a 0.4 % decrease due to one less sales day . 16 the following table shows changes in sales by geographical area . other countries includes mexico , australia , new zealand , and singapore . replace_table_token_5_th sales in our u.s. operations increased $ 432.5 million or 19.8 % , with acquisitions adding $ 261.1 million or 12.0 % . excluding the impact of businesses acquired , u.s. sales were up $ 171.4 million or 7.8 % , of which 8.2 % is growth from operations , offset by a 0.4 % decrease due to one less sales day . sales from our canadian operations increased $ 21.6 million or 8.6 % , and favorable foreign currency translation increased canadian sales by $ 11.3 million or 4.5 % . excluding the impact of foreign currency translation , canadian sales were up $ 10.3 million or 4.1 % , of which 3.7 % is growth from operations , and the remaining 0.4 % increase is due to one additional sales day . consolidated sales from our other country operations increased $ 25.4 million or 16.0 % compared to the prior year . acquisitions added sales of $ 3.6 million or 2.3 % and favorable foreign currency translation increased other country sales by $ 4.7 million or 2.9 % . excluding the impact of businesses acquired and the impact of foreign currency translation , other country sales were up $ 17.1 million or 10.8 % compared to the prior year , driven by an increase from operations of 11.0 % , offset by a decrease of 0.2 % due to one less sales day in australia , new zealand , and singapore . the sales product mix for fiscal 2018 was 67.9 % industrial products and 32.1 % fluid power/flow control products compared to 71.5 % and 28.5 % , respectively , in the prior year . our gross profit margin increased to 28.8 % in fiscal 2018 compared to 28.4 % in fiscal 2017 due to the acquisition of fcx , which favorably impacted the gross profit margin by 38 basis points in fiscal 2018 . the following table shows the changes in sd & a . story_separator_special_tag the goodwill impairment increased the effective tax rate for fiscal 2016 by 27.1 % . the remaining decrease in the effective tax rate was primarily due to the adoption of asu 2016-09 in the first quarter of fiscal 2017 , which requires excess tax benefits and deficiencies resulting from stock-based compensation awards vesting and exercises to be recognized in the income statement . during fiscal 2017 , $ 2.4 million of net excess tax benefits were recognized as a reduction of income tax expense , which decreased the effective income tax rate for fiscal 2017 by 1.4 % . all undistributed earnings of our foreign subsidiaries were considered to be permanently reinvested at june 30 , 2017 and 2016. as a result of the factors addressed above , net income for fiscal 2017 increased $ 104.3 million from fiscal 2016. net income per share was $ 3.40 per share for fiscal 2017 compared to $ 0.75 for fiscal 2016. fiscal 2017 results included a positive impact on earnings per share of $ 0.56 per share related to the tax benefit recorded for the worthless stock deduction . fiscal 2016 results included negative impacts on earnings per share of $ 1.62 per share for goodwill impairment charges and $ 0.16 per share for restructuring charges . net income per share was favorably impacted by lower weighted average common shares outstanding in fiscal 2017 as a result of our share repurchase program . at june 30 , 2017 , we had a total of 552 operating facilities in the united states , puerto rico , canada , mexico , australia , new zealand , and singapore , versus 559 at june 30 , 2016. the number of company employees was 5,554 at june 30 , 2017 and 5,569 at june 30 , 2016. liquidity and capital resources our primary source of capital is cash flow from operations , supplemented as necessary by bank borrowings or other sources of debt . at june 30 , 2018 we had total debt obligations outstanding of $ 966.1 million compared to $ 292.0 million at june 30 , 2017 . management expects that our existing cash , cash equivalents , funds available under the revolving credit and uncommitted shelf facilities , and cash provided from operations , will be sufficient to finance normal working capital needs in each of the countries we operate in , payment of dividends , investments in properties , facilities and equipment , and the purchase of additional company common stock . management also believes that additional long-term debt and line of credit financing could be obtained based on the company 's credit standing and financial strength . the company 's working capital at june 30 , 2018 was $ 625.5 million compared to $ 572.8 million at june 30 , 2017 . the current ratio was 2.4 to 1 at june 30 , 2018 and 2.8 to 1 at june 30 , 2017 . story_separator_special_tag style= `` page-break-after : always `` / > the weighted average interest rate on the amount outstanding under the revolving credit facility as of june 30 , 2018 was 3.93 % . at june 30 , 2017 , the company had $ 120.3 million outstanding under the term loan in the previous credit facility agreement , which carried a variable interest rate tied to libor and was 2.25 % as of june 30 , 2017 . no amount was outstanding under the revolver as of june 30 , 2017 . unused lines under this facility , net of outstanding letters of credit of $ 2.4 million to secure certain insurance obligations , totaled $ 247.6 million at june 30 , 2017 . additionally , the company had letters of credit outstanding with a separate bank , not associated with either revolving credit agreement , in the amount of $ 2.7 million as of june 30 , 2018 and june 30 , 2017 , respectively , in order to secure certain insurance obligations . at june 30 , 2018 and june 30 , 2017 , the company had borrowings outstanding under its unsecured shelf facility agreement with prudential investment management of $ 170.0 million . fees on this facility range from 0.25 % to 1.25 % per year based on the company 's leverage ratio at each quarter end . the `` series c `` notes have a principal amount of $ 120.0 million and carry a fixed interest rate of 3.19 % , and are due in equal principal payments in july 2020 , 2021 , and 2022. the `` series d `` notes have a principal amount of $ 50.0 million , carry a fixed interest rate of 3.21 % , and are due in equal principal payments in october 2019 and 2023. as of june 30 , 2018 , $ 50.0 million in additional financing was available under this facility . in 2014 , the company assumed $ 2.4 million of debt as a part of the headquarters facility acquisition . the 1.50 % fixed interest rate note is held by the state of ohio development services agency , maturing in may 2024. at june 30 , 2018 and 2017 , $ 1.4 million and $ 1.7 million was outstanding , respectively . the new credit facility and the unsecured shelf facility contain restrictive covenants regarding liquidity , net worth , financial ratios , and other covenants . at june 30 , 2018 , the most restrictive of these covenants required that the company have net indebtedness less than 4.25 times consolidated income before interest , taxes , depreciation and amortization . at june 30 , 2018 , the company 's indebtedness was less than 3.0 times consolidated income before interest , taxes , depreciation and amortization . the company was in compliance with all financial covenants at june 30 , 2018 . accounts receivable analysis the following table is included to aid in analysis of accounts receivable and the associated provision for losses

net cash flows the following table is included to aid in review of applied 's statements of consolidated cash flows ; all amounts are in thousands . replace_table_token_11_th the decrease in cash provided by operating activities during fiscal 2018 is primarily due to increased working capital levels to support increased sales compared to the prior year periods . the decrease in cash was further impacted by 21 increased interest payments , and the payment of $ 7.1 million of one-time costs , both related to the fcx acquisition . these decreases were partially offset by improved operating results , including the impact of the fcx acquisition . net cash used in investing activities in fiscal 2018 included $ 775.7 million used for the acquisitions of fcx and dicofasa , and $ 23.2 million used for capital expenditures . net cash used in investing activities in fiscal 2017 included $ 17.0 million for capital expenditures and $ 2.8 million used for acquisitions . these were offset by $ 2.9 million of proceeds received from the sale of five buildings during fiscal 2017 . net cash used in investing activities in fiscal 2016 included $ 13.1 million for capital expenditures and $ 62.5 million used for acquisitions . net cash provided by financing activities in fiscal 2018 included $ 780.0 million of cash from borrowings under the new credit facility and $ 19.5 million of net borrowings under the revolving credit facility , offset by $ 125.4 million of long-term debt repayments . further uses of cash were $ 45.9 million for dividend payments , $ 22.8 million used to repurchase 393,300 shares of treasury stock , and $ 3.3 million used for the payment of debt issuance costs . net cash used in financing activities in fiscal 2017 included $ 3.4 million of long-term debt repayments and $ 33.0 million of net repayments under the revolving credit facility .

in general , chronic pain can not be cured . treatment of chronic pain is focused on reducing pain and improving function . the goal is effective pain management . chronic pain is widespread . it affects over 100 million adults in the united states and more than 1.5 billion people worldwide . the global market for pain management drugs and devices alone was valued at $ 35 billion in 2012. the estimated incremental impact of chronic pain on health care costs in the united states is over $ 250 billion per year and lost productivity is estimated to exceed $ 300 billion per year . estimated out-of-pocket spending in the united states on chronic pain is $ 20 billion per year . the most common approach to chronic pain is pain medication . this includes over-the-counter drugs ( such as advil and motrin ) , and prescription drugs including anti-convulsants ( such as lyrica and neurontin ) and anti-depressants ( such as cymbalta and elavil ) . topical creams may also be used ( such as zostrix and bengay ) . with severe pain , narcotic pain medications may be prescribed ( such as codeine , fentanyl , morphine , and oxycodone ) . the approach to treatment is individualized , drug combinations may be employed , and the results are often hit or miss . side effects and the potential for addiction are real and the risks are substantial . reflecting the difficulty in treating chronic pain , we believe that inadequate relief leads 25 % to 50 % of pain sufferers to turn to the over-the-counter market for supplements or alternatives to prescription pain medications . these include non-prescription medications , topical creams , lotions , electrical stimulators , dietary products , braces , sleeves , pads and other items . in total they account for over $ 4 billion in annual spending in the united states on pain relief products . high frequency nerve stimulation is an established treatment for chronic pain supported by numerous clinical studies demonstrating efficacy . in simplified outline , the mechanism of action involves intensive nerve stimulation to activate the body 's central pain inhibition system resulting in widespread analgesia , or pain relief . the nerve stimulation activates brainstem pain centers leading to the release of endogenous opioids that act primarily through the delta opioid receptor to reduce pain 30 signal transmission through the central nervous system . this therapeutic approach is available through deep brain stimulation and through implantable spinal cord stimulation , both of which require surgery and have attendant risks . non-invasive approaches to neuro-stimulation ( transcutaneous electrical nerve stimulation , or tens ) have achieved limited efficacy in practice due to device limitations , ineffective dosing and low patient compliance . quell , our otc wearable device for pain relief , was made commercially available in the united states during the second quarter of 2015. following commercial launch through the end of 2017 , approximately 140,500 quell devices plus electrodes and accessories were shipped to consumers . quell utilizes our patented 100 % drug-free neuro-stimulation technology to provide relief from chronic intractable pain , such as nerve pain due to diabetes , fibromyalgia , arthritic pain , and lower back and leg pain . this advanced wearable device is lightweight and can be worn during the day while active , and at night while sleeping . it has been cleared by the u.s. food and drug administration ( the `` fda `` ) for treatment of chronic intractable pain without a doctor 's prescription . users of the device have the option of using their smartphones to control pain therapy and to track sleep , activity , gait and therapy parameters . quell is distributed in north america via e-commerce , including the company 's website ( www.quellrelief.com ) and amazon , via direct response television including qvc , via retail merchandisers including target , cvs , best buy , bed bath and beyond and others , and via health care professionals such as pain management physician practices and podiatry practices . distribution is supported by television promotion to expand product awareness . dpncheck , our diagnostic test for peripheral neuropathies , was made commercially available in the fourth quarter of 2011. dpncheck revenues for 2017 and 2016 were approximately $ 3.1 million and $ 2.5 million , respectively . our u.s. sales efforts focus on medicare advantage providers who assume financial responsibility and the associated risks for the health care costs of their patients . we believe that dpncheck presents an attractive clinical case with early detection of neuropathy allowing for earlier clinical intervention to help mitigate the effects of neuropathy on both patient quality of life and cost of care . also , the diagnosis and documentation of neuropathy provided by dpncheck helps clarify the patient health profile which , in turn , may have a direct , positive effect on the medicare advantage premium received by the provider . we believe that attractive opportunities exist outside the united states , including japan where dpncheck is marketed by our distribution partner fukuda denshi ; in china where we initiated sales in 2017 via omron beijing ltd. ; and in mexico where dpncheck is marketed by scienta farma . our products consist of a medical device used in conjunction with a consumable electrode or biosensor . other accessories and consumables are also available to customers . our commercial objective is to build an installed base of active customer accounts and distributors that regularly order aftermarket products to meet their needs . we successfully implemented this model when we started our business with the nc-stat system and applied it to subsequent product generations including advance . story_separator_special_tag our ability to generate revenue to fund our operations will largely depend on the success of our wearable therapeutic products for chronic pain and our diagnostic products for neuropathy . a low level of market interest in quell or dpncheck , an accelerated decline in our neurodiagnostics consumables sales , or unanticipated increases in our operating costs would have an adverse effect on our liquidity and cash generated from operations . the following table sets forth information relating to our cash and cash equivalents : december 31 , 2017 december 31 , 2016 change % change ( in thousands ) story_separator_special_tag style= `` font-family : inherit ; font-size:10pt ; `` > the following table summarizes our principal contractual obligations as of december 31 , 2017 and the effects such obligations are expected to have on our liquidity and cash flows in future periods . replace_table_token_6_th critical accounting policies and estimates our financial statements are based on the selection and application of generally accepted accounting principles , which require us to make estimates and assumptions about future events that affect the amounts reported in our financial statements and the accompanying notes . future events and their effects can not be determined with certainty . therefore , the determination of estimates requires the exercise of judgment . actual results could differ significantly from those estimates , and any such differences may be material to our financial statements . we believe that the policies set forth below may involve a higher degree of judgment and complexity in their application than our other accounting policies and represent the critical accounting policies used in the preparation of our financial statements . if different assumptions or conditions were to prevail , the results 35 could be materially different from our reported results . our significant accounting policies are presented within note 2 to our financial statements . revenue recognition and accounts receivable we recognize revenue when the following criteria have been met : persuasive evidence of an arrangement exists , delivery has occurred and risk of loss has passed , the seller 's price to the buyer is fixed or determinable , and collection is reasonably assured . revenues associated with our medical devices and consumables , including single use nerve specific electrodes and other accessories are generally recognized upon shipment , assuming all other revenue criteria have been met . revenue recognition involves judgments , including assessments of expected returns and expected customer relationship periods . we analyze various factors , including a review of specific transactions , its historical product returns , average customer relationship periods , customer usage , customer balances , and market and economic conditions . changes in judgments or estimates on these factors could materially impact the timing and amount of revenues and costs recognized . should market or economic conditions deteriorate , our actual return or bad debt experience could exceed its estimate . certain product sales are made with a 30-day or 60-day right of return . where we can reasonably estimate future returns , we recognize revenues upon shipment and record as a reduction of revenue a provision for estimated returns . where we can not reasonably estimate future returns , we defer revenues until we gain sufficient experience to estimate returns or until the right of return lapses . trade accounts receivable are recorded at the invoiced amount and do not bear interest . accounts receivable are recorded net of the allowance for doubtful accounts receivable . the allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable . we review our allowance for doubtful accounts and determine the allowance based on an analysis of customer past payment history , product usage activity , and recent communications between us and the customer . individual customer balances which are past due and over 90 days outstanding are reviewed individually for collectability . account balances are written-off against the allowance when we feel it is probable the receivable will not be recovered . we do not have any off-balance sheet credit exposure related to our customers . inventories inventories , consisting primarily of finished goods and purchased components , are stated at the lower of cost or net realizable value . cost is determined using the first-in , first-out method . we write down inventory to its net realizable value for excess or obsolete inventory . the realizable value of inventories is based upon the types and levels of inventories held , forecasted demand , pricing , competition , and changes in technology . our consumables have an eighteen to twenty-four month shelf life . should current market and economic conditions deteriorate , our actual recoveries could be less than our estimates . recently issued or adopted accounting pronouncements in february 2016 , the fasb issued accounting standards update no . 2016-02 , leases ( topic 842 ) ( “ asu 2016-02 ” ) . asu 2016-02 requires that lessees will need to recognize virtually all of their leases on the balance sheet , by recording a right-of-use asset and lease liability . the provisions of this guidance are effective for annual periods beginning after december 31 , 2018 , and for interim periods therein . the company is in the process of evaluating the new standard and assessing the impact , if any , asu 2016-02 will have on the company 's financial statements . in may 2014 , the fasb and the international accounting standards board ( “ iasb ” ) jointly issued accounting standards update ( “ asu ” ) no . 2014-9 , revenue from contracts with customers ( “ asu 2014-9 ” ) , a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance . the objective of asu 2014-9 is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects

net cash flows the following table is included to aid in review of applied 's statements of consolidated cash flows ; all amounts are in thousands . replace_table_token_11_th the decrease in cash provided by operating activities during fiscal 2018 is primarily due to increased working capital levels to support increased sales compared to the prior year periods . the decrease in cash was further impacted by 21 increased interest payments , and the payment of $ 7.1 million of one-time costs , both related to the fcx acquisition . these decreases were partially offset by improved operating results , including the impact of the fcx acquisition . net cash used in investing activities in fiscal 2018 included $ 775.7 million used for the acquisitions of fcx and dicofasa , and $ 23.2 million used for capital expenditures . net cash used in investing activities in fiscal 2017 included $ 17.0 million for capital expenditures and $ 2.8 million used for acquisitions . these were offset by $ 2.9 million of proceeds received from the sale of five buildings during fiscal 2017 . net cash used in investing activities in fiscal 2016 included $ 13.1 million for capital expenditures and $ 62.5 million used for acquisitions . net cash provided by financing activities in fiscal 2018 included $ 780.0 million of cash from borrowings under the new credit facility and $ 19.5 million of net borrowings under the revolving credit facility , offset by $ 125.4 million of long-term debt repayments . further uses of cash were $ 45.9 million for dividend payments , $ 22.8 million used to repurchase 393,300 shares of treasury stock , and $ 3.3 million used for the payment of debt issuance costs . net cash used in financing activities in fiscal 2017 included $ 3.4 million of long-term debt repayments and $ 33.0 million of net repayments under the revolving credit facility .

in general , chronic pain can not be cured . treatment of chronic pain is focused on reducing pain and improving function . the goal is effective pain management . chronic pain is widespread . it affects over 100 million adults in the united states and more than 1.5 billion people worldwide . the global market for pain management drugs and devices alone was valued at $ 35 billion in 2012. the estimated incremental impact of chronic pain on health care costs in the united states is over $ 250 billion per year and lost productivity is estimated to exceed $ 300 billion per year . estimated out-of-pocket spending in the united states on chronic pain is $ 20 billion per year . the most common approach to chronic pain is pain medication . this includes over-the-counter drugs ( such as advil and motrin ) , and prescription drugs including anti-convulsants ( such as lyrica and neurontin ) and anti-depressants ( such as cymbalta and elavil ) . topical creams may also be used ( such as zostrix and bengay ) . with severe pain , narcotic pain medications may be prescribed ( such as codeine , fentanyl , morphine , and oxycodone ) . the approach to treatment is individualized , drug combinations may be employed , and the results are often hit or miss . side effects and the potential for addiction are real and the risks are substantial . reflecting the difficulty in treating chronic pain , we believe that inadequate relief leads 25 % to 50 % of pain sufferers to turn to the over-the-counter market for supplements or alternatives to prescription pain medications . these include non-prescription medications , topical creams , lotions , electrical stimulators , dietary products , braces , sleeves , pads and other items . in total they account for over $ 4 billion in annual spending in the united states on pain relief products . high frequency nerve stimulation is an established treatment for chronic pain supported by numerous clinical studies demonstrating efficacy . in simplified outline , the mechanism of action involves intensive nerve stimulation to activate the body 's central pain inhibition system resulting in widespread analgesia , or pain relief . the nerve stimulation activates brainstem pain centers leading to the release of endogenous opioids that act primarily through the delta opioid receptor to reduce pain 30 signal transmission through the central nervous system . this therapeutic approach is available through deep brain stimulation and through implantable spinal cord stimulation , both of which require surgery and have attendant risks . non-invasive approaches to neuro-stimulation ( transcutaneous electrical nerve stimulation , or tens ) have achieved limited efficacy in practice due to device limitations , ineffective dosing and low patient compliance . quell , our otc wearable device for pain relief , was made commercially available in the united states during the second quarter of 2015. following commercial launch through the end of 2017 , approximately 140,500 quell devices plus electrodes and accessories were shipped to consumers . quell utilizes our patented 100 % drug-free neuro-stimulation technology to provide relief from chronic intractable pain , such as nerve pain due to diabetes , fibromyalgia , arthritic pain , and lower back and leg pain . this advanced wearable device is lightweight and can be worn during the day while active , and at night while sleeping . it has been cleared by the u.s. food and drug administration ( the `` fda `` ) for treatment of chronic intractable pain without a doctor 's prescription . users of the device have the option of using their smartphones to control pain therapy and to track sleep , activity , gait and therapy parameters . quell is distributed in north america via e-commerce , including the company 's website ( www.quellrelief.com ) and amazon , via direct response television including qvc , via retail merchandisers including target , cvs , best buy , bed bath and beyond and others , and via health care professionals such as pain management physician practices and podiatry practices . distribution is supported by television promotion to expand product awareness . dpncheck , our diagnostic test for peripheral neuropathies , was made commercially available in the fourth quarter of 2011. dpncheck revenues for 2017 and 2016 were approximately $ 3.1 million and $ 2.5 million , respectively . our u.s. sales efforts focus on medicare advantage providers who assume financial responsibility and the associated risks for the health care costs of their patients . we believe that dpncheck presents an attractive clinical case with early detection of neuropathy allowing for earlier clinical intervention to help mitigate the effects of neuropathy on both patient quality of life and cost of care . also , the diagnosis and documentation of neuropathy provided by dpncheck helps clarify the patient health profile which , in turn , may have a direct , positive effect on the medicare advantage premium received by the provider . we believe that attractive opportunities exist outside the united states , including japan where dpncheck is marketed by our distribution partner fukuda denshi ; in china where we initiated sales in 2017 via omron beijing ltd. ; and in mexico where dpncheck is marketed by scienta farma . our products consist of a medical device used in conjunction with a consumable electrode or biosensor . other accessories and consumables are also available to customers . our commercial objective is to build an installed base of active customer accounts and distributors that regularly order aftermarket products to meet their needs . we successfully implemented this model when we started our business with the nc-stat system and applied it to subsequent product generations including advance . story_separator_special_tag our ability to generate revenue to fund our operations will largely depend on the success of our wearable therapeutic products for chronic pain and our diagnostic products for neuropathy . a low level of market interest in quell or dpncheck , an accelerated decline in our neurodiagnostics consumables sales , or unanticipated increases in our operating costs would have an adverse effect on our liquidity and cash generated from operations . the following table sets forth information relating to our cash and cash equivalents : december 31 , 2017 december 31 , 2016 change % change ( in thousands ) story_separator_special_tag style= `` font-family : inherit ; font-size:10pt ; `` > the following table summarizes our principal contractual obligations as of december 31 , 2017 and the effects such obligations are expected to have on our liquidity and cash flows in future periods . replace_table_token_6_th critical accounting policies and estimates our financial statements are based on the selection and application of generally accepted accounting principles , which require us to make estimates and assumptions about future events that affect the amounts reported in our financial statements and the accompanying notes . future events and their effects can not be determined with certainty . therefore , the determination of estimates requires the exercise of judgment . actual results could differ significantly from those estimates , and any such differences may be material to our financial statements . we believe that the policies set forth below may involve a higher degree of judgment and complexity in their application than our other accounting policies and represent the critical accounting policies used in the preparation of our financial statements . if different assumptions or conditions were to prevail , the results 35 could be materially different from our reported results . our significant accounting policies are presented within note 2 to our financial statements . revenue recognition and accounts receivable we recognize revenue when the following criteria have been met : persuasive evidence of an arrangement exists , delivery has occurred and risk of loss has passed , the seller 's price to the buyer is fixed or determinable , and collection is reasonably assured . revenues associated with our medical devices and consumables , including single use nerve specific electrodes and other accessories are generally recognized upon shipment , assuming all other revenue criteria have been met . revenue recognition involves judgments , including assessments of expected returns and expected customer relationship periods . we analyze various factors , including a review of specific transactions , its historical product returns , average customer relationship periods , customer usage , customer balances , and market and economic conditions . changes in judgments or estimates on these factors could materially impact the timing and amount of revenues and costs recognized . should market or economic conditions deteriorate , our actual return or bad debt experience could exceed its estimate . certain product sales are made with a 30-day or 60-day right of return . where we can reasonably estimate future returns , we recognize revenues upon shipment and record as a reduction of revenue a provision for estimated returns . where we can not reasonably estimate future returns , we defer revenues until we gain sufficient experience to estimate returns or until the right of return lapses . trade accounts receivable are recorded at the invoiced amount and do not bear interest . accounts receivable are recorded net of the allowance for doubtful accounts receivable . the allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable . we review our allowance for doubtful accounts and determine the allowance based on an analysis of customer past payment history , product usage activity , and recent communications between us and the customer . individual customer balances which are past due and over 90 days outstanding are reviewed individually for collectability . account balances are written-off against the allowance when we feel it is probable the receivable will not be recovered . we do not have any off-balance sheet credit exposure related to our customers . inventories inventories , consisting primarily of finished goods and purchased components , are stated at the lower of cost or net realizable value . cost is determined using the first-in , first-out method . we write down inventory to its net realizable value for excess or obsolete inventory . the realizable value of inventories is based upon the types and levels of inventories held , forecasted demand , pricing , competition , and changes in technology . our consumables have an eighteen to twenty-four month shelf life . should current market and economic conditions deteriorate , our actual recoveries could be less than our estimates . recently issued or adopted accounting pronouncements in february 2016 , the fasb issued accounting standards update no . 2016-02 , leases ( topic 842 ) ( “ asu 2016-02 ” ) . asu 2016-02 requires that lessees will need to recognize virtually all of their leases on the balance sheet , by recording a right-of-use asset and lease liability . the provisions of this guidance are effective for annual periods beginning after december 31 , 2018 , and for interim periods therein . the company is in the process of evaluating the new standard and assessing the impact , if any , asu 2016-02 will have on the company 's financial statements . in may 2014 , the fasb and the international accounting standards board ( “ iasb ” ) jointly issued accounting standards update ( “ asu ” ) no . 2014-9 , revenue from contracts with customers ( “ asu 2014-9 ” ) , a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance . the objective of asu 2014-9 is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects

cash and cash equivalents $ 4,043.7 $ 3,949.1 $ 94.6 2.4 % during 2017 our cash and cash equivalents remained essentially unchanged from 2016 reflecting the net proceeds of $ 12.9 million provided by our 2017 equity offerings , offset by $ 12.7 million of net cash used in operations and $ 0.2 million used in investing activities . 33 in the third quarter of 2017 , we completed a private equity offering providing for the issuance of 7,000 shares of series f convertible preferred stock at a price of $ 1,000 per share and resetting the conversion price of 14,052.93 shares of series d convertible preferred stock and 7,000 shares of series e convertible preferred stock to $ 2.63 per share . this offering resulted in approximately $ 6.6 million in net proceeds after deducting fees and expenses . in the first quarter of 2017 , we completed a private equity offering providing for the issuance of i ) 7,000 shares of series e convertible preferred stock ( the “ series e preferred stock ” ) at a price of $ 1,000 per share , and ( ii ) warrants to purchase up to 1,250,000 shares of common stock at an exercise price of $ 5.60 per share . the offerings resulted in approximately $ 6.3 million in net proceeds after deducting fees and expenses . the company is party to a loan and security agreement , or the credit facility , with a bank . as of december 31 , 2017 the credit facility permitted the company to borrow up to $ 2.5 million on a revolving basis . the credit facility was subsequently amended , most recently on january 17 , 2018 , and extended until january 15 , 2019 . amounts borrowed under the credit facility will bear interest equal to the prime rate plus 0.5 % . any borrowings under the credit facility will be collateralized by the company 's cash , accounts receivable , inventory , and equipment . the credit facility also includes traditional lending and reporting covenants . these include certain financial covenants applicable to liquidity that are to be maintained by the company .

our ability to maintain our appeal to existing customers and attract new customers depends on our ability to originate , develop and offer a compelling product assortment responsive to customer 37 preferences and design trends . if we misjudge the market for our products , we may be faced with excess inventories for some products and may be required to become more promotional in our selling activities , which would impact our net sales and gross profit . new store openings . we expect new stores will be the key driver of the growth in our sales and operating profit in the future . our results of operations have been and will continue to be materially affected by the timing and number of new store openings . the performance of new stores may vary depending on various factors such as the store opening date , the time of year of a particular opening , the amount of store opening costs , the amount of store occupancy costs and the location of the new store , including whether it is located in a new or existing market . for example , we typically incur higher than normal employee costs at the time of a new store opening associated with set-up and other opening costs . in addition , in response to the interest and excitement generated when we open a new store , the new stores generally experience higher net sales during the initial period of one to three months after which the new store 's net sales will begin to normalize as it reaches maturity within six months of opening , as further discussed below . our planned store expansion will place increased demands on our operational , managerial , administrative and other resources . managing our growth effectively will require us to continue to enhance our inventory management and distribution systems , financial and management controls and information systems . we will also be required to hire , train and retain store management and store personnel which , together with increased marketing costs , can affect our operating margins . a new store typically reaches maturity , meaning the store 's annualized targeted sales volume has been reached , within six months of opening . new stores are included in the comparable store base during the sixteenth full fiscal month following the store 's opening , which we believe represents the most appropriate comparison . we also periodically explore opportunities to relocate a limited number of existing stores to improve location , lease terms , store layout or customer experience . relocated stores typically achieve a level of operating profitability comparable to our company-wide average for existing stores more quickly than new stores . infrastructure investment . our historical operating results reflect the impact of our ongoing investments to support our growth . we have made significant investments in our business that we believe have laid the foundation for continued profitable growth . we believe that our strengthened management team , new brand identity , upgraded and automated distribution center and enhanced information systems , including our warehouse management and pos systems , enable us to replicate our profitable store format and differentiated shopping experience . in addition , during fiscal year 2016 , we implemented a merchandise planning system and upgraded our inventory allocation system to better manage inventory for each store and corresponding customer base , and we have recently begun to make investments relating to a second distribution center that we currently plan to open in fiscal year 2020. we expect these infrastructure investments to support our successful operating model over a significantly expanded store base . pricing strategy . we are committed to providing our products at everyday low prices . we value engineer products in collaboration with our suppliers to recreate the “ look ” that we believe our customer wants while eliminating the costly construction elements that our customer does not value . we believe our customer views shopping at home as an in-person experience through which our customer can see and feel the quality of our products and physically assemble a desired aesthetic . this design approach allows us to deliver an attractive value to our customers , as our products are typically less expensive than other branded products with a similar look . we employ a simple everyday low pricing strategy that consistently delivers savings to our customers without the need for extensive promotions , as evidenced by over 80 % of our net sales occurring at full price . our ability to source and distribute products effectively . our net sales and gross profit are affected by our ability to purchase our products in sufficient quantities at competitive prices . while we believe our vendors have adequate capacity to meet our current and anticipated demand , our level of net sales could be adversely affected in the event of constraints in our supply chain , including the inability of our vendors to produce sufficient quantities of some merchandise in a manner that is able to match market demand from our customers , leading to lost sales . fluctuation in quarterly results . our quarterly results have historically varied depending upon a variety of factors , including our product offerings , promotional events , store openings and shifts in the timing of holidays , among 38 other things . as a result of these factors , our working capital requirements and demands on our product distribution and delivery network may fluctuate during the year . inflation and deflation trends . our financial results can be expected to be directly impacted by substantial increases in product costs due to commodity cost increases or general inflation which could lead to a reduction in our sales as well as greater margin pressure as costs may not be able to be passed on to consumers . to date , changes in commodity prices and general inflation have not materially impacted our business . story_separator_special_tag costs related to new store openings represent cash costs , and you should be aware that in the future we may incur expenses that are similar to these costs . we anticipate that we will continue to incur cash costs as we open new stores in the future . we opened 28 , 24 and 20 new stores in fiscal years 2018 , 2017 and 2016 , respectively . ( j ) reflects corporate overhead expenses , which are not directly related to the profitability of our stores , to facilitate comparisons of store operating performance as we do not consider these corporate overhead expenses when evaluating the ongoing performance of our stores from period to period . corporate overhead expenses , which are a component of selling , general and administrative expenses , are comprised of various home office general and administrative expenses such as payroll expenses , occupancy costs , marketing and advertising , and consulting and professional fees . see our discussion of the changes in selling , general and administrative expenses presented in “ —results of operations ” . store-level adjusted ebitda should not be used as a substitute for consolidated measures of profitability or performance because it does not reflect corporate overhead expenses that are necessary to allow us to effectively operate our stores and generate store-level adjusted ebitda . we anticipate that we will continue to incur corporate overhead expenses in future periods . 44 ( 3 ) the following table reconciles our net income to adjusted net income for the periods presented ( in thousands ) : replace_table_token_8_th ( a ) non-cash loss due to a change in the abl facility lenders under the abl amendment resulting in immediate recognition of a portion of the related unamortized deferred debt issuance costs . ( b ) non-cash stock-based compensation associated with a special one-time initial public offering bonus grant to senior executives , which we do not consider in our evaluation of our ongoing performance . the grant was made in addition to the ongoing equity incentive program that we have in place to incentivize and retain management and was made to reward certain senior executives for historical performance and allow them to benefit from future successful outcomes for our sponsors . ( c ) charges incurred in connection with our initial public offering and the registration of shares of our common stock on behalf of our sponsors , which we do not consider in our evaluation of our ongoing performance . ( d ) represents the tax impact associated with the adjusted expenses utilizing an adjusted effective tax rate that excludes the revaluation of net deferred tax assets as a result of the tax act for fiscal year 2018 and the effective tax rate in effect during fiscal years 2017 and 2016. the adjusted effective tax rate was 26.1 % compared to the effective tax rate of 51.5 % for fiscal year 2018 ( reflecting the tax impact of the revaluation of net deferred tax assets under the tax act ) . the effective tax rate for fiscal years 2017 and 2016 were 36.7 % and 133.8 % , respectively . ( e ) represents the tax impact of the revaluation of net deferred tax assets in accordance with the tax act . fiscal year ended january 27 , 2018 compared to fiscal year ended january 28 , 2017 net sales net sales increased $ 184.9 million , or 24.1 % , to $ 950.5 million for the fiscal year ended january 27 , 2018 from $ 765.6 million for the fiscal year ended january 28 , 2017. the increase was primarily driven by approximately $ 141.2 million of incremental revenue from the net addition of 26 new stores opened since january 28 , 2017 as well as a number of stores that were opened during fiscal year 2017 but had not been open long enough to be included in the comparable store base . the remaining $ 43.7 million increase in net sales is attributable to comparable store sales which increased 6.5 % during the fiscal year ended january 27 , 2018 , driven primarily by our merchandising and marketing initiatives . cost of sales cost of sales increased $ 125.4 million , or 24.2 % , to $ 643.6 million for the fiscal year ended january 27 , 2018 from $ 518.2 million for the fiscal year ended january 28 , 2017. this increase was primarily driven by the 24.1 % increase in net sales for the fiscal year ended january 27 , 2018 compared to the fiscal year ended january 28 , 2017 , which resulted in a $ 79.0 million increase in merchandise costs . in addition , during the fiscal year ended january 27 , 2018 , we recognized a $ 10.0 million increase in depreciation and amortization and a $ 21.3 million increase in store occupancy costs , in each case as a result of new store openings since january 28 , 2017 . 45 gross profit and gross margin gross profit was $ 307.0 million , or 32.3 % of net sales , for the fiscal year ended january 27 , 2018 , an increase of $ 59.5 million from $ 247.5 million , or 32.3 % of net sales , for the fiscal year ended january 28 , 2017. the increase in gross profit was primarily driven by increased sales volume from the net addition of 26 new stores opened since january 28 , 2017 as well as a 6.5 % increase in comparable stores sales . gross margin remained consistent for the fiscal year ended january 27 , 2018 when compared to the fiscal year ended january 28 , 2017 primarily as a result of product margin improvement and leverage of store occupancy costs achieved on higher sales growth . this increase was offset by higher distribution center costs associated with strategic investments in incremental inventory that were completed in the first half of

cash and cash equivalents $ 4,043.7 $ 3,949.1 $ 94.6 2.4 % during 2017 our cash and cash equivalents remained essentially unchanged from 2016 reflecting the net proceeds of $ 12.9 million provided by our 2017 equity offerings , offset by $ 12.7 million of net cash used in operations and $ 0.2 million used in investing activities . 33 in the third quarter of 2017 , we completed a private equity offering providing for the issuance of 7,000 shares of series f convertible preferred stock at a price of $ 1,000 per share and resetting the conversion price of 14,052.93 shares of series d convertible preferred stock and 7,000 shares of series e convertible preferred stock to $ 2.63 per share . this offering resulted in approximately $ 6.6 million in net proceeds after deducting fees and expenses . in the first quarter of 2017 , we completed a private equity offering providing for the issuance of i ) 7,000 shares of series e convertible preferred stock ( the “ series e preferred stock ” ) at a price of $ 1,000 per share , and ( ii ) warrants to purchase up to 1,250,000 shares of common stock at an exercise price of $ 5.60 per share . the offerings resulted in approximately $ 6.3 million in net proceeds after deducting fees and expenses . the company is party to a loan and security agreement , or the credit facility , with a bank . as of december 31 , 2017 the credit facility permitted the company to borrow up to $ 2.5 million on a revolving basis . the credit facility was subsequently amended , most recently on january 17 , 2018 , and extended until january 15 , 2019 . amounts borrowed under the credit facility will bear interest equal to the prime rate plus 0.5 % . any borrowings under the credit facility will be collateralized by the company 's cash , accounts receivable , inventory , and equipment . the credit facility also includes traditional lending and reporting covenants . these include certain financial covenants applicable to liquidity that are to be maintained by the company .

our ability to maintain our appeal to existing customers and attract new customers depends on our ability to originate , develop and offer a compelling product assortment responsive to customer 37 preferences and design trends . if we misjudge the market for our products , we may be faced with excess inventories for some products and may be required to become more promotional in our selling activities , which would impact our net sales and gross profit . new store openings . we expect new stores will be the key driver of the growth in our sales and operating profit in the future . our results of operations have been and will continue to be materially affected by the timing and number of new store openings . the performance of new stores may vary depending on various factors such as the store opening date , the time of year of a particular opening , the amount of store opening costs , the amount of store occupancy costs and the location of the new store , including whether it is located in a new or existing market . for example , we typically incur higher than normal employee costs at the time of a new store opening associated with set-up and other opening costs . in addition , in response to the interest and excitement generated when we open a new store , the new stores generally experience higher net sales during the initial period of one to three months after which the new store 's net sales will begin to normalize as it reaches maturity within six months of opening , as further discussed below . our planned store expansion will place increased demands on our operational , managerial , administrative and other resources . managing our growth effectively will require us to continue to enhance our inventory management and distribution systems , financial and management controls and information systems . we will also be required to hire , train and retain store management and store personnel which , together with increased marketing costs , can affect our operating margins . a new store typically reaches maturity , meaning the store 's annualized targeted sales volume has been reached , within six months of opening . new stores are included in the comparable store base during the sixteenth full fiscal month following the store 's opening , which we believe represents the most appropriate comparison . we also periodically explore opportunities to relocate a limited number of existing stores to improve location , lease terms , store layout or customer experience . relocated stores typically achieve a level of operating profitability comparable to our company-wide average for existing stores more quickly than new stores . infrastructure investment . our historical operating results reflect the impact of our ongoing investments to support our growth . we have made significant investments in our business that we believe have laid the foundation for continued profitable growth . we believe that our strengthened management team , new brand identity , upgraded and automated distribution center and enhanced information systems , including our warehouse management and pos systems , enable us to replicate our profitable store format and differentiated shopping experience . in addition , during fiscal year 2016 , we implemented a merchandise planning system and upgraded our inventory allocation system to better manage inventory for each store and corresponding customer base , and we have recently begun to make investments relating to a second distribution center that we currently plan to open in fiscal year 2020. we expect these infrastructure investments to support our successful operating model over a significantly expanded store base . pricing strategy . we are committed to providing our products at everyday low prices . we value engineer products in collaboration with our suppliers to recreate the “ look ” that we believe our customer wants while eliminating the costly construction elements that our customer does not value . we believe our customer views shopping at home as an in-person experience through which our customer can see and feel the quality of our products and physically assemble a desired aesthetic . this design approach allows us to deliver an attractive value to our customers , as our products are typically less expensive than other branded products with a similar look . we employ a simple everyday low pricing strategy that consistently delivers savings to our customers without the need for extensive promotions , as evidenced by over 80 % of our net sales occurring at full price . our ability to source and distribute products effectively . our net sales and gross profit are affected by our ability to purchase our products in sufficient quantities at competitive prices . while we believe our vendors have adequate capacity to meet our current and anticipated demand , our level of net sales could be adversely affected in the event of constraints in our supply chain , including the inability of our vendors to produce sufficient quantities of some merchandise in a manner that is able to match market demand from our customers , leading to lost sales . fluctuation in quarterly results . our quarterly results have historically varied depending upon a variety of factors , including our product offerings , promotional events , store openings and shifts in the timing of holidays , among 38 other things . as a result of these factors , our working capital requirements and demands on our product distribution and delivery network may fluctuate during the year . inflation and deflation trends . our financial results can be expected to be directly impacted by substantial increases in product costs due to commodity cost increases or general inflation which could lead to a reduction in our sales as well as greater margin pressure as costs may not be able to be passed on to consumers . to date , changes in commodity prices and general inflation have not materially impacted our business . story_separator_special_tag costs related to new store openings represent cash costs , and you should be aware that in the future we may incur expenses that are similar to these costs . we anticipate that we will continue to incur cash costs as we open new stores in the future . we opened 28 , 24 and 20 new stores in fiscal years 2018 , 2017 and 2016 , respectively . ( j ) reflects corporate overhead expenses , which are not directly related to the profitability of our stores , to facilitate comparisons of store operating performance as we do not consider these corporate overhead expenses when evaluating the ongoing performance of our stores from period to period . corporate overhead expenses , which are a component of selling , general and administrative expenses , are comprised of various home office general and administrative expenses such as payroll expenses , occupancy costs , marketing and advertising , and consulting and professional fees . see our discussion of the changes in selling , general and administrative expenses presented in “ —results of operations ” . store-level adjusted ebitda should not be used as a substitute for consolidated measures of profitability or performance because it does not reflect corporate overhead expenses that are necessary to allow us to effectively operate our stores and generate store-level adjusted ebitda . we anticipate that we will continue to incur corporate overhead expenses in future periods . 44 ( 3 ) the following table reconciles our net income to adjusted net income for the periods presented ( in thousands ) : replace_table_token_8_th ( a ) non-cash loss due to a change in the abl facility lenders under the abl amendment resulting in immediate recognition of a portion of the related unamortized deferred debt issuance costs . ( b ) non-cash stock-based compensation associated with a special one-time initial public offering bonus grant to senior executives , which we do not consider in our evaluation of our ongoing performance . the grant was made in addition to the ongoing equity incentive program that we have in place to incentivize and retain management and was made to reward certain senior executives for historical performance and allow them to benefit from future successful outcomes for our sponsors . ( c ) charges incurred in connection with our initial public offering and the registration of shares of our common stock on behalf of our sponsors , which we do not consider in our evaluation of our ongoing performance . ( d ) represents the tax impact associated with the adjusted expenses utilizing an adjusted effective tax rate that excludes the revaluation of net deferred tax assets as a result of the tax act for fiscal year 2018 and the effective tax rate in effect during fiscal years 2017 and 2016. the adjusted effective tax rate was 26.1 % compared to the effective tax rate of 51.5 % for fiscal year 2018 ( reflecting the tax impact of the revaluation of net deferred tax assets under the tax act ) . the effective tax rate for fiscal years 2017 and 2016 were 36.7 % and 133.8 % , respectively . ( e ) represents the tax impact of the revaluation of net deferred tax assets in accordance with the tax act . fiscal year ended january 27 , 2018 compared to fiscal year ended january 28 , 2017 net sales net sales increased $ 184.9 million , or 24.1 % , to $ 950.5 million for the fiscal year ended january 27 , 2018 from $ 765.6 million for the fiscal year ended january 28 , 2017. the increase was primarily driven by approximately $ 141.2 million of incremental revenue from the net addition of 26 new stores opened since january 28 , 2017 as well as a number of stores that were opened during fiscal year 2017 but had not been open long enough to be included in the comparable store base . the remaining $ 43.7 million increase in net sales is attributable to comparable store sales which increased 6.5 % during the fiscal year ended january 27 , 2018 , driven primarily by our merchandising and marketing initiatives . cost of sales cost of sales increased $ 125.4 million , or 24.2 % , to $ 643.6 million for the fiscal year ended january 27 , 2018 from $ 518.2 million for the fiscal year ended january 28 , 2017. this increase was primarily driven by the 24.1 % increase in net sales for the fiscal year ended january 27 , 2018 compared to the fiscal year ended january 28 , 2017 , which resulted in a $ 79.0 million increase in merchandise costs . in addition , during the fiscal year ended january 27 , 2018 , we recognized a $ 10.0 million increase in depreciation and amortization and a $ 21.3 million increase in store occupancy costs , in each case as a result of new store openings since january 28 , 2017 . 45 gross profit and gross margin gross profit was $ 307.0 million , or 32.3 % of net sales , for the fiscal year ended january 27 , 2018 , an increase of $ 59.5 million from $ 247.5 million , or 32.3 % of net sales , for the fiscal year ended january 28 , 2017. the increase in gross profit was primarily driven by increased sales volume from the net addition of 26 new stores opened since january 28 , 2017 as well as a 6.5 % increase in comparable stores sales . gross margin remained consistent for the fiscal year ended january 27 , 2018 when compared to the fiscal year ended january 28 , 2017 primarily as a result of product margin improvement and leverage of store occupancy costs achieved on higher sales growth . this increase was offset by higher distribution center costs associated with strategic investments in incremental inventory that were completed in the first half of

loss on extinguishment of debt during the fiscal year ended january 28 , 2017 , we recognized a loss on extinguishment of debt of $ 2.7 million resulting primarily from the write-off of unamortized deferred debt issuance costs in connection with the second lien repayment . we did not incur losses on extinguishment of debt for the fiscal year ended january 27 , 2018. income tax provision income tax expense was $ 33.8 million for the fiscal year ended january 27 , 2018 compared to income tax expense of $ 15.7 million for the fiscal year ended january 28 , 2017. the effective tax rate for the fiscal year ended january 27 , 2018 was 51.5 % compared to 36.7 % for the fiscal year ended january 28 , 2017. the effective tax rate for the fiscal year ended january 27 , 2018 differs from the prorated federal statutory rate of 34.0 % primarily due to the impact of state and local income taxes , the effect of the tax act ( which lowered the federal statutory income tax rate in effect for the period from january 1 , 2018 through january 27 , 2018 from 35 % to 21 % ) and a net excess tax benefit related to stock options exercised . the effective tax rate for the fiscal year ended january 28 , 2017 differs from the federal statutory rate of 35.0 % primarily due to the impact of state and local income taxes , the release of unrecognized tax benefits , valuation allowance on state net operating losses , nondeductible transaction costs and nondeductible interest expense .

other sources of revenue include ( i ) net warehouse interest income we earn while the loan is held for sale , ( ii ) net warehouse interest income from loans held for investment while they are outstanding , ( iii ) sales commissions for brokering the sale of multifamily properties , and ( iv ) asset management fees from our investment management activities . we retain servicing rights on substantially all the loans we originate and sell , and generate revenues from the fees we receive for servicing the loans , from the interest income on escrow deposits held on behalf of borrowers , and from other ancillary fees . servicing fees set at the time an investor agrees to purchase the loan are generally paid monthly for the duration of the loan and are based on the unpaid principal balance of the loan . our fannie mae and freddie mac servicing arrangements generally provide for prepayment to us in the event of a voluntary prepayment . for loans serviced outside of fannie mae and freddie mac , we typically do not have similar prepayment protections . ​ we are currently not exposed to unhedged interest rate risk during the loan commitment , closing , and delivery process . the sale or placement of each loan to an investor is negotiated concurrently with establishing the coupon rate for the loan . we also seek to mitigate the risk of a loan not closing . we have agreements in place with the agencies that specify the cost of a failed loan delivery , in the event we fail to deliver the loan to the investor . to protect us against such fees , we require a deposit from the borrower at rate lock that is typically more than the potential fee . the deposit is returned to the borrower only once the loan is closed . any potential loss from a catastrophic change in the property condition while the loan is held for sale using warehouse facility financing is mitigated through property insurance equal to replacement cost . we are also protected contractually from an investor 's failure to purchase the loan . we have experienced a de minimis number of failed deliveries in our history and have incurred immaterial losses on such failed deliveries . we have risk-sharing obligations on substantially all loans we originate under the fannie mae dus program . when a fannie mae dus loan is subject to full risk-sharing , we absorb losses on the first 5 % of the unpaid principal balance of a loan at the time of loss settlement , and above 5 % we share a percentage of the loss with fannie mae , with our maximum loss capped at 20 % of the original unpaid principal balance of the loan ( subject to doubling or tripling if the loan does not meet specific underwriting criteria or if the loan defaults within 12 months of its sale to fannie mae ) , except for rare instances when we negotiate a cap at 30 % for loans with unique attributes . we have had only one loan loss with a 30 % cap in our history . our full risk-sharing is currently limited to loans up to $ 200 million , which equates to a maximum loss per loan of $ 40 million ( such exposure would occur in the event that the underlying collateral is determined to be completely without value at the time of loss ) . for loans in excess of $ 200 million , we receive modified risk-sharing . we also may request modified risk-sharing at the time of origination on loans below $ 200 million , which reduces our potential risk-sharing losses from the levels described above if we do not believe that we are being fully compensated for the risks of the transactions . the full risk-sharing limit in prior years was less than $ 200 million . accordingly , loans originated in those prior years were subject to risk-sharing at much lower levels . our servicing fees for risk-sharing loans include compensation for the risk-sharing obligations and are larger than the servicing fees we receive from fannie mae for loans with no risk-sharing obligations . our interim program offers floating-rate , interest-only loans for terms of generally up to three years to experienced borrowers seeking to acquire or reposition multifamily properties that do not currently qualify for permanent financing . we underwrite , asset-manage , and service all loans executed through the interim program . the ultimate goal of the interim program is to provide permanent agency financing on these transitional properties . the interim program has two distinct executions : the interim program jv and the interim loan program . the interim program jv assumes full risk of loss while the loans it originates are outstanding . we hold a 15 % ownership interest in the interim program jv and are responsible for sourcing , underwriting , servicing , and asset-managing the loans originated by the joint venture . the joint venture funds its operations using a combination of equity contributions from its owners and third-party credit facilities . we originate and hold the interim loan program loans for investment , which are included on our balance sheet . during the time that these loans are outstanding , we assume the full risk of loss . as of december 31 , 2020 , we had 18 loans held for investment under the interim loan program with an aggregate outstanding unpaid principal balance of $ 366.3 million . one loan with a balance of $ 14.7 million is currently in default . during the year ended december 31 , 2020 , $ 86.2 million of the $ 276.0 million of interim loan originations were executed through the joint venture , with the remainder originated through our interim loan program . story_separator_special_tag we do not have advance obligations with respect to our freddie mac or life insurance servicing agreements . to date , very few of our multifamily borrowers have requested loan forbearance , requiring low levels of advances . our outstanding advances were immaterial under our fannie mae and hud servicing agreements at december 31 , 2020. declining rent collections and a borrower 's inability to make all required payments once the forbearance period is over could lead to an increase in delinquencies and losses beyond what we have experienced since the great financial crisis of 2007-2010 , although we are not experiencing this to date . the prolonged nature of the crisis could result in the number of forbearance requests increasing given the current high levels of domestic unemployment . the most immediate impact of the crisis was felt by our multifamily property sales operations , which saw significant declines beginning in march 2020 because of the covid-19 crisis after a strong start to the year . multifamily property sales volumes rebounded strongly in the second half of 2020 from the lows of the second quarter of 2020 , as capital began returning to the market . long-term , we believe the market fundamentals remain positive for multifamily property sales . over the last several years , and in the months leading up to the covid-19 crisis , household formation and a dearth of supply of entry-level single-family homes led to strong demand for rental housing in most geographic areas . consequently , the fundamentals of the multifamily market were strong entering the covid-19 crisis , and when coupled with the 25 financial protections put in place by congress and the agencies , it is our expectation that market demand for multifamily property sales will continue to recover as multifamily properties will remain an attractive investment option . our non-multifamily focused mortgage brokerage operations have also been impacted by the covid-19 crisis . the crisis had an immediate negative impact on the supply of capital to commercial real estate , most noticeably for hospitality , office , and retail assets . our debt brokerage platform delivered record financing volumes prior to the onset of the crisis in the u.s. as a result of the crisis , we saw a decline in brokered financing transactions in the second quarter as transactions were put on hold or cancelled altogether . during the fourth quarter of 2020 , we saw capital sources come back into the market , helping to drive a year-over-year increase in our annual debt brokerage volume compared to 2019. we expect non-multifamily debt financing volumes to continue to recover as banks and life insurance companies return to their pre-crisis origination volumes . our agency multifamily debt financing operations remain very active . the agencies are countercyclical sources of capital to the multifamily industry and have continued to lend during the covid-19 crisis , just as they did during the great financial crisis of 2007-2010. we are a market-leading originator with the agencies , and the agencies remain the most significant providers of capital to the multifamily market . consequently , we continue to see significant activity in our multifamily lending operations , and we continue to see lending opportunities consistent with pre-crisis levels . we believe our market leadership positions us to be a significant lender with the agencies for the foreseeable future . the fhfa establishes loan origination caps for both fannie mae and freddie mac each year . in september 2020 , fhfa established fannie mae 's and freddie mac 's 2021 loan origination caps at $ 70 billion each for all multifamily business . the new caps apply to all multifamily business with no exclusions . in 2020 , fannie mae and freddie mac had multifamily origination volumes of $ 76.1 billion and $ 83.1 billion , respectively , up 8.4 % and 6.1 % from 2019 , respectively . in 2020 , we saw strong lending activity from our gse operations and increased our market share with the gses to 12.3 % from 10.2 % in 2019. our debt financing operations with hud grew during 2020 , with hud loans accounting for 6 % of our debt financing volumes the year ended december 31 , 2020 , compared to 3 % for the year ended december 31 , 2019. the increase in hud debt financing volumes was partially a result of the government shutdown during the first half of 2019 and partially a result of hud originations being countercyclical sources of capital , similar to the gses . we expect strength in our agency operations to continue given the pull back by other capital sources . an additional positive factor influencing multifamily financing volumes is the historically low interest rate environment , which is incentivizing borrowers to refinance their properties in spite of the current challenges . we continue to seek to add resources and scale to our agency lending platform . our originations with the agencies are our most profitable executions as they provide significant non-cash gains from msrs that turn into significant cash revenue streams from future servicing fees . a decline in our agency originations would negatively impact our financial results as our non-cash revenues would decrease disproportionately with debt financing volume and future servicing fee revenue would be constrained or decline . we entered into the interim program jv to both increase the overall capital available to transitional multifamily properties and to dramatically expand our capacity to originate interim program loans . the demand for transitional lending has brought increased competition from lenders , specifically banks , mortgage real estate investment trusts , and life insurance companies . as it did with other types of lending , the covid-19 crisis has resulted in a pullback of capital sources for interim lending opportunities . in response to the crisis , we paused originations on new interim program loans for several months and recommenced in the third quarter of 2020. we continue to

loss on extinguishment of debt during the fiscal year ended january 28 , 2017 , we recognized a loss on extinguishment of debt of $ 2.7 million resulting primarily from the write-off of unamortized deferred debt issuance costs in connection with the second lien repayment . we did not incur losses on extinguishment of debt for the fiscal year ended january 27 , 2018. income tax provision income tax expense was $ 33.8 million for the fiscal year ended january 27 , 2018 compared to income tax expense of $ 15.7 million for the fiscal year ended january 28 , 2017. the effective tax rate for the fiscal year ended january 27 , 2018 was 51.5 % compared to 36.7 % for the fiscal year ended january 28 , 2017. the effective tax rate for the fiscal year ended january 27 , 2018 differs from the prorated federal statutory rate of 34.0 % primarily due to the impact of state and local income taxes , the effect of the tax act ( which lowered the federal statutory income tax rate in effect for the period from january 1 , 2018 through january 27 , 2018 from 35 % to 21 % ) and a net excess tax benefit related to stock options exercised . the effective tax rate for the fiscal year ended january 28 , 2017 differs from the federal statutory rate of 35.0 % primarily due to the impact of state and local income taxes , the release of unrecognized tax benefits , valuation allowance on state net operating losses , nondeductible transaction costs and nondeductible interest expense .

other sources of revenue include ( i ) net warehouse interest income we earn while the loan is held for sale , ( ii ) net warehouse interest income from loans held for investment while they are outstanding , ( iii ) sales commissions for brokering the sale of multifamily properties , and ( iv ) asset management fees from our investment management activities . we retain servicing rights on substantially all the loans we originate and sell , and generate revenues from the fees we receive for servicing the loans , from the interest income on escrow deposits held on behalf of borrowers , and from other ancillary fees . servicing fees set at the time an investor agrees to purchase the loan are generally paid monthly for the duration of the loan and are based on the unpaid principal balance of the loan . our fannie mae and freddie mac servicing arrangements generally provide for prepayment to us in the event of a voluntary prepayment . for loans serviced outside of fannie mae and freddie mac , we typically do not have similar prepayment protections . ​ we are currently not exposed to unhedged interest rate risk during the loan commitment , closing , and delivery process . the sale or placement of each loan to an investor is negotiated concurrently with establishing the coupon rate for the loan . we also seek to mitigate the risk of a loan not closing . we have agreements in place with the agencies that specify the cost of a failed loan delivery , in the event we fail to deliver the loan to the investor . to protect us against such fees , we require a deposit from the borrower at rate lock that is typically more than the potential fee . the deposit is returned to the borrower only once the loan is closed . any potential loss from a catastrophic change in the property condition while the loan is held for sale using warehouse facility financing is mitigated through property insurance equal to replacement cost . we are also protected contractually from an investor 's failure to purchase the loan . we have experienced a de minimis number of failed deliveries in our history and have incurred immaterial losses on such failed deliveries . we have risk-sharing obligations on substantially all loans we originate under the fannie mae dus program . when a fannie mae dus loan is subject to full risk-sharing , we absorb losses on the first 5 % of the unpaid principal balance of a loan at the time of loss settlement , and above 5 % we share a percentage of the loss with fannie mae , with our maximum loss capped at 20 % of the original unpaid principal balance of the loan ( subject to doubling or tripling if the loan does not meet specific underwriting criteria or if the loan defaults within 12 months of its sale to fannie mae ) , except for rare instances when we negotiate a cap at 30 % for loans with unique attributes . we have had only one loan loss with a 30 % cap in our history . our full risk-sharing is currently limited to loans up to $ 200 million , which equates to a maximum loss per loan of $ 40 million ( such exposure would occur in the event that the underlying collateral is determined to be completely without value at the time of loss ) . for loans in excess of $ 200 million , we receive modified risk-sharing . we also may request modified risk-sharing at the time of origination on loans below $ 200 million , which reduces our potential risk-sharing losses from the levels described above if we do not believe that we are being fully compensated for the risks of the transactions . the full risk-sharing limit in prior years was less than $ 200 million . accordingly , loans originated in those prior years were subject to risk-sharing at much lower levels . our servicing fees for risk-sharing loans include compensation for the risk-sharing obligations and are larger than the servicing fees we receive from fannie mae for loans with no risk-sharing obligations . our interim program offers floating-rate , interest-only loans for terms of generally up to three years to experienced borrowers seeking to acquire or reposition multifamily properties that do not currently qualify for permanent financing . we underwrite , asset-manage , and service all loans executed through the interim program . the ultimate goal of the interim program is to provide permanent agency financing on these transitional properties . the interim program has two distinct executions : the interim program jv and the interim loan program . the interim program jv assumes full risk of loss while the loans it originates are outstanding . we hold a 15 % ownership interest in the interim program jv and are responsible for sourcing , underwriting , servicing , and asset-managing the loans originated by the joint venture . the joint venture funds its operations using a combination of equity contributions from its owners and third-party credit facilities . we originate and hold the interim loan program loans for investment , which are included on our balance sheet . during the time that these loans are outstanding , we assume the full risk of loss . as of december 31 , 2020 , we had 18 loans held for investment under the interim loan program with an aggregate outstanding unpaid principal balance of $ 366.3 million . one loan with a balance of $ 14.7 million is currently in default . during the year ended december 31 , 2020 , $ 86.2 million of the $ 276.0 million of interim loan originations were executed through the joint venture , with the remainder originated through our interim loan program . story_separator_special_tag we do not have advance obligations with respect to our freddie mac or life insurance servicing agreements . to date , very few of our multifamily borrowers have requested loan forbearance , requiring low levels of advances . our outstanding advances were immaterial under our fannie mae and hud servicing agreements at december 31 , 2020. declining rent collections and a borrower 's inability to make all required payments once the forbearance period is over could lead to an increase in delinquencies and losses beyond what we have experienced since the great financial crisis of 2007-2010 , although we are not experiencing this to date . the prolonged nature of the crisis could result in the number of forbearance requests increasing given the current high levels of domestic unemployment . the most immediate impact of the crisis was felt by our multifamily property sales operations , which saw significant declines beginning in march 2020 because of the covid-19 crisis after a strong start to the year . multifamily property sales volumes rebounded strongly in the second half of 2020 from the lows of the second quarter of 2020 , as capital began returning to the market . long-term , we believe the market fundamentals remain positive for multifamily property sales . over the last several years , and in the months leading up to the covid-19 crisis , household formation and a dearth of supply of entry-level single-family homes led to strong demand for rental housing in most geographic areas . consequently , the fundamentals of the multifamily market were strong entering the covid-19 crisis , and when coupled with the 25 financial protections put in place by congress and the agencies , it is our expectation that market demand for multifamily property sales will continue to recover as multifamily properties will remain an attractive investment option . our non-multifamily focused mortgage brokerage operations have also been impacted by the covid-19 crisis . the crisis had an immediate negative impact on the supply of capital to commercial real estate , most noticeably for hospitality , office , and retail assets . our debt brokerage platform delivered record financing volumes prior to the onset of the crisis in the u.s. as a result of the crisis , we saw a decline in brokered financing transactions in the second quarter as transactions were put on hold or cancelled altogether . during the fourth quarter of 2020 , we saw capital sources come back into the market , helping to drive a year-over-year increase in our annual debt brokerage volume compared to 2019. we expect non-multifamily debt financing volumes to continue to recover as banks and life insurance companies return to their pre-crisis origination volumes . our agency multifamily debt financing operations remain very active . the agencies are countercyclical sources of capital to the multifamily industry and have continued to lend during the covid-19 crisis , just as they did during the great financial crisis of 2007-2010. we are a market-leading originator with the agencies , and the agencies remain the most significant providers of capital to the multifamily market . consequently , we continue to see significant activity in our multifamily lending operations , and we continue to see lending opportunities consistent with pre-crisis levels . we believe our market leadership positions us to be a significant lender with the agencies for the foreseeable future . the fhfa establishes loan origination caps for both fannie mae and freddie mac each year . in september 2020 , fhfa established fannie mae 's and freddie mac 's 2021 loan origination caps at $ 70 billion each for all multifamily business . the new caps apply to all multifamily business with no exclusions . in 2020 , fannie mae and freddie mac had multifamily origination volumes of $ 76.1 billion and $ 83.1 billion , respectively , up 8.4 % and 6.1 % from 2019 , respectively . in 2020 , we saw strong lending activity from our gse operations and increased our market share with the gses to 12.3 % from 10.2 % in 2019. our debt financing operations with hud grew during 2020 , with hud loans accounting for 6 % of our debt financing volumes the year ended december 31 , 2020 , compared to 3 % for the year ended december 31 , 2019. the increase in hud debt financing volumes was partially a result of the government shutdown during the first half of 2019 and partially a result of hud originations being countercyclical sources of capital , similar to the gses . we expect strength in our agency operations to continue given the pull back by other capital sources . an additional positive factor influencing multifamily financing volumes is the historically low interest rate environment , which is incentivizing borrowers to refinance their properties in spite of the current challenges . we continue to seek to add resources and scale to our agency lending platform . our originations with the agencies are our most profitable executions as they provide significant non-cash gains from msrs that turn into significant cash revenue streams from future servicing fees . a decline in our agency originations would negatively impact our financial results as our non-cash revenues would decrease disproportionately with debt financing volume and future servicing fee revenue would be constrained or decline . we entered into the interim program jv to both increase the overall capital available to transitional multifamily properties and to dramatically expand our capacity to originate interim program loans . the demand for transitional lending has brought increased competition from lenders , specifically banks , mortgage real estate investment trusts , and life insurance companies . as it did with other types of lending , the covid-19 crisis has resulted in a pullback of capital sources for interim lending opportunities . in response to the crisis , we paused originations on new interim program loans for several months and recommenced in the third quarter of 2020. we continue to

liquidity and capital resources uses of liquidity , cash and cash equivalents our significant recurring cash flow requirements consist of liquidity to ( i ) fund loans held for sale ; ( ii ) fund loans held for investment under the interim loan program ; ( iii ) pay cash dividends ; ( iv ) fund our portion of the equity necessary for the operations of the interim program jv , our appraisal jv , and other equity-method investments ; ( v ) meet working capital needs to support our day-to-day operations , including debt service payments , servicing advances and payments for salaries , commissions , and income taxes ; and ( vi ) meet working capital to satisfy collateral requirements for our fannie mae dus risk-sharing obligations and to meet the operational liquidity requirements of fannie mae , freddie mac , hud , ginnie mae , and our warehouse facility lenders . ​ fannie mae has established benchmark standards for capital adequacy and reserves the right to terminate our servicing authority for all or some of the portfolio if , at any time , it determines that our financial condition is not adequate to support our obligations under the dus agreement . we are required to maintain acceptable net worth as defined in the standards , and we satisfied the requirements as of december 31 , 2020. the net worth requirement is derived primarily from unpaid balances on fannie mae loans and the level of risk-sharing . as of december 31 , 2020 , the net worth requirement was $ 228.0 million , and our net worth was $ 991.1 million , as measured at our wholly owned operating subsidiary , walker & dunlop , llc . as of december 31 , 2020 , we were required to maintain at least $ 45.2 million of liquid assets to meet our operational liquidity requirements for fannie mae , freddie mac , hud , ginnie mae and our warehouse facility lenders . as of december 31 , 2020 , we had operational liquidity of $ 370.0 million , as measured at our wholly owned operating subsidiary , walker & dunlop , llc .

for the year ended september 30 , 2012 , we completed and started delivery of 4 new residential buildings with total gfa of 64,141 square meters , compared to 17 new residential buildings with gfa of 160,320 square meters completed in fiscal 2011. currently , most of our real estate projects under construction are high-rise buildings with planned gfa over 709,038 square meters , which generally take about 2- 3 years for the construction , while our completed projects in the past were mostly multi-layer or sub-high-rise buildings and took 1-1.5 years for construction . it indicates that in certain future reporting periods , even if we have pre-sale contracts , we may not have any new construction work completed and delivered to buyers . this is a typical characteristic of our business and the uneven sales revenues from period to period are due in part to the rate at which units are completed and delivered to buyers under the current full accrual method of revenue recognition policy . despite the declining transaction volume and cooling real estate market , housing prices in tier 3 and tier 4 cities and counties have not shown a substantial correction . while short-term market correction is a process that the property sector is bound to undergo , the fundamental demand for residential housing will remain given the rising per capita income , accelerating urbanization and increasing demand for better living environment . for the year ended september 30 , 2012 , our average selling price ( “ asp ” ) for real estate projects ( excluding sales of parking spaces ) located in yang county was approximately $ 417 per square meter , a slight increase of 3 % from the asp of $ 401 per square meter in fiscal 2011. the asp of our hanzhong real estate projects ( excluding sales of parking spaces ) was approximately $ 754 per square meter , an increase of 30.7 % from the asp of $ 577 per square meter in fiscal 2011. this was mainly due to the fact that we sold more commercial properties in hanzhong during the first quarter of fiscal 2012. generally , the asp of commercial units is more than doubled from the asp of residential units . for the year ended september 30 , 2012 , the asp for commercial units located in hanzhong was $ 1,586 , comparing to the asp of $ 543 per square meter for residential units in hanzhong . the asp for our commercial units located in yong county was $ 865 per square meter , comparing to the asp of $ 369 per square meter for residential units in young county . with respect to capital funding requirements , while many property developers must now worry about their debt leverage and working capital needs for debt repayment , in contrast , the company does not have any external debt obligations outstanding at september 30 , 2012 and 2011. the company 's cash flows from pre-sales and sales and , if necessary , shareholder loans should provide financial support for the current development and operations . in order to fully implement our business plan , however , we may need to raise capital in future to sustain our expansion . therefore , we might seek to access the capital markets in both the u.s. and china to obtain the funds we require . at the present time , however , we do not have commitments of funds from any source . market outlook the government 's tightening policies should continue in the first half of 2013 , which may make real estate developers face more difficulties in obtaining land use rights and bank loans . these governmental policies will also negatively affect buyers ' confidence and consumption psychology . meanwhile , with affordable housing construction still underway , it takes time for abundant affordable housing to appear in the market . the company therefore expects the purchase restrictions and price ceiling policies to continue , which however , should have less impact on the company 's products comparing to the real estate market in tier 1 and tier 2 cities . per a china 35 cities housing price report published by e-house china r & d institute ( nyse : ej ) for 2011 , the average housing price to residence income ratio for tier 1 and tier 2 cities are in the range from 10.4 to 15.6 , while the ratio for tier 3 and tier 4 cities generally ranges from 4.2 to 8.0. our customers in tier 3 and tier 4 cities and counties have a constant growth in their disposable income . with lower housing price to family disposable income ratio and increasing urbanization level , there is a growing demand for high quality residential housing . the company expects to continuously focus on developing real estate properties in prime locations of tier 3 and tier 4 cities and counties . 29 we believe the fundamentals underpinning real estate demand remain strong . we intend to remain focused on our existing construction projects in hanzhong city and yang county , deepen our institutional sales network , enhance our cost and operational synergies and improve cash flows and strengthen our balance sheet . in this respect , in late of fiscal 2012 , we began the construction of two large residential projects in hanzhong city and addition high-rise residential buildings in yang county : · oriental pearl garden the project is located in the downtown of hanzhong city . it consists of 12 high-rise residential buildings with commercial shops on the first and second floors with an estimated gfa of 260,000 square meters . the company started construction in the third quarter of fiscal 2012 and expects to complete the whole construction in 2-3years . story_separator_special_tag as a result , income tax expenses for the year ended september 30 , 2012 were $ 283,077. income taxes decreased in fiscal 2012 by 74.5 % as compared to $ 1,108,284 for the year ended september 30 , 2011 as a result of our lower revenue in fiscal 2012. although the possibility exists for reinterpretation of the application of the tax regulations by higher tax authorities in the prc , potentially overturning the decision made by the local tax authority , the company has not experienced any reevaluation of the income taxes for prior years . management believes that the possibility of any reevaluation of income taxes is remote based on the fact that the company has obtained the written tax clearance from the local tax authority . thus , no additional taxes payable have been recorded for the difference between the taxes due based on taxable income calculated according to statutory taxable income method and the taxes due based on the fixed rate method . it is the company 's policy that if such reevaluation of income taxes becomes probable and the amount of additional taxes due can be reasonably estimated , additional taxes shall be recorded in the period in which the amount can be reasonably estimated and shall not be charged retroactively to an earlier period . 34 net income we realized $ 5,176,093 in net income for the year ended september 30 , 2012 , representing a 72.3 % or $ 13,543,845 decrease as compared to $ 18,719,938 for the year ended september 30 , 2011. other comprehensive income we operate primarily in the prc and the functional currency of our operating subsidiary is the chinese renminbi ( ” rmb ” ) . the rmb is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions . no representation is made that the rmb amounts could have been , or could be , converted into usd at the rates used in translation . translation adjustments resulting from this process amounted to $ 862,601 and $ 2,720,280 as of september 30 , 2012 and 2011 , respectively . the balance sheet amounts with the exception of equity at september 30 , 2012 were translated at 6.3190 rmb to 1.00 usd as compared to 6.3952 rmb to 1.00 usd at september 30 , 2011. the equity accounts were stated at their historical rate . the average translation rates applied to the income statements accounts for the periods ended september 30 , 2012 and 2011 were 6.3198 rmb to 1.00 usd and 6.5377 rmb to 1.00 usd , respectively . story_separator_special_tag value : 1 > 36 net cash used in operating activities during the twelve months ended september 30 , 2011 was $ 5,586,447 , consisting of net income of $ 18,719,938 , noncash adjustments of $ 137,059 and net changes in our operating assets and liabilities due to our expanded operating activities , including a decrease in restricted cash of $ 79,523 , an increase in advances to vendors and loans to outside parties of $ 1,403,056 which were made in order to maintain good relationships with the suppliers , an increase in real estate property completed of $ 7,284,509 , an increase in real estate property under development of $ 24,128,313 due to our expansion into multiple phases of the existing real estate projects during the year , increased security deposits for land use rights of $ 6,118,360 , increased accounts payable of $ 6,448,357 due to more progress achieved in multiple real estate projects , increased customer deposits in the amount of $ 7,372,965 which we were able to recognize as revenue when all conditions for revenue recognition were met , increased accrued expenses of $ 1,023,617 due to unpaid sales commissions and staff compensation , and decreased taxes payable of $ 71,217 due to an increase in our net income . the negative cash provided by operating activities is mainly attributable to our significant spending on real estate property under development and deposits for land use rights . net cash used in operating activities for the year ended september 30 , 2012 was $ 7,838,690 compared with a net cash used in operating activities of $ 5,586,447 for the year ended september 30 , 2011 , representing a net increase of $ 2,252,243 compared to fiscal 2011. investing activities net cash flows used in investing activities amounted to $ 0 and $ 490,755 for the years ended september 30 , 2012 and 2011 , respectively . the company purchased a new office floor in fiscal 2011. financing activities net cash flows provided by financing activities amounted to $ 0 for the year ended september 30 , 2012 , which represents $ 3,142,332 proceeds of a short-term loan from a controlling shareholder to finance the land use rights purchase and the company ` s full repayment of such loan during the year . net cash flows provided by financing activities amounted to $ 1,810,000 in the twelve months ended september 30 , 2011 , which was a loan from our major shareholder . off-balance sheet arrangements we do not have any off-balance sheet arrangements . inflation inflation has not had a material impact on our business and we do not expect inflation to have a material impact on our business in the near future . critical accounting policies and management estimates principles of consolidation the accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states of america ( `` u.s. gaap `` ) . the unaudited condensed consolidated financial statements include the financial statements of the company and its subsidiaries china hgs investment inc. , shaanxi hanguangsha management and consultation limited company and the variable interest entity shaanxi guangsha investment and development group co. , ltd. ( “ guangsha ” ) . all significant inter-company balances and transactions are eliminated in consolidation . 37 we have continued to

liquidity and capital resources uses of liquidity , cash and cash equivalents our significant recurring cash flow requirements consist of liquidity to ( i ) fund loans held for sale ; ( ii ) fund loans held for investment under the interim loan program ; ( iii ) pay cash dividends ; ( iv ) fund our portion of the equity necessary for the operations of the interim program jv , our appraisal jv , and other equity-method investments ; ( v ) meet working capital needs to support our day-to-day operations , including debt service payments , servicing advances and payments for salaries , commissions , and income taxes ; and ( vi ) meet working capital to satisfy collateral requirements for our fannie mae dus risk-sharing obligations and to meet the operational liquidity requirements of fannie mae , freddie mac , hud , ginnie mae , and our warehouse facility lenders . ​ fannie mae has established benchmark standards for capital adequacy and reserves the right to terminate our servicing authority for all or some of the portfolio if , at any time , it determines that our financial condition is not adequate to support our obligations under the dus agreement . we are required to maintain acceptable net worth as defined in the standards , and we satisfied the requirements as of december 31 , 2020. the net worth requirement is derived primarily from unpaid balances on fannie mae loans and the level of risk-sharing . as of december 31 , 2020 , the net worth requirement was $ 228.0 million , and our net worth was $ 991.1 million , as measured at our wholly owned operating subsidiary , walker & dunlop , llc . as of december 31 , 2020 , we were required to maintain at least $ 45.2 million of liquid assets to meet our operational liquidity requirements for fannie mae , freddie mac , hud , ginnie mae and our warehouse facility lenders . as of december 31 , 2020 , we had operational liquidity of $ 370.0 million , as measured at our wholly owned operating subsidiary , walker & dunlop , llc .

for the year ended september 30 , 2012 , we completed and started delivery of 4 new residential buildings with total gfa of 64,141 square meters , compared to 17 new residential buildings with gfa of 160,320 square meters completed in fiscal 2011. currently , most of our real estate projects under construction are high-rise buildings with planned gfa over 709,038 square meters , which generally take about 2- 3 years for the construction , while our completed projects in the past were mostly multi-layer or sub-high-rise buildings and took 1-1.5 years for construction . it indicates that in certain future reporting periods , even if we have pre-sale contracts , we may not have any new construction work completed and delivered to buyers . this is a typical characteristic of our business and the uneven sales revenues from period to period are due in part to the rate at which units are completed and delivered to buyers under the current full accrual method of revenue recognition policy . despite the declining transaction volume and cooling real estate market , housing prices in tier 3 and tier 4 cities and counties have not shown a substantial correction . while short-term market correction is a process that the property sector is bound to undergo , the fundamental demand for residential housing will remain given the rising per capita income , accelerating urbanization and increasing demand for better living environment . for the year ended september 30 , 2012 , our average selling price ( “ asp ” ) for real estate projects ( excluding sales of parking spaces ) located in yang county was approximately $ 417 per square meter , a slight increase of 3 % from the asp of $ 401 per square meter in fiscal 2011. the asp of our hanzhong real estate projects ( excluding sales of parking spaces ) was approximately $ 754 per square meter , an increase of 30.7 % from the asp of $ 577 per square meter in fiscal 2011. this was mainly due to the fact that we sold more commercial properties in hanzhong during the first quarter of fiscal 2012. generally , the asp of commercial units is more than doubled from the asp of residential units . for the year ended september 30 , 2012 , the asp for commercial units located in hanzhong was $ 1,586 , comparing to the asp of $ 543 per square meter for residential units in hanzhong . the asp for our commercial units located in yong county was $ 865 per square meter , comparing to the asp of $ 369 per square meter for residential units in young county . with respect to capital funding requirements , while many property developers must now worry about their debt leverage and working capital needs for debt repayment , in contrast , the company does not have any external debt obligations outstanding at september 30 , 2012 and 2011. the company 's cash flows from pre-sales and sales and , if necessary , shareholder loans should provide financial support for the current development and operations . in order to fully implement our business plan , however , we may need to raise capital in future to sustain our expansion . therefore , we might seek to access the capital markets in both the u.s. and china to obtain the funds we require . at the present time , however , we do not have commitments of funds from any source . market outlook the government 's tightening policies should continue in the first half of 2013 , which may make real estate developers face more difficulties in obtaining land use rights and bank loans . these governmental policies will also negatively affect buyers ' confidence and consumption psychology . meanwhile , with affordable housing construction still underway , it takes time for abundant affordable housing to appear in the market . the company therefore expects the purchase restrictions and price ceiling policies to continue , which however , should have less impact on the company 's products comparing to the real estate market in tier 1 and tier 2 cities . per a china 35 cities housing price report published by e-house china r & d institute ( nyse : ej ) for 2011 , the average housing price to residence income ratio for tier 1 and tier 2 cities are in the range from 10.4 to 15.6 , while the ratio for tier 3 and tier 4 cities generally ranges from 4.2 to 8.0. our customers in tier 3 and tier 4 cities and counties have a constant growth in their disposable income . with lower housing price to family disposable income ratio and increasing urbanization level , there is a growing demand for high quality residential housing . the company expects to continuously focus on developing real estate properties in prime locations of tier 3 and tier 4 cities and counties . 29 we believe the fundamentals underpinning real estate demand remain strong . we intend to remain focused on our existing construction projects in hanzhong city and yang county , deepen our institutional sales network , enhance our cost and operational synergies and improve cash flows and strengthen our balance sheet . in this respect , in late of fiscal 2012 , we began the construction of two large residential projects in hanzhong city and addition high-rise residential buildings in yang county : · oriental pearl garden the project is located in the downtown of hanzhong city . it consists of 12 high-rise residential buildings with commercial shops on the first and second floors with an estimated gfa of 260,000 square meters . the company started construction in the third quarter of fiscal 2012 and expects to complete the whole construction in 2-3years . story_separator_special_tag as a result , income tax expenses for the year ended september 30 , 2012 were $ 283,077. income taxes decreased in fiscal 2012 by 74.5 % as compared to $ 1,108,284 for the year ended september 30 , 2011 as a result of our lower revenue in fiscal 2012. although the possibility exists for reinterpretation of the application of the tax regulations by higher tax authorities in the prc , potentially overturning the decision made by the local tax authority , the company has not experienced any reevaluation of the income taxes for prior years . management believes that the possibility of any reevaluation of income taxes is remote based on the fact that the company has obtained the written tax clearance from the local tax authority . thus , no additional taxes payable have been recorded for the difference between the taxes due based on taxable income calculated according to statutory taxable income method and the taxes due based on the fixed rate method . it is the company 's policy that if such reevaluation of income taxes becomes probable and the amount of additional taxes due can be reasonably estimated , additional taxes shall be recorded in the period in which the amount can be reasonably estimated and shall not be charged retroactively to an earlier period . 34 net income we realized $ 5,176,093 in net income for the year ended september 30 , 2012 , representing a 72.3 % or $ 13,543,845 decrease as compared to $ 18,719,938 for the year ended september 30 , 2011. other comprehensive income we operate primarily in the prc and the functional currency of our operating subsidiary is the chinese renminbi ( ” rmb ” ) . the rmb is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions . no representation is made that the rmb amounts could have been , or could be , converted into usd at the rates used in translation . translation adjustments resulting from this process amounted to $ 862,601 and $ 2,720,280 as of september 30 , 2012 and 2011 , respectively . the balance sheet amounts with the exception of equity at september 30 , 2012 were translated at 6.3190 rmb to 1.00 usd as compared to 6.3952 rmb to 1.00 usd at september 30 , 2011. the equity accounts were stated at their historical rate . the average translation rates applied to the income statements accounts for the periods ended september 30 , 2012 and 2011 were 6.3198 rmb to 1.00 usd and 6.5377 rmb to 1.00 usd , respectively . story_separator_special_tag value : 1 > 36 net cash used in operating activities during the twelve months ended september 30 , 2011 was $ 5,586,447 , consisting of net income of $ 18,719,938 , noncash adjustments of $ 137,059 and net changes in our operating assets and liabilities due to our expanded operating activities , including a decrease in restricted cash of $ 79,523 , an increase in advances to vendors and loans to outside parties of $ 1,403,056 which were made in order to maintain good relationships with the suppliers , an increase in real estate property completed of $ 7,284,509 , an increase in real estate property under development of $ 24,128,313 due to our expansion into multiple phases of the existing real estate projects during the year , increased security deposits for land use rights of $ 6,118,360 , increased accounts payable of $ 6,448,357 due to more progress achieved in multiple real estate projects , increased customer deposits in the amount of $ 7,372,965 which we were able to recognize as revenue when all conditions for revenue recognition were met , increased accrued expenses of $ 1,023,617 due to unpaid sales commissions and staff compensation , and decreased taxes payable of $ 71,217 due to an increase in our net income . the negative cash provided by operating activities is mainly attributable to our significant spending on real estate property under development and deposits for land use rights . net cash used in operating activities for the year ended september 30 , 2012 was $ 7,838,690 compared with a net cash used in operating activities of $ 5,586,447 for the year ended september 30 , 2011 , representing a net increase of $ 2,252,243 compared to fiscal 2011. investing activities net cash flows used in investing activities amounted to $ 0 and $ 490,755 for the years ended september 30 , 2012 and 2011 , respectively . the company purchased a new office floor in fiscal 2011. financing activities net cash flows provided by financing activities amounted to $ 0 for the year ended september 30 , 2012 , which represents $ 3,142,332 proceeds of a short-term loan from a controlling shareholder to finance the land use rights purchase and the company ` s full repayment of such loan during the year . net cash flows provided by financing activities amounted to $ 1,810,000 in the twelve months ended september 30 , 2011 , which was a loan from our major shareholder . off-balance sheet arrangements we do not have any off-balance sheet arrangements . inflation inflation has not had a material impact on our business and we do not expect inflation to have a material impact on our business in the near future . critical accounting policies and management estimates principles of consolidation the accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states of america ( `` u.s. gaap `` ) . the unaudited condensed consolidated financial statements include the financial statements of the company and its subsidiaries china hgs investment inc. , shaanxi hanguangsha management and consultation limited company and the variable interest entity shaanxi guangsha investment and development group co. , ltd. ( “ guangsha ” ) . all significant inter-company balances and transactions are eliminated in consolidation . 37 we have continued to

liquidity and capital resources current assets and liabilities our principal need for liquidity and capital resources is to maintain working capital sufficient to support our operations and to make capital expenditures to finance the growth of our business . to date , we have financed our operations primarily through cash flows from operations and borrowings from our principal shareholder . due to the credit tightening policies in china , banks were very slow to approve mortgage lending during the year ended september 30 , 2012. due to slowdown in sales , our total cash and restricted cash balance decreased to approximately $ 2.2 million as compared to $ 9.6 million at septermber 30 , 2011. such balances have been slowly starting to increase after the first quarter of fiscal 2012 from the low point of $ 1.3 million at december 31 , 2011. the people 's bank of china ( “ pboc ” ) posted a statement on its website on february 7 , 2012 , indicating that pboc would ensure that lending support to affordable housing projects and loan demand from first-home families is met . since most of our customers are first-time home buyers and our affordable housing units are in the pre-sales stage , we expect our cash flow will continue to improve in fiscal 2013. as of september 30 , 2012 , the company had approximately $ 7.7 million in working capital , a decrease of $ 18.6 million as compared to $ 26.3 million as of september 30 , 2011. the decrease in working capital was mainly related to a decrease of the current portion of real estate property under development of $ 8.1 million , a decrease of advance to venders of $ 3.4 million , a decrease of loans to outside parties of $ 2.6 million and an increase of other payable of 0.9 million , offsetting by a decrease in accounts payable of $ 3.6 million and an increase in current portion of real estate property development completed of $ 0.6 million .

merger expense did not impact diluted eps in 2019 , but decreased it by $ 0.21 in 2018 . — loans , net of unearned income , were $ 9,689,638 at december 31 , 2019 compared to $ 9,083,129 at december 31 , 2018 , which represents an increase of 6.68 % from the previous year . excluding purchased loans of $ 2,101,664 and $ 2,693,417 at december 31 , 2019 and 2018 , respectively , the portfolio increased by $ 1,198,262 , or 18.75 % , from december 31 , 2018 . — deposits totaled $ 10,213,168 at december 31 , 2019 compared to $ 10,128,557 at december 31 , 2018. noninterest bearing deposits averaged $ 2,463,436 , or 24.19 % of average deposits , for 2019 compared to $ 2,036,754 , or 22.83 % of average deposits , for 2018 . 37 a historical look at key performance indicators is presented below . replace_table_token_10_th ( 1 ) these performance indicators are non-gaap financial measures . a reconciliation of these financial measures from gaap to non-gaap as well as an explanation of why the company provides these non-gaap financial measures can be found under the “ non-gaap financial measures ” heading at the end of this item 7 , management 's discussion and analysis of financial condition and results of operations . critical accounting policies our financial statements are prepared using accounting estimates for various accounts . wherever feasible , we utilize third-party information to provide management with estimates . although independent third parties are engaged to assist us in the estimation process , management evaluates the results , challenges assumptions and considers other factors that could impact these estimates . we monitor the status of proposed and newly issued accounting standards to evaluate the impact on our financial condition and results of operations . our accounting policies , including the impact of newly issued accounting standards , are discussed in further detail in note 1 , “ significant accounting policies , ” in the notes to consolidated financial statements in item 8 , financial statements and supplementary data , in this report . the following discussion details the accounting policies governing some of the more significant estimates used in preparing our financial statements . allowance for loan losses the accounting policy most important to the presentation of our financial statements relates to the allowance for loan losses and the related provision for loan losses . the allowance for loan losses is available to absorb probable credit losses inherent in the entire loan portfolio . the appropriate level of the allowance is based on an ongoing analysis of the loan portfolio and represents an amount that management deems adequate to provide for inherent losses , including collective impairment as recognized under the financial accounting standards board ( “ fasb ” ) accounting standards codification topic ( “ asc ” ) 450 , “ contingencies ” ( “ asc 450 ” ) , in our loan portfolio . collective impairment is calculated based on loans grouped by grade . another component of the allowance is losses on loans assessed as impaired under asc 310 , “ receivables ” ( “ asc 310 ” ) . the balance of the loans determined to be impaired under asc 310 and the related allowance is included in management 's estimation and analysis of the allowance for loan losses . the determination of the appropriate level of the allowance is sensitive to a variety of internal factors , primarily historical loss ratios and assigned risk ratings , and external factors , primarily the economic environment . while no one factor is dominant , each could cause actual loan losses to differ materially from originally estimated amounts . for more information about the considerations in establishing the allowance for loan losses and our loan policies and procedures for addressing credit risk , please refer to the disclosures in this item under the heading “ risk management – credit risk and allowance for loan losses . ” business combinations , accounting for purchased loans the company accounts for its acquisitions under asc 805 , “ business combinations , ” which requires the use of the acquisition method of accounting . all identifiable assets acquired , including loans , and liabilities assumed are recorded at fair value and recognized separately from goodwill . for a purchased loan , no allowance for loan losses is recorded on the acquisition date because the fair value measurements incorporate assumptions regarding credit risk . this applies even to a purchased loan with evidence of credit deterioration since origination pursuant to asc 310-30 , “ loans and debt securities acquired with deteriorated credit quality ” ( “ asc 310-30 ” ) . generally speaking , rather than carry over an allowance for loan losses , as part of the acquisition we establish a “ day 1 fair value ” of a purchased loan or pools of purchased loans sharing common risk characteristics , which equals the outstanding balance of a purchased loan or pool on the acquisition date less any credit and or yield discount applied against the purchased loan or pool of loans . in other words , these loans or pools of loans are carried at values which represent our estimate of their future cash flows . after the acquisition date , a purchased loan or pool of loans will either meet or exceed the performance expectations established in determining the day 1 fair values or deteriorate from such expected performance . story_separator_special_tag the company owns subordinated notes that , net of unamortized debt issuance costs , totaled $ 113,955 at december 31 , 2019 compared to $ 147,239 at december 31 , 2018 . as part of the brand acquisition , the company assumed $ 30,000 of 8.50 % fixed rate subordinated notes . we redeemed these notes during the third quarter of 2019 due to the 8.50 % fixed interest rate and the fact that their preferential capital treatment began to phase out in 2019. the company has used the net proceeds from the subordinated notes offerings for general corporate purposes , including providing capital to support the company 's growth organically or through strategic acquisitions , repaying indebtedness and financing investments and capital expenditures , and for investments in the bank as regulatory capital . the subordinated notes qualify as tier 2 capital under the current regulatory guidelines . for more information about the terms and conditions of the company 's junior subordinated debentures and subordinated notes , see note 13 , “ long-term debt , ” in the notes to the consolidated financial statements in item 8 , financial statements and supplementary data , in this report . results of operations net income net income for the year ended december 31 , 2019 was $ 167,596 compared to net income of $ 146,920 for the year ended december 31 , 2018 . basic earnings per share for the year ended december 31 , 2019 was $ 2.89 as compared to $ 2.80 for the year ended december 31 , 2018 . diluted earnings per share for the year ended december 31 , 2019 was $ 2.88 as compared to $ 2.79 for the year ended december 31 , 2018 . in 2018 and 2019 , the company incurred expenses and charges in connection with certain transactions with respect to which management is unable to accurately predict when these expenses or charges will be incurred or , when incurred , the amount thereof . the following table presents the impact of these expenses and charges on reported earnings per share for the periods presented : replace_table_token_19_th net interest income net interest income , the difference between interest earned on assets and the cost of interest-bearing liabilities , is the largest component of our net income , comprising 74.59 % of total net revenue in 2019 . total net revenue consists of net interest income on a fully taxable equivalent basis and noninterest income . the primary concerns in managing net interest income are the volume , mix and repricing of assets and liabilities . net interest income increased 11.89 % to $ 443,657 for 2019 compared to $ 396,525 in 2018 . on a tax equivalent basis , net interest income increased $ 47,560 to $ 449,986 in 2019 as compared to $ 402,426 in 2018 . net interest margin was 4.08 % for 2019 as compared to 4.16 % for 2018 . net interest income and net interest margin are influenced by internal and external factors . internal factors include balance sheet changes in volume and mix as well as loan and deposit pricing decisions . external factors include changes in market interest rates , competition and the shape of the interest rate yield curve . as discussed in more detail below , growth in the company 's loan portfolio was the largest contributing factor to the increase in net interest income year over year . the company capitalized on the rising interest rate environment over the last several years , ending in july 2019 , by replacing maturing loans with new or renewed loans at similar or higher rates . these efforts helped offset the negative impact to our net interest income and net interest margin from rising costs of our deposits and borrowings as competition increased in response to the aforementioned interest rate environment . 45 interest income , on a tax equivalent basis , was $ 548,909 for 2019 compared to $ 467,755 for 2018 , an increase of $ 81,154 . the following table presents the percentage of total average earning assets , by type and yield , for 2019 and 2018 : replace_table_token_20_th in 2019 , interest income on loans held for investment , on a tax equivalent basis , increased $ 68,398 to $ 487,240 from $ 418,842 in 2018 . the increase year over year is a result of the increase in the average balance of loans due to non purchased loan growth and the brand acquisition , as well as an increase in yield on the loan portfolio . interest income on loans held for sale , on a tax equivalent basis , increased $ 5,279 to $ 18,171 in 2019 from $ 12,892 in 2018 . this increase is primarily due to the impact of the portfolio of non-mortgage consumer loans , acquired from brand and supplemented by additional loans purchased in the second quarter of 2019 , that was classified as held for sale until the third quarter of 2019 when the portfolio was reclassified to loans held for investment . the following table presents reported taxable equivalent yield on loans for the periods presented : replace_table_token_21_th the impact from interest income collected on problem loans and purchase accounting adjustments on purchased loans to total interest income on loans , loan yield and net interest margin is shown in the table below for the periods presented : replace_table_token_22_th ( 1 ) includes additional interest income recognized in connection with the acceleration of paydowns and payoffs from purchased loans of $ 14,635 and $ 12,460 for the twelve months ended december 31 , 2019 and 2018 , respectively , which increased loan yield by 15 basis points for 2019 and 2018. in 2019 , investment income , on a tax equivalent basis , increased $ 4,662 to $ 37,607 from $ 32,945 in 2018 . the following table presents the taxable equivalent yield on securities for the periods presented :

liquidity and capital resources current assets and liabilities our principal need for liquidity and capital resources is to maintain working capital sufficient to support our operations and to make capital expenditures to finance the growth of our business . to date , we have financed our operations primarily through cash flows from operations and borrowings from our principal shareholder . due to the credit tightening policies in china , banks were very slow to approve mortgage lending during the year ended september 30 , 2012. due to slowdown in sales , our total cash and restricted cash balance decreased to approximately $ 2.2 million as compared to $ 9.6 million at septermber 30 , 2011. such balances have been slowly starting to increase after the first quarter of fiscal 2012 from the low point of $ 1.3 million at december 31 , 2011. the people 's bank of china ( “ pboc ” ) posted a statement on its website on february 7 , 2012 , indicating that pboc would ensure that lending support to affordable housing projects and loan demand from first-home families is met . since most of our customers are first-time home buyers and our affordable housing units are in the pre-sales stage , we expect our cash flow will continue to improve in fiscal 2013. as of september 30 , 2012 , the company had approximately $ 7.7 million in working capital , a decrease of $ 18.6 million as compared to $ 26.3 million as of september 30 , 2011. the decrease in working capital was mainly related to a decrease of the current portion of real estate property under development of $ 8.1 million , a decrease of advance to venders of $ 3.4 million , a decrease of loans to outside parties of $ 2.6 million and an increase of other payable of 0.9 million , offsetting by a decrease in accounts payable of $ 3.6 million and an increase in current portion of real estate property development completed of $ 0.6 million .

merger expense did not impact diluted eps in 2019 , but decreased it by $ 0.21 in 2018 . — loans , net of unearned income , were $ 9,689,638 at december 31 , 2019 compared to $ 9,083,129 at december 31 , 2018 , which represents an increase of 6.68 % from the previous year . excluding purchased loans of $ 2,101,664 and $ 2,693,417 at december 31 , 2019 and 2018 , respectively , the portfolio increased by $ 1,198,262 , or 18.75 % , from december 31 , 2018 . — deposits totaled $ 10,213,168 at december 31 , 2019 compared to $ 10,128,557 at december 31 , 2018. noninterest bearing deposits averaged $ 2,463,436 , or 24.19 % of average deposits , for 2019 compared to $ 2,036,754 , or 22.83 % of average deposits , for 2018 . 37 a historical look at key performance indicators is presented below . replace_table_token_10_th ( 1 ) these performance indicators are non-gaap financial measures . a reconciliation of these financial measures from gaap to non-gaap as well as an explanation of why the company provides these non-gaap financial measures can be found under the “ non-gaap financial measures ” heading at the end of this item 7 , management 's discussion and analysis of financial condition and results of operations . critical accounting policies our financial statements are prepared using accounting estimates for various accounts . wherever feasible , we utilize third-party information to provide management with estimates . although independent third parties are engaged to assist us in the estimation process , management evaluates the results , challenges assumptions and considers other factors that could impact these estimates . we monitor the status of proposed and newly issued accounting standards to evaluate the impact on our financial condition and results of operations . our accounting policies , including the impact of newly issued accounting standards , are discussed in further detail in note 1 , “ significant accounting policies , ” in the notes to consolidated financial statements in item 8 , financial statements and supplementary data , in this report . the following discussion details the accounting policies governing some of the more significant estimates used in preparing our financial statements . allowance for loan losses the accounting policy most important to the presentation of our financial statements relates to the allowance for loan losses and the related provision for loan losses . the allowance for loan losses is available to absorb probable credit losses inherent in the entire loan portfolio . the appropriate level of the allowance is based on an ongoing analysis of the loan portfolio and represents an amount that management deems adequate to provide for inherent losses , including collective impairment as recognized under the financial accounting standards board ( “ fasb ” ) accounting standards codification topic ( “ asc ” ) 450 , “ contingencies ” ( “ asc 450 ” ) , in our loan portfolio . collective impairment is calculated based on loans grouped by grade . another component of the allowance is losses on loans assessed as impaired under asc 310 , “ receivables ” ( “ asc 310 ” ) . the balance of the loans determined to be impaired under asc 310 and the related allowance is included in management 's estimation and analysis of the allowance for loan losses . the determination of the appropriate level of the allowance is sensitive to a variety of internal factors , primarily historical loss ratios and assigned risk ratings , and external factors , primarily the economic environment . while no one factor is dominant , each could cause actual loan losses to differ materially from originally estimated amounts . for more information about the considerations in establishing the allowance for loan losses and our loan policies and procedures for addressing credit risk , please refer to the disclosures in this item under the heading “ risk management – credit risk and allowance for loan losses . ” business combinations , accounting for purchased loans the company accounts for its acquisitions under asc 805 , “ business combinations , ” which requires the use of the acquisition method of accounting . all identifiable assets acquired , including loans , and liabilities assumed are recorded at fair value and recognized separately from goodwill . for a purchased loan , no allowance for loan losses is recorded on the acquisition date because the fair value measurements incorporate assumptions regarding credit risk . this applies even to a purchased loan with evidence of credit deterioration since origination pursuant to asc 310-30 , “ loans and debt securities acquired with deteriorated credit quality ” ( “ asc 310-30 ” ) . generally speaking , rather than carry over an allowance for loan losses , as part of the acquisition we establish a “ day 1 fair value ” of a purchased loan or pools of purchased loans sharing common risk characteristics , which equals the outstanding balance of a purchased loan or pool on the acquisition date less any credit and or yield discount applied against the purchased loan or pool of loans . in other words , these loans or pools of loans are carried at values which represent our estimate of their future cash flows . after the acquisition date , a purchased loan or pool of loans will either meet or exceed the performance expectations established in determining the day 1 fair values or deteriorate from such expected performance . story_separator_special_tag the company owns subordinated notes that , net of unamortized debt issuance costs , totaled $ 113,955 at december 31 , 2019 compared to $ 147,239 at december 31 , 2018 . as part of the brand acquisition , the company assumed $ 30,000 of 8.50 % fixed rate subordinated notes . we redeemed these notes during the third quarter of 2019 due to the 8.50 % fixed interest rate and the fact that their preferential capital treatment began to phase out in 2019. the company has used the net proceeds from the subordinated notes offerings for general corporate purposes , including providing capital to support the company 's growth organically or through strategic acquisitions , repaying indebtedness and financing investments and capital expenditures , and for investments in the bank as regulatory capital . the subordinated notes qualify as tier 2 capital under the current regulatory guidelines . for more information about the terms and conditions of the company 's junior subordinated debentures and subordinated notes , see note 13 , “ long-term debt , ” in the notes to the consolidated financial statements in item 8 , financial statements and supplementary data , in this report . results of operations net income net income for the year ended december 31 , 2019 was $ 167,596 compared to net income of $ 146,920 for the year ended december 31 , 2018 . basic earnings per share for the year ended december 31 , 2019 was $ 2.89 as compared to $ 2.80 for the year ended december 31 , 2018 . diluted earnings per share for the year ended december 31 , 2019 was $ 2.88 as compared to $ 2.79 for the year ended december 31 , 2018 . in 2018 and 2019 , the company incurred expenses and charges in connection with certain transactions with respect to which management is unable to accurately predict when these expenses or charges will be incurred or , when incurred , the amount thereof . the following table presents the impact of these expenses and charges on reported earnings per share for the periods presented : replace_table_token_19_th net interest income net interest income , the difference between interest earned on assets and the cost of interest-bearing liabilities , is the largest component of our net income , comprising 74.59 % of total net revenue in 2019 . total net revenue consists of net interest income on a fully taxable equivalent basis and noninterest income . the primary concerns in managing net interest income are the volume , mix and repricing of assets and liabilities . net interest income increased 11.89 % to $ 443,657 for 2019 compared to $ 396,525 in 2018 . on a tax equivalent basis , net interest income increased $ 47,560 to $ 449,986 in 2019 as compared to $ 402,426 in 2018 . net interest margin was 4.08 % for 2019 as compared to 4.16 % for 2018 . net interest income and net interest margin are influenced by internal and external factors . internal factors include balance sheet changes in volume and mix as well as loan and deposit pricing decisions . external factors include changes in market interest rates , competition and the shape of the interest rate yield curve . as discussed in more detail below , growth in the company 's loan portfolio was the largest contributing factor to the increase in net interest income year over year . the company capitalized on the rising interest rate environment over the last several years , ending in july 2019 , by replacing maturing loans with new or renewed loans at similar or higher rates . these efforts helped offset the negative impact to our net interest income and net interest margin from rising costs of our deposits and borrowings as competition increased in response to the aforementioned interest rate environment . 45 interest income , on a tax equivalent basis , was $ 548,909 for 2019 compared to $ 467,755 for 2018 , an increase of $ 81,154 . the following table presents the percentage of total average earning assets , by type and yield , for 2019 and 2018 : replace_table_token_20_th in 2019 , interest income on loans held for investment , on a tax equivalent basis , increased $ 68,398 to $ 487,240 from $ 418,842 in 2018 . the increase year over year is a result of the increase in the average balance of loans due to non purchased loan growth and the brand acquisition , as well as an increase in yield on the loan portfolio . interest income on loans held for sale , on a tax equivalent basis , increased $ 5,279 to $ 18,171 in 2019 from $ 12,892 in 2018 . this increase is primarily due to the impact of the portfolio of non-mortgage consumer loans , acquired from brand and supplemented by additional loans purchased in the second quarter of 2019 , that was classified as held for sale until the third quarter of 2019 when the portfolio was reclassified to loans held for investment . the following table presents reported taxable equivalent yield on loans for the periods presented : replace_table_token_21_th the impact from interest income collected on problem loans and purchase accounting adjustments on purchased loans to total interest income on loans , loan yield and net interest margin is shown in the table below for the periods presented : replace_table_token_22_th ( 1 ) includes additional interest income recognized in connection with the acceleration of paydowns and payoffs from purchased loans of $ 14,635 and $ 12,460 for the twelve months ended december 31 , 2019 and 2018 , respectively , which increased loan yield by 15 basis points for 2019 and 2018. in 2019 , investment income , on a tax equivalent basis , increased $ 4,662 to $ 37,607 from $ 32,945 in 2018 . the following table presents the taxable equivalent yield on securities for the periods presented :

liquidity and capital resources liquidity management is the ability to meet the cash flow requirements of customers who may be either depositors wishing to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs . core deposits , which are deposits excluding time deposits and public fund deposits , are a major source of funds used by the bank to meet cash flow needs . maintaining the ability to acquire these funds as needed in a variety of markets is the key to assuring the bank 's liquidity . our asset/liability management committee has established targets for our liquidity ratio , which helps determine the bank 's ability to meet cash and funding obligations under current financial and economic conditions , as well as the ratio of our non-core funding to our total funding . management continually monitors these ratios and also stresses our sources of liquidity under various scenarios to ensure that we maintain sufficient liquidity . our investment portfolio is another alternative for meeting liquidity needs . these assets generally have readily available markets that offer conversions to cash as needed . within the next twelve months the securities portfolio is forecasted to generate cash flow through principal payments and maturities equal to 24.47 % of the carrying value of the total securities portfolio . securities within our investment portfolio are also used to secure certain deposit types and short-term borrowings . at december 31 , 2019 , securities with a carrying value of $ 444,603 were pledged to secure government , public , trust , and other deposits and as collateral for short-term borrowings and derivative instruments as compared to $ 637,607 at december 31 , 2018 .

the decline increased further following opec 's announcement in late november 2014 that it would not reduce its production targets . this decline continued into 2015 but has started to stabilize with the west texas intermediate ( “wti” ) benchmark generally ranging between $ 45- $ 50 per barrel throughout january and early february 2015. if wti remained at this level throughout 2015 , our realized crude price , excluding the effects of hedges , would decrease approximately 50 % compared to 2014. although natural gas prices improved in 2014 compared to 2013 , natural gas continues to be challenged due to an imbalance between supply and demand across north america . we expect most natural gas benchmark prices to be lower in 2015 , as supply continues to surpass demand . our industry will be challenged by lower commodity prices . however , we have strategically positioned our company so that we can prudently continue investing in our portfolio of assets . first , following our 2014 asset divestitures our portfolio is more focused , and we will concentrate our capital programs on the highest return assets in our portfolio . we exited 2014 with a production profile comprised of roughly 35 percent oil , 20 percent natural gas liquids and 45 percent natural gas . recognizing the relative value of crude oil , we are devoting the vast majority of our 2015 capital investment toward growing our oil production , particularly the sweet grades of oil found in the u.s. 27 second , we have hedged approximately 50 percent of our projected 2015 crude production at a floor price of $ 91 per barrel and approximately 40 percent of our natural gas production at $ 4.17 per mcf . these 2015 contracts had an approximate value of $ 2 billion at december 31 , 2014. additionally , costs for the services we use are declining in response to lower commodity prices . these factors will partially mitigate the effects of lower commodity prices . finally , enlink 's growth as a result of recent acquisitions and planned asset dropdowns from devon will generate additional cash resources that can be used for our capital investment . nevertheless , lower commodity prices create headwinds on our business . therefore , we are projecting a 20 percent decrease in capital spending in 2015. such spending will be focused on the oily assets in our portfolio currently generating the highest returns . with this focus on our highest return assets , we expect growth in oil production to be between 20 and 25 percent in 2015. results of operations all amounts in this document related to our international operations for the year ended december 31 , 2012 are presented as discontinued . therefore , all results from those operations are excluded in the “results of operations” section unless otherwise noted . 28 oil , gas and ngl production replace_table_token_15_th 29 oil , gas and ngl pricing replace_table_token_16_th ( 1 ) prices presented exclude any effects due to oil , gas and ngl derivatives . ( 2 ) the reported canadian gas volumes include 21 and 25 mmcf per day for the years ended 2014 and 2013 , respectively , that are produced from certain of our leases and then transported to our jackfish operations where the gas is used as fuel . however , the revenues and expenses related to this consumed gas are eliminated in our consolidated financial results . with the sale of the vast majority of the canadian gas business in the second quarter of 2014 , the impact of the eliminated gas revenues more significantly impacts our gas price . commodity sales the volume and price changes in the tables above caused the following changes to our oil , gas and ngl sales . replace_table_token_17_th volumes 2014 vs. 2013 oil , gas and ngl sales increased $ 985 million due to volumes . the primary driver of the increase resulted from a 74 percent increase in our u.s. oil production . such growth resulted from our recently acquired eagle ford properties and the continued development of our properties in the permian basin and mississippian-woodford trend properties . in addition , we continue to grow our ngl production from these plays , which resulted in $ 131 million of additional sales . bitumen sales increased $ 76 million due to 30 development of our jackfish thermal heavy oil projects in canada , including jackfish 3 which had first sales in 2014. these increases were partially offset by a 20 percent decrease in our 2014 gas production , which was impacted by our asset divestitures , resulting in a $ 533 million decline in sales . volumes 2013 vs. 2012 oil , gas and ngl sales increased $ 625 million due to a 15 percent increase in our liquids production , partially offset by a 7 percent decline in our gas production . oil production was the largest driver of the increase , accounting for 85 percent of the higher sales . largely due to continued development of our properties in the permian basin , the mississippian-woodford trend and the anadarko basin , our oil sales increased $ 531 million . bitumen sales increased $ 65 million due to development of our jackfish thermal heavy oil projects in canada . additionally , our ngl sales increased $ 181 million as a result of continued drilling in the liquids-rich gas portions of the barnett shale and the anadarko basin . these increases were partially offset by a 7 percent decrease in our 2013 gas production , resulting in a $ 152 million decline in sales . prices 2014 vs. 2013 oil , gas and ngl sales increased $ 403 million due to a 20 percent increase in our realized prices without hedges . our gas sales were the most significantly impacted with a $ 572 million increase in sales . story_separator_special_tag additionally , we are exposed to the credit risk of counterparties to our derivative financial contracts . we utilize a variety of mechanisms to limit our exposure to the credit risks of our customers , partners and counterparties . such mechanisms include , under certain conditions , requiring letters of credit , prepayments or collateral postings . 40 as recent years indicate , we have a history of investing more than 100 percent of our operating cash flow into capital development activities to grow our company and maximize value for our shareholders . therefore , negative movements in any of the variables discussed above would not only impact our operating cash flow but also would likely impact the amount of capital investment we could or would make . at the end of 2014 , we held approximately $ 1.5 billion of cash . included in this total was $ 1.2 billion of cash held by our foreign subsidiaries . if we were to repatriate a portion or all of the cash held by our foreign subsidiaries , we would recognize and pay current income taxes in accordance with current u. s. tax law . the payment of such additional income tax would decrease the amount of cash ultimately available to fund our business . credit availability we have a $ 3.0 billion syndicated , unsecured revolving line of credit ( the senior credit facility ) . the maturity date for $ 30 million of the senior credit facility is october 24 , 2017. the maturity date for $ 164 million of the senior credit facility is october 24 , 2018. the maturity date for the remaining $ 2.8 billion is october 24 , 2019. this credit facility supports our $ 3.0 billion commercial paper program . amounts borrowed under the senior credit facility may , at our election , bear interest at various fixed rate options for periods of up to twelve months . such rates are generally less than the prime rate . however , we may elect to borrow at the prime rate . as of december 31 , 2014 , there were no borrowings under the senior credit facility . the senior credit facility contains only one material financial covenant . this covenant requires us to maintain a ratio of total funded debt to total capitalization , as defined in the credit agreement , of no more than 65 percent . the credit agreement defines total funded debt as funds received through the issuance of debt securities such as debentures , bonds , notes payable , credit facility borrowings and short-term commercial paper borrowings . in addition , total funded debt includes all obligations with respect to payments received in consideration for oil , gas and ngl production yet to be acquired or produced at the time of payment . funded debt excludes our outstanding letters of credit and trade payables . the credit agreement defines total capitalization as the sum of funded debt and stockholders ' equity adjusted for noncash financial write-downs , such as full cost ceiling and goodwill impairments . as of december 31 , 2014 , we were in compliance with this covenant . our debt-to-capitalization ratio at december 31 , 2014 , as calculated pursuant to the terms of the agreement , was 20.9 percent . our access to funds from the senior credit facility is not restricted under any “material adverse effect” clauses . it is not uncommon for credit agreements to include such clauses . these clauses can remove the obligation of the banks to fund the credit line if any condition or event would reasonably be expected to have a material and adverse effect on the borrower 's financial condition , operations , properties or business considered as a whole , the borrower 's ability to make timely debt payments , or the enforceability of material terms of the credit agreement . while our credit facility includes covenants that require us to report a condition or event having a material adverse effect , the obligation of the banks to fund the credit facility is not conditioned on the absence of a material adverse effect . we also have access to $ 3.0 billion of short-term credit under our commercial paper program . commercial paper debt generally has a maturity of between 1 and 90 days , although it can have a maturity of up to 365 days , and bears interest at rates agreed to at the time of the borrowing . the interest rate is generally based on a standard index such as the federal funds rate , libor or the money market rate as found in the commercial paper market . as of december 31 , 2014 , we had $ 932 million of borrowings under our commercial paper program . enlink has a $ 1.0 billion unsecured revolving credit facility . on february 5 , 2015 , the commitments under enlink 's credit facility were increased to $ 1.5 billion . the general partner also has a $ 250 million revolving credit facility . as of december 31 , 2014 , there were $ 14 million in outstanding letters of credit and $ 237 million borrowed under the $ 1.0 billion credit facility and no outstanding borrowings under the $ 250 million credit facility . all of enlink 's and the general partner 's debt is non-recourse to devon . 41 debt ratings we and enlink receive debt ratings from the major ratings agencies in the u.s. however , the general partner does not receive debt ratings . in determining those debt ratings , the agencies consider a number of qualitative and quantitative items including , but not limited to , commodity pricing levels , liquidity , asset quality , reserve mix , debt levels , cost structure , planned asset sales , near-term and long-term growth opportunities and capital allocation challenges . there are no “rating triggers” in any of our or enlink 's debt

liquidity and capital resources liquidity management is the ability to meet the cash flow requirements of customers who may be either depositors wishing to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs . core deposits , which are deposits excluding time deposits and public fund deposits , are a major source of funds used by the bank to meet cash flow needs . maintaining the ability to acquire these funds as needed in a variety of markets is the key to assuring the bank 's liquidity . our asset/liability management committee has established targets for our liquidity ratio , which helps determine the bank 's ability to meet cash and funding obligations under current financial and economic conditions , as well as the ratio of our non-core funding to our total funding . management continually monitors these ratios and also stresses our sources of liquidity under various scenarios to ensure that we maintain sufficient liquidity . our investment portfolio is another alternative for meeting liquidity needs . these assets generally have readily available markets that offer conversions to cash as needed . within the next twelve months the securities portfolio is forecasted to generate cash flow through principal payments and maturities equal to 24.47 % of the carrying value of the total securities portfolio . securities within our investment portfolio are also used to secure certain deposit types and short-term borrowings . at december 31 , 2019 , securities with a carrying value of $ 444,603 were pledged to secure government , public , trust , and other deposits and as collateral for short-term borrowings and derivative instruments as compared to $ 637,607 at december 31 , 2018 .

the decline increased further following opec 's announcement in late november 2014 that it would not reduce its production targets . this decline continued into 2015 but has started to stabilize with the west texas intermediate ( “wti” ) benchmark generally ranging between $ 45- $ 50 per barrel throughout january and early february 2015. if wti remained at this level throughout 2015 , our realized crude price , excluding the effects of hedges , would decrease approximately 50 % compared to 2014. although natural gas prices improved in 2014 compared to 2013 , natural gas continues to be challenged due to an imbalance between supply and demand across north america . we expect most natural gas benchmark prices to be lower in 2015 , as supply continues to surpass demand . our industry will be challenged by lower commodity prices . however , we have strategically positioned our company so that we can prudently continue investing in our portfolio of assets . first , following our 2014 asset divestitures our portfolio is more focused , and we will concentrate our capital programs on the highest return assets in our portfolio . we exited 2014 with a production profile comprised of roughly 35 percent oil , 20 percent natural gas liquids and 45 percent natural gas . recognizing the relative value of crude oil , we are devoting the vast majority of our 2015 capital investment toward growing our oil production , particularly the sweet grades of oil found in the u.s. 27 second , we have hedged approximately 50 percent of our projected 2015 crude production at a floor price of $ 91 per barrel and approximately 40 percent of our natural gas production at $ 4.17 per mcf . these 2015 contracts had an approximate value of $ 2 billion at december 31 , 2014. additionally , costs for the services we use are declining in response to lower commodity prices . these factors will partially mitigate the effects of lower commodity prices . finally , enlink 's growth as a result of recent acquisitions and planned asset dropdowns from devon will generate additional cash resources that can be used for our capital investment . nevertheless , lower commodity prices create headwinds on our business . therefore , we are projecting a 20 percent decrease in capital spending in 2015. such spending will be focused on the oily assets in our portfolio currently generating the highest returns . with this focus on our highest return assets , we expect growth in oil production to be between 20 and 25 percent in 2015. results of operations all amounts in this document related to our international operations for the year ended december 31 , 2012 are presented as discontinued . therefore , all results from those operations are excluded in the “results of operations” section unless otherwise noted . 28 oil , gas and ngl production replace_table_token_15_th 29 oil , gas and ngl pricing replace_table_token_16_th ( 1 ) prices presented exclude any effects due to oil , gas and ngl derivatives . ( 2 ) the reported canadian gas volumes include 21 and 25 mmcf per day for the years ended 2014 and 2013 , respectively , that are produced from certain of our leases and then transported to our jackfish operations where the gas is used as fuel . however , the revenues and expenses related to this consumed gas are eliminated in our consolidated financial results . with the sale of the vast majority of the canadian gas business in the second quarter of 2014 , the impact of the eliminated gas revenues more significantly impacts our gas price . commodity sales the volume and price changes in the tables above caused the following changes to our oil , gas and ngl sales . replace_table_token_17_th volumes 2014 vs. 2013 oil , gas and ngl sales increased $ 985 million due to volumes . the primary driver of the increase resulted from a 74 percent increase in our u.s. oil production . such growth resulted from our recently acquired eagle ford properties and the continued development of our properties in the permian basin and mississippian-woodford trend properties . in addition , we continue to grow our ngl production from these plays , which resulted in $ 131 million of additional sales . bitumen sales increased $ 76 million due to 30 development of our jackfish thermal heavy oil projects in canada , including jackfish 3 which had first sales in 2014. these increases were partially offset by a 20 percent decrease in our 2014 gas production , which was impacted by our asset divestitures , resulting in a $ 533 million decline in sales . volumes 2013 vs. 2012 oil , gas and ngl sales increased $ 625 million due to a 15 percent increase in our liquids production , partially offset by a 7 percent decline in our gas production . oil production was the largest driver of the increase , accounting for 85 percent of the higher sales . largely due to continued development of our properties in the permian basin , the mississippian-woodford trend and the anadarko basin , our oil sales increased $ 531 million . bitumen sales increased $ 65 million due to development of our jackfish thermal heavy oil projects in canada . additionally , our ngl sales increased $ 181 million as a result of continued drilling in the liquids-rich gas portions of the barnett shale and the anadarko basin . these increases were partially offset by a 7 percent decrease in our 2013 gas production , resulting in a $ 152 million decline in sales . prices 2014 vs. 2013 oil , gas and ngl sales increased $ 403 million due to a 20 percent increase in our realized prices without hedges . our gas sales were the most significantly impacted with a $ 572 million increase in sales . story_separator_special_tag additionally , we are exposed to the credit risk of counterparties to our derivative financial contracts . we utilize a variety of mechanisms to limit our exposure to the credit risks of our customers , partners and counterparties . such mechanisms include , under certain conditions , requiring letters of credit , prepayments or collateral postings . 40 as recent years indicate , we have a history of investing more than 100 percent of our operating cash flow into capital development activities to grow our company and maximize value for our shareholders . therefore , negative movements in any of the variables discussed above would not only impact our operating cash flow but also would likely impact the amount of capital investment we could or would make . at the end of 2014 , we held approximately $ 1.5 billion of cash . included in this total was $ 1.2 billion of cash held by our foreign subsidiaries . if we were to repatriate a portion or all of the cash held by our foreign subsidiaries , we would recognize and pay current income taxes in accordance with current u. s. tax law . the payment of such additional income tax would decrease the amount of cash ultimately available to fund our business . credit availability we have a $ 3.0 billion syndicated , unsecured revolving line of credit ( the senior credit facility ) . the maturity date for $ 30 million of the senior credit facility is october 24 , 2017. the maturity date for $ 164 million of the senior credit facility is october 24 , 2018. the maturity date for the remaining $ 2.8 billion is october 24 , 2019. this credit facility supports our $ 3.0 billion commercial paper program . amounts borrowed under the senior credit facility may , at our election , bear interest at various fixed rate options for periods of up to twelve months . such rates are generally less than the prime rate . however , we may elect to borrow at the prime rate . as of december 31 , 2014 , there were no borrowings under the senior credit facility . the senior credit facility contains only one material financial covenant . this covenant requires us to maintain a ratio of total funded debt to total capitalization , as defined in the credit agreement , of no more than 65 percent . the credit agreement defines total funded debt as funds received through the issuance of debt securities such as debentures , bonds , notes payable , credit facility borrowings and short-term commercial paper borrowings . in addition , total funded debt includes all obligations with respect to payments received in consideration for oil , gas and ngl production yet to be acquired or produced at the time of payment . funded debt excludes our outstanding letters of credit and trade payables . the credit agreement defines total capitalization as the sum of funded debt and stockholders ' equity adjusted for noncash financial write-downs , such as full cost ceiling and goodwill impairments . as of december 31 , 2014 , we were in compliance with this covenant . our debt-to-capitalization ratio at december 31 , 2014 , as calculated pursuant to the terms of the agreement , was 20.9 percent . our access to funds from the senior credit facility is not restricted under any “material adverse effect” clauses . it is not uncommon for credit agreements to include such clauses . these clauses can remove the obligation of the banks to fund the credit line if any condition or event would reasonably be expected to have a material and adverse effect on the borrower 's financial condition , operations , properties or business considered as a whole , the borrower 's ability to make timely debt payments , or the enforceability of material terms of the credit agreement . while our credit facility includes covenants that require us to report a condition or event having a material adverse effect , the obligation of the banks to fund the credit facility is not conditioned on the absence of a material adverse effect . we also have access to $ 3.0 billion of short-term credit under our commercial paper program . commercial paper debt generally has a maturity of between 1 and 90 days , although it can have a maturity of up to 365 days , and bears interest at rates agreed to at the time of the borrowing . the interest rate is generally based on a standard index such as the federal funds rate , libor or the money market rate as found in the commercial paper market . as of december 31 , 2014 , we had $ 932 million of borrowings under our commercial paper program . enlink has a $ 1.0 billion unsecured revolving credit facility . on february 5 , 2015 , the commitments under enlink 's credit facility were increased to $ 1.5 billion . the general partner also has a $ 250 million revolving credit facility . as of december 31 , 2014 , there were $ 14 million in outstanding letters of credit and $ 237 million borrowed under the $ 1.0 billion credit facility and no outstanding borrowings under the $ 250 million credit facility . all of enlink 's and the general partner 's debt is non-recourse to devon . 41 debt ratings we and enlink receive debt ratings from the major ratings agencies in the u.s. however , the general partner does not receive debt ratings . in determining those debt ratings , the agencies consider a number of qualitative and quantitative items including , but not limited to , commodity pricing levels , liquidity , asset quality , reserve mix , debt levels , cost structure , planned asset sales , near-term and long-term growth opportunities and capital allocation challenges . there are no “rating triggers” in any of our or enlink 's debt

sources and uses of cash the following table presents the major source and use categories of our cash and cash equivalents . replace_table_token_29_th operating cash flow – continuing operations net cash provided by operating activities continued to be a significant source of capital and liquidity in 2014. our operating cash flow increased 10 percent during 2014 primarily due to higher realized prices and 37 liquids production growth , partially offset by higher expenses . our operating cash flow increased 10 percent during 2013 primarily due to higher commodity prices and production growth , partially offset by higher expenses . excluding the $ 6.5 billion attributable to the geosouthern and other acquisitions , our operating cash flow funded approximately 86 percent of our cash payments for capital expenditures during 2014. leveraging our liquidity , we used cash balances , short-term debt and divestiture proceeds to fund the remainder of our cash-based capital expenditures . divestitures of property and equipment during 2014 , we completed our canadian asset divestiture program and received proceeds of approximately $ 2.9 billion . additionally , we completed the divestment of certain of our u.s. assets and received proceeds of approximately $ 2.2 billion . in 2013 , we sold our thunder creek operations in wyoming for approximately $ 148 million and our bear paw basin assets in havre , montana for approximately $ 73 million . we also sold other minor oil and gas assets . during 2012 , we closed two key joint venture transactions . under one of these arrangements , our joint venture partner paid approximately $ 900 million in cash and received a 33.3 percent interest in five of our exploration plays in the u.s. our joint venture partner is also funding approximately $ 1.6 billion of our share of future exploration , development and drilling costs associated with these plays .

while the social distancing response to covid-19 has resulted in increased consumer demand for certain food and household products , the pandemic 's recessionary impact on the worldwide economy has significantly decreased demand in our more economically sensitive industrial related businesses and exacerbated their negative price/cost relationships . as a result , the overall impact of the pandemic on 2020 consolidated results was negative . while we expect the pandemic to continue having a mixed impact on demand for our products in 2021 , we expect that demand and mix across our businesses will largely revert to pre-pandemic levels over the course of the year . however , although we expect that , relative to 2020 , consolidated results will benefit from this reversion , we still expect a net negative impact to 2021 consolidated earnings relative to pre-pandemic levels and that many of our businesses will continue to experience negative price/cost pressure . we expect our consumer packaging segment to experience normal seasonal volume trends in 2021 and to perform well relative to pre-pandemic levels . however , as the pandemic wanes , total volume is expected to be flat year over year as sales of at-home food packaging decline and demand in other consumer market segments picks up . we expect our industrial-related markets to continue experiencing weak but improving demand into the summer or fall , with our paper and industrial converted products segment continuing to face a negative price/cost relationship due to higher year-over-year recycled fiber costs ; however , we expect industrial demand will improve more substantially over the back-half of the year if the pandemic continues to subside . our protective solutions and display and packaging businesses are expected to benefit from the continued economic recovery . financial flexibility and liquidity sonoco has a strong , investment-grade balance sheet and substantial liquidity available in the form of cash , cash equivalents and revolving credit facilities , as well as the ability to issue commercial paper and to access liquidity in the banking and debt capital markets . the following actions taken in 2020 largely related to the company 's efforts to either improve near-term liquidity or secure additional liquidity in light of volatility in the credit markets and economic uncertainty caused by the covid-19 pandemic : on march 18 , 2020 , the company closed and funded a new $ 150 million , 364-day term loan , the proceeds from which were used to repay a portion of outstanding commercial paper . the company repaid this loan on july 20 , 2020. on april 1 , 2020 , the company accessed $ 250 million from its revolving credit facility , using $ 85 million of the proceeds to fully repay its then outstanding commercial paper balance . the company repaid this loan on may 5 , 2020. on april 6 , 2020 , the company borrowed $ 100 million pursuant to a new 364-day term loan . the company repaid this loan on october 22 , 2020. on april 22 , 2020 , the company sold $ 600 million of 3.125 % notes due may 1 , 2030 , using a portion of the net proceeds for the repayment of existing debt . in may 2020 , the company exercised its one-time option to extend the term of its 364-day , $ 200 million term loan with wells fargo bank , national association to may 2021. the company repaid this loan on october 22 , 2020 . 20 form 10-k sonoco 2020 annual report on november 30 , 2020 , the company repaid the remaining balance of its five-year term loan using proceeds from the sale of its european contract packaging business . following the actions above , at december 31 , 2020 , the company had approximately $ 565 million in cash and cash equivalents on hand , $ 500 million in committed availability under its revolving credit facility , and scheduled debt maturities in 2021 of approximately $ 456 million . health , safety and business continuity the health and safety of sonoco 's associates , contractors , suppliers and the general public are a top priority . included among the safety measures we have recently implemented are : conducting health screenings for personnel entering our operations , routinely cleaning high-touch surfaces , following social distancing protocols , prohibiting all non-critical business travel , and encouraging all associates who can to work from home when possible . additionally , sonoco has launched a dedicated covid-19 internal microsite to keep its associates up to date on company and health authority information , guidelines , protocols and policies , including those set by the world health organization and the u.s. centers for disease control and prevention . sonoco has also put in place a global task force to develop and implement business continuity plans to ensure its operations are as prepared as possible to be able to continue producing and shipping product to its customers without disruption . sonoco has a diverse global supply chain and to date has not experienced significant raw material or other supply disruptions . use of non-gaap financial measures to assess and communicate the financial performance of the company , sonoco management uses , both internally and externally , certain financial performance measures that are not in conformity with generally accepted accounting principles ( “ non-gaap ” financial measures ) . these non-gaap financial measures reflect the company 's gaap operating results adjusted to remove amounts , including the associated tax effects , relating to restructuring initiatives , asset impairment charges , environmental charges , acquisition-related costs , gains or losses from the disposition of businesses , excess property insurance recoveries , non-operating pension costs , certain income tax events and adjustments , and other items , if any , the exclusion of which management believes improves the period-to-period comparability and analysis of the underlying financial performance of the business . story_separator_special_tag the company completed two acquisitions during 2019 at a cost of $ 297.9 million , net of cash acquired . on december 31 , 2019 , the company completed the acquisition of thermoform engineered quality , llc , and plastique holdings , ltd , ( together `` teq `` ) for $ 187.3 million , net of cash acquired . final consideration was subject to a post-closing adjustment for the change in working capital to the date of closing and resulted in the receipt of cash from the sellers totaling $ 0.2 million in april 2020. the acquired operations consist of three thermoforming and extrusion facilities in the united states along with a thermoforming operation in the united kingdom and a thermoforming and molded-fiber operation in poland , which together employ approximately 500 associates . the acquisition of teq provides a strong platform to further expand sonoco 's growing healthcare packaging business . the operations of teq are reported in the company 's consumer packaging segment . on august 9 , 2019 , the company completed the acquisition of corenso for $ 110.6 million , net of cash acquired . final consideration was subject to a post-closing adjustment for the change in working capital to the date of closing which was settled in november 2019 requiring an additional cash payment to the sellers of approximately $ 0.1 million . corenso is a leading manufacturer of uncoated recycled paperboard ( urb ) and high-performance cores used in the paper , packaging films , tape , and specialty industries . corenso operates a 108,000-ton per year urb mill and core converting facility in wisconsin rapids , wisconsin , as well as a core converting facility in richmond , virginia , expanding the company 's ability to produce a wide variety of sustainable coreboard grades . the operations of corenso are reported in the company 's paper and industrial converted products segment . during 2020 and 2019 , the company made final contingent payments totaling $ 3.0 million and $ 5.5 million , respectively , for acquisitions completed in prior years . in 2020 the company settled a $ 2.5 million contingent purchase obligation related to the 2018 acquisition of highland packaging solutions ( `` highland `` ) based on certain sales metrics being met and a $ 0.5 million contingent purchase liability related to the 2016 acquisition of aar corporation ( `` aar `` ) . in 2019 the company settled additional contingent purchase obligations related to highland and aar totaling $ 5.0 million and $ 0.5 million , respectively . the payment of these contingent obligations are reflected as financing activities on the company 's consolidated statement of cash flows for the years ended december 31 , 2020 and december 31 , 2019. on november 30 , 2020 , the company completed the divestiture of its european contract packaging business , sonoco poland packaging services sp . z.o.o . to a subsidiary of prairie industries holdings , a wisconsin-based contract packaging and contract manufacturing firm backed by the halifax group . these operations provided full-service custom packaging and supply chain management solutions to global consumer product goods companies from three locations in poland with approximately 2,600 employees . the selling price of $ 120 million was adjusted at closing for certain indebtedness assumed by the buyer and for anticipated differences between targeted levels of working capital and the projected levels at the time of closing . the company received net cash proceeds at closing of $ 105.9 million , with the buyer funding an escrow account with an additional $ 4.6 million , of which $ 4.0 million is expected to be released to the company upon final sales adjustments in the first quarter of 2021 , and the remainder , pending any indemnity claims , in the second quarter of 2022. the company also anticipates that final working capital settlements will result in additional cash proceeds of approximately $ 2.5 million in the first quarter of 2021. transaction fees totaling $ 2.5 million were paid out of the proceeds received . cumulative currency translation adjustment losses of $ 12.4 million associated with this entity were reclassified from accumulated other comprehensive income and recognized as a part of the net loss on the sale of the business which totaled $ 14.5 million . the decision to sell the european contract packaging business was part of the company 's efforts to simplify its operating structure to focus on growing its core consumer and industrial packaging businesses . the disposition of these operations is expected to negatively impact the 2021 year-over-year sales comparison by approximately $ 260 million . this sale is not expected to notably affect operating margin percentages nor does it represent a strategic shift for the company that will have a major effect on its operations and financial results . the company continually assesses its operational footprint as well as its overall portfolio of businesses and may consider the disposition of plants and or business units it considers to be suboptimal or nonstrategic . see note 3 to the consolidated financial statements for further information about acquisition and disposition activities . 23 form 10-k sonoco 2020 annual report restructuring and asset impairment charges due to its geographic footprint ( approximately 320 locations in 34 countries ) and the cost-competitive nature of its businesses , the company is constantly seeking the most cost-effective means and structure to serve its customers and to respond to fundamental changes in its markets . as such , restructuring costs have been and are expected to be a recurring component of the company 's operating costs . the amount of these costs can vary significantly from year to year depending upon the scope and location of the restructuring activities . the following table recaps the impact of restructuring and asset impairment charges for each of the years presented : replace_table_token_3_th during 2020 , the company announced the closures of a paper mill in canada , a

sources and uses of cash the following table presents the major source and use categories of our cash and cash equivalents . replace_table_token_29_th operating cash flow – continuing operations net cash provided by operating activities continued to be a significant source of capital and liquidity in 2014. our operating cash flow increased 10 percent during 2014 primarily due to higher realized prices and 37 liquids production growth , partially offset by higher expenses . our operating cash flow increased 10 percent during 2013 primarily due to higher commodity prices and production growth , partially offset by higher expenses . excluding the $ 6.5 billion attributable to the geosouthern and other acquisitions , our operating cash flow funded approximately 86 percent of our cash payments for capital expenditures during 2014. leveraging our liquidity , we used cash balances , short-term debt and divestiture proceeds to fund the remainder of our cash-based capital expenditures . divestitures of property and equipment during 2014 , we completed our canadian asset divestiture program and received proceeds of approximately $ 2.9 billion . additionally , we completed the divestment of certain of our u.s. assets and received proceeds of approximately $ 2.2 billion . in 2013 , we sold our thunder creek operations in wyoming for approximately $ 148 million and our bear paw basin assets in havre , montana for approximately $ 73 million . we also sold other minor oil and gas assets . during 2012 , we closed two key joint venture transactions . under one of these arrangements , our joint venture partner paid approximately $ 900 million in cash and received a 33.3 percent interest in five of our exploration plays in the u.s. our joint venture partner is also funding approximately $ 1.6 billion of our share of future exploration , development and drilling costs associated with these plays .

while the social distancing response to covid-19 has resulted in increased consumer demand for certain food and household products , the pandemic 's recessionary impact on the worldwide economy has significantly decreased demand in our more economically sensitive industrial related businesses and exacerbated their negative price/cost relationships . as a result , the overall impact of the pandemic on 2020 consolidated results was negative . while we expect the pandemic to continue having a mixed impact on demand for our products in 2021 , we expect that demand and mix across our businesses will largely revert to pre-pandemic levels over the course of the year . however , although we expect that , relative to 2020 , consolidated results will benefit from this reversion , we still expect a net negative impact to 2021 consolidated earnings relative to pre-pandemic levels and that many of our businesses will continue to experience negative price/cost pressure . we expect our consumer packaging segment to experience normal seasonal volume trends in 2021 and to perform well relative to pre-pandemic levels . however , as the pandemic wanes , total volume is expected to be flat year over year as sales of at-home food packaging decline and demand in other consumer market segments picks up . we expect our industrial-related markets to continue experiencing weak but improving demand into the summer or fall , with our paper and industrial converted products segment continuing to face a negative price/cost relationship due to higher year-over-year recycled fiber costs ; however , we expect industrial demand will improve more substantially over the back-half of the year if the pandemic continues to subside . our protective solutions and display and packaging businesses are expected to benefit from the continued economic recovery . financial flexibility and liquidity sonoco has a strong , investment-grade balance sheet and substantial liquidity available in the form of cash , cash equivalents and revolving credit facilities , as well as the ability to issue commercial paper and to access liquidity in the banking and debt capital markets . the following actions taken in 2020 largely related to the company 's efforts to either improve near-term liquidity or secure additional liquidity in light of volatility in the credit markets and economic uncertainty caused by the covid-19 pandemic : on march 18 , 2020 , the company closed and funded a new $ 150 million , 364-day term loan , the proceeds from which were used to repay a portion of outstanding commercial paper . the company repaid this loan on july 20 , 2020. on april 1 , 2020 , the company accessed $ 250 million from its revolving credit facility , using $ 85 million of the proceeds to fully repay its then outstanding commercial paper balance . the company repaid this loan on may 5 , 2020. on april 6 , 2020 , the company borrowed $ 100 million pursuant to a new 364-day term loan . the company repaid this loan on october 22 , 2020. on april 22 , 2020 , the company sold $ 600 million of 3.125 % notes due may 1 , 2030 , using a portion of the net proceeds for the repayment of existing debt . in may 2020 , the company exercised its one-time option to extend the term of its 364-day , $ 200 million term loan with wells fargo bank , national association to may 2021. the company repaid this loan on october 22 , 2020 . 20 form 10-k sonoco 2020 annual report on november 30 , 2020 , the company repaid the remaining balance of its five-year term loan using proceeds from the sale of its european contract packaging business . following the actions above , at december 31 , 2020 , the company had approximately $ 565 million in cash and cash equivalents on hand , $ 500 million in committed availability under its revolving credit facility , and scheduled debt maturities in 2021 of approximately $ 456 million . health , safety and business continuity the health and safety of sonoco 's associates , contractors , suppliers and the general public are a top priority . included among the safety measures we have recently implemented are : conducting health screenings for personnel entering our operations , routinely cleaning high-touch surfaces , following social distancing protocols , prohibiting all non-critical business travel , and encouraging all associates who can to work from home when possible . additionally , sonoco has launched a dedicated covid-19 internal microsite to keep its associates up to date on company and health authority information , guidelines , protocols and policies , including those set by the world health organization and the u.s. centers for disease control and prevention . sonoco has also put in place a global task force to develop and implement business continuity plans to ensure its operations are as prepared as possible to be able to continue producing and shipping product to its customers without disruption . sonoco has a diverse global supply chain and to date has not experienced significant raw material or other supply disruptions . use of non-gaap financial measures to assess and communicate the financial performance of the company , sonoco management uses , both internally and externally , certain financial performance measures that are not in conformity with generally accepted accounting principles ( “ non-gaap ” financial measures ) . these non-gaap financial measures reflect the company 's gaap operating results adjusted to remove amounts , including the associated tax effects , relating to restructuring initiatives , asset impairment charges , environmental charges , acquisition-related costs , gains or losses from the disposition of businesses , excess property insurance recoveries , non-operating pension costs , certain income tax events and adjustments , and other items , if any , the exclusion of which management believes improves the period-to-period comparability and analysis of the underlying financial performance of the business . story_separator_special_tag the company completed two acquisitions during 2019 at a cost of $ 297.9 million , net of cash acquired . on december 31 , 2019 , the company completed the acquisition of thermoform engineered quality , llc , and plastique holdings , ltd , ( together `` teq `` ) for $ 187.3 million , net of cash acquired . final consideration was subject to a post-closing adjustment for the change in working capital to the date of closing and resulted in the receipt of cash from the sellers totaling $ 0.2 million in april 2020. the acquired operations consist of three thermoforming and extrusion facilities in the united states along with a thermoforming operation in the united kingdom and a thermoforming and molded-fiber operation in poland , which together employ approximately 500 associates . the acquisition of teq provides a strong platform to further expand sonoco 's growing healthcare packaging business . the operations of teq are reported in the company 's consumer packaging segment . on august 9 , 2019 , the company completed the acquisition of corenso for $ 110.6 million , net of cash acquired . final consideration was subject to a post-closing adjustment for the change in working capital to the date of closing which was settled in november 2019 requiring an additional cash payment to the sellers of approximately $ 0.1 million . corenso is a leading manufacturer of uncoated recycled paperboard ( urb ) and high-performance cores used in the paper , packaging films , tape , and specialty industries . corenso operates a 108,000-ton per year urb mill and core converting facility in wisconsin rapids , wisconsin , as well as a core converting facility in richmond , virginia , expanding the company 's ability to produce a wide variety of sustainable coreboard grades . the operations of corenso are reported in the company 's paper and industrial converted products segment . during 2020 and 2019 , the company made final contingent payments totaling $ 3.0 million and $ 5.5 million , respectively , for acquisitions completed in prior years . in 2020 the company settled a $ 2.5 million contingent purchase obligation related to the 2018 acquisition of highland packaging solutions ( `` highland `` ) based on certain sales metrics being met and a $ 0.5 million contingent purchase liability related to the 2016 acquisition of aar corporation ( `` aar `` ) . in 2019 the company settled additional contingent purchase obligations related to highland and aar totaling $ 5.0 million and $ 0.5 million , respectively . the payment of these contingent obligations are reflected as financing activities on the company 's consolidated statement of cash flows for the years ended december 31 , 2020 and december 31 , 2019. on november 30 , 2020 , the company completed the divestiture of its european contract packaging business , sonoco poland packaging services sp . z.o.o . to a subsidiary of prairie industries holdings , a wisconsin-based contract packaging and contract manufacturing firm backed by the halifax group . these operations provided full-service custom packaging and supply chain management solutions to global consumer product goods companies from three locations in poland with approximately 2,600 employees . the selling price of $ 120 million was adjusted at closing for certain indebtedness assumed by the buyer and for anticipated differences between targeted levels of working capital and the projected levels at the time of closing . the company received net cash proceeds at closing of $ 105.9 million , with the buyer funding an escrow account with an additional $ 4.6 million , of which $ 4.0 million is expected to be released to the company upon final sales adjustments in the first quarter of 2021 , and the remainder , pending any indemnity claims , in the second quarter of 2022. the company also anticipates that final working capital settlements will result in additional cash proceeds of approximately $ 2.5 million in the first quarter of 2021. transaction fees totaling $ 2.5 million were paid out of the proceeds received . cumulative currency translation adjustment losses of $ 12.4 million associated with this entity were reclassified from accumulated other comprehensive income and recognized as a part of the net loss on the sale of the business which totaled $ 14.5 million . the decision to sell the european contract packaging business was part of the company 's efforts to simplify its operating structure to focus on growing its core consumer and industrial packaging businesses . the disposition of these operations is expected to negatively impact the 2021 year-over-year sales comparison by approximately $ 260 million . this sale is not expected to notably affect operating margin percentages nor does it represent a strategic shift for the company that will have a major effect on its operations and financial results . the company continually assesses its operational footprint as well as its overall portfolio of businesses and may consider the disposition of plants and or business units it considers to be suboptimal or nonstrategic . see note 3 to the consolidated financial statements for further information about acquisition and disposition activities . 23 form 10-k sonoco 2020 annual report restructuring and asset impairment charges due to its geographic footprint ( approximately 320 locations in 34 countries ) and the cost-competitive nature of its businesses , the company is constantly seeking the most cost-effective means and structure to serve its customers and to respond to fundamental changes in its markets . as such , restructuring costs have been and are expected to be a recurring component of the company 's operating costs . the amount of these costs can vary significantly from year to year depending upon the scope and location of the restructuring activities . the following table recaps the impact of restructuring and asset impairment charges for each of the years presented : replace_table_token_3_th during 2020 , the company announced the closures of a paper mill in canada , a

cash flow operating activities cash flows from operations totaled $ 705.6 million in 2020 and $ 425.9 million in 2019. this $ 279.8 million year-over-year increase was largely driven by the $ 200 million voluntary contribution made to the u.s. pension plans in 2019 that did not recur in 2020. the net cash impact of these voluntary contributions , after tax , totaled approximately $ 165 million . cash flow from operations in 2020 includes a cash tax benefit of approximately $ 38 million related to anticipated 2021 contributions to one of the company 's defined benefit plans that will be deductible in its 2020 income tax filings . the cash flow impact of lower gaap net income was essentially offset by higher non-cash asset impairment charges and improved working capital management . working capital provided $ 51.5 million of cash in 2020 compared to $ 36.9 million in 2019. the additional cash provision of $ 14.6 million was driven primarily by accounts payable and was the result of both active supplier contract management and higher raw material prices at the end of 2020 which muted the decline in the balance of accounts payable outstanding at december 31 , 2020 versus the decline in 2019. in the prior year , accounts payable consumed cash as balances at december 31 , 2019 were lower than at the beginning of the year due partially to lower raw material prices . accounts receivable declined in 2020 due to a concerted effort by management regarding collections and other process improvements . while both accounts receivable and inventory provided cash during 2020 , the provisions were lower than in 2019 when the related cash flows benefited from a more significant year-end slow down than in 2020. non-cash asset impairment charges were $ 75.2 million higher year over year , due largely to the impairment of certain long-lived assets recognized in the fourth quarter of 2020 in the company 's perimeter-of-the-store thermoforming operations on the west coast of the united states and mexico .

as described in “ —management of market risk , ” we expect that our net interest income and our net economic value would decrease as a result of an instantaneous increase in interest rates . to help manage interest rate risk , we promote core deposit products and we are diversifying our loan portfolio by introducing new lending programs . see “ —business strategy ” , “ —management of market risk ” and “ risk factors—future changes in interest rates could reduce our profits and asset values . ” business strategy our goal is to provide long-term value to our stockholders , customers , employees and the communities we serve by executing a safe and sound business strategy that produces increasing earnings . we believe there is a significant opportunity for a community-focused , minority oriented bank to provide a full range of financial services to commercial and retail customers in our market area , and the increased capital we obtained as a result of the completion of the offering on september 29 , 2017 , will enable us to compete more effectively in the financial services marketplace . 48 our current business strategy consists of the following : continue to expand our multifamily and nonresidential loans . the additional capital raised in the stock offering has increased our capacity to originate multifamily and nonresidential loans . at december 31 , 2018 and december 31 , 2017 , multifamily and nonresidential loans ( not including loans secured by owner-occupied properties ) , together with construction and land loans , totaled $ 464.9 million and $ 372.7 million , or 313.1 % and 264.3 % , respectively , of total risk-based capital . under our current board approved loan concentration policy , such loans , including construction and land loans , shall not exceed 330 % of our total risk-based capital . most multifamily and nonresidential loans are originated with adjustable rates and , as a result , these loans are expected to increase loan yields with shorter repricing terms than fixed-rate loans . multifamily and nonresidential loan originations increased during the year ended december 31 , 2018 by $ 31.8 million , or 29.5 % , when compared to the same period in 2017. introduce new community lending programs . in 2017 the bank was approved as an authorized direct lender under the small business administration ( sba ) and in 2018 as a community development financial institution ( cdfi ) . the addition of both of these programs combined with its existing products will bolster the bank 's commitment to continue to serve the communities that it has supported over the past almost sixty years . continue to increase core deposits , with an emphasis on low cost commercial demand deposits , and add non-core funding sources . deposits are the major source of balance sheet funding for lending and other investments . we have made significant investments in new products and services , personnel , branch distribution system as well as enhancing our electronic delivery solutions in an effort to become more competitive in the financial services marketplace and attract more core deposits . core deposits are our least costly source of funds and represent our best opportunity to develop customer relationships that enable us to cross-sell our enhanced products and services . total deposits increased by $ 95.8 million , or 13.4 % , to $ 809.8 million at december 31 , 2018 compared to $ 714.0 million at december 31 , 2017. the majority of the increase was due to an increase of $ 14.0 million , or 3.4 % , in certificates of deposit accounts , $ 12.9 million , or 12.5 % , in demand deposits and $ 68.8 million , or 34.3 % , in other interest bearing deposits , which consist of money markets , now and savings accounts . certificates of deposit accounted for 52.4 % and 57.4 % of total deposits at december 31 , 2018 and december 31 , 2017 , respectively . while we will continue to use certificates of deposit as a funding source , our goal is to continue to reduce our reliance on this source of funding as we grow our core deposit base . manage credit risk to maintain a low level of nonperforming assets . we believe strong asset quality is a key to our long-term financial success . our strategy for credit risk management focuses on having an experienced team of credit professionals , well-defined policies and procedures , appropriate loan underwriting criteria and active credit monitoring . our non-performing assets to total assets ratio was 0.64 % at december 31 , 2018 , 1.23 % at december 31 , 2017 and 1.04 % at december 31 , 2016. the majority of our non-performing assets have been related , largely , to one-to-four family and , to a lesser extent , construction and land loans , as our residential borrowers experienced difficulties repaying their loans during the past recession . we have increased our investment in our credit review function , both in personnel as well as ancillary systems , in order to be able to evaluate more complex loans and better manage credit risk , to further support our intended loan growth . expand our employee base to support future growth . we have already made significant investments in our employee base . however , we will continue to work to attract and retain the necessary talent to support increased lending , deposit activities and enhanced information technology . grow organically and through opportunistic bank or branch acquisitions . we expect to focus primarily on organic growth as a lower-risk means of deploying our acquired capital . the capital raised also will help fund improvements in our operating facilities and customer delivery services in order to enhance our competitiveness . story_separator_special_tag total stockholders ' equity increased $ 4.4 million , or 2.7 % , to $ 169.2 million at december 31 , 2018 , from $ 164.8 million at december 31 , 2017. the increase was substantially due to net income of $ 2.7 million , a decrease of $ 1.0 million in accumulated other comprehensive loss related primarily to the defined benefit pension plan , and the release of esop shares of $ 615,000. comparison of operating results for the years ended december 31 , 2018 and 2017 general . consolidated net income for the year ended december 31 , 2018 , was $ 2.7 million compared to a net loss of $ 4.4 million for the year ended december 31 , 2017. the increase was primarily attributed to an increase of $ 4.9 million in net interest income after the provision for loan losses and by decreases of $ 2.0 million to non-interest expense and of $ 166,000 in non-interest income . interest income . interest and dividend income increased $ 7.2 million , or 18.4 % , to $ 46.2 million for the year ended december 31 , 2018 , from $ 39.0 million for the year ended december 31 , 2017. the increase was primarily due to a $ 6.8 million , or 17.8 % , increase in interest income on loans , which is our primary source of interest income . average loan balances increased $ 131.5 million , or 17.9 % , to $ 867.0 million for the year ended december 31 , 2018 from $ 735.6 million for the year ended december 31 , 2017. the increase in average loan balances was mainly driven by increases in the multifamily mortgage , nonresidential mortgage , one-to-four family mortgage , and construction and land loan portfolios . the average yield on loans decreased 1 basis point to 5.18 % for the year ended december 31 , 2018 from 5.19 % for the year ended december 31 , 2017. interest and dividend income on investment securities and federal home loan bank of new york stock increased $ 391,000 , or 47.9 % , to $ 1.2 million for the year ended december 31 , 2018 from $ 817,000 for the year ended december 31 , 2017. the yield on investment securities and federal home loan bank of new york stock increased 42 basis points to 1.74 % for the year ended december 31 , 2018 , from 1.33 % for the year ended december 31 , 2017. the average balance of investment securities and federal home loan bank of new york stock increased $ 3.8 million , or 5.8 % , to $ 69.4 million for the year ended december 31 , 2018 , from $ 65.5 million for the year ended december 31 , 2017. interest expense . interest expense increased $ 2.7 million , or 39.9 % , to $ 9.5 million for the year ended december 31 , 2018 , from $ 6.8 million for the year ended december 31 , 2017. the increase was the result of an overall increase in interest expense on certificates of deposit , savings and money markets , and interest expense on borrowings . specifically , interest expense on certificates of deposit increased $ 1.7 million , or 28.7 % , to $ 7.6 million for the year ended december 31 , 2018 , from $ 5.9 million for the year ended december 31 , 2017. this increase resulted from increases in both the average balance of certificates of deposit and the average rate we paid on certificates of deposit . the average balance of certificates of deposit increased $ 52.5 million , or 13.6 % , to $ 439.7 million for the year ended december 31 , 2018 from $ 387.2 million for the year ended december 31 , 2017 , and the average rate we paid on certificates of deposit increased 20 basis points to 1.73 % for the year ended december 31 , 2018 , from 1.53 % for the year ended december 31 , 2017. interest expense on other deposits and borrowings increased $ 1.0 million to $ 1.9 million for the year ended december 31 , 2018 from $ 866,000 for the year ended december 31 , 2017. this increase resulted from an increase in the average rate we paid on other deposits and borrowings . the average balance of other deposits and borrowings increased $ 28.6 million , or 12.8 % , to $ 256.3 million for the year ended december 31 , 2018 , from $ 227.7 million for the year ended december 31 , 2017 , and the average rate we paid on other deposits and borrowings increased 33 basis points to 0.73 % 53 for the year ended december 31 , 2018 , from 0.40 % for the year ended december 31 , 2017 , reflecting higher market interest rates . net interest income . net interest income increased $ 4.5 million , or 13.8 % , to $ 36.7 million for the year ended december 31 , 2018 from $ 32.2 million for the year ended december 31 , 2017 , primarily as a result of higher market yields on earning assets . our average net interest-earning assets increased by $ 53.8 million , or 28.9 % , to $ 240.3 million for the year ended december 31 , 2018 , from $ 186.1 million for the year ended december 31 , 2017 , due primarily to our loan growth , described above . our net interest rate spread decreased by 19 basis points , to 3.57 % , for the year ended december 31 , 2018 , from 3.76 % for the year ended december 31 , 2017 , and our net interest margin was 3.92 % and 4.02 % for the years ended december 31 , 2018 and 2017 , respectively . an increase in interest rates will present us with a challenge in managing our

cash flow operating activities cash flows from operations totaled $ 705.6 million in 2020 and $ 425.9 million in 2019. this $ 279.8 million year-over-year increase was largely driven by the $ 200 million voluntary contribution made to the u.s. pension plans in 2019 that did not recur in 2020. the net cash impact of these voluntary contributions , after tax , totaled approximately $ 165 million . cash flow from operations in 2020 includes a cash tax benefit of approximately $ 38 million related to anticipated 2021 contributions to one of the company 's defined benefit plans that will be deductible in its 2020 income tax filings . the cash flow impact of lower gaap net income was essentially offset by higher non-cash asset impairment charges and improved working capital management . working capital provided $ 51.5 million of cash in 2020 compared to $ 36.9 million in 2019. the additional cash provision of $ 14.6 million was driven primarily by accounts payable and was the result of both active supplier contract management and higher raw material prices at the end of 2020 which muted the decline in the balance of accounts payable outstanding at december 31 , 2020 versus the decline in 2019. in the prior year , accounts payable consumed cash as balances at december 31 , 2019 were lower than at the beginning of the year due partially to lower raw material prices . accounts receivable declined in 2020 due to a concerted effort by management regarding collections and other process improvements . while both accounts receivable and inventory provided cash during 2020 , the provisions were lower than in 2019 when the related cash flows benefited from a more significant year-end slow down than in 2020. non-cash asset impairment charges were $ 75.2 million higher year over year , due largely to the impairment of certain long-lived assets recognized in the fourth quarter of 2020 in the company 's perimeter-of-the-store thermoforming operations on the west coast of the united states and mexico .

as described in “ —management of market risk , ” we expect that our net interest income and our net economic value would decrease as a result of an instantaneous increase in interest rates . to help manage interest rate risk , we promote core deposit products and we are diversifying our loan portfolio by introducing new lending programs . see “ —business strategy ” , “ —management of market risk ” and “ risk factors—future changes in interest rates could reduce our profits and asset values . ” business strategy our goal is to provide long-term value to our stockholders , customers , employees and the communities we serve by executing a safe and sound business strategy that produces increasing earnings . we believe there is a significant opportunity for a community-focused , minority oriented bank to provide a full range of financial services to commercial and retail customers in our market area , and the increased capital we obtained as a result of the completion of the offering on september 29 , 2017 , will enable us to compete more effectively in the financial services marketplace . 48 our current business strategy consists of the following : continue to expand our multifamily and nonresidential loans . the additional capital raised in the stock offering has increased our capacity to originate multifamily and nonresidential loans . at december 31 , 2018 and december 31 , 2017 , multifamily and nonresidential loans ( not including loans secured by owner-occupied properties ) , together with construction and land loans , totaled $ 464.9 million and $ 372.7 million , or 313.1 % and 264.3 % , respectively , of total risk-based capital . under our current board approved loan concentration policy , such loans , including construction and land loans , shall not exceed 330 % of our total risk-based capital . most multifamily and nonresidential loans are originated with adjustable rates and , as a result , these loans are expected to increase loan yields with shorter repricing terms than fixed-rate loans . multifamily and nonresidential loan originations increased during the year ended december 31 , 2018 by $ 31.8 million , or 29.5 % , when compared to the same period in 2017. introduce new community lending programs . in 2017 the bank was approved as an authorized direct lender under the small business administration ( sba ) and in 2018 as a community development financial institution ( cdfi ) . the addition of both of these programs combined with its existing products will bolster the bank 's commitment to continue to serve the communities that it has supported over the past almost sixty years . continue to increase core deposits , with an emphasis on low cost commercial demand deposits , and add non-core funding sources . deposits are the major source of balance sheet funding for lending and other investments . we have made significant investments in new products and services , personnel , branch distribution system as well as enhancing our electronic delivery solutions in an effort to become more competitive in the financial services marketplace and attract more core deposits . core deposits are our least costly source of funds and represent our best opportunity to develop customer relationships that enable us to cross-sell our enhanced products and services . total deposits increased by $ 95.8 million , or 13.4 % , to $ 809.8 million at december 31 , 2018 compared to $ 714.0 million at december 31 , 2017. the majority of the increase was due to an increase of $ 14.0 million , or 3.4 % , in certificates of deposit accounts , $ 12.9 million , or 12.5 % , in demand deposits and $ 68.8 million , or 34.3 % , in other interest bearing deposits , which consist of money markets , now and savings accounts . certificates of deposit accounted for 52.4 % and 57.4 % of total deposits at december 31 , 2018 and december 31 , 2017 , respectively . while we will continue to use certificates of deposit as a funding source , our goal is to continue to reduce our reliance on this source of funding as we grow our core deposit base . manage credit risk to maintain a low level of nonperforming assets . we believe strong asset quality is a key to our long-term financial success . our strategy for credit risk management focuses on having an experienced team of credit professionals , well-defined policies and procedures , appropriate loan underwriting criteria and active credit monitoring . our non-performing assets to total assets ratio was 0.64 % at december 31 , 2018 , 1.23 % at december 31 , 2017 and 1.04 % at december 31 , 2016. the majority of our non-performing assets have been related , largely , to one-to-four family and , to a lesser extent , construction and land loans , as our residential borrowers experienced difficulties repaying their loans during the past recession . we have increased our investment in our credit review function , both in personnel as well as ancillary systems , in order to be able to evaluate more complex loans and better manage credit risk , to further support our intended loan growth . expand our employee base to support future growth . we have already made significant investments in our employee base . however , we will continue to work to attract and retain the necessary talent to support increased lending , deposit activities and enhanced information technology . grow organically and through opportunistic bank or branch acquisitions . we expect to focus primarily on organic growth as a lower-risk means of deploying our acquired capital . the capital raised also will help fund improvements in our operating facilities and customer delivery services in order to enhance our competitiveness . story_separator_special_tag total stockholders ' equity increased $ 4.4 million , or 2.7 % , to $ 169.2 million at december 31 , 2018 , from $ 164.8 million at december 31 , 2017. the increase was substantially due to net income of $ 2.7 million , a decrease of $ 1.0 million in accumulated other comprehensive loss related primarily to the defined benefit pension plan , and the release of esop shares of $ 615,000. comparison of operating results for the years ended december 31 , 2018 and 2017 general . consolidated net income for the year ended december 31 , 2018 , was $ 2.7 million compared to a net loss of $ 4.4 million for the year ended december 31 , 2017. the increase was primarily attributed to an increase of $ 4.9 million in net interest income after the provision for loan losses and by decreases of $ 2.0 million to non-interest expense and of $ 166,000 in non-interest income . interest income . interest and dividend income increased $ 7.2 million , or 18.4 % , to $ 46.2 million for the year ended december 31 , 2018 , from $ 39.0 million for the year ended december 31 , 2017. the increase was primarily due to a $ 6.8 million , or 17.8 % , increase in interest income on loans , which is our primary source of interest income . average loan balances increased $ 131.5 million , or 17.9 % , to $ 867.0 million for the year ended december 31 , 2018 from $ 735.6 million for the year ended december 31 , 2017. the increase in average loan balances was mainly driven by increases in the multifamily mortgage , nonresidential mortgage , one-to-four family mortgage , and construction and land loan portfolios . the average yield on loans decreased 1 basis point to 5.18 % for the year ended december 31 , 2018 from 5.19 % for the year ended december 31 , 2017. interest and dividend income on investment securities and federal home loan bank of new york stock increased $ 391,000 , or 47.9 % , to $ 1.2 million for the year ended december 31 , 2018 from $ 817,000 for the year ended december 31 , 2017. the yield on investment securities and federal home loan bank of new york stock increased 42 basis points to 1.74 % for the year ended december 31 , 2018 , from 1.33 % for the year ended december 31 , 2017. the average balance of investment securities and federal home loan bank of new york stock increased $ 3.8 million , or 5.8 % , to $ 69.4 million for the year ended december 31 , 2018 , from $ 65.5 million for the year ended december 31 , 2017. interest expense . interest expense increased $ 2.7 million , or 39.9 % , to $ 9.5 million for the year ended december 31 , 2018 , from $ 6.8 million for the year ended december 31 , 2017. the increase was the result of an overall increase in interest expense on certificates of deposit , savings and money markets , and interest expense on borrowings . specifically , interest expense on certificates of deposit increased $ 1.7 million , or 28.7 % , to $ 7.6 million for the year ended december 31 , 2018 , from $ 5.9 million for the year ended december 31 , 2017. this increase resulted from increases in both the average balance of certificates of deposit and the average rate we paid on certificates of deposit . the average balance of certificates of deposit increased $ 52.5 million , or 13.6 % , to $ 439.7 million for the year ended december 31 , 2018 from $ 387.2 million for the year ended december 31 , 2017 , and the average rate we paid on certificates of deposit increased 20 basis points to 1.73 % for the year ended december 31 , 2018 , from 1.53 % for the year ended december 31 , 2017. interest expense on other deposits and borrowings increased $ 1.0 million to $ 1.9 million for the year ended december 31 , 2018 from $ 866,000 for the year ended december 31 , 2017. this increase resulted from an increase in the average rate we paid on other deposits and borrowings . the average balance of other deposits and borrowings increased $ 28.6 million , or 12.8 % , to $ 256.3 million for the year ended december 31 , 2018 , from $ 227.7 million for the year ended december 31 , 2017 , and the average rate we paid on other deposits and borrowings increased 33 basis points to 0.73 % 53 for the year ended december 31 , 2018 , from 0.40 % for the year ended december 31 , 2017 , reflecting higher market interest rates . net interest income . net interest income increased $ 4.5 million , or 13.8 % , to $ 36.7 million for the year ended december 31 , 2018 from $ 32.2 million for the year ended december 31 , 2017 , primarily as a result of higher market yields on earning assets . our average net interest-earning assets increased by $ 53.8 million , or 28.9 % , to $ 240.3 million for the year ended december 31 , 2018 , from $ 186.1 million for the year ended december 31 , 2017 , due primarily to our loan growth , described above . our net interest rate spread decreased by 19 basis points , to 3.57 % , for the year ended december 31 , 2018 , from 3.76 % for the year ended december 31 , 2017 , and our net interest margin was 3.92 % and 4.02 % for the years ended december 31 , 2018 and 2017 , respectively . an increase in interest rates will present us with a challenge in managing our

liquidity and capital resources liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business . liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures . our primary sources of funds are deposits , principal and interest payments on loans and securities and proceeds from the sale of loans . we also have the ability to borrow from the federal home loan bank of new york . at december 31 , 2018 and 2017 , we had $ 44.4 million and $ 16.4 million , respectively , of term and overnight outstanding advances from the federal home loan bank of new york , and also had a guarantee from the federal home loan bank of new york through a standby letter of credit of $ 7.6 million . at december 31 , 2018 , we had eligible collateral of approximately $ 280.4 million in mortgage loans available to secure advances from the federal home loan bank of new york . we also have an unsecured line of credit of $ 25.0 million outstanding with zions bank , of which $ 25.0 million was outstanding at december 31 , 2018. we did not have any outstanding securities sold under repurchase agreements with brokers as of december 31 , 2018 and 2017. although maturities and scheduled amortization of loans and securities are predictable sources of funds , deposit flows and loan prepayments are greatly influenced by general interest rates , economic conditions , and competition .

in addition , extra costs from the transition of the distribution center in north america in the third quarter of fiscal year 2018 negatively affected the gross margin in fiscal year 2018. operating expenses for fiscal year 2019 were $ 773.8 million , or 27.8 % of sales , compared to $ 679.5 million , or 26.5 % of sales , for fiscal year 2018 . the increase in operating expenses was primarily driven by : $ 47.8 million higher personnel-related cost due to restructuring charges in the current period , increased performance-based variable compensation and additional headcount from business acquisitions ; $ 32.6 million higher third-party costs , primarily advertising and marketing expenses to support our new product introductions and new market logitech international s.a. | fiscal 2019 form 10-k | 38 opportunities ; $ 5.0 million higher amortization of intangible assets from the business acquisitions ; and a $ 4.9 million non-recurring credit for change in fair value of contingent consideration from an acquisition recorded in fiscal year 2018. net income for fiscal year 2019 was $ 257.6 million , compared to $ 208.5 million for fiscal year 2018 . trends in our business our strategy focuses on five large multi-category market opportunities including creativity & productivity , gaming , video collaboration , music and smart home . we see opportunities to deliver growth with products in all these markets . the following discussion represents key trends specific to our market opportunities . trends specific to our five market opportunities creativity & productivity : although new pc shipments continue to be weak , the installed base of pc users remains large . we believe that innovative pc peripherals , such as our mice and keyboards , can renew the pc usage experience , thus providing growth opportunities . increasing adoption of various cloud-based applications has led to multiple new consumer use cases , which we are addressing with our innovative product portfolio . the increasing popularity of streaming and broadcasting provides additional growth opportunities for our webcam products . smaller mobile computing devices , such as tablets , have created new markets and usage models for peripherals and accessories . we offer a number of products to enhance the use of mobile devices , including a combo backlit keyboard case for the ipad pro and keyboard folios for the ipad and ipad mini . in fiscal year 2019 , we have seen a recovery of the ipad tablet market , and our tablet & other accessories category has benefited from the recovery along with our innovative products . gaming : the pc gaming and console gaming platforms continue to show strong growth as online gaming , multi-platform experiences , and esports gain greater popularity and gaming content becomes increasingly more demanding . we believe logitech is well positioned to benefit from the gaming market growth . with astro gaming , we are also strengthening our portfolio in adjacent categories , such as the console controller market . video collaboration : the near and long-term structural growth opportunities in the video collaboration market are significant and are already attracting more competition . video meetings are on the rise , and companies increasingly want lower-cost , cloud-based solutions . we are continuing our efforts to create and sell innovative products to accommodate the increasing demand from medium and large-sized meeting rooms to small-sized rooms such as huddle rooms . we will continue to invest in select business-specific products , targeted product marketing and sales channel development . music : the music market grew during fiscal year 2019 , driven by growing consumption of music through mobile devices such as smartphones and tablets . the integration of personal voice assistants has become increasingly competitive in the speaker categories , but the market for third-party , voice-enabled speakers has not yet gained traction . moreover , the market for mobile speakers appears to be maturing , which led to a decline in ultimate ears sales in fiscal year 2019. in fiscal year 2019 , the headphone industry continued to flourish with strong revenue growth . the largest growth came in true wireless headphones where the market tripled year over year and added substantial increases to average selling price . continued growth in the headphone category is expected for the next several years as consumers increasingly adopt wireless headphones over wired headphones . with blue microphones , we are strengthening our portfolio in adjacent categories , such as the microphones market . smart home : our remote business declined substantially in fiscal year 2019 as the attachment to the voice assistants of harmony hub-based remote controls was not a sustainable trend . in general , the space is under pressure as the way people consume content is changing . we will continue to explore other innovative experiences for the smart home category . business seasonality , product introductions and business acquisitions we have historically experienced higher sales in our third fiscal quarter ending december 31 , compared to other fiscal quarters in our fiscal year , primarily due to the increased consumer demand for our products during the year-end holiday buying season and year-end spending by enterprises . additionally , new product introductions and business acquisitions can significantly impact sales , product costs and operating expenses . product introductions can also impact our sales to distribution channels as these channels are filled with new product inventory following a product introduction , and often channel inventory of an earlier model product declines as the next related major product launch approaches . sales can also be affected when consumers and distributors anticipate a product introduction or changes in business circumstances . however , neither historical seasonal patterns nor historical logitech international s.a. | fiscal 2019 form 10-k | 39 patterns of product introductions should be considered reliable indicators of our future pattern of product introductions , future sales or financial performance . story_separator_special_tag we grew across most of our product categories , with double-digit growth in our gaming , video collaboration , tablet & other accessories and audio & wearables product categories and strong growth in keyboards & combos . sales declined for mobile speakers and smart home product categories . blue microphones contributed approximately 2 percentage points of the sales growth rate . the adoption of topic 606 increased our sales for fiscal year 2019 by $ 3.7 million . during fiscal year 2018 , sales increased 16 % in comparison to fiscal year 2017. if currency exchange rates had been constant in 2018 and 2017 , our constant currency sales growth rate would have been 13 % . we grew across almost all our product categories . tablet & other accessories , video collaboration , gaming , and smart logitech international s.a. | fiscal 2019 form 10-k | 43 home grew double digits , with gaming contributing more than 8 percentage points of the sales growth rate during the year , including approximately 2 percentage points contributed by astro . sales denominated in other currencies although our financial results are reported in u.s. dollars , a portion of our sales was generated in currencies other than the u.s. dollar , such as the euro , chinese renminbi , japanese yen , canadian dollar , taiwan dollar , british pound and australian dollar . for each of the fiscal years 2019 , 2018 and 2017 , 50 % of our sales were denominated in currencies other than the u.s. dollar . sales by region the following table presents the change in sales by region for fiscal year 2019 compared with fiscal year 2018 , and fiscal year 2018 compared with fiscal year 2017 : replace_table_token_6_th americas the increase in sales in fiscal year 2019 of 6 % compared with fiscal year 2018 was driven by growth in gaming , video collaboration , audio & wearables , keyboards and combos , tablet & other accessories and pc webcams , partially offset by sales declines in mobile speakers , smart home and pointing devices . the increase in sales in fiscal year 2018 of 16 % compared with fiscal year 2017 was driven by growth in pointing devices , tablet & other accessories , video collaboration , gaming , and smart home . emea the increase in sales in fiscal year 2019 of 5 % compared with fiscal year 2018 was driven by several of our product categories , with growth in video collaboration , gaming , pointing devices and tablet & other accessories , partially offset by sales declines in mobile speakers and smart home . the increase in sales in fiscal year 2018 of 10 % compared with fiscal year 2017 was driven by several of our product categories , with growth in video collaboration , gaming , and smart home , partially offset by pointing devices and audio & wearables . asia pacific the increase in sales in fiscal year 2019 of 17 % compared with fiscal year 2018 was primarily driven by sales increases in gaming , video collaboration , keyboard & combos and pointing devices , offset by sales declines in mobile speakers . the increase in sales in fiscal year 2018 of 23 % compared with fiscal year 2017 was primarily driven by sales increases in pointing devices , video collaboration , music and gaming . logitech international s.a. | fiscal 2019 form 10-k | 44 sales by product categories sales by product categories for fiscal years 2019 , 2018 and 2017 were as follows ( dollars in thousands ) : replace_table_token_7_th ( 1 ) other category includes products which we currently intend to phase out , or have already phased out , because they are no longer strategic to our business . sales by product categories : creativity & productivity market : pointing devices our pointing devices category comprises pc and mac-related mice including trackballs , touchpads and presentation tools . during fiscal year 2019 , pointing devices sales increased 4 % , compared to fiscal year 2018 . the increase was primarily driven by the increases in sales of cordless mice and presentation tools . the increase in cordless mice was lead by strong contribution from the mx family of premium cordless mice , including the vertical wireless mouse introduced in the second quarter of fiscal year 2019 as well as continued performance for mx master 2s wireless mouse and b220 silent mouse . during fiscal year 2018 , pointing devices sales increased 3 % , compared to fiscal year 2017. the increase was primarily driven by the increases in sales of cordless mice , trackball and presentation tools , partially offset by a decrease in the sales of corded mice . keyboards & combos our keyboards & combos category comprises pc keyboards , living room keyboards and keyboard/mice combo products . during fiscal year 2019 , keyboards & combos sales increased 8 % , compared to fiscal year 2018 . the increase was primarily driven by the increases in sales of wireless keyboard/mice combos , mainly from increased sales of our mk 540 , mk270 and mk110 wireless keyboard/mice combo , and an increase in sales of our wireless pc keyboard . during fiscal year 2018 , keyboards & combos sales increased 4 % , compared to fiscal year 2017. the increase was primarily driven by the introduction of craft cordless keyboard and increased sales of our mk270 and mk235 wireless keyboard/mice combo , partially offset by the decreases in sales of the mk710 wireless keyboard/mice combo and k400 plus wireless keyboard . pc webcams our pc webcams category comprises pc-based webcams targeted primarily at consumers . during fiscal year 2019 , pc webcams sales increased 8 % , compared to fiscal year 2018 . the increase was primarily driven by the increases in sales of our hd pro webcam c920 and 1080 pro steam webcam . logitech international s.a. | fiscal 2019 form 10-k

liquidity and capital resources liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business . liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures . our primary sources of funds are deposits , principal and interest payments on loans and securities and proceeds from the sale of loans . we also have the ability to borrow from the federal home loan bank of new york . at december 31 , 2018 and 2017 , we had $ 44.4 million and $ 16.4 million , respectively , of term and overnight outstanding advances from the federal home loan bank of new york , and also had a guarantee from the federal home loan bank of new york through a standby letter of credit of $ 7.6 million . at december 31 , 2018 , we had eligible collateral of approximately $ 280.4 million in mortgage loans available to secure advances from the federal home loan bank of new york . we also have an unsecured line of credit of $ 25.0 million outstanding with zions bank , of which $ 25.0 million was outstanding at december 31 , 2018. we did not have any outstanding securities sold under repurchase agreements with brokers as of december 31 , 2018 and 2017. although maturities and scheduled amortization of loans and securities are predictable sources of funds , deposit flows and loan prepayments are greatly influenced by general interest rates , economic conditions , and competition .

in addition , extra costs from the transition of the distribution center in north america in the third quarter of fiscal year 2018 negatively affected the gross margin in fiscal year 2018. operating expenses for fiscal year 2019 were $ 773.8 million , or 27.8 % of sales , compared to $ 679.5 million , or 26.5 % of sales , for fiscal year 2018 . the increase in operating expenses was primarily driven by : $ 47.8 million higher personnel-related cost due to restructuring charges in the current period , increased performance-based variable compensation and additional headcount from business acquisitions ; $ 32.6 million higher third-party costs , primarily advertising and marketing expenses to support our new product introductions and new market logitech international s.a. | fiscal 2019 form 10-k | 38 opportunities ; $ 5.0 million higher amortization of intangible assets from the business acquisitions ; and a $ 4.9 million non-recurring credit for change in fair value of contingent consideration from an acquisition recorded in fiscal year 2018. net income for fiscal year 2019 was $ 257.6 million , compared to $ 208.5 million for fiscal year 2018 . trends in our business our strategy focuses on five large multi-category market opportunities including creativity & productivity , gaming , video collaboration , music and smart home . we see opportunities to deliver growth with products in all these markets . the following discussion represents key trends specific to our market opportunities . trends specific to our five market opportunities creativity & productivity : although new pc shipments continue to be weak , the installed base of pc users remains large . we believe that innovative pc peripherals , such as our mice and keyboards , can renew the pc usage experience , thus providing growth opportunities . increasing adoption of various cloud-based applications has led to multiple new consumer use cases , which we are addressing with our innovative product portfolio . the increasing popularity of streaming and broadcasting provides additional growth opportunities for our webcam products . smaller mobile computing devices , such as tablets , have created new markets and usage models for peripherals and accessories . we offer a number of products to enhance the use of mobile devices , including a combo backlit keyboard case for the ipad pro and keyboard folios for the ipad and ipad mini . in fiscal year 2019 , we have seen a recovery of the ipad tablet market , and our tablet & other accessories category has benefited from the recovery along with our innovative products . gaming : the pc gaming and console gaming platforms continue to show strong growth as online gaming , multi-platform experiences , and esports gain greater popularity and gaming content becomes increasingly more demanding . we believe logitech is well positioned to benefit from the gaming market growth . with astro gaming , we are also strengthening our portfolio in adjacent categories , such as the console controller market . video collaboration : the near and long-term structural growth opportunities in the video collaboration market are significant and are already attracting more competition . video meetings are on the rise , and companies increasingly want lower-cost , cloud-based solutions . we are continuing our efforts to create and sell innovative products to accommodate the increasing demand from medium and large-sized meeting rooms to small-sized rooms such as huddle rooms . we will continue to invest in select business-specific products , targeted product marketing and sales channel development . music : the music market grew during fiscal year 2019 , driven by growing consumption of music through mobile devices such as smartphones and tablets . the integration of personal voice assistants has become increasingly competitive in the speaker categories , but the market for third-party , voice-enabled speakers has not yet gained traction . moreover , the market for mobile speakers appears to be maturing , which led to a decline in ultimate ears sales in fiscal year 2019. in fiscal year 2019 , the headphone industry continued to flourish with strong revenue growth . the largest growth came in true wireless headphones where the market tripled year over year and added substantial increases to average selling price . continued growth in the headphone category is expected for the next several years as consumers increasingly adopt wireless headphones over wired headphones . with blue microphones , we are strengthening our portfolio in adjacent categories , such as the microphones market . smart home : our remote business declined substantially in fiscal year 2019 as the attachment to the voice assistants of harmony hub-based remote controls was not a sustainable trend . in general , the space is under pressure as the way people consume content is changing . we will continue to explore other innovative experiences for the smart home category . business seasonality , product introductions and business acquisitions we have historically experienced higher sales in our third fiscal quarter ending december 31 , compared to other fiscal quarters in our fiscal year , primarily due to the increased consumer demand for our products during the year-end holiday buying season and year-end spending by enterprises . additionally , new product introductions and business acquisitions can significantly impact sales , product costs and operating expenses . product introductions can also impact our sales to distribution channels as these channels are filled with new product inventory following a product introduction , and often channel inventory of an earlier model product declines as the next related major product launch approaches . sales can also be affected when consumers and distributors anticipate a product introduction or changes in business circumstances . however , neither historical seasonal patterns nor historical logitech international s.a. | fiscal 2019 form 10-k | 39 patterns of product introductions should be considered reliable indicators of our future pattern of product introductions , future sales or financial performance . story_separator_special_tag we grew across most of our product categories , with double-digit growth in our gaming , video collaboration , tablet & other accessories and audio & wearables product categories and strong growth in keyboards & combos . sales declined for mobile speakers and smart home product categories . blue microphones contributed approximately 2 percentage points of the sales growth rate . the adoption of topic 606 increased our sales for fiscal year 2019 by $ 3.7 million . during fiscal year 2018 , sales increased 16 % in comparison to fiscal year 2017. if currency exchange rates had been constant in 2018 and 2017 , our constant currency sales growth rate would have been 13 % . we grew across almost all our product categories . tablet & other accessories , video collaboration , gaming , and smart logitech international s.a. | fiscal 2019 form 10-k | 43 home grew double digits , with gaming contributing more than 8 percentage points of the sales growth rate during the year , including approximately 2 percentage points contributed by astro . sales denominated in other currencies although our financial results are reported in u.s. dollars , a portion of our sales was generated in currencies other than the u.s. dollar , such as the euro , chinese renminbi , japanese yen , canadian dollar , taiwan dollar , british pound and australian dollar . for each of the fiscal years 2019 , 2018 and 2017 , 50 % of our sales were denominated in currencies other than the u.s. dollar . sales by region the following table presents the change in sales by region for fiscal year 2019 compared with fiscal year 2018 , and fiscal year 2018 compared with fiscal year 2017 : replace_table_token_6_th americas the increase in sales in fiscal year 2019 of 6 % compared with fiscal year 2018 was driven by growth in gaming , video collaboration , audio & wearables , keyboards and combos , tablet & other accessories and pc webcams , partially offset by sales declines in mobile speakers , smart home and pointing devices . the increase in sales in fiscal year 2018 of 16 % compared with fiscal year 2017 was driven by growth in pointing devices , tablet & other accessories , video collaboration , gaming , and smart home . emea the increase in sales in fiscal year 2019 of 5 % compared with fiscal year 2018 was driven by several of our product categories , with growth in video collaboration , gaming , pointing devices and tablet & other accessories , partially offset by sales declines in mobile speakers and smart home . the increase in sales in fiscal year 2018 of 10 % compared with fiscal year 2017 was driven by several of our product categories , with growth in video collaboration , gaming , and smart home , partially offset by pointing devices and audio & wearables . asia pacific the increase in sales in fiscal year 2019 of 17 % compared with fiscal year 2018 was primarily driven by sales increases in gaming , video collaboration , keyboard & combos and pointing devices , offset by sales declines in mobile speakers . the increase in sales in fiscal year 2018 of 23 % compared with fiscal year 2017 was primarily driven by sales increases in pointing devices , video collaboration , music and gaming . logitech international s.a. | fiscal 2019 form 10-k | 44 sales by product categories sales by product categories for fiscal years 2019 , 2018 and 2017 were as follows ( dollars in thousands ) : replace_table_token_7_th ( 1 ) other category includes products which we currently intend to phase out , or have already phased out , because they are no longer strategic to our business . sales by product categories : creativity & productivity market : pointing devices our pointing devices category comprises pc and mac-related mice including trackballs , touchpads and presentation tools . during fiscal year 2019 , pointing devices sales increased 4 % , compared to fiscal year 2018 . the increase was primarily driven by the increases in sales of cordless mice and presentation tools . the increase in cordless mice was lead by strong contribution from the mx family of premium cordless mice , including the vertical wireless mouse introduced in the second quarter of fiscal year 2019 as well as continued performance for mx master 2s wireless mouse and b220 silent mouse . during fiscal year 2018 , pointing devices sales increased 3 % , compared to fiscal year 2017. the increase was primarily driven by the increases in sales of cordless mice , trackball and presentation tools , partially offset by a decrease in the sales of corded mice . keyboards & combos our keyboards & combos category comprises pc keyboards , living room keyboards and keyboard/mice combo products . during fiscal year 2019 , keyboards & combos sales increased 8 % , compared to fiscal year 2018 . the increase was primarily driven by the increases in sales of wireless keyboard/mice combos , mainly from increased sales of our mk 540 , mk270 and mk110 wireless keyboard/mice combo , and an increase in sales of our wireless pc keyboard . during fiscal year 2018 , keyboards & combos sales increased 4 % , compared to fiscal year 2017. the increase was primarily driven by the introduction of craft cordless keyboard and increased sales of our mk270 and mk235 wireless keyboard/mice combo , partially offset by the decreases in sales of the mk710 wireless keyboard/mice combo and k400 plus wireless keyboard . pc webcams our pc webcams category comprises pc-based webcams targeted primarily at consumers . during fiscal year 2019 , pc webcams sales increased 8 % , compared to fiscal year 2018 . the increase was primarily driven by the increases in sales of our hd pro webcam c920 and 1080 pro steam webcam . logitech international s.a. | fiscal 2019 form 10-k

liquidity and capital resources cash balances , available borrowings , and capital resources as of march 31 , 2019 , we had cash and cash equivalents of $ 604.5 million , compared with $ 641.9 million as of march 31 , 2018 . our cash and cash equivalents consist of bank demand deposits and short-term time deposits , of which 77 % is held in switzerland and 10 % is held in china ( including hong kong ) . we do not expect to incur any material adverse tax impact , except for what has been recognized , or be significantly inhibited by any country in which we do business from the repatriation of funds to switzerland , our home domicile . as of march 31 , 2019 , our working capital was $ 632.6 million , compared with working capital of $ 597.4 million as of march 31 , 2018 . the increase in working capital over fiscal year 2018 was primarily due to higher accounts receivable , net , higher inventories and other current assets , and lower balance of accounts payable , partially offset by lower balances of cash and cash equivalents and higher accrued and other current liabilities . we had several uncommitted , unsecured bank lines of credit aggregating to $ 80.6 million as of march 31 , 2019 . there are no financial covenants under these lines of credit with which we must comply .

overview mfc presently generates revenues from two business segments : real estate and medical . the real estate segment consists of various parcels of real estate , held for future development and sale , in which co-investors also have interests , and a mortgage note receivable on a property that was previously sold . revenues in the real estate division vary substantially from period to period depending on when a particular transaction closes and depending on whether the closed transaction is recognized for accounting purposes as a sale or reflected as a financing or is deferred to a future period . in february 2003 , the company was released from a rental obligation arising from the sale of real estate in a prior period . as a result of the termination of the contingent obligation , the company recorded a gain of $ 850,000 during the year ended february 28 , 2003. in august 2001 , the company entered into an agreement with a debtor regarding an outstanding mortgage receivable and debenture ( together the `` goshen receivables `` ) on property located in goshen , new york . under the terms of the agreement , the debtor satisfied the goshen receivables by payments of principal and accrued interest of $ 167,500 in august 2001 and $ 1,507,500 in november 2001. as a result of this agreement , the company realized $ 745,000 of deferred income related to the original sale of the property . the medical segment consists of three limited liability companies which act as service organizations for providers of medical services and a wholly-owned subsidiary , medical financial corp. , which purchases medical insurance claims receivable , paying cash to the medical provider in return for a negotiated fee . critical accounting policies management 's discussion and analysis of its financial position and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . actual results could differ from those estimates . management believes that the critical accounting policies and areas that require the most significant judgments and estimates to be used in the preparation of the consolidated financial statements are allowance for doubtful accounts and the valuation allowance against its deferred tax asset . allowance for doubtful accounts mortgage and note receivable : the company evaluates the credit positions on its notes receivable and the value of the related collateral on an ongoing basis . the company estimates that all of its notes receivable are fully collectible and the value of the collateral is in excess of the related receivables . the company continually evaluates its notes receivable that are past due as to the collectibility of principal and interest . the company considers the financial condition of the debtor , the outlook of the debtor 's industry , decrease in the ratio of collateral values to loans and any prior write downs on loans . the above considerations are all used in determining whether the company should suspend recording interest income on any notes receivable or provide for any loss reserves . finance and management receivables : management 's periodic evaluation of the adequacy of the allowance for loan losses is based on the company 's past loan loss experience , known and inherent risks in the portfolio , adverse situations that may affect the customer 's ability to repay , the estimated value of any underlying collateral , the outlook of the debtor 's industry and current economic conditions . when the company estimates that it may be probable that a specific customer account may be uncollectible , that balance is included in the reserve calculation . actual results could differ from these estimates under different assumptions . deferred tax assets : the company records a valuation allowance to reduce the carrying value of its deferred tax assets to an amount that is more likely than not to be realized . while the company has considered future taxable income and prudent and feasible tax planning strategies in assessing the need for the valuation allowance , should the company determine that it would not be able to realize all or part of its net deferred tax assets in the future , an adjustment to the valuation allowance would be charged to income in the period in which such determination was made . a reduction in the valuation allowance and corresponding credit to income may be required if the likelihood of realizing existing deferred tax assets were to increase . results of operations year ended february 28 , 2003 compared to year ended february 28 , 2002 the company 's revenues from operations for the year ended february 28 , 2003 ( `` 2003 `` ) were $ 5,260,000 , an increase of $ 1,094,000 or 26 % as compared to the year ended february 28 , 2002 ( `` 2002 `` ) . the increase was a result of increase in the medical division , offset by a decrease in the real estate division . revenue in the real estate division decreased in 2003 by $ 79,000 , to $ 1,037,000. the decrease was due to ( i ) a $ 68,000 decrease in interest income from the goshen mortgage , ( ii ) lack of real estate sales in 2003 as compared to 2002 , when the company sold the land for eight un-built condominium units for $ 50,000 , offset by ( iii ) an increase of story_separator_special_tag in 2003 , the company generated taxable income and estimated that it would derive minimum future tax savings of $ 90,000 from these nol 's , and recorded a valuation allowance of $ 1,471,000 against the remainder of the deferred tax asset . for the reasons described above , the company recorded net income from operations of $ 965,000 in 2003 , an increase of $ 157,000 ( 19 % ) from $ 808,000 in 2002. year ended february 28 , 2002 compared to year ended february 28 , 2001 the company 's revenues from continuing operations for the year ended february 28 , 2002 ( `` 2002 `` ) was $ 4,166,000 , an increase of $ 1,807,000 or 77 % as compared to the year ended february 28 , 2001 ( `` 2001 `` ) . the increase was a result of increases in both the real estate and medical divisions . revenue in the real estate division increased in 2002 by $ 812,000 , to $ 1,116,000. the increase was due to the settlement of the goshen receivables , which resulted in the realization of $ 745,000 of deferred income from real estate that was sold in prior periods and an increase in interest from mortgages . the increase in interest from mortgages of $ 61,000 in 2002 was attributable to an increase in accrued interest income on the mortgage receivable from the property located in goshen , ny . the accrual of interest on this mortgage had been suspended during the period from december 1 , 1999 through may 31 , 2001 because the annual interest payments that were due in february 2000 and 2001 were not paid until august 2001. the $ 995,000 increase in revenues in the medical division was due to an increase in both income from the purchase and collection of medical claims and management fees . the 43 % increase in income from the purchase and collection of medical claims of $ 488,000 in 2002 was due to ( i ) additional collections services that are now being provided to existing clients and ( ii ) $ 120,000 due to the change in the accounting estimate related to the timing of revenue as set forth in note 3. the increase in management fees of $ 507,000 ( 55 % ) in 2002 , was a result of the increase in management services that the company provides to two of its finance clients . the company operates an mri facility that provides management services to a finance client 's radiology practice . management fees were also generated from the management of a finance client 's physical therapy practice . these fees are net of billing adjustments of $ 83,000. management service fees are billed monthly according to the cost of services rendered to the client . if the assets of the management client , which is also a finance client , are not enough to satisfy the billed fees , an allowance for billing adjustments is recorded to reduce the company 's net receivables to an amount that is equal to the assets of the client that are available for payment . costs and expenses from continuing operations increased by $ 17,000 ( 1 % ) to $ 3,294,000 in 2002. the increase was due to increases of $ 227,000 in the medical division and $ 22,000 in depreciation and amortization , offset by decreases of $ 182,000 in the real estate division and $ 50,000 in corporate expenses and other . the decrease in costs and expenses in the real estate division in 2002 were due to a decrease in the amount of properties sold in 2002 , which results in a decrease in the cost of sales . the decrease was also due to a reduction of operating expenses in 2002 , after a portion of the hunter property was sold during the first quarter of the current fiscal year . the increase in costs and expenses in the medical division was due to an increase in expenses of $ 266,000 that are related to the management of two finance client 's medical practices , offset by a decrease of $ 39,000 in medical receivable expenses . the 27 % increase in medical management expenses in 2002 are related to the 55 % increase in revenues for the same period . the 3 % decrease in medical receivable expenses in 2002 as compared to its increase in revenues was primarily due to the cost of increasing the infrastructure in 2001 in anticipation of the new clients that were eventually obtained . the company now has an improved infrastructure , which includes better trained employees , computer systems and office facilities that can handle further increases of revenue without substantial increases in expenses . in addition , the company has also been more selective in the bill purchasing process , which results in a minimal amount of bad debt losses . the company may incur a bad debt loss when the portion of a medical claim collected does not exceed the advance ( including the fee charged ) given to the client . the company also has other contractual rights to help minimize its risk of loss . the company continually monitors the aging of the uncollected medical claims as it relates to its advances and establishes a reserve deemed adequate to cover potential losses . the decrease in corporate expenses and other of $ 50,000 in 2002 is primarily due to reductions in professional fees , reallocations of a greater portion of executive salaries to the medical division and a reduction in shareholder reporting expenses . the increase in depreciation and amortization of $ 22,000 in 2002 is attributable to increased capital expenditures in the medical financing division . interest expense in 2002 was $ 62,000 , an increase of $ 29,000 from 2001. the increase was attributable to the debt that was incurred to finance the purchase of additional

liquidity and capital resources cash balances , available borrowings , and capital resources as of march 31 , 2019 , we had cash and cash equivalents of $ 604.5 million , compared with $ 641.9 million as of march 31 , 2018 . our cash and cash equivalents consist of bank demand deposits and short-term time deposits , of which 77 % is held in switzerland and 10 % is held in china ( including hong kong ) . we do not expect to incur any material adverse tax impact , except for what has been recognized , or be significantly inhibited by any country in which we do business from the repatriation of funds to switzerland , our home domicile . as of march 31 , 2019 , our working capital was $ 632.6 million , compared with working capital of $ 597.4 million as of march 31 , 2018 . the increase in working capital over fiscal year 2018 was primarily due to higher accounts receivable , net , higher inventories and other current assets , and lower balance of accounts payable , partially offset by lower balances of cash and cash equivalents and higher accrued and other current liabilities . we had several uncommitted , unsecured bank lines of credit aggregating to $ 80.6 million as of march 31 , 2019 . there are no financial covenants under these lines of credit with which we must comply .

overview mfc presently generates revenues from two business segments : real estate and medical . the real estate segment consists of various parcels of real estate , held for future development and sale , in which co-investors also have interests , and a mortgage note receivable on a property that was previously sold . revenues in the real estate division vary substantially from period to period depending on when a particular transaction closes and depending on whether the closed transaction is recognized for accounting purposes as a sale or reflected as a financing or is deferred to a future period . in february 2003 , the company was released from a rental obligation arising from the sale of real estate in a prior period . as a result of the termination of the contingent obligation , the company recorded a gain of $ 850,000 during the year ended february 28 , 2003. in august 2001 , the company entered into an agreement with a debtor regarding an outstanding mortgage receivable and debenture ( together the `` goshen receivables `` ) on property located in goshen , new york . under the terms of the agreement , the debtor satisfied the goshen receivables by payments of principal and accrued interest of $ 167,500 in august 2001 and $ 1,507,500 in november 2001. as a result of this agreement , the company realized $ 745,000 of deferred income related to the original sale of the property . the medical segment consists of three limited liability companies which act as service organizations for providers of medical services and a wholly-owned subsidiary , medical financial corp. , which purchases medical insurance claims receivable , paying cash to the medical provider in return for a negotiated fee . critical accounting policies management 's discussion and analysis of its financial position and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . actual results could differ from those estimates . management believes that the critical accounting policies and areas that require the most significant judgments and estimates to be used in the preparation of the consolidated financial statements are allowance for doubtful accounts and the valuation allowance against its deferred tax asset . allowance for doubtful accounts mortgage and note receivable : the company evaluates the credit positions on its notes receivable and the value of the related collateral on an ongoing basis . the company estimates that all of its notes receivable are fully collectible and the value of the collateral is in excess of the related receivables . the company continually evaluates its notes receivable that are past due as to the collectibility of principal and interest . the company considers the financial condition of the debtor , the outlook of the debtor 's industry , decrease in the ratio of collateral values to loans and any prior write downs on loans . the above considerations are all used in determining whether the company should suspend recording interest income on any notes receivable or provide for any loss reserves . finance and management receivables : management 's periodic evaluation of the adequacy of the allowance for loan losses is based on the company 's past loan loss experience , known and inherent risks in the portfolio , adverse situations that may affect the customer 's ability to repay , the estimated value of any underlying collateral , the outlook of the debtor 's industry and current economic conditions . when the company estimates that it may be probable that a specific customer account may be uncollectible , that balance is included in the reserve calculation . actual results could differ from these estimates under different assumptions . deferred tax assets : the company records a valuation allowance to reduce the carrying value of its deferred tax assets to an amount that is more likely than not to be realized . while the company has considered future taxable income and prudent and feasible tax planning strategies in assessing the need for the valuation allowance , should the company determine that it would not be able to realize all or part of its net deferred tax assets in the future , an adjustment to the valuation allowance would be charged to income in the period in which such determination was made . a reduction in the valuation allowance and corresponding credit to income may be required if the likelihood of realizing existing deferred tax assets were to increase . results of operations year ended february 28 , 2003 compared to year ended february 28 , 2002 the company 's revenues from operations for the year ended february 28 , 2003 ( `` 2003 `` ) were $ 5,260,000 , an increase of $ 1,094,000 or 26 % as compared to the year ended february 28 , 2002 ( `` 2002 `` ) . the increase was a result of increase in the medical division , offset by a decrease in the real estate division . revenue in the real estate division decreased in 2003 by $ 79,000 , to $ 1,037,000. the decrease was due to ( i ) a $ 68,000 decrease in interest income from the goshen mortgage , ( ii ) lack of real estate sales in 2003 as compared to 2002 , when the company sold the land for eight un-built condominium units for $ 50,000 , offset by ( iii ) an increase of story_separator_special_tag in 2003 , the company generated taxable income and estimated that it would derive minimum future tax savings of $ 90,000 from these nol 's , and recorded a valuation allowance of $ 1,471,000 against the remainder of the deferred tax asset . for the reasons described above , the company recorded net income from operations of $ 965,000 in 2003 , an increase of $ 157,000 ( 19 % ) from $ 808,000 in 2002. year ended february 28 , 2002 compared to year ended february 28 , 2001 the company 's revenues from continuing operations for the year ended february 28 , 2002 ( `` 2002 `` ) was $ 4,166,000 , an increase of $ 1,807,000 or 77 % as compared to the year ended february 28 , 2001 ( `` 2001 `` ) . the increase was a result of increases in both the real estate and medical divisions . revenue in the real estate division increased in 2002 by $ 812,000 , to $ 1,116,000. the increase was due to the settlement of the goshen receivables , which resulted in the realization of $ 745,000 of deferred income from real estate that was sold in prior periods and an increase in interest from mortgages . the increase in interest from mortgages of $ 61,000 in 2002 was attributable to an increase in accrued interest income on the mortgage receivable from the property located in goshen , ny . the accrual of interest on this mortgage had been suspended during the period from december 1 , 1999 through may 31 , 2001 because the annual interest payments that were due in february 2000 and 2001 were not paid until august 2001. the $ 995,000 increase in revenues in the medical division was due to an increase in both income from the purchase and collection of medical claims and management fees . the 43 % increase in income from the purchase and collection of medical claims of $ 488,000 in 2002 was due to ( i ) additional collections services that are now being provided to existing clients and ( ii ) $ 120,000 due to the change in the accounting estimate related to the timing of revenue as set forth in note 3. the increase in management fees of $ 507,000 ( 55 % ) in 2002 , was a result of the increase in management services that the company provides to two of its finance clients . the company operates an mri facility that provides management services to a finance client 's radiology practice . management fees were also generated from the management of a finance client 's physical therapy practice . these fees are net of billing adjustments of $ 83,000. management service fees are billed monthly according to the cost of services rendered to the client . if the assets of the management client , which is also a finance client , are not enough to satisfy the billed fees , an allowance for billing adjustments is recorded to reduce the company 's net receivables to an amount that is equal to the assets of the client that are available for payment . costs and expenses from continuing operations increased by $ 17,000 ( 1 % ) to $ 3,294,000 in 2002. the increase was due to increases of $ 227,000 in the medical division and $ 22,000 in depreciation and amortization , offset by decreases of $ 182,000 in the real estate division and $ 50,000 in corporate expenses and other . the decrease in costs and expenses in the real estate division in 2002 were due to a decrease in the amount of properties sold in 2002 , which results in a decrease in the cost of sales . the decrease was also due to a reduction of operating expenses in 2002 , after a portion of the hunter property was sold during the first quarter of the current fiscal year . the increase in costs and expenses in the medical division was due to an increase in expenses of $ 266,000 that are related to the management of two finance client 's medical practices , offset by a decrease of $ 39,000 in medical receivable expenses . the 27 % increase in medical management expenses in 2002 are related to the 55 % increase in revenues for the same period . the 3 % decrease in medical receivable expenses in 2002 as compared to its increase in revenues was primarily due to the cost of increasing the infrastructure in 2001 in anticipation of the new clients that were eventually obtained . the company now has an improved infrastructure , which includes better trained employees , computer systems and office facilities that can handle further increases of revenue without substantial increases in expenses . in addition , the company has also been more selective in the bill purchasing process , which results in a minimal amount of bad debt losses . the company may incur a bad debt loss when the portion of a medical claim collected does not exceed the advance ( including the fee charged ) given to the client . the company also has other contractual rights to help minimize its risk of loss . the company continually monitors the aging of the uncollected medical claims as it relates to its advances and establishes a reserve deemed adequate to cover potential losses . the decrease in corporate expenses and other of $ 50,000 in 2002 is primarily due to reductions in professional fees , reallocations of a greater portion of executive salaries to the medical division and a reduction in shareholder reporting expenses . the increase in depreciation and amortization of $ 22,000 in 2002 is attributable to increased capital expenditures in the medical financing division . interest expense in 2002 was $ 62,000 , an increase of $ 29,000 from 2001. the increase was attributable to the debt that was incurred to finance the purchase of additional

liquidity and capital resources the company 's two business activities during the year ended february 28 , 2003 resulted in a decrease of cash in the amount of $ 1,091,000. the company expects continued growth of its medical division based on its ongoing negotiations with prospective new clients , which are expected to be obtained in the next few months . these prospective clients will result in an increase in the amount of cash needed to purchase their medical insurance claims receivable . the funds for those needs are expected to be provided from existing cash and an additional $ 175,000 of series a bonds that were issued after the year end . additional funds may be provided by additional asset-based borrowing facilities , refinancing of assets under capital leases and the sale of real estate assets . the real estate division is not expected to be a significant user of cash flow from operations , due to the elimination of carrying costs on the real estate that was sold during the two years ended february 28 , 2002. the company 's real estate assets in hunter , ny are owned free and clear of mortgages , except for the construction loan that is being used to finance the current property renovation .

condor remains cautiously optimistic on the outlook of the hospitality sector in 2017. the hospitality sector experienced its seventh straight year of positive revpar growth in 2016. the expected decline in the pace of revpar growth materialized in 2016 and is expected to continue into 2017. most industry forecasts estimate that u.s. revpar will grow at a slower pace in 2017 , generally between 2.0 % - 3.0 % . the slower pace of revpar growth we believe is primarily driven by concerns on new supply and concerns on slowing economic growth . condor management believes the sectors and segments it targets will see growth in excess of these estimates . while many primary markets have a large influx of new supply , the markets condor targets are experiencing less 31 aggressive supply growth . additionally , the markets c ondor targets are less affected , we believe , by alternative lodging platforms like airbnb . these supply factors , combined with the possibility of cont inued positive economic growth , we believe should enable our hotels to experience growth in revpar in 2017. we believe that the performance of the hotel industry is strongly correlated with the per formance of the macro-economy . t he equity markets have so far reacted favorably following the u.s. presidential election . however , it is unknown if the new a dministration 's policies will have a position or negative impact on the economy . additionally , the continued threat of terrorism and economic and geopolitical turbulence abroad could derail the macro-economy . barring any major disruption to the u.s. economy , we expect a continued improvement in lodging fundamentals , with a more tepid improvement in lodging fundamentals in 2017 than in 2016. the manner in which the economy continues to grow , if at all , is not predictable and outside of our control . as a result , there can be no assurances that we will be able to grow our hotel revenue , adr , occupancy , or revpar . factors that might contribute to less than anticipated performance are detailed in “ item 1a . risk factors . ” condor 's management continually monitors the economic environment an d works to adjust its strategy to seek to maximize value and returns to shareholders .  hotel property portfolio activity  acquisitions  on august 1 , 2016 , the company entered into a joint venture with twc to acquire a 254-room aloft hotel in downtown atlanta , georgia . the company accounts for the atlanta jv under the equity method . condor owns 80 % of the atlanta jv with twc owning the remaining 20 % . the atlanta jv is comprised of two companies : spring street hotel property ii llc , of which chlp indirectly owns an 80 % equity interest , and spring street hotel opco ii llc , of which our trs indirectly owns an 80 % equity interest . twc owns the remaining 20 % equity interest in these two companies .  on august 22 , 2016 , the atlanta jv closed on the acquisition of the atlanta aloft hotel for a purchase price of $ 43.6 million , subject to working capital and similar adjustments . a summary of this acquisition and its funding as completed by the atlanta jv is as follows ( in thousands ) :   replace_table_token_7_th  ( 1 ) the purchase agreement includes a provision which permits the seller to purchase the surface parking lot north of the hotel exercisable for ten years at less than market rates  the purchase price for the atlanta aloft was paid by the atlanta jv with $ 9.8 million in cash , of which $ 7.8 million was contributed by condor and $ 2.0 million was contributed by twc , and $ 33.8 million of proceeds from a term loan secured by the property . condor additionally contributed $ 1.4 million and twc additionally contributed $ 0.4 million to the atlanta jv to cover acquisition costs and to provide working capital to the entity .  on december 14 , 2016 , we also acquired one wholly-owned hotel , the 156-room aloft leawood / overland park ( kansas city ) through a single-purpose bankruptcy remove entity 100 % owned by chlp . a summary of this acquisition and its funding is as follows ( in thousands ) :    hotel land buildings , improvements , and vehicles furniture and equipment total purchase price debt originated at acquisition issuance of chlp common units net cash aloft $ 3,339 $ 18,046 $ 1,115 $ 22,500 $ 15,925 $ 50 $ 6,525 leawood , ks  32 the $ 22.5 million purchase price was funded with the proceeds of two mortgage loans provided by great western bank totaling $ 15.9 million , approximately $ 6.5 million in cash , and the issuance of 213,904 operating units in chlp with a value of $ 50,000 .  during 2015 , we acquired th ree wholly-owned premium select- service hotel properties through three single-purpose bankruptcy remote entities 100 % owned by ch lp from affiliates of peachtree hotel group ii , llc . a summary of these acquisitions and their funding is as follows ( in thousands ) :  replace_table_token_8_th the $ 42.5 million purchase price was funded with the assumption of one loan with an aggregate outstanding principal balance of $ 11.2 million and two newly originated ge capital loans ( sold to western alliance bank ( “ wab ” ) in april 2016 ) totaling $ 15.1 million . the remaining $ 16.2 million was funded with $ 14.9 million in cash , approximately $ 0.8 million of borrowings from the company 's existing credit facility with great western bank , and the is suance of operating units from ch lp representing limited partnership interest in that entity . story_separator_special_tag  funds from operations ( “ ffo ” ) & adjusted ffo ( “ affo ” )  we calculate ffo in accordance with the standards established by the national association of real estate investment trusts ( “ nareit ” ) , which defines ffo as net earnings computed in accordance with gaap , excluding gains or losses from sales of real estate assets , impairment , and the depreciation and amortization of real estate assets . ffo is calculated both for the company in total and as ffo attributable to common shares and partnership units , which is ffo excluding preferred stock dividends . affo is ffo attributable to common shares and partnership units adjusted to exclude items we do not believe are representative of the results from our core operations , such as non-cash gains or losses on derivative liabilities and convertible debt and cash charges for acquisition or equity raising costs . all reits do not calculate ffo and affo in the same manner ; therefore , our calculation may not be the same as the calculation of ffo and affo for similar reits .  we consider ffo and affo to be useful additional measures of performance for an equity reit because they facilitate an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization , which assumes that the value of real estate assets diminishes predictably over time . since real estate values have historically risen or fallen with market conditions , we believe that ffo and affo provide a meaningful indication of our performance .  the following table reconciles net earnings ( loss ) to ffo and affo for the years ended december 31 ( in thousands ) . all amounts presented include both continuing and discontinued operations as well as our portion of the results of our unconsolidated atlanta jv .   replace_table_token_13_th  39 earnings before interest , taxes , depreciation , and amortization ( “ ebitda ” ) , adjusted ebitda , and hotel ebitda  we calculate ebitda and adjusted ebitda by adding back to net earnings certain non-operating expenses and certain non-cash charges which are based on historical cost accounting that we believe may be of limited significance in evaluating current performance . we believe these adjustments can help eliminate the accounting effects of depreciation and amortization and financing decisions and facilitate comparisons of core operating profitability between periods . in calculating ebitda , we add back to net earnings interest expense , loss on debt extinguishment , income tax expense , and depreciation and amortization expense . in calculating adjusted ebitda , we adjust ebitda to add back net gain/loss on disposition of assets , acquisition and terminated transactions expense , and terminated equity transactions expense , which are cash charges . we also add back impairment and gain or loss on derivatives and convertible debt , which are non-cash charges . ebitda and adjusted ebitda , as presented , may not be comparable to similarly titled measures of other companies .  we believe ebitda and adjusted ebitda to be useful additional measures of our operating performance , excluding the impact of our capital structure ( primarily interest expense ) , our asset base ( primarily depreciation and amortization expense ) , and other items we do not believe are representative of the results from our core operations .  the company further excludes general and administrative expenses , other non-operating income or expense , and certain hotel and property operations expenses that are not allocated to individual properties in assessing hotel performance ( primarily certain general liability and other insurance costs , land lease costs , and office and banking fees ) from adjusted ebitda to calculate hotel ebitda . hotel ebitda is similar to the non-gaap measure of property operating income ( “ poi ” ) presented in filings prior to the september 30 , 2016 form 10-q except that hotel ebitda also excludes the unallocated hotel and property operations expenses previously included in poi . hotel ebitda , as presented , may not be comparable to similarly titled measures of other companies .  hotel ebitda is intended to isolate property level operational performance over which the company 's hotel operators have direct control . we believe hotel ebitda is helpful to investors as it better communicates the comparability of our hotels ' operating results for all of the company 's hotel properties and is used by management to measure the performance of the company 's hotels and the effectiveness of the operators of the hotels .  the following table reconciles net earnings ( loss ) to ebitda , adjusted ebitda , and hotel ebitda for the years ended december 31 ( in thousands ) . all amounts presented include both continuing and discontinued operations as well as our portion of the results of our unconsolidated atlanta jv . 40     replace_table_token_14_th  liquidity and capital resources  liquidity requirements  we expect to meet our short-term liquidity requirements through net cash provided by operations , existing cash balances and working capital , short-term borrowings under our revolving credit agreement with great western bank , and the release of restricted cash upon the satisfaction of usage requirements . at december 31 , 2016 , the company had $ 8.3 million of cash and c ash equivalents on hand and $ 1.2 million of unused availability under its revolving credit agreement . our short-term liquidity requirements consist primarily of operating expenses and other expenditures directly associated with our hotel properties , recurring maintenance and capital expenditures necessary to maintain our hotels in accordance with brand standards , interest expense and scheduled principal payments on outstanding indebtedness , restricted cash funding obligations , and the payment of dividends in accordance with the reit requirements of the internal revenue code and as required in connection with our series d preferred stock ( which ,

liquidity and capital resources the company 's two business activities during the year ended february 28 , 2003 resulted in a decrease of cash in the amount of $ 1,091,000. the company expects continued growth of its medical division based on its ongoing negotiations with prospective new clients , which are expected to be obtained in the next few months . these prospective clients will result in an increase in the amount of cash needed to purchase their medical insurance claims receivable . the funds for those needs are expected to be provided from existing cash and an additional $ 175,000 of series a bonds that were issued after the year end . additional funds may be provided by additional asset-based borrowing facilities , refinancing of assets under capital leases and the sale of real estate assets . the real estate division is not expected to be a significant user of cash flow from operations , due to the elimination of carrying costs on the real estate that was sold during the two years ended february 28 , 2002. the company 's real estate assets in hunter , ny are owned free and clear of mortgages , except for the construction loan that is being used to finance the current property renovation .

condor remains cautiously optimistic on the outlook of the hospitality sector in 2017. the hospitality sector experienced its seventh straight year of positive revpar growth in 2016. the expected decline in the pace of revpar growth materialized in 2016 and is expected to continue into 2017. most industry forecasts estimate that u.s. revpar will grow at a slower pace in 2017 , generally between 2.0 % - 3.0 % . the slower pace of revpar growth we believe is primarily driven by concerns on new supply and concerns on slowing economic growth . condor management believes the sectors and segments it targets will see growth in excess of these estimates . while many primary markets have a large influx of new supply , the markets condor targets are experiencing less 31 aggressive supply growth . additionally , the markets c ondor targets are less affected , we believe , by alternative lodging platforms like airbnb . these supply factors , combined with the possibility of cont inued positive economic growth , we believe should enable our hotels to experience growth in revpar in 2017. we believe that the performance of the hotel industry is strongly correlated with the per formance of the macro-economy . t he equity markets have so far reacted favorably following the u.s. presidential election . however , it is unknown if the new a dministration 's policies will have a position or negative impact on the economy . additionally , the continued threat of terrorism and economic and geopolitical turbulence abroad could derail the macro-economy . barring any major disruption to the u.s. economy , we expect a continued improvement in lodging fundamentals , with a more tepid improvement in lodging fundamentals in 2017 than in 2016. the manner in which the economy continues to grow , if at all , is not predictable and outside of our control . as a result , there can be no assurances that we will be able to grow our hotel revenue , adr , occupancy , or revpar . factors that might contribute to less than anticipated performance are detailed in “ item 1a . risk factors . ” condor 's management continually monitors the economic environment an d works to adjust its strategy to seek to maximize value and returns to shareholders .  hotel property portfolio activity  acquisitions  on august 1 , 2016 , the company entered into a joint venture with twc to acquire a 254-room aloft hotel in downtown atlanta , georgia . the company accounts for the atlanta jv under the equity method . condor owns 80 % of the atlanta jv with twc owning the remaining 20 % . the atlanta jv is comprised of two companies : spring street hotel property ii llc , of which chlp indirectly owns an 80 % equity interest , and spring street hotel opco ii llc , of which our trs indirectly owns an 80 % equity interest . twc owns the remaining 20 % equity interest in these two companies .  on august 22 , 2016 , the atlanta jv closed on the acquisition of the atlanta aloft hotel for a purchase price of $ 43.6 million , subject to working capital and similar adjustments . a summary of this acquisition and its funding as completed by the atlanta jv is as follows ( in thousands ) :   replace_table_token_7_th  ( 1 ) the purchase agreement includes a provision which permits the seller to purchase the surface parking lot north of the hotel exercisable for ten years at less than market rates  the purchase price for the atlanta aloft was paid by the atlanta jv with $ 9.8 million in cash , of which $ 7.8 million was contributed by condor and $ 2.0 million was contributed by twc , and $ 33.8 million of proceeds from a term loan secured by the property . condor additionally contributed $ 1.4 million and twc additionally contributed $ 0.4 million to the atlanta jv to cover acquisition costs and to provide working capital to the entity .  on december 14 , 2016 , we also acquired one wholly-owned hotel , the 156-room aloft leawood / overland park ( kansas city ) through a single-purpose bankruptcy remove entity 100 % owned by chlp . a summary of this acquisition and its funding is as follows ( in thousands ) :    hotel land buildings , improvements , and vehicles furniture and equipment total purchase price debt originated at acquisition issuance of chlp common units net cash aloft $ 3,339 $ 18,046 $ 1,115 $ 22,500 $ 15,925 $ 50 $ 6,525 leawood , ks  32 the $ 22.5 million purchase price was funded with the proceeds of two mortgage loans provided by great western bank totaling $ 15.9 million , approximately $ 6.5 million in cash , and the issuance of 213,904 operating units in chlp with a value of $ 50,000 .  during 2015 , we acquired th ree wholly-owned premium select- service hotel properties through three single-purpose bankruptcy remote entities 100 % owned by ch lp from affiliates of peachtree hotel group ii , llc . a summary of these acquisitions and their funding is as follows ( in thousands ) :  replace_table_token_8_th the $ 42.5 million purchase price was funded with the assumption of one loan with an aggregate outstanding principal balance of $ 11.2 million and two newly originated ge capital loans ( sold to western alliance bank ( “ wab ” ) in april 2016 ) totaling $ 15.1 million . the remaining $ 16.2 million was funded with $ 14.9 million in cash , approximately $ 0.8 million of borrowings from the company 's existing credit facility with great western bank , and the is suance of operating units from ch lp representing limited partnership interest in that entity . story_separator_special_tag  funds from operations ( “ ffo ” ) & adjusted ffo ( “ affo ” )  we calculate ffo in accordance with the standards established by the national association of real estate investment trusts ( “ nareit ” ) , which defines ffo as net earnings computed in accordance with gaap , excluding gains or losses from sales of real estate assets , impairment , and the depreciation and amortization of real estate assets . ffo is calculated both for the company in total and as ffo attributable to common shares and partnership units , which is ffo excluding preferred stock dividends . affo is ffo attributable to common shares and partnership units adjusted to exclude items we do not believe are representative of the results from our core operations , such as non-cash gains or losses on derivative liabilities and convertible debt and cash charges for acquisition or equity raising costs . all reits do not calculate ffo and affo in the same manner ; therefore , our calculation may not be the same as the calculation of ffo and affo for similar reits .  we consider ffo and affo to be useful additional measures of performance for an equity reit because they facilitate an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization , which assumes that the value of real estate assets diminishes predictably over time . since real estate values have historically risen or fallen with market conditions , we believe that ffo and affo provide a meaningful indication of our performance .  the following table reconciles net earnings ( loss ) to ffo and affo for the years ended december 31 ( in thousands ) . all amounts presented include both continuing and discontinued operations as well as our portion of the results of our unconsolidated atlanta jv .   replace_table_token_13_th  39 earnings before interest , taxes , depreciation , and amortization ( “ ebitda ” ) , adjusted ebitda , and hotel ebitda  we calculate ebitda and adjusted ebitda by adding back to net earnings certain non-operating expenses and certain non-cash charges which are based on historical cost accounting that we believe may be of limited significance in evaluating current performance . we believe these adjustments can help eliminate the accounting effects of depreciation and amortization and financing decisions and facilitate comparisons of core operating profitability between periods . in calculating ebitda , we add back to net earnings interest expense , loss on debt extinguishment , income tax expense , and depreciation and amortization expense . in calculating adjusted ebitda , we adjust ebitda to add back net gain/loss on disposition of assets , acquisition and terminated transactions expense , and terminated equity transactions expense , which are cash charges . we also add back impairment and gain or loss on derivatives and convertible debt , which are non-cash charges . ebitda and adjusted ebitda , as presented , may not be comparable to similarly titled measures of other companies .  we believe ebitda and adjusted ebitda to be useful additional measures of our operating performance , excluding the impact of our capital structure ( primarily interest expense ) , our asset base ( primarily depreciation and amortization expense ) , and other items we do not believe are representative of the results from our core operations .  the company further excludes general and administrative expenses , other non-operating income or expense , and certain hotel and property operations expenses that are not allocated to individual properties in assessing hotel performance ( primarily certain general liability and other insurance costs , land lease costs , and office and banking fees ) from adjusted ebitda to calculate hotel ebitda . hotel ebitda is similar to the non-gaap measure of property operating income ( “ poi ” ) presented in filings prior to the september 30 , 2016 form 10-q except that hotel ebitda also excludes the unallocated hotel and property operations expenses previously included in poi . hotel ebitda , as presented , may not be comparable to similarly titled measures of other companies .  hotel ebitda is intended to isolate property level operational performance over which the company 's hotel operators have direct control . we believe hotel ebitda is helpful to investors as it better communicates the comparability of our hotels ' operating results for all of the company 's hotel properties and is used by management to measure the performance of the company 's hotels and the effectiveness of the operators of the hotels .  the following table reconciles net earnings ( loss ) to ebitda , adjusted ebitda , and hotel ebitda for the years ended december 31 ( in thousands ) . all amounts presented include both continuing and discontinued operations as well as our portion of the results of our unconsolidated atlanta jv . 40     replace_table_token_14_th  liquidity and capital resources  liquidity requirements  we expect to meet our short-term liquidity requirements through net cash provided by operations , existing cash balances and working capital , short-term borrowings under our revolving credit agreement with great western bank , and the release of restricted cash upon the satisfaction of usage requirements . at december 31 , 2016 , the company had $ 8.3 million of cash and c ash equivalents on hand and $ 1.2 million of unused availability under its revolving credit agreement . our short-term liquidity requirements consist primarily of operating expenses and other expenditures directly associated with our hotel properties , recurring maintenance and capital expenditures necessary to maintain our hotels in accordance with brand standards , interest expense and scheduled principal payments on outstanding indebtedness , restricted cash funding obligations , and the payment of dividends in accordance with the reit requirements of the internal revenue code and as required in connection with our series d preferred stock ( which ,

cash provided by investing activities . our cash provided by investing activities was $ 21.9 million , $ 5.4 million , and $ 17.9 million for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . the lower cash flows in 2015 from the other periods presented was primarily a result of differences in the net cash spent on acquisitions and investment in joint venture less cash received from asset sales which , net , totaled $ 26.9 million in 2016 , $ 10.7 million in 2015 , and $ 21.3 million in 2014 .  cash used in financing activities . our cash used by financing activities was $ 21.2 million , $ 5.7 million , and $ 23.3 million for the years ended december 31 , 201 6 , 2015 , and 2014 , respectively . this increase in cash flows in 2016 was primarily related to cash received in the first quarter of 2016 related to the series d preferred stock issuance less cash used to redeem the series a and b preferred stock and cash dividends paid on the series c and series d preferred stock , which together had a net impact to financing cash flows of $ 5.1 million , as well as decreased net principal payments on long -term and revolving debt of $ 19.0 million as a result of decreased net revolver activity as well as decreased debt repayments required upon the sale of hotel properties . these increases were partially offset w ith prepayment penalties of $ 1.8 million paid in 2016 upon the sale of properties encumbered by certain of the company 's debt . from 2014 to 2015 , d ebt repayments increased d ue to increased property sales . however , this increase in debt repayments was offset by increased cash inflows for new debt obtained , including the debt obtained in connection with the 2015 acquisitions which totaled $ 15.1 million excluding debt assumed .

we expect to maintain our current level of promotional and advertising activity for our orchard valley harvest and fisher snack brands . we continue to see domestic sales and volume growth in our orchard valley harvest brand and will continue to focus on this portion of our branded business as well as our squirrel brand and southern style nuts brands . we will continue to face the ongoing challenges specific to our business , such as food safety and regulatory issues and the maintenance and growth of our customer base for branded and private label products . see the information referenced in part i , item 1a — “risk factors” of this report for additional information about our risks , challenges and uncertainties . 21 annual highlights our net sales for fiscal 2019 decreased by $ 12.7 million , or 1.4 % , to $ 876.2 million compared to fiscal 2018. gross profit increased by $ 19.4 million , and our gross profit margin , as a percentage of net sales , increased to 18.1 % in fiscal 2019 from 15.6 % in fiscal 2018. total operating expenses for fiscal 2019 increased by $ 17.0 million , and our operating expenses , as a percentage of net sales , were 11.4 % compared to 9.3 % of net sales in fiscal 2018. diluted earnings per share increased approximately 20.8 % compared to last fiscal year . our strong financial position allowed us to pay a cash dividend of $ 29.1 million in august 2018. the total value of inventories on hand at the end of fiscal 2019 decreased by $ 17.3 million , or 9.9 % , in comparison to the total value of inventories on hand at the end of fiscal 2018. we have seen acquisition costs for pecans and walnuts decline in the 2018 crop year ( which falls into our current 2019 fiscal year ) , as well as declining acquisition costs for cashews . while we completed our procurement of the current year crop of inshell walnuts during the second quarter of fiscal 2019 , the total payments to our walnut growers were not determined until the third quarter of fiscal 2019 , which is typical . the final prices paid to the walnut growers were based upon prevailing market prices and other factors , such as crop size and export demand . at june 27 , 2019 there are no amounts due to walnut growers . results of operations the following table sets forth the percentage relationship of certain items to net sales for the periods indicated and the percentage increase or decrease of such items from fiscal 2019 to fiscal 2018 and from fiscal 2018 to fiscal 2017. replace_table_token_2_th fiscal 2019 compared to fiscal 2018 net sales our net sales decreased 1.4 % to $ 876.2 million for fiscal 2019 from $ 888.9 million for fiscal 2018. sales volume increased by 1.4 % for fiscal 2019 in comparison to sales volume for fiscal 2018. the decline in net sales was driven by a 2.8 % decrease in the weighted average sales price per pound , which primarily occurred as a result of a shift in sales volume from higher priced tree nut products to lower priced peanut and trail mix products . lower selling prices for products containing cashews and pecans , driven by lower commodity acquisition costs , also contributed to the decrease in net sales . the decline in net sales from lower selling prices due to commodity deflation for certain tree nuts was partially offset by the increase in sales volume . the following summarizes sales by product type as a percentage of total gross sales . the information is based upon gross sales , rather than net sales , because certain adjustments from gross sales to net sales , such as promotional discounts , are not allocable to product type . replace_table_token_3_th 22 the following table shows a comparison of net sales by distribution channel ( dollars in thousands ) : replace_table_token_4_th ( 1 ) sales of branded products were approximately 37 % and 38 % of total consumer channel sales during fiscal 2019 and 2018 , respectively . fisher branded products were approximately 69 % and 75 % of branded sales during fiscal 2019 and 2018 respectively , with branded produce products accounting for most of the remaining branded product sales . net sales in the consumer distribution channel increased by 6.1 % in dollars and 10.5 % in sales volume in fiscal 2019 compared to fiscal 2018. the sales volume increase was primarily driven by a 13.0 % increase in sales of private brand trail mixes and snack nuts resulting from distribution gains with new and existing customers . increased sales of orchard valley harvest produce products and fisher snack nuts also contributed to the increase in sales volume . a 13.3 % sales volume increase for our orchard valley harvest produce products came primarily from distribution gains for the salad toppers product line and distribution gains with new and existing customers . sales volume for fisher snack nuts increased by 4.3 % due to distribution gains at an existing customer and increased promotional activity for our oven roasted never fried product line . accounting for 10.9 % of the sales volume increase was the additional sales volume related to southern style nuts snack mix products resulting from the acquisition which occurred late in our fiscal 2018 second quarter . beginning in december 2017 , squirrel brand sales volume is included in the consumer and commercial ingredients distribution channels . squirrel brand sales volume for fiscal 2018 was included in the contract packaging distribution channel through november 2017 , because squirrel brand was a contract packaging customer until the acquisition . sales volume for fisher recipe nuts declined 12.3 % primarily due to competitive pricing pressure from private brand recipe nuts and some lost distribution at an existing major customer . story_separator_special_tag such indicators may include deterioration in general economic conditions , adverse changes in the markets in which we operate , increases in input costs that have negative effects on earnings and cash flows , or a trend of negative or declining cash flows over multiple periods , among others . the fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill . in testing goodwill for impairment , we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not ( more than 50 % ) that the estimated fair value of our single reporting unit is less than its carrying amount . if we elect to perform a qualitative assessment and determine that an impairment is more likely than not , we are then required to perform a quantitative impairment test , otherwise no further analysis is required . we also may elect not to perform the qualitative assessment and , instead , proceed directly to the quantitative impairment test . under the goodwill qualitative assessment , various events and circumstances that would affect the estimated fair value of our single reporting unit are identified ( similar to impairment indicators above ) . under the goodwill quantitative impairment test , the evaluation of impairment involves comparing the current fair value of our single reporting unit to its carrying value , including goodwill . we estimate the fair value using level 3 inputs as defined by the fair value hierarchy . the inputs used to calculate the fair value include several subjective factors , such as estimates of future cash flows , estimates of our future cost structure , discount rates for our estimated cash flows , required level of working capital , assumed terminal value , and time horizon of cash flow forecasts . if the carrying value of our single reporting unit exceeds its fair value , we recognize an impairment loss equal to the difference between the carrying value and estimated fair value . income taxes we account for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been reported in our financial statements or tax returns . such items give rise to differences in the financial reporting and tax basis of assets and liabilities . a valuation allowance is recorded to reduce the carrying amount of deferred tax assets if it is more likely than not that all or a portion of the asset will not be realized . in estimating future tax consequences , we consider all expected future events other than changes in tax law or rates . we record liabilities for uncertain income tax positions based on a two-step process . the first step is recognition , where we evaluate whether an individual tax position has a likelihood of greater than 50 % of being sustained upon examination based on the technical merits of the position , including resolution of any related appeals or litigation processes . for tax positions that are currently estimated to have a less than 50 % likelihood of being sustained , no tax benefit is recorded . for tax positions that have met the recognition threshold in the first step , we perform the second step of measuring the benefit to be recorded . the actual benefits ultimately realized may differ from our estimates . in future periods , changes in facts , circumstances , and new information may require us to change the recognition and measurement estimates with regard to individual tax positions . changes in recognition and measurement estimates are recorded in results of operations and financial position in the period in which such changes occur . we recognize interest and penalties accrued related to unrecognized tax benefits in the income tax expense caption in the consolidated statement of comprehensive income . we evaluate the realization of deferred tax assets by considering our historical taxable income and future taxable income based upon the reversal of deferred tax liabilities . as of june 27 , 2019 , we believe that our deferred tax assets are fully realizable . 29 retirement plan in order to measure the annual expense and calculate the liability associated with our retirement plan , management must make a variety of estimates including , but not limited to , discount rates , compensation increases and anticipated mortality rates . the estimates used by management are based on our historical experience as well as current facts and circumstances . we use a third-party specialist to assist management in appropriately measuring the expense associated with this employment-related benefit . different estimates used by management could result in us recognizing different amounts of expense over different periods of time . we recognize net actuarial gains or losses in excess of 10 % of the plan 's projected benefit obligation into current period expense over the average remaining expected service period of active participants . one significant assumption for pension plan accounting is the discount rate . we select a discount rate each year ( as of our fiscal year-end measurement date ) for our plan based upon a hypothetical corporate bond portfolio for which the cash flows match the year-by-year projected benefit cash flows for our pension plan . the hypothetical bond portfolio is comprised of high-quality fixed income debt securities ( usually moody 's aa3 or higher ) available at the measurement date . based on this information , the discount rate selected by us for determination of pension expense was 4.14 % for fiscal 2019 , 3.99 % for fiscal 2018 , and 3.61 % for fiscal 2017. a 25-basis point increase or decrease in our discount rate assumption for fiscal 2019 would have resulted in an immaterial change in our pension expense for fiscal 2019. for our

cash provided by investing activities . our cash provided by investing activities was $ 21.9 million , $ 5.4 million , and $ 17.9 million for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . the lower cash flows in 2015 from the other periods presented was primarily a result of differences in the net cash spent on acquisitions and investment in joint venture less cash received from asset sales which , net , totaled $ 26.9 million in 2016 , $ 10.7 million in 2015 , and $ 21.3 million in 2014 .  cash used in financing activities . our cash used by financing activities was $ 21.2 million , $ 5.7 million , and $ 23.3 million for the years ended december 31 , 201 6 , 2015 , and 2014 , respectively . this increase in cash flows in 2016 was primarily related to cash received in the first quarter of 2016 related to the series d preferred stock issuance less cash used to redeem the series a and b preferred stock and cash dividends paid on the series c and series d preferred stock , which together had a net impact to financing cash flows of $ 5.1 million , as well as decreased net principal payments on long -term and revolving debt of $ 19.0 million as a result of decreased net revolver activity as well as decreased debt repayments required upon the sale of hotel properties . these increases were partially offset w ith prepayment penalties of $ 1.8 million paid in 2016 upon the sale of properties encumbered by certain of the company 's debt . from 2014 to 2015 , d ebt repayments increased d ue to increased property sales . however , this increase in debt repayments was offset by increased cash inflows for new debt obtained , including the debt obtained in connection with the 2015 acquisitions which totaled $ 15.1 million excluding debt assumed .

we expect to maintain our current level of promotional and advertising activity for our orchard valley harvest and fisher snack brands . we continue to see domestic sales and volume growth in our orchard valley harvest brand and will continue to focus on this portion of our branded business as well as our squirrel brand and southern style nuts brands . we will continue to face the ongoing challenges specific to our business , such as food safety and regulatory issues and the maintenance and growth of our customer base for branded and private label products . see the information referenced in part i , item 1a — “risk factors” of this report for additional information about our risks , challenges and uncertainties . 21 annual highlights our net sales for fiscal 2019 decreased by $ 12.7 million , or 1.4 % , to $ 876.2 million compared to fiscal 2018. gross profit increased by $ 19.4 million , and our gross profit margin , as a percentage of net sales , increased to 18.1 % in fiscal 2019 from 15.6 % in fiscal 2018. total operating expenses for fiscal 2019 increased by $ 17.0 million , and our operating expenses , as a percentage of net sales , were 11.4 % compared to 9.3 % of net sales in fiscal 2018. diluted earnings per share increased approximately 20.8 % compared to last fiscal year . our strong financial position allowed us to pay a cash dividend of $ 29.1 million in august 2018. the total value of inventories on hand at the end of fiscal 2019 decreased by $ 17.3 million , or 9.9 % , in comparison to the total value of inventories on hand at the end of fiscal 2018. we have seen acquisition costs for pecans and walnuts decline in the 2018 crop year ( which falls into our current 2019 fiscal year ) , as well as declining acquisition costs for cashews . while we completed our procurement of the current year crop of inshell walnuts during the second quarter of fiscal 2019 , the total payments to our walnut growers were not determined until the third quarter of fiscal 2019 , which is typical . the final prices paid to the walnut growers were based upon prevailing market prices and other factors , such as crop size and export demand . at june 27 , 2019 there are no amounts due to walnut growers . results of operations the following table sets forth the percentage relationship of certain items to net sales for the periods indicated and the percentage increase or decrease of such items from fiscal 2019 to fiscal 2018 and from fiscal 2018 to fiscal 2017. replace_table_token_2_th fiscal 2019 compared to fiscal 2018 net sales our net sales decreased 1.4 % to $ 876.2 million for fiscal 2019 from $ 888.9 million for fiscal 2018. sales volume increased by 1.4 % for fiscal 2019 in comparison to sales volume for fiscal 2018. the decline in net sales was driven by a 2.8 % decrease in the weighted average sales price per pound , which primarily occurred as a result of a shift in sales volume from higher priced tree nut products to lower priced peanut and trail mix products . lower selling prices for products containing cashews and pecans , driven by lower commodity acquisition costs , also contributed to the decrease in net sales . the decline in net sales from lower selling prices due to commodity deflation for certain tree nuts was partially offset by the increase in sales volume . the following summarizes sales by product type as a percentage of total gross sales . the information is based upon gross sales , rather than net sales , because certain adjustments from gross sales to net sales , such as promotional discounts , are not allocable to product type . replace_table_token_3_th 22 the following table shows a comparison of net sales by distribution channel ( dollars in thousands ) : replace_table_token_4_th ( 1 ) sales of branded products were approximately 37 % and 38 % of total consumer channel sales during fiscal 2019 and 2018 , respectively . fisher branded products were approximately 69 % and 75 % of branded sales during fiscal 2019 and 2018 respectively , with branded produce products accounting for most of the remaining branded product sales . net sales in the consumer distribution channel increased by 6.1 % in dollars and 10.5 % in sales volume in fiscal 2019 compared to fiscal 2018. the sales volume increase was primarily driven by a 13.0 % increase in sales of private brand trail mixes and snack nuts resulting from distribution gains with new and existing customers . increased sales of orchard valley harvest produce products and fisher snack nuts also contributed to the increase in sales volume . a 13.3 % sales volume increase for our orchard valley harvest produce products came primarily from distribution gains for the salad toppers product line and distribution gains with new and existing customers . sales volume for fisher snack nuts increased by 4.3 % due to distribution gains at an existing customer and increased promotional activity for our oven roasted never fried product line . accounting for 10.9 % of the sales volume increase was the additional sales volume related to southern style nuts snack mix products resulting from the acquisition which occurred late in our fiscal 2018 second quarter . beginning in december 2017 , squirrel brand sales volume is included in the consumer and commercial ingredients distribution channels . squirrel brand sales volume for fiscal 2018 was included in the contract packaging distribution channel through november 2017 , because squirrel brand was a contract packaging customer until the acquisition . sales volume for fisher recipe nuts declined 12.3 % primarily due to competitive pricing pressure from private brand recipe nuts and some lost distribution at an existing major customer . story_separator_special_tag such indicators may include deterioration in general economic conditions , adverse changes in the markets in which we operate , increases in input costs that have negative effects on earnings and cash flows , or a trend of negative or declining cash flows over multiple periods , among others . the fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill . in testing goodwill for impairment , we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not ( more than 50 % ) that the estimated fair value of our single reporting unit is less than its carrying amount . if we elect to perform a qualitative assessment and determine that an impairment is more likely than not , we are then required to perform a quantitative impairment test , otherwise no further analysis is required . we also may elect not to perform the qualitative assessment and , instead , proceed directly to the quantitative impairment test . under the goodwill qualitative assessment , various events and circumstances that would affect the estimated fair value of our single reporting unit are identified ( similar to impairment indicators above ) . under the goodwill quantitative impairment test , the evaluation of impairment involves comparing the current fair value of our single reporting unit to its carrying value , including goodwill . we estimate the fair value using level 3 inputs as defined by the fair value hierarchy . the inputs used to calculate the fair value include several subjective factors , such as estimates of future cash flows , estimates of our future cost structure , discount rates for our estimated cash flows , required level of working capital , assumed terminal value , and time horizon of cash flow forecasts . if the carrying value of our single reporting unit exceeds its fair value , we recognize an impairment loss equal to the difference between the carrying value and estimated fair value . income taxes we account for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been reported in our financial statements or tax returns . such items give rise to differences in the financial reporting and tax basis of assets and liabilities . a valuation allowance is recorded to reduce the carrying amount of deferred tax assets if it is more likely than not that all or a portion of the asset will not be realized . in estimating future tax consequences , we consider all expected future events other than changes in tax law or rates . we record liabilities for uncertain income tax positions based on a two-step process . the first step is recognition , where we evaluate whether an individual tax position has a likelihood of greater than 50 % of being sustained upon examination based on the technical merits of the position , including resolution of any related appeals or litigation processes . for tax positions that are currently estimated to have a less than 50 % likelihood of being sustained , no tax benefit is recorded . for tax positions that have met the recognition threshold in the first step , we perform the second step of measuring the benefit to be recorded . the actual benefits ultimately realized may differ from our estimates . in future periods , changes in facts , circumstances , and new information may require us to change the recognition and measurement estimates with regard to individual tax positions . changes in recognition and measurement estimates are recorded in results of operations and financial position in the period in which such changes occur . we recognize interest and penalties accrued related to unrecognized tax benefits in the income tax expense caption in the consolidated statement of comprehensive income . we evaluate the realization of deferred tax assets by considering our historical taxable income and future taxable income based upon the reversal of deferred tax liabilities . as of june 27 , 2019 , we believe that our deferred tax assets are fully realizable . 29 retirement plan in order to measure the annual expense and calculate the liability associated with our retirement plan , management must make a variety of estimates including , but not limited to , discount rates , compensation increases and anticipated mortality rates . the estimates used by management are based on our historical experience as well as current facts and circumstances . we use a third-party specialist to assist management in appropriately measuring the expense associated with this employment-related benefit . different estimates used by management could result in us recognizing different amounts of expense over different periods of time . we recognize net actuarial gains or losses in excess of 10 % of the plan 's projected benefit obligation into current period expense over the average remaining expected service period of active participants . one significant assumption for pension plan accounting is the discount rate . we select a discount rate each year ( as of our fiscal year-end measurement date ) for our plan based upon a hypothetical corporate bond portfolio for which the cash flows match the year-by-year projected benefit cash flows for our pension plan . the hypothetical bond portfolio is comprised of high-quality fixed income debt securities ( usually moody 's aa3 or higher ) available at the measurement date . based on this information , the discount rate selected by us for determination of pension expense was 4.14 % for fiscal 2019 , 3.99 % for fiscal 2018 , and 3.61 % for fiscal 2017. a 25-basis point increase or decrease in our discount rate assumption for fiscal 2019 would have resulted in an immaterial change in our pension expense for fiscal 2019. for our

liquidity and capital resources general the primary uses of cash are to fund our current operations , fulfill contractual obligations , pursue our strategic plan and repay indebtedness . also , various uncertainties could result in additional uses of cash . the primary sources of cash are results of operations and availability under our credit agreement , dated february 7 , 2008 and subsequently amended most recently in november 2017 ( as amended , the “credit facility” ) , that provides a revolving loan commitment and letter of credit subfacility . we anticipate that expected net cash flow generated from operations and amounts available pursuant to the credit facility will be sufficient to fund our operations for the next twelve months . our available credit under our credit facility has allowed us to consummate business acquisitions , devote more funds to promote our branded products ( especially our fisher and orchard valley harvest brands ) , reinvest in the company through capital expenditures , develop new products , pay special and annual cash dividends , and explore other growth strategies outlined in our strategic plan . cash flows from operating activities have historically been driven by net income but are also significantly influenced by inventory requirements , which can change based upon fluctuations in both quantities and market prices of the various nuts and nut products we buy and sell . current market trends in nut prices and crop estimates also impact nut procurement . 24 the following table sets forth certain cash flow information for the last two fiscal years ( dollars in thousands ) : replace_table_token_5_th operating activities . net cash provided by operating activities was $ 83.5 million in fiscal 2019 , an increase of $ 17.3 million compared to fiscal 2018. this increase in operating cash flow was due primarily to a $ 7.0 million increase in net income , combined with a reduced use of working capital for inventory compared to fiscal 2018. inventories decreased $ 17.3 million in fiscal 2019 compared to an $ 8.1 million decrease in inventories in fiscal 2018 which resulted in a net favorable change in cash of $ 7.3 million .

it also included provisions for legalizing on a federal level hemp 's cultivation , transport and sale for the first time in more than 75 years . hemp , not previously distinguished by the federal government from cannabis , a schedule 1 drug and banned as an agricultural crop , lacks substantive plant biology research and suffers from suboptimal genetics , highly fragmented germplasm and rampant inconsistencies . we are targeting hemp-based solutions that allow farmers to reliably and consistently achieve compliance with usda regulations , through varieties with improved functionality and application of specific attributes such as select cannabinoid contents for health and wellness , enhanced proteins profiles for plant-based dietary applications and industrial applications such as clothing and hempcrete . arcadia conducts its business in only federal and state markets in which its activities are legal . 29 on october 31 , 2019 , the usda published the interim final rule as authorized by the agriculture improvement act of 2018 for hemp cultivation , which mandates that states test hemp crops and dispose of `` hot `` crops that exceed 0.3 % thc . while hemp farmers will have access to crop protection options , the destruction of hot crops that fail these stringent inspections will not be a covered loss under crop insurance programs . in 2019 alone , more than 20 % of u.s. hemp crops were non-compliant , representing over $ 2 billion in losses for growers . arcadia goodhemp in december 2019 , we announced the launch of a new product line , goodhemp , as the company 's new commercial brand for delivering genetically superior hemp seeds , transplants , flower and extracts . on august 21 , 2020 , the company acquired by merger industrial seed innovations ( isi ) , an oregon-based industrial hemp breeding and seed company . as a result of the acquisition , the company acquired isi 's commercial and genetic assets , including seed varieties , germplasm library and intellectual property . isi 's rogue and umpqua seed varieties are now part of arcadia 's portfolio , alongside the company 's goodhemp line of genetically superior hemp seeds , transplants , and extracts . the acquisition has significantly broadened and accelerated commercialization of arcadia 's hemp-related breeding platform , as well as established a breeding research and development facility in the pacific northwest , a key production area in the hemp industry . the hemp business journal estimates the hemp cbd market – the primary non-psychoactive compound in hemp – totaled $ 190 million in u.s. sales in 2018. by 2025 , the brightfield group , a hemp and cbd market research firm , projects u.s. sales of hemp-based cbd to reach $ 16.8 billion . additionally , markets and markets estimates the non-cannabinoid , industrial hemp global market will exceed $ 26 billion by 2025. archipelago ventures hawaii , llc in august 2019 , we formed a new joint venture to serve the hawaiian , north american and asian hemp markets , archipelago ventures hawaii , llc ( “ archipelago ” ) . this new venture between arcadia and legacy ventures hawaii ( “ legacy ” ) combines arcadia 's extensive genetic expertise and seed innovation history with legacy 's growth capital and strategic advisory expertise in the hawaiian markets . additionally , legacy brings to the partnership years of proven success in extraction , product formulation and sales of cannabinol oil and distillate products through its equity partner , vapen cbd . legacy was originally formed to be a vehicle for its partners to pursue hemp opportunities within the hawaiian islands . archipelago creates a vertically integrated supply chain , from seed to sale , we believe the first of its kind in hawaii , and has three important strategic imperatives : ( 1 ) ensure a reliable supply chain during critical scale up of the global hemp market , a major risk mitigation for success , ( 2 ) ensure high quality throughout the supply chain , from genetics to the field and field to the customer and ( 3 ) ensure being well-positioned to address the unique needs and opportunities of the hawaiian market . arcadia goodwheat in 2018 , we launched our goodwheat brand , a non-genetically modified ( non-gm ) portfolio of wheat products that enables food manufacturers to differentiate their consumer-facing brands . consumer food companies are looking to simplify their food ingredient formulations and consumers are demanding “ clean labeling ” in their foods , paying more for foods having fewer artificial ingredients and more natural , recognizable and healthy ingredients . a 2017 survey by pr agency ingredient communications found that 73 % of consumers are happy to pay a higher retail price for a food or drink product made with ingredients they recognize . because goodwheat increases the nutrient density directly in the primary grains and oils , it provides the mechanism for food formulation simplification naturally , cost effectively and in a timeframe to meet evolving consumer demands . the brand launch is a key element of the company 's go-to-market strategy to achieve greater value for its innovations by participating in downstream consumer revenue opportunities . we designed the brand to make an immediate connection with consumers that products made with goodwheat meet their demands for healthier wheat options that also taste great . the goodwheat brand encompasses our current and future non-gm wheat portfolio of high fiber resistant starch ( rs ) and reduced gluten wheat varieties , as well as future wheat innovations . in october 2019 , the u.s. patent and trademark office granted us the latest patents for extended shelf life wheat , the newest trait in our non-genetically modified wheat portfolio . this new trait was designed to promote whole wheat consumption by improving the shelf life and taste of whole grain wheat products . story_separator_special_tag this includes replicating field trials , coordinating with our partners on their development programs and scaling harvest production of wheat and hemp . as of december 31 , 2020 , we had cash and cash equivalents of $ 14.0 million , restricted cash of $ 2.0 million and short-term investments of $ 11.6 million . for the years ended december 31 , 2020 and 2019 , the company had net losses of $ 6.0 million and $ 28.9 million , respectively , and net cash used in operations of $ 30.2 million and $ 17.2 million , respectively . as is disclosed in note 23 , on january 25 , 2021 , the company entered into a securities purchase agreement with certain institutional and accredited investors relating to the issuance and sale in a private placement of shares of company common stock and warrants for an aggregate of $ 25.1 million , exclusive of any related transaction fees . as is disclosed in note 12 and 13 , the company obtained funding through one common stock and warrant financing and two warrant exercise financings during 2020 , and two common stock and warrant financings and two 36 warrant exercise financings during 2019 . o n december 22 , 2020 , the company entered into agreements with institutional investors through a registered direct offering in the amount of $ 8 million , exclusive of any related transaction fees . in may and july 20 20 , investors exercised warrants in the amount of $ 9.4 million , exclusive of transactions costs . we believe that our existing cash , restricted cash , cash equivalents and short-term investments will be sufficient to meet our anticipated cash requirements for at least the next 12 months . we may seek to raise additional funds through debt or equity financings , if necessary . we may also consider entering into additional partner arrangements . our sale of additional equity would result in dilution to our stockholders . our incurrence of debt would result in debt service obligations , and the instruments governing our debt could provide for additional operating and financing covenants that would restrict our operations . if we do require additional funds and are not able to secure adequate additional funding , we may be forced to reduce our spending , extend payment terms with our suppliers , liquidate assets , or suspend or curtail planned development programs . any of these actions could materially harm our business , results of operations and financial condition . cash flows the following table summarizes our cash flows for the periods indicated ( in thousands ) : replace_table_token_2_th story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; `` > we recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services . see note 2 for further detail . 38 we generally recognize product revenues once passage of title has occurred , which is generally upon shipment . shipping and handling costs charged to customers are recorded as revenues and included in cost of product revenues at the tim e the sale is recognized . we have determined that , at the inception of each license agreement , there is only one deliverable for the license for , access to and assistance with the development of the specified intellectual property . we recognize revenue up-front and annual license fees in full when it is deemed probable to be earned . see note 2 for further detail . we recognize royalty revenue when the company can reasonably determine the amounts earned . we recognize revenue related to milestone payments when it is probable that such amounts would not be reversed . see note 2 for further detail . up-front license fees for newly executed agreements are recognized upon execution . annual license fees and milestone fees are variable consideration that is initially constrained and recognized only when it is probable that such amounts would not be reversed . the evaluation and analysis of such fees is performed and once the annual license or milestone fee is deemed probable to have been earned , it is recognized in full in that period . see note 2 for further detail . contract research revenue consists of amounts earned from performing contracted research activities for third parties . activities performed are related to breeding programs or the genetic engineering of plants and are subject to an executed agreement . we generally recognize fees for research activities ratably over the contractually specified performance period . grant revenues are recognized as eligible research and development expenses are incurred using a proportional performance recognition methodology . inventories inventory costs are tracked on a lot-identified basis , valued at the lower of cost or net realizable value and are included as cost of product revenues when sold . we compare the cost of inventories with market value and write down inventories to net realizable value , if lower . we write down inventory when conditions indicate that the net realizable value may be less than cost due to physical deterioration , obsolescence , changes in price levels or other factors . additionally , we provide reserves for excess and slow-moving inventory to its estimated net realizable value . the inventory write-downs are based upon estimates about future demand from our customers and distributors and market conditions . future events that could significantly influence our judgment and related estimates include conditions in target markets , introduction of new products or changes to current or future competitor products . stock-based compensation we recognize compensation expense related to the employee stock purchase plan and stock options based on the estimated fair value of the awards on the date of grant , net of estimated forfeitures . we estimate the

liquidity and capital resources general the primary uses of cash are to fund our current operations , fulfill contractual obligations , pursue our strategic plan and repay indebtedness . also , various uncertainties could result in additional uses of cash . the primary sources of cash are results of operations and availability under our credit agreement , dated february 7 , 2008 and subsequently amended most recently in november 2017 ( as amended , the “credit facility” ) , that provides a revolving loan commitment and letter of credit subfacility . we anticipate that expected net cash flow generated from operations and amounts available pursuant to the credit facility will be sufficient to fund our operations for the next twelve months . our available credit under our credit facility has allowed us to consummate business acquisitions , devote more funds to promote our branded products ( especially our fisher and orchard valley harvest brands ) , reinvest in the company through capital expenditures , develop new products , pay special and annual cash dividends , and explore other growth strategies outlined in our strategic plan . cash flows from operating activities have historically been driven by net income but are also significantly influenced by inventory requirements , which can change based upon fluctuations in both quantities and market prices of the various nuts and nut products we buy and sell . current market trends in nut prices and crop estimates also impact nut procurement . 24 the following table sets forth certain cash flow information for the last two fiscal years ( dollars in thousands ) : replace_table_token_5_th operating activities . net cash provided by operating activities was $ 83.5 million in fiscal 2019 , an increase of $ 17.3 million compared to fiscal 2018. this increase in operating cash flow was due primarily to a $ 7.0 million increase in net income , combined with a reduced use of working capital for inventory compared to fiscal 2018. inventories decreased $ 17.3 million in fiscal 2019 compared to an $ 8.1 million decrease in inventories in fiscal 2018 which resulted in a net favorable change in cash of $ 7.3 million .

it also included provisions for legalizing on a federal level hemp 's cultivation , transport and sale for the first time in more than 75 years . hemp , not previously distinguished by the federal government from cannabis , a schedule 1 drug and banned as an agricultural crop , lacks substantive plant biology research and suffers from suboptimal genetics , highly fragmented germplasm and rampant inconsistencies . we are targeting hemp-based solutions that allow farmers to reliably and consistently achieve compliance with usda regulations , through varieties with improved functionality and application of specific attributes such as select cannabinoid contents for health and wellness , enhanced proteins profiles for plant-based dietary applications and industrial applications such as clothing and hempcrete . arcadia conducts its business in only federal and state markets in which its activities are legal . 29 on october 31 , 2019 , the usda published the interim final rule as authorized by the agriculture improvement act of 2018 for hemp cultivation , which mandates that states test hemp crops and dispose of `` hot `` crops that exceed 0.3 % thc . while hemp farmers will have access to crop protection options , the destruction of hot crops that fail these stringent inspections will not be a covered loss under crop insurance programs . in 2019 alone , more than 20 % of u.s. hemp crops were non-compliant , representing over $ 2 billion in losses for growers . arcadia goodhemp in december 2019 , we announced the launch of a new product line , goodhemp , as the company 's new commercial brand for delivering genetically superior hemp seeds , transplants , flower and extracts . on august 21 , 2020 , the company acquired by merger industrial seed innovations ( isi ) , an oregon-based industrial hemp breeding and seed company . as a result of the acquisition , the company acquired isi 's commercial and genetic assets , including seed varieties , germplasm library and intellectual property . isi 's rogue and umpqua seed varieties are now part of arcadia 's portfolio , alongside the company 's goodhemp line of genetically superior hemp seeds , transplants , and extracts . the acquisition has significantly broadened and accelerated commercialization of arcadia 's hemp-related breeding platform , as well as established a breeding research and development facility in the pacific northwest , a key production area in the hemp industry . the hemp business journal estimates the hemp cbd market – the primary non-psychoactive compound in hemp – totaled $ 190 million in u.s. sales in 2018. by 2025 , the brightfield group , a hemp and cbd market research firm , projects u.s. sales of hemp-based cbd to reach $ 16.8 billion . additionally , markets and markets estimates the non-cannabinoid , industrial hemp global market will exceed $ 26 billion by 2025. archipelago ventures hawaii , llc in august 2019 , we formed a new joint venture to serve the hawaiian , north american and asian hemp markets , archipelago ventures hawaii , llc ( “ archipelago ” ) . this new venture between arcadia and legacy ventures hawaii ( “ legacy ” ) combines arcadia 's extensive genetic expertise and seed innovation history with legacy 's growth capital and strategic advisory expertise in the hawaiian markets . additionally , legacy brings to the partnership years of proven success in extraction , product formulation and sales of cannabinol oil and distillate products through its equity partner , vapen cbd . legacy was originally formed to be a vehicle for its partners to pursue hemp opportunities within the hawaiian islands . archipelago creates a vertically integrated supply chain , from seed to sale , we believe the first of its kind in hawaii , and has three important strategic imperatives : ( 1 ) ensure a reliable supply chain during critical scale up of the global hemp market , a major risk mitigation for success , ( 2 ) ensure high quality throughout the supply chain , from genetics to the field and field to the customer and ( 3 ) ensure being well-positioned to address the unique needs and opportunities of the hawaiian market . arcadia goodwheat in 2018 , we launched our goodwheat brand , a non-genetically modified ( non-gm ) portfolio of wheat products that enables food manufacturers to differentiate their consumer-facing brands . consumer food companies are looking to simplify their food ingredient formulations and consumers are demanding “ clean labeling ” in their foods , paying more for foods having fewer artificial ingredients and more natural , recognizable and healthy ingredients . a 2017 survey by pr agency ingredient communications found that 73 % of consumers are happy to pay a higher retail price for a food or drink product made with ingredients they recognize . because goodwheat increases the nutrient density directly in the primary grains and oils , it provides the mechanism for food formulation simplification naturally , cost effectively and in a timeframe to meet evolving consumer demands . the brand launch is a key element of the company 's go-to-market strategy to achieve greater value for its innovations by participating in downstream consumer revenue opportunities . we designed the brand to make an immediate connection with consumers that products made with goodwheat meet their demands for healthier wheat options that also taste great . the goodwheat brand encompasses our current and future non-gm wheat portfolio of high fiber resistant starch ( rs ) and reduced gluten wheat varieties , as well as future wheat innovations . in october 2019 , the u.s. patent and trademark office granted us the latest patents for extended shelf life wheat , the newest trait in our non-genetically modified wheat portfolio . this new trait was designed to promote whole wheat consumption by improving the shelf life and taste of whole grain wheat products . story_separator_special_tag this includes replicating field trials , coordinating with our partners on their development programs and scaling harvest production of wheat and hemp . as of december 31 , 2020 , we had cash and cash equivalents of $ 14.0 million , restricted cash of $ 2.0 million and short-term investments of $ 11.6 million . for the years ended december 31 , 2020 and 2019 , the company had net losses of $ 6.0 million and $ 28.9 million , respectively , and net cash used in operations of $ 30.2 million and $ 17.2 million , respectively . as is disclosed in note 23 , on january 25 , 2021 , the company entered into a securities purchase agreement with certain institutional and accredited investors relating to the issuance and sale in a private placement of shares of company common stock and warrants for an aggregate of $ 25.1 million , exclusive of any related transaction fees . as is disclosed in note 12 and 13 , the company obtained funding through one common stock and warrant financing and two warrant exercise financings during 2020 , and two common stock and warrant financings and two 36 warrant exercise financings during 2019 . o n december 22 , 2020 , the company entered into agreements with institutional investors through a registered direct offering in the amount of $ 8 million , exclusive of any related transaction fees . in may and july 20 20 , investors exercised warrants in the amount of $ 9.4 million , exclusive of transactions costs . we believe that our existing cash , restricted cash , cash equivalents and short-term investments will be sufficient to meet our anticipated cash requirements for at least the next 12 months . we may seek to raise additional funds through debt or equity financings , if necessary . we may also consider entering into additional partner arrangements . our sale of additional equity would result in dilution to our stockholders . our incurrence of debt would result in debt service obligations , and the instruments governing our debt could provide for additional operating and financing covenants that would restrict our operations . if we do require additional funds and are not able to secure adequate additional funding , we may be forced to reduce our spending , extend payment terms with our suppliers , liquidate assets , or suspend or curtail planned development programs . any of these actions could materially harm our business , results of operations and financial condition . cash flows the following table summarizes our cash flows for the periods indicated ( in thousands ) : replace_table_token_2_th story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; `` > we recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services . see note 2 for further detail . 38 we generally recognize product revenues once passage of title has occurred , which is generally upon shipment . shipping and handling costs charged to customers are recorded as revenues and included in cost of product revenues at the tim e the sale is recognized . we have determined that , at the inception of each license agreement , there is only one deliverable for the license for , access to and assistance with the development of the specified intellectual property . we recognize revenue up-front and annual license fees in full when it is deemed probable to be earned . see note 2 for further detail . we recognize royalty revenue when the company can reasonably determine the amounts earned . we recognize revenue related to milestone payments when it is probable that such amounts would not be reversed . see note 2 for further detail . up-front license fees for newly executed agreements are recognized upon execution . annual license fees and milestone fees are variable consideration that is initially constrained and recognized only when it is probable that such amounts would not be reversed . the evaluation and analysis of such fees is performed and once the annual license or milestone fee is deemed probable to have been earned , it is recognized in full in that period . see note 2 for further detail . contract research revenue consists of amounts earned from performing contracted research activities for third parties . activities performed are related to breeding programs or the genetic engineering of plants and are subject to an executed agreement . we generally recognize fees for research activities ratably over the contractually specified performance period . grant revenues are recognized as eligible research and development expenses are incurred using a proportional performance recognition methodology . inventories inventory costs are tracked on a lot-identified basis , valued at the lower of cost or net realizable value and are included as cost of product revenues when sold . we compare the cost of inventories with market value and write down inventories to net realizable value , if lower . we write down inventory when conditions indicate that the net realizable value may be less than cost due to physical deterioration , obsolescence , changes in price levels or other factors . additionally , we provide reserves for excess and slow-moving inventory to its estimated net realizable value . the inventory write-downs are based upon estimates about future demand from our customers and distributors and market conditions . future events that could significantly influence our judgment and related estimates include conditions in target markets , introduction of new products or changes to current or future competitor products . stock-based compensation we recognize compensation expense related to the employee stock purchase plan and stock options based on the estimated fair value of the awards on the date of grant , net of estimated forfeitures . we estimate the

cash flows from operating activities cash used in operating activities for the year ended december 31 , 2020 was $ 30.2 million . our net loss of $ 6.0 million , adjustments in our working capital accounts of $ 11.5 million , gain on sale of verdeca of $ 8.8 million , corporate securities received in exchange for license agreement of $ 4.3 million , change in fair value of common stock warrant liabilities of $ 6.6 million , operating lease payments of $ 910,000 , unrealized gain on corporate securities of $ 656,000 and net amortization of investment premium of $ 44,000 were partially offset by non-cash charges of $ 2.0 million for stock-based compensation , depreciation and amortization of $ 662,000 , lease amortization of $ 1.0 million , loss on extinguishment of warrant liability of $ 635,000 , as well as $ 4.3 million of inventory write-downs . cash used in operating activities for the year ended december 31 , 2019 was $ 17.2 million . our net loss of $ 28.9 million , change in fair value of contingent consideration of $ 1.0 million , operating lease payments of $ 715,000 , and net amortization of investment premium and discount of $ 180,000 were partially offset by the change in fair value of common stock warrant liabilities and common stock adjustment feature liability of $ 9.2 million , non-cash charges of $ 2.3 million for stock-based compensation , depreciation and amortization of $ 194,000 , lease amortization of $ 708,000 , as well as $ 0.7 million of offering costs incurred in connection with financing activities and adjustments in our working capital accounts of $ 0.1 million .

76 economic environment the company continued to be the most active provider of financial guaranty insurance in 2011 as a result of its financial strength and its ability to maintain its financial strength ratings in the double-a ratings category throughout the financial crisis . all of the company 's pre-2007 financial guaranty competitors , except agm , which the company acquired in 2009 , have had their financial strength ratings downgraded by rating agencies to below investment grade levels or are no longer rated , rendering them unable to underwrite new business . however , business conditions have been difficult for the entire financial guaranty insurance industry since mid-2007 and the company has faced challenges in maintaining its market penetration that continue today . while the overall economic environment in the u.s. at the end of 2011 was stronger than in 2010 , housing prices have not stabilized , unemployment rates have declined but remain relatively high and the ultimate credit experience on u.s. rmbs transactions underwritten from the end of 2004 through 2008 by many financial institutions , including the financial guaranty insurers , remains poor . furthermore , while hiring trends have improved , unemployment levels remain high and may take years to return to pre-recession levels , which may adversely affect assured guaranty 's loss experience on rmbs . in addition , the economic recession has also affected the credit performance of other markets , including securitizations of trust preferred securities ( `` trups `` ) that include subordinated capital and notes issued by banks , mortgage real estate investment trusts and insurance companies . the u.s. municipal bond market , which has been the company 's principal market since 2007 , has also changed significantly during the past three years . municipal credits have experienced increased budgetary stress . in addition , many states and towns have significant unfunded pension and retiree health care liabilities that create additional budgetary stress . although total state tax collections as well as sales tax and personal income tax collections grew in 2011 , overall tax collections are still weak compared with recent historical standards . in 2011 , new issuance volume in the u.s. and international public finance sectors did not return to historical levels , and the market for financial guaranty insurance was hampered by ratings uncertainty and municipal rating recalibrations . the primary contributing factors to the trend of low issuance volume have been : municipal issuers took advantage of the expiring build america bonds program in 2010 as opposed to using financial guaranty insurance , a reduction in capital spending due to municipal budget constraints and fiscal austerity , resulting in less need for increased debt , and a reluctance to increase taxes to service principal and interest costs under new debt . in the international arena , troubled eurozone countries are a source of stress in global equity and debt markets as the eu determines how to support financially weaker members such as greece . the company 's exposure to greece and other troubled eurozone countries is described in `` —results of operations—consolidated results of operations—losses in the insured portfolio `` and `` —insured portfolio—selected european exposures . `` the current economic environment has had a significant negative impact on the demand by investors for financial guaranty policies , and it is uncertain when or if demand for financial guaranties will return to their pre-economic crisis level . in particular , there has been limited demand for financial guaranties in 2011 in both the global structured finance and international infrastructure finance markets and also limited new issuance activity in those asset classes the company is actively trying to insure . as a result , near-term opportunities for financial guaranties in these two sectors are largely in secondary markets . the company expects that global structured finance and international infrastructure opportunities will increase in the future as the global economy recovers , issuers return to the capital markets for financings and institutional investors again utilize financial guaranties , although the company can not assure that this will occur . financial guaranties had been an essential component of capital market financings for international infrastructure projects and asset-based lending , such as for auto loans and leases and equipment financings , but these financings have been largely financed in recent years with relatively short-term bank loans . in 2011 , the company continued to be affected by a negative perception of financial guaranty insurers arising from the financial distress suffered by other companies in the industry during the financial crisis . in addition , the financial strength ratings of the company 's insurance subsidiaries were uncertain for most of the year . in january 2011 , after affirming agm and agc 's financial strength 77 ratings at aa+ ( stable outlook ) in october 2010 , s & p requested comments on proposed changes to its bond insurance ratings criteria , noting that if the proposed criteria were adopted , s & p could lower its financial strength ratings on existing investment grade bond insurers by one or more rating categories . in august 2011 , s & p released its final criteria , which contained a new `` largest obligor test `` that had not been included in the january 2011 request for comment . the largest obligor test had the effect of significantly reducing assured guaranty 's allowed single risk limits and limiting its financial strength rating level . then , in september 2011 , s & p placed the financial strength ratings of agm and agc on creditwatch negative . it was not until november 2011 that agm and agc were assigned financial strength ratings of aa- ( stable outlook ) . story_separator_special_tag the financial products companies ' obligations are currently , and at all times in the future required to be , supported by eligible assets in an amount sufficient to allow the financial products companies to meet their obligations . on september 29 , 2011 , the transaction documents required an analysis of the value of fsa asset management llc ( `` fsam `` ) assets versus the gics obligations and other associated liabilities of the financial products companies . on that day , the required amount of assets exceeded the liabilities , and therefore dexia was not required to post additional collateral to support its protection arrangements . assured guaranty believes the assets owned by the financial products companies are sufficient for them to meet their gic obligations and other associated liabilities . however , dexia is required to post additional collateral if there is any shortfall in assets as compared with liabilities in the future . in addition , as further described under `` —liquidity and capital resources—liquidity arrangements with respect to agmh 's former financial products business , `` the company has entered into various agreements with dexia pursuant to which dexia has assumed the credit and liquidity risks associated with agmh 's former financial products business . the cash portion of the purchase price for the agmh acquisition was financed through the sale of 44,275,000 common shares and 3,450,000 equity units in a public offering in june 2009. the equity units initially consist of a forward purchase contract and a 5 % undivided beneficial ownership interest in $ 1,000 principal amount 8.50 % senior notes due 2014 issued by agus ( `` 8.50 % senior notes `` ) . for a description of the equity units , see `` —liquidity and capital resources—commitments and contingencies—long term debt obligations—debt issued by agus—8.50 % senior notes . `` the net proceeds after underwriting expenses and offering costs for these two offerings totaled approximately $ 616.5 million . the company has agreed with dexia holdings to operate the business of agm in accordance with certain key parameters that will limit the company 's operating and financial flexibility . such restrictions include , for a three year period following the acquisition date ; the inability to insure new structured finance obligations , required rating agency confirmation that certain specified actions would not cause any downgrade of agm , inability to pay dividends , and inability to enter into certain commutation , novation or cutthrough reinsurance agreements over specified amounts . generally , for three years after the closing of the agmh acquisition : unless agm is rated below a1 by moody 's and aa- by s & p , it will only insure public finance and infrastructure obligations . an exception applies in connection with the recapture of business ceded by agm to a third party reinsurer under certain circumstances . agm will continue to be domiciled in new york and be treated as a monoline bond insurer for regulatory purposes . 83 agm will not take any of the following actions unless it receives prior rating agency confirmation that such action would not cause any rating currently assigned to agm to be downgraded immediately following such action : ( a ) merger ; ( b ) issuance of debt or other borrowing exceeding $ 250 million ; ( c ) issuance of equity or other capital instruments exceeding $ 250 million ; ( d ) entry into new reinsurance arrangements involving more than 10 % of the portfolio as measured by either unearned premium reserve or net par outstanding ; or ( e ) any waiver , amendment or modification of any agreement relating to capital or liquidity support of agm exceeding $ 250 million . agm will not repurchase , redeem or pay any dividends in relation to any class of equity interests , unless : ( a ) at such time agm is rated at least aa- by s & p and aa3 by moody 's ( if such rating agencies still rate financial guaranty insurers generally ) and the aggregate amount of such dividends in any year does not exceed 125 % of agmh 's debt service for that year ; or ( b ) agm receives prior rating agency confirmation that such action would not cause any rating currently assigned to agm to be downgraded immediately following such action . agm will not enter into : ( a ) commutation or novation agreements with respect to its insured public finance portfolio involving a payment by agm exceeding $ 250 million ; or ( b ) any `` cut-through `` reinsurance , pledge of collateral security or similar arrangement involving a payment by agm whereby the benefits of reinsurance purchased by agm or of other assets of agm would be available on a preferred or priority basis to a particular class or subset of policyholders of agm relative to the position of dexia as policyholder upon the default or insolvency of agm ( whether or not with the consent of any relevant insurance regulatory authority ) . this provision does not limit : collateral arrangements between agm and its subsidiaries in support of intercompany reinsurance obligations ; or statutory deposits or other collateral arrangements required by law in connection with the conduct of business in any jurisdiction ; or pledges of recoveries or other amounts to secure repayment of amounts borrowed under agm 's `` soft capital `` facilities or its strip liquidity facility with dcl . see `` —liquidity and capital resources—liquidity arrangements with respect to agmh 's former financial products business—strip coverage facility for the leveraged lease business . `` furthermore , until the date on which ( 1 ) a credit rating has been assigned by s & p and moody 's to the gic issuers ( and or the liabilities of the gic issuers under the relevant gics have been separately rated by s & p and moody 's ) which is independent

cash flows from operating activities cash used in operating activities for the year ended december 31 , 2020 was $ 30.2 million . our net loss of $ 6.0 million , adjustments in our working capital accounts of $ 11.5 million , gain on sale of verdeca of $ 8.8 million , corporate securities received in exchange for license agreement of $ 4.3 million , change in fair value of common stock warrant liabilities of $ 6.6 million , operating lease payments of $ 910,000 , unrealized gain on corporate securities of $ 656,000 and net amortization of investment premium of $ 44,000 were partially offset by non-cash charges of $ 2.0 million for stock-based compensation , depreciation and amortization of $ 662,000 , lease amortization of $ 1.0 million , loss on extinguishment of warrant liability of $ 635,000 , as well as $ 4.3 million of inventory write-downs . cash used in operating activities for the year ended december 31 , 2019 was $ 17.2 million . our net loss of $ 28.9 million , change in fair value of contingent consideration of $ 1.0 million , operating lease payments of $ 715,000 , and net amortization of investment premium and discount of $ 180,000 were partially offset by the change in fair value of common stock warrant liabilities and common stock adjustment feature liability of $ 9.2 million , non-cash charges of $ 2.3 million for stock-based compensation , depreciation and amortization of $ 194,000 , lease amortization of $ 708,000 , as well as $ 0.7 million of offering costs incurred in connection with financing activities and adjustments in our working capital accounts of $ 0.1 million .

76 economic environment the company continued to be the most active provider of financial guaranty insurance in 2011 as a result of its financial strength and its ability to maintain its financial strength ratings in the double-a ratings category throughout the financial crisis . all of the company 's pre-2007 financial guaranty competitors , except agm , which the company acquired in 2009 , have had their financial strength ratings downgraded by rating agencies to below investment grade levels or are no longer rated , rendering them unable to underwrite new business . however , business conditions have been difficult for the entire financial guaranty insurance industry since mid-2007 and the company has faced challenges in maintaining its market penetration that continue today . while the overall economic environment in the u.s. at the end of 2011 was stronger than in 2010 , housing prices have not stabilized , unemployment rates have declined but remain relatively high and the ultimate credit experience on u.s. rmbs transactions underwritten from the end of 2004 through 2008 by many financial institutions , including the financial guaranty insurers , remains poor . furthermore , while hiring trends have improved , unemployment levels remain high and may take years to return to pre-recession levels , which may adversely affect assured guaranty 's loss experience on rmbs . in addition , the economic recession has also affected the credit performance of other markets , including securitizations of trust preferred securities ( `` trups `` ) that include subordinated capital and notes issued by banks , mortgage real estate investment trusts and insurance companies . the u.s. municipal bond market , which has been the company 's principal market since 2007 , has also changed significantly during the past three years . municipal credits have experienced increased budgetary stress . in addition , many states and towns have significant unfunded pension and retiree health care liabilities that create additional budgetary stress . although total state tax collections as well as sales tax and personal income tax collections grew in 2011 , overall tax collections are still weak compared with recent historical standards . in 2011 , new issuance volume in the u.s. and international public finance sectors did not return to historical levels , and the market for financial guaranty insurance was hampered by ratings uncertainty and municipal rating recalibrations . the primary contributing factors to the trend of low issuance volume have been : municipal issuers took advantage of the expiring build america bonds program in 2010 as opposed to using financial guaranty insurance , a reduction in capital spending due to municipal budget constraints and fiscal austerity , resulting in less need for increased debt , and a reluctance to increase taxes to service principal and interest costs under new debt . in the international arena , troubled eurozone countries are a source of stress in global equity and debt markets as the eu determines how to support financially weaker members such as greece . the company 's exposure to greece and other troubled eurozone countries is described in `` —results of operations—consolidated results of operations—losses in the insured portfolio `` and `` —insured portfolio—selected european exposures . `` the current economic environment has had a significant negative impact on the demand by investors for financial guaranty policies , and it is uncertain when or if demand for financial guaranties will return to their pre-economic crisis level . in particular , there has been limited demand for financial guaranties in 2011 in both the global structured finance and international infrastructure finance markets and also limited new issuance activity in those asset classes the company is actively trying to insure . as a result , near-term opportunities for financial guaranties in these two sectors are largely in secondary markets . the company expects that global structured finance and international infrastructure opportunities will increase in the future as the global economy recovers , issuers return to the capital markets for financings and institutional investors again utilize financial guaranties , although the company can not assure that this will occur . financial guaranties had been an essential component of capital market financings for international infrastructure projects and asset-based lending , such as for auto loans and leases and equipment financings , but these financings have been largely financed in recent years with relatively short-term bank loans . in 2011 , the company continued to be affected by a negative perception of financial guaranty insurers arising from the financial distress suffered by other companies in the industry during the financial crisis . in addition , the financial strength ratings of the company 's insurance subsidiaries were uncertain for most of the year . in january 2011 , after affirming agm and agc 's financial strength 77 ratings at aa+ ( stable outlook ) in october 2010 , s & p requested comments on proposed changes to its bond insurance ratings criteria , noting that if the proposed criteria were adopted , s & p could lower its financial strength ratings on existing investment grade bond insurers by one or more rating categories . in august 2011 , s & p released its final criteria , which contained a new `` largest obligor test `` that had not been included in the january 2011 request for comment . the largest obligor test had the effect of significantly reducing assured guaranty 's allowed single risk limits and limiting its financial strength rating level . then , in september 2011 , s & p placed the financial strength ratings of agm and agc on creditwatch negative . it was not until november 2011 that agm and agc were assigned financial strength ratings of aa- ( stable outlook ) . story_separator_special_tag the financial products companies ' obligations are currently , and at all times in the future required to be , supported by eligible assets in an amount sufficient to allow the financial products companies to meet their obligations . on september 29 , 2011 , the transaction documents required an analysis of the value of fsa asset management llc ( `` fsam `` ) assets versus the gics obligations and other associated liabilities of the financial products companies . on that day , the required amount of assets exceeded the liabilities , and therefore dexia was not required to post additional collateral to support its protection arrangements . assured guaranty believes the assets owned by the financial products companies are sufficient for them to meet their gic obligations and other associated liabilities . however , dexia is required to post additional collateral if there is any shortfall in assets as compared with liabilities in the future . in addition , as further described under `` —liquidity and capital resources—liquidity arrangements with respect to agmh 's former financial products business , `` the company has entered into various agreements with dexia pursuant to which dexia has assumed the credit and liquidity risks associated with agmh 's former financial products business . the cash portion of the purchase price for the agmh acquisition was financed through the sale of 44,275,000 common shares and 3,450,000 equity units in a public offering in june 2009. the equity units initially consist of a forward purchase contract and a 5 % undivided beneficial ownership interest in $ 1,000 principal amount 8.50 % senior notes due 2014 issued by agus ( `` 8.50 % senior notes `` ) . for a description of the equity units , see `` —liquidity and capital resources—commitments and contingencies—long term debt obligations—debt issued by agus—8.50 % senior notes . `` the net proceeds after underwriting expenses and offering costs for these two offerings totaled approximately $ 616.5 million . the company has agreed with dexia holdings to operate the business of agm in accordance with certain key parameters that will limit the company 's operating and financial flexibility . such restrictions include , for a three year period following the acquisition date ; the inability to insure new structured finance obligations , required rating agency confirmation that certain specified actions would not cause any downgrade of agm , inability to pay dividends , and inability to enter into certain commutation , novation or cutthrough reinsurance agreements over specified amounts . generally , for three years after the closing of the agmh acquisition : unless agm is rated below a1 by moody 's and aa- by s & p , it will only insure public finance and infrastructure obligations . an exception applies in connection with the recapture of business ceded by agm to a third party reinsurer under certain circumstances . agm will continue to be domiciled in new york and be treated as a monoline bond insurer for regulatory purposes . 83 agm will not take any of the following actions unless it receives prior rating agency confirmation that such action would not cause any rating currently assigned to agm to be downgraded immediately following such action : ( a ) merger ; ( b ) issuance of debt or other borrowing exceeding $ 250 million ; ( c ) issuance of equity or other capital instruments exceeding $ 250 million ; ( d ) entry into new reinsurance arrangements involving more than 10 % of the portfolio as measured by either unearned premium reserve or net par outstanding ; or ( e ) any waiver , amendment or modification of any agreement relating to capital or liquidity support of agm exceeding $ 250 million . agm will not repurchase , redeem or pay any dividends in relation to any class of equity interests , unless : ( a ) at such time agm is rated at least aa- by s & p and aa3 by moody 's ( if such rating agencies still rate financial guaranty insurers generally ) and the aggregate amount of such dividends in any year does not exceed 125 % of agmh 's debt service for that year ; or ( b ) agm receives prior rating agency confirmation that such action would not cause any rating currently assigned to agm to be downgraded immediately following such action . agm will not enter into : ( a ) commutation or novation agreements with respect to its insured public finance portfolio involving a payment by agm exceeding $ 250 million ; or ( b ) any `` cut-through `` reinsurance , pledge of collateral security or similar arrangement involving a payment by agm whereby the benefits of reinsurance purchased by agm or of other assets of agm would be available on a preferred or priority basis to a particular class or subset of policyholders of agm relative to the position of dexia as policyholder upon the default or insolvency of agm ( whether or not with the consent of any relevant insurance regulatory authority ) . this provision does not limit : collateral arrangements between agm and its subsidiaries in support of intercompany reinsurance obligations ; or statutory deposits or other collateral arrangements required by law in connection with the conduct of business in any jurisdiction ; or pledges of recoveries or other amounts to secure repayment of amounts borrowed under agm 's `` soft capital `` facilities or its strip liquidity facility with dcl . see `` —liquidity and capital resources—liquidity arrangements with respect to agmh 's former financial products business—strip coverage facility for the leveraged lease business . `` furthermore , until the date on which ( 1 ) a credit rating has been assigned by s & p and moody 's to the gic issuers ( and or the liabilities of the gic issuers under the relevant gics have been separately rated by s & p and moody 's ) which is independent

principal and carrying amounts of debt replace_table_token_64_th ( 1 ) principal amounts vary from carrying amounts due primarily to acquisition method fair value adjustments at the acquisition date , which are accreted or amortized into interest expense over the remaining terms of these obligations . agl fully and unconditionally guarantees the following debt obligations issued by agus : ( 1 ) 7.0 % senior notes and ( 2 ) 8.50 % senior notes . agl also fully and unconditionally guarantees the following agmh debt obligations : ( 1 ) 6 7 / 8 % quarterly income bonds securities ( `` quibs '' ) , ( 2 ) 6.25 % notes and ( 3 ) 5.60 % notes . in addition , agl guarantees , on a junior subordinated basis , agus 's 135 series a , enhanced junior subordinated debentures and the $ 300 million of agmh 's outstanding junior subordinated debentures . debt issued by agus 7.0 % senior notes . on may 18 , 2004 , agus issued $ 200.0 million of 7.0 % senior notes due 2034 ( `` 7.0 % senior notes '' ) for net proceeds of $ 197.3 million . although the coupon on the senior notes is 7.0 % , the effective rate is approximately 6.4 % , taking into account the effect of a cash flow hedge executed by the company in march 2004 . 8.50 % senior notes . on june 24 , 2009 , agl issued 3,450,000 equity units for net proceeds of approximately $ 166.8 million in a registered public offering . the net proceeds of the offering were used to pay a portion of the consideration for the agmh acquisition . each equity unit consists of ( i ) a forward purchase contract and ( ii ) a 5 % undivided beneficial ownership interest in $ 1,000 principal amount 8.50 % senior notes due 2014 issued by agus .

the model incorporates assumptions that market participants use in estimating future net servicing income , including estimates of prepayment speeds , discount rate , default rates , cost to service ( including delinquency and foreclosure costs ) , escrow account earnings , contractual servicing fee income and other ancillary income such as late fees . management reviews all significant assumptions quarterly . mortgage loan prepayment speeds , a key assumption in the model , is the annual rate at which borrowers are forecasted to repay their mortgage loan principal . the discount rate used to determine the present value of estimated future net servicing income , another key assumption in the model , is an estimate of the rate of return investors in the market would require for an asset with similar risk . both assumptions can , and generally will , change as market conditions and interest rates change . an increase in either the prepayment speed or discount rate assumption will result in a decrease in the fair value of the msr , while a decrease in these assumptions will result in an increase in the fair value of the msr . in recent years , there have been significant market-driven fluctuations in loan prepayment speeds and discount rates . these fluctuations can be rapid and may continue to be significant . therefore , estimating prepayment speed and or discount rates within ranges that market participants would use in determining the fair value of the msr requires significant management judgment . general we are a financial holding company headquartered in ruston , louisiana . through our wholly owned bank subsidiary , origin bank , we provide a broad range of financial services to small and medium-sized businesses , municipalities , high net worth individuals and retail clients through 43 banking centers in louisiana , texas and mississippi . as a financial holding company operating through one segment , we generate the majority of our revenue from interest earned on loans and investments , service charges and fees on deposit accounts . we incur interest expense on deposits and other borrowed funds and noninterest expense , such as salaries and employee benefits and occupancy expenses . we analyze our ability to maximize income generated from interest earning assets and expense of our liabilities through our net interest margin . net interest margin is a ratio calculated as net interest income divided by average interest-earning assets . net interest income is the difference between interest income on interest-earning assets , such as loans , securities and interest-bearing cash , and interest expense on interest-bearing liabilities , such as deposits and borrowings . net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities . 42 changes in market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities , as well as in the volume and types of interest-earning assets , interest-bearing and noninterest-bearing liabilities and stockholders ' equity , are usually the largest drivers of periodic changes in net interest spread , net interest margin and net interest income . fluctuations in market interest rates are driven by many factors , including governmental monetary policies , inflation , deflation , macroeconomic developments , changes in unemployment , the money supply , political and international conditions and conditions in domestic and foreign financial markets . periodic changes in the volume and types of loans in our loan portfolio are affected by , among other factors , economic and competitive conditions , as well as developments affecting the real estate , technology , financial services , insurance , transportation and manufacturing sectors within our target markets . the following discussion and analysis presents the significant factors that affected our financial conditions as of december 31 , 2019 and 2018 , and results of operations for each of the years then ended . refer to managements ' discussion and analysis of results of operations and financial condition included in our annual report on form 10-k filed with the sec on february 28 , 2019 ( the `` 2018 form 10-k `` ) for a discussion and analysis of the significant factors that affected periods prior to 2018. comparison of results of operations for the years ended december 31 , 2019 , 2018 and 2017 net interest income year ended december 31 , 2019 , compared to year ended december 31 , 2018 net interest income for the year ended december 31 , 2019 , was $ 173.7 million , an increase of $ 20.3 million over the year ended december 31 , 2018 . the increase was driven by higher average outstanding balances in our loan portfolio , partially offset by higher rates paid on our deposits . average loans held for investment totaled $ 3.97 billion for the year ended december 31 , 2019 , compared to $ 3.40 billion for the year ended december 31 , 2018 . the yield earned on our loans held for investment was 5.18 % for the year ended december 31 , 2019 , compared to 4.96 % for the year ended december 31 , 2018 . increases in average loans held for investment provided approximately $ 28.8 million of the increase in the yield earned on loans held for investment while the increase in rates provided approximately $ 8.7 million of the increase in interest income . commercial and industrial , construction/land/land development and commercial real estate loans contributed a total of $ 32.1 million of the increase . these increases were partially offset by an increase in the cost of funding . the average cost of our interest-bearing liabilities increased during the year ended december 31 , 2019 , compared to 2018 , primarily due to higher overall deposit rates . story_separator_special_tag 49 income tax expense for the year ended december 31 , 2019 , we recognized income tax expense of $ 12.7 million , compared to $ 10.8 million and $ 5.8 million for the years ended december 31 , 2018 and 2017 , respectively . our effective tax rate for the year ended december 31 , 2019 , was 19.0 % , compared to 17.4 % and 28.4 % for the years ended december 31 , 2018 and 2017 , respectively . the increase in our effective tax rate for the year ended december 31 , 2019 , was primarily due to the decrease in income from tax-exempt securities , increase in state income taxes and decrease in low income housing tax credits . the decrease in our effective tax rate for the year ended december 31 , 2018 , compared to the rate for the year 2017 was the result of the tax cuts and jobs act ( `` tax act `` ) , which was enacted on december 22 , 2017. the tax act lowered the federal corporate income tax rate to 21 % from 35 % for tax years beginning in 2018. the tax act also required a revaluation of the company 's net deferred tax asset ( `` dta `` ) to account for the future impact of lower corporate income tax rates and other provisions of the legislation . the revaluation of the company 's dta balance resulted in a $ 282,000 adjustment from accumulated other comprehensive income to retained earnings . our effective income tax rates have differed from the applicable u.s. statutory rates of 21 % at both december 31 , 2019 and 2018 , and 35 % for december 31 , 2017 , due to the effect of tax-exempt income from securities , low income housing and qualified school construction bond tax credits , tax-exempt income from life insurance policies and income tax effects associated with stock-based compensation . because of these items , we expect our effective income tax rate to continue to remain below the applicable u.s. statutory rate . these tax-exempt items can have a larger than proportional effect on the effective income tax rate as net income decreases . comparison of financial condition at december 31 , 2019 , and december 31 , 2018 general total assets increased by $ 503.1 million , or 10.4 % , to $ 5.32 billion at december 31 , 2019 , from $ 4.82 billion at december 31 , 2018 . the increase was primarily attributable to $ 354.1 million increase in loans held for investment and $ 183.7 million increase in interest-bearing deposits in banks partially offset by a decrease of $ 74.6 million in securities available for sale . loan portfolio our loan portfolio is our largest category of interest-earning assets and interest income earned on our loan portfolio is our primary source of income . at december 31 , 2019 , 70.4 % of the loan portfolio held for investment was comprised of commercial and industrial loans , mortgage warehouse lines of credit and commercial real estate loans , which were primarily originated within our market areas of north louisiana , texas and mississippi . 50 the following table presents the ending balance of our loan portfolio held for investment at the dates indicated . replace_table_token_9_th replace_table_token_10_th at december 31 , 2019 , total loans held for investment were $ 4.14 billion , an increase of $ 354.1 million , or 9.3 % , compared to $ 3.79 billion at december 31 , 2018 . the increase was driven by organic growth in all markets and led by increases in construction/land/land development and commercial and industrial loans . in 2018 , as a complement to our organic growth strategy , several lift-out teams were on-boarded in our houston market and seasoned lending professionals and relationship managers were recruited in our dallas and shreveport markets . our houston banking team was responsible for $ 259.8 million and $ 130.3 million in loan growth during 2019 and 2018 , respectively . 51 loan portfolio maturity analysis the table below presents the maturity distribution of our loans held for investment at december 31 , 2019 . the table also presents the portion of our loans that have fixed interest rates , rather than interest rates that fluctuate over the life of the loans based on changes in the interest rate environment . replace_table_token_11_th nonperforming assets nonperforming assets consist of nonperforming loans and property acquired through foreclosures or repossession . our nonperforming loans are comprised of nonaccrual loans and accruing loans that are contractually 90 days or more past due . loans are considered past due when principal and interest payments have not been received at the date such payments are contractually due . we discontinue accruing interest on loans when we determine the borrower 's financial condition is such that collection of interest and principal payments in accordance with the terms of the loan are not reasonably assured . loans may be placed on nonaccrual status even if the contractual payments are not past due if information becomes available that causes substantial doubt about the borrower 's ability to meet the contractual obligations of the loan . all interest accrued but not collected for loans that are placed on nonaccrual status is reversed against interest income . interest income is subsequently recognized only to the extent cash payments are received in excess of principal outstanding . loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured . if a loan is determined by management to be uncollectible , regardless of size , the portion of the loan determined to be uncollectible is then charged to the allowance for loan losses . we manage the quality of our lending portfolio in part through a disciplined underwriting policy and through continual monitoring of loan performance and borrowers ' financial condition .

principal and carrying amounts of debt replace_table_token_64_th ( 1 ) principal amounts vary from carrying amounts due primarily to acquisition method fair value adjustments at the acquisition date , which are accreted or amortized into interest expense over the remaining terms of these obligations . agl fully and unconditionally guarantees the following debt obligations issued by agus : ( 1 ) 7.0 % senior notes and ( 2 ) 8.50 % senior notes . agl also fully and unconditionally guarantees the following agmh debt obligations : ( 1 ) 6 7 / 8 % quarterly income bonds securities ( `` quibs '' ) , ( 2 ) 6.25 % notes and ( 3 ) 5.60 % notes . in addition , agl guarantees , on a junior subordinated basis , agus 's 135 series a , enhanced junior subordinated debentures and the $ 300 million of agmh 's outstanding junior subordinated debentures . debt issued by agus 7.0 % senior notes . on may 18 , 2004 , agus issued $ 200.0 million of 7.0 % senior notes due 2034 ( `` 7.0 % senior notes '' ) for net proceeds of $ 197.3 million . although the coupon on the senior notes is 7.0 % , the effective rate is approximately 6.4 % , taking into account the effect of a cash flow hedge executed by the company in march 2004 . 8.50 % senior notes . on june 24 , 2009 , agl issued 3,450,000 equity units for net proceeds of approximately $ 166.8 million in a registered public offering . the net proceeds of the offering were used to pay a portion of the consideration for the agmh acquisition . each equity unit consists of ( i ) a forward purchase contract and ( ii ) a 5 % undivided beneficial ownership interest in $ 1,000 principal amount 8.50 % senior notes due 2014 issued by agus .

the model incorporates assumptions that market participants use in estimating future net servicing income , including estimates of prepayment speeds , discount rate , default rates , cost to service ( including delinquency and foreclosure costs ) , escrow account earnings , contractual servicing fee income and other ancillary income such as late fees . management reviews all significant assumptions quarterly . mortgage loan prepayment speeds , a key assumption in the model , is the annual rate at which borrowers are forecasted to repay their mortgage loan principal . the discount rate used to determine the present value of estimated future net servicing income , another key assumption in the model , is an estimate of the rate of return investors in the market would require for an asset with similar risk . both assumptions can , and generally will , change as market conditions and interest rates change . an increase in either the prepayment speed or discount rate assumption will result in a decrease in the fair value of the msr , while a decrease in these assumptions will result in an increase in the fair value of the msr . in recent years , there have been significant market-driven fluctuations in loan prepayment speeds and discount rates . these fluctuations can be rapid and may continue to be significant . therefore , estimating prepayment speed and or discount rates within ranges that market participants would use in determining the fair value of the msr requires significant management judgment . general we are a financial holding company headquartered in ruston , louisiana . through our wholly owned bank subsidiary , origin bank , we provide a broad range of financial services to small and medium-sized businesses , municipalities , high net worth individuals and retail clients through 43 banking centers in louisiana , texas and mississippi . as a financial holding company operating through one segment , we generate the majority of our revenue from interest earned on loans and investments , service charges and fees on deposit accounts . we incur interest expense on deposits and other borrowed funds and noninterest expense , such as salaries and employee benefits and occupancy expenses . we analyze our ability to maximize income generated from interest earning assets and expense of our liabilities through our net interest margin . net interest margin is a ratio calculated as net interest income divided by average interest-earning assets . net interest income is the difference between interest income on interest-earning assets , such as loans , securities and interest-bearing cash , and interest expense on interest-bearing liabilities , such as deposits and borrowings . net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities . 42 changes in market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities , as well as in the volume and types of interest-earning assets , interest-bearing and noninterest-bearing liabilities and stockholders ' equity , are usually the largest drivers of periodic changes in net interest spread , net interest margin and net interest income . fluctuations in market interest rates are driven by many factors , including governmental monetary policies , inflation , deflation , macroeconomic developments , changes in unemployment , the money supply , political and international conditions and conditions in domestic and foreign financial markets . periodic changes in the volume and types of loans in our loan portfolio are affected by , among other factors , economic and competitive conditions , as well as developments affecting the real estate , technology , financial services , insurance , transportation and manufacturing sectors within our target markets . the following discussion and analysis presents the significant factors that affected our financial conditions as of december 31 , 2019 and 2018 , and results of operations for each of the years then ended . refer to managements ' discussion and analysis of results of operations and financial condition included in our annual report on form 10-k filed with the sec on february 28 , 2019 ( the `` 2018 form 10-k `` ) for a discussion and analysis of the significant factors that affected periods prior to 2018. comparison of results of operations for the years ended december 31 , 2019 , 2018 and 2017 net interest income year ended december 31 , 2019 , compared to year ended december 31 , 2018 net interest income for the year ended december 31 , 2019 , was $ 173.7 million , an increase of $ 20.3 million over the year ended december 31 , 2018 . the increase was driven by higher average outstanding balances in our loan portfolio , partially offset by higher rates paid on our deposits . average loans held for investment totaled $ 3.97 billion for the year ended december 31 , 2019 , compared to $ 3.40 billion for the year ended december 31 , 2018 . the yield earned on our loans held for investment was 5.18 % for the year ended december 31 , 2019 , compared to 4.96 % for the year ended december 31 , 2018 . increases in average loans held for investment provided approximately $ 28.8 million of the increase in the yield earned on loans held for investment while the increase in rates provided approximately $ 8.7 million of the increase in interest income . commercial and industrial , construction/land/land development and commercial real estate loans contributed a total of $ 32.1 million of the increase . these increases were partially offset by an increase in the cost of funding . the average cost of our interest-bearing liabilities increased during the year ended december 31 , 2019 , compared to 2018 , primarily due to higher overall deposit rates . story_separator_special_tag 49 income tax expense for the year ended december 31 , 2019 , we recognized income tax expense of $ 12.7 million , compared to $ 10.8 million and $ 5.8 million for the years ended december 31 , 2018 and 2017 , respectively . our effective tax rate for the year ended december 31 , 2019 , was 19.0 % , compared to 17.4 % and 28.4 % for the years ended december 31 , 2018 and 2017 , respectively . the increase in our effective tax rate for the year ended december 31 , 2019 , was primarily due to the decrease in income from tax-exempt securities , increase in state income taxes and decrease in low income housing tax credits . the decrease in our effective tax rate for the year ended december 31 , 2018 , compared to the rate for the year 2017 was the result of the tax cuts and jobs act ( `` tax act `` ) , which was enacted on december 22 , 2017. the tax act lowered the federal corporate income tax rate to 21 % from 35 % for tax years beginning in 2018. the tax act also required a revaluation of the company 's net deferred tax asset ( `` dta `` ) to account for the future impact of lower corporate income tax rates and other provisions of the legislation . the revaluation of the company 's dta balance resulted in a $ 282,000 adjustment from accumulated other comprehensive income to retained earnings . our effective income tax rates have differed from the applicable u.s. statutory rates of 21 % at both december 31 , 2019 and 2018 , and 35 % for december 31 , 2017 , due to the effect of tax-exempt income from securities , low income housing and qualified school construction bond tax credits , tax-exempt income from life insurance policies and income tax effects associated with stock-based compensation . because of these items , we expect our effective income tax rate to continue to remain below the applicable u.s. statutory rate . these tax-exempt items can have a larger than proportional effect on the effective income tax rate as net income decreases . comparison of financial condition at december 31 , 2019 , and december 31 , 2018 general total assets increased by $ 503.1 million , or 10.4 % , to $ 5.32 billion at december 31 , 2019 , from $ 4.82 billion at december 31 , 2018 . the increase was primarily attributable to $ 354.1 million increase in loans held for investment and $ 183.7 million increase in interest-bearing deposits in banks partially offset by a decrease of $ 74.6 million in securities available for sale . loan portfolio our loan portfolio is our largest category of interest-earning assets and interest income earned on our loan portfolio is our primary source of income . at december 31 , 2019 , 70.4 % of the loan portfolio held for investment was comprised of commercial and industrial loans , mortgage warehouse lines of credit and commercial real estate loans , which were primarily originated within our market areas of north louisiana , texas and mississippi . 50 the following table presents the ending balance of our loan portfolio held for investment at the dates indicated . replace_table_token_9_th replace_table_token_10_th at december 31 , 2019 , total loans held for investment were $ 4.14 billion , an increase of $ 354.1 million , or 9.3 % , compared to $ 3.79 billion at december 31 , 2018 . the increase was driven by organic growth in all markets and led by increases in construction/land/land development and commercial and industrial loans . in 2018 , as a complement to our organic growth strategy , several lift-out teams were on-boarded in our houston market and seasoned lending professionals and relationship managers were recruited in our dallas and shreveport markets . our houston banking team was responsible for $ 259.8 million and $ 130.3 million in loan growth during 2019 and 2018 , respectively . 51 loan portfolio maturity analysis the table below presents the maturity distribution of our loans held for investment at december 31 , 2019 . the table also presents the portion of our loans that have fixed interest rates , rather than interest rates that fluctuate over the life of the loans based on changes in the interest rate environment . replace_table_token_11_th nonperforming assets nonperforming assets consist of nonperforming loans and property acquired through foreclosures or repossession . our nonperforming loans are comprised of nonaccrual loans and accruing loans that are contractually 90 days or more past due . loans are considered past due when principal and interest payments have not been received at the date such payments are contractually due . we discontinue accruing interest on loans when we determine the borrower 's financial condition is such that collection of interest and principal payments in accordance with the terms of the loan are not reasonably assured . loans may be placed on nonaccrual status even if the contractual payments are not past due if information becomes available that causes substantial doubt about the borrower 's ability to meet the contractual obligations of the loan . all interest accrued but not collected for loans that are placed on nonaccrual status is reversed against interest income . interest income is subsequently recognized only to the extent cash payments are received in excess of principal outstanding . loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured . if a loan is determined by management to be uncollectible , regardless of size , the portion of the loan determined to be uncollectible is then charged to the allowance for loan losses . we manage the quality of our lending portfolio in part through a disciplined underwriting policy and through continual monitoring of loan performance and borrowers ' financial condition .

liquidity management oversees our liquidity position to ensure adequate cash and liquid assets are available to support our operations and satisfy current and future financial obligations , including demand for loan funding and deposit withdrawals . management continually monitors , forecasts and tests our liquidity and non-core dependency ratios to ensure compliance with targets established by our asset-liability management committee and approved by our board of directors . management measures our liquidity position by giving consideration to both on-balance sheet and off-balance sheet sources of and demands for funds on a daily and weekly basis . at december 31 , 2019 and 2018 , our cash and liquid securities totaled 8.4 % and 5.0 % of total assets , respectively , providing liquidity to support our existing operations . the company , which is a separate legal entity apart from the bank , must provide for its own liquidity , including payment of any dividends that may be declared for our common stockholders and interest and principal on any outstanding debt or trust preferred securities incurred by the company . the company had available cash balances of $ 5.9 million at both december 31 , 2019 and 2018 . this cash is available for the general corporate purposes described above , as well as providing capital support to the bank and financing potential future acquisitions . in addition , the company has up to $ 50.0 million available under a line of credit . see note 11 - borrowings contained in item 8 of this report for more information .

selling and administrative expense for fiscal 2013 increased 1.6 % to $ 281.3 million , or 28.3 % of net sales , compared to $ 276.8 million , or 29.4 % of net sales , for fiscal 2012. the increase was primarily attributable to higher store-related expense , excluding occupancy , as a result of new store openings and increased employee labor and benefit-related expense . operating income for fiscal 2013 increased 82.6 % to $ 47.4 million , or 4.8 % of net sales , compared to $ 26.0 million , or 2.8 % of net sales , for fiscal 2012. the higher operating income primarily reflects higher net sales and higher merchandise margins , partially offset by increased selling and administrative expense . results of operations the following table sets forth selected items from our consolidated statements of operations by dollar and as a percentage of our net sales for the periods indicated : replace_table_token_8_th ( 1 ) fiscal 2013 , 2012 and 2011 each included 52 weeks . 28 ( 2 ) in fiscal 2013 , we recorded a pre-tax charge of $ 1.3 million reflecting an accrual for legal settlements , of which $ 0.3 million was classified as a reduction to net sales and $ 1.0 million was classified as selling and administrative expense . this charge reduced net income in fiscal 2013 by $ 0.8 million , or $ 0.04 per diluted share . ( 3 ) cost of sales includes the cost of merchandise , net of discounts or allowances earned , freight , inventory reserves , buying , distribution center expense , including depreciation , and store occupancy expense . store occupancy expense includes rent , amortization of leasehold improvements , common area maintenance , property taxes and insurance . ( 4 ) selling and administrative expense includes store-related expense , other than store occupancy expense , as well as advertising , depreciation and amortization , expense associated with operating our corporate headquarters and impairment charges , if any . ( 5 ) in fiscal 2012 , we recorded a pre-tax charge related to store closing costs of $ 1.2 million . this charge was included in selling and administrative expense , and reduced net income in fiscal 2012 by $ 0.8 million , or $ 0.03 per diluted share . ( 6 ) in fiscal 2013 , 2012 and 2011 , we recorded pre-tax non-cash impairment charges of $ 0.1 million , $ 0.2 million and $ 2.1 million , respectively , related to certain underperforming stores . these impairment charges are included in selling and administrative expense , and reduced net income in fiscal 2013 , 2012 and 2011 by $ 44,000 , or $ 0.00 per diluted share , $ 0.1 million , or $ 0.01 per diluted share , and $ 1.5 million , or $ 0.07 per diluted share , respectively . ( 7 ) same store sales for a period reflect net sales from stores that operated throughout the period as well as the full corresponding prior year period . fiscal 2013 compared to fiscal 2012 net sales . net sales increased by $ 52.8 million , or 5.6 % , to $ 993.3 million for fiscal 2013 from $ 940.5 million for fiscal 2012. the change in net sales was primarily attributable to the following : same store sales increased 3.9 % for fiscal 2013 versus fiscal 2012. we believe our higher same store sales reflected favorable customer response to changes in our merchandise offering and new marketing initiatives , higher demand for firearm and ammunition products , and improved sales of winter merchandise in the first quarter of fiscal 2013 as a result of more favorable weather compared to unseasonably warm winter weather experienced in the first quarter of fiscal 2012. same store sales for a period reflect net sales from stores that operated throughout the period as well as the full corresponding prior year period . added sales from new stores reflected the opening of 31 new stores since january 1 , 2012 , partially offset by a reduction in closed store sales . while we experienced a slight decline in customer transaction levels in our retail stores in fiscal 2013 when compared with fiscal 2012 , the average sale per transaction increased primarily as a result of changes in our sales mix and merchandise offering . store count at the end of fiscal 2013 was 429 versus 414 at the end of fiscal 2012. we opened 17 new stores , three of which were relocations , and closed two stores , both of which were relocations , in fiscal 2013. for fiscal 2014 , we expect to open approximately 15 net new stores . gross profit . gross profit increased by $ 25.9 million to $ 328.7 million in fiscal 2013 from $ 302.8 million in fiscal 2012. gross profit as a percentage of net sales in fiscal 2013 was 33.1 % compared with 32.2 % during fiscal 2012. the change in gross profit was primarily attributable to the following : net sales increased by $ 52.8 million in fiscal 2013 compared to the prior year . merchandise margins , which exclude buying , occupancy and distribution expense , increased 50 basis points versus fiscal 2012 , when merchandise margins decreased 24 basis points versus fiscal 2011. the improvement primarily reflected a sales mix shift to higher-margin winter product categories as a result of favorable winter weather in the first quarter of fiscal 2013 compared with the same period in fiscal 2012 , combined with sales of firearm and ammunition products at higher margins during fiscal 2013. store occupancy expense for fiscal 2013 increased by $ 3.5 million year over year due primarily to the increase in store count . store occupancy expense as a percentage of net sales in fiscal 2013 decreased by ten basis points compared with fiscal 2012 . story_separator_special_tag in fiscal 2011 and 2012 , we paid quarterly cash dividends of $ 0.075 per share of outstanding common stock , for an annual rate of $ 0.30 per share . in fiscal 2013 , we paid quarterly cash dividends of $ 0.10 per share of 35 outstanding common stock , for an annual rate of $ 0.40 per share . in the first quarter of fiscal 2014 , our board of directors declared a quarterly cash dividend of $ 0.10 per share of outstanding common stock , which will be paid on march 21 , 2014 to stockholders of record as of march 7 , 2014. as of december 29 , 2013 , a total of $ 9.6 million remained available for share repurchases under our share repurchase program . we consider several factors in determining when and if we make share repurchases including , among other things , our alternative cash requirements , existing business conditions and the market price of our stock . we believe we will be able to fund our cash requirements from cash and cash equivalents on hand , operating cash flows and borrowings from our revolving credit facility , for at least the next twelve months . however , our ability to satisfy our cash requirements depends upon our future performance , which in turn is subject to general economic conditions and regional risks , as well as financial , business and other factors affecting our operations , including factors beyond our control . there is no assurance that we will be able to generate sufficient cash flows or that we will be able to maintain our ability to borrow under our revolving credit facility . off-balance sheet arrangements and contractual obligations . our material off-balance sheet arrangements are operating lease obligations and letters of credit . we excluded these items from the balance sheet in accordance with accounting principles generally accepted in the united states of america ( “gaap” ) . a summary of our operating lease obligations and letter of credit commitments by fiscal year is included in the table below . additional information regarding our operating leases is available in item 2 , properties and note 8 , lease commitments , of the notes to consolidated financial statements included in item 8 , financial statements and supplementary data , of this annual report on form 10-k. our future obligations and commitments as of december 29 , 2013 , include the following : replace_table_token_13_th capital lease obligations , which include imputed interest , consist principally of leases for some of our distribution center delivery tractors , management information systems hardware and point-of-sale equipment for our stores . payments for these lease obligations are provided by cash flows generated from operations or through borrowings from our revolving credit facility . operating lease commitments consist principally of leases for our retail store facilities , distribution center and corporate office . these leases frequently include options which permit us to extend the terms beyond the initial fixed lease term . with respect to most of those leases , we intend to renegotiate those leases as they expire . 36 operating lease commitments also include a lease commitment for a building adjacent to our corporate office . the lease term for this property commenced in 2009 and the primary term expires on february 28 , 2019. in accordance with terms of the lease agreement , we are committed to the construction of a new retail building on the premises before the primary term expires in 2019. we are not yet able to determine the ultimate amount of the construction commitment . other occupancy expense includes estimated property maintenance fees and property taxes for our stores , distribution center and corporate headquarters . other liabilities consist principally of actuarially-determined reserve estimates related to self-insurance liabilities , a contractual obligation for the surviving spouse of robert w. miller , our co-founder , and asset retirement obligations related to the removal and retirement of leasehold improvements for certain stores upon termination of their leases . periodic interest payments on the credit agreement are not included in the preceding table because interest expense is based on variable indices , and the balance of our credit agreement fluctuates daily depending on operating , investing and financing cash flows . assuming no changes in our revolving credit facility debt or interest rates as of the fiscal 2013 year-end , our projected annual interest payments would be approximately $ 1.1 million . issued and outstanding letters of credit were $ 0.9 million at december 29 , 2013 , and were related primarily to securing insurance program liabilities . in the ordinary course of business , we enter into arrangements with vendors to purchase merchandise in advance of expected delivery . because most of these purchase orders do not contain any termination payments or other penalties if cancelled , they are not included as outstanding contractual obligations . critical accounting estimates our critical accounting estimates are included in our significant accounting policies as described in note 2 of the consolidated financial statements included in item 8 , financial statements and supplementary data , of this annual report on form 10-k. those consolidated financial statements were prepared in accordance with gaap . critical accounting estimates are those that we believe are most important to the portrayal of our financial condition and results of operations . the preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expense . our estimates are evaluated on an ongoing basis and drawn from historical experience , current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared . actual results may differ from our estimates . management believes that the following accounting estimates reflect the more significant judgments and estimates we use in preparing our consolidated financial statements . valuation of merchandise inventories ,

liquidity management oversees our liquidity position to ensure adequate cash and liquid assets are available to support our operations and satisfy current and future financial obligations , including demand for loan funding and deposit withdrawals . management continually monitors , forecasts and tests our liquidity and non-core dependency ratios to ensure compliance with targets established by our asset-liability management committee and approved by our board of directors . management measures our liquidity position by giving consideration to both on-balance sheet and off-balance sheet sources of and demands for funds on a daily and weekly basis . at december 31 , 2019 and 2018 , our cash and liquid securities totaled 8.4 % and 5.0 % of total assets , respectively , providing liquidity to support our existing operations . the company , which is a separate legal entity apart from the bank , must provide for its own liquidity , including payment of any dividends that may be declared for our common stockholders and interest and principal on any outstanding debt or trust preferred securities incurred by the company . the company had available cash balances of $ 5.9 million at both december 31 , 2019 and 2018 . this cash is available for the general corporate purposes described above , as well as providing capital support to the bank and financing potential future acquisitions . in addition , the company has up to $ 50.0 million available under a line of credit . see note 11 - borrowings contained in item 8 of this report for more information .

selling and administrative expense for fiscal 2013 increased 1.6 % to $ 281.3 million , or 28.3 % of net sales , compared to $ 276.8 million , or 29.4 % of net sales , for fiscal 2012. the increase was primarily attributable to higher store-related expense , excluding occupancy , as a result of new store openings and increased employee labor and benefit-related expense . operating income for fiscal 2013 increased 82.6 % to $ 47.4 million , or 4.8 % of net sales , compared to $ 26.0 million , or 2.8 % of net sales , for fiscal 2012. the higher operating income primarily reflects higher net sales and higher merchandise margins , partially offset by increased selling and administrative expense . results of operations the following table sets forth selected items from our consolidated statements of operations by dollar and as a percentage of our net sales for the periods indicated : replace_table_token_8_th ( 1 ) fiscal 2013 , 2012 and 2011 each included 52 weeks . 28 ( 2 ) in fiscal 2013 , we recorded a pre-tax charge of $ 1.3 million reflecting an accrual for legal settlements , of which $ 0.3 million was classified as a reduction to net sales and $ 1.0 million was classified as selling and administrative expense . this charge reduced net income in fiscal 2013 by $ 0.8 million , or $ 0.04 per diluted share . ( 3 ) cost of sales includes the cost of merchandise , net of discounts or allowances earned , freight , inventory reserves , buying , distribution center expense , including depreciation , and store occupancy expense . store occupancy expense includes rent , amortization of leasehold improvements , common area maintenance , property taxes and insurance . ( 4 ) selling and administrative expense includes store-related expense , other than store occupancy expense , as well as advertising , depreciation and amortization , expense associated with operating our corporate headquarters and impairment charges , if any . ( 5 ) in fiscal 2012 , we recorded a pre-tax charge related to store closing costs of $ 1.2 million . this charge was included in selling and administrative expense , and reduced net income in fiscal 2012 by $ 0.8 million , or $ 0.03 per diluted share . ( 6 ) in fiscal 2013 , 2012 and 2011 , we recorded pre-tax non-cash impairment charges of $ 0.1 million , $ 0.2 million and $ 2.1 million , respectively , related to certain underperforming stores . these impairment charges are included in selling and administrative expense , and reduced net income in fiscal 2013 , 2012 and 2011 by $ 44,000 , or $ 0.00 per diluted share , $ 0.1 million , or $ 0.01 per diluted share , and $ 1.5 million , or $ 0.07 per diluted share , respectively . ( 7 ) same store sales for a period reflect net sales from stores that operated throughout the period as well as the full corresponding prior year period . fiscal 2013 compared to fiscal 2012 net sales . net sales increased by $ 52.8 million , or 5.6 % , to $ 993.3 million for fiscal 2013 from $ 940.5 million for fiscal 2012. the change in net sales was primarily attributable to the following : same store sales increased 3.9 % for fiscal 2013 versus fiscal 2012. we believe our higher same store sales reflected favorable customer response to changes in our merchandise offering and new marketing initiatives , higher demand for firearm and ammunition products , and improved sales of winter merchandise in the first quarter of fiscal 2013 as a result of more favorable weather compared to unseasonably warm winter weather experienced in the first quarter of fiscal 2012. same store sales for a period reflect net sales from stores that operated throughout the period as well as the full corresponding prior year period . added sales from new stores reflected the opening of 31 new stores since january 1 , 2012 , partially offset by a reduction in closed store sales . while we experienced a slight decline in customer transaction levels in our retail stores in fiscal 2013 when compared with fiscal 2012 , the average sale per transaction increased primarily as a result of changes in our sales mix and merchandise offering . store count at the end of fiscal 2013 was 429 versus 414 at the end of fiscal 2012. we opened 17 new stores , three of which were relocations , and closed two stores , both of which were relocations , in fiscal 2013. for fiscal 2014 , we expect to open approximately 15 net new stores . gross profit . gross profit increased by $ 25.9 million to $ 328.7 million in fiscal 2013 from $ 302.8 million in fiscal 2012. gross profit as a percentage of net sales in fiscal 2013 was 33.1 % compared with 32.2 % during fiscal 2012. the change in gross profit was primarily attributable to the following : net sales increased by $ 52.8 million in fiscal 2013 compared to the prior year . merchandise margins , which exclude buying , occupancy and distribution expense , increased 50 basis points versus fiscal 2012 , when merchandise margins decreased 24 basis points versus fiscal 2011. the improvement primarily reflected a sales mix shift to higher-margin winter product categories as a result of favorable winter weather in the first quarter of fiscal 2013 compared with the same period in fiscal 2012 , combined with sales of firearm and ammunition products at higher margins during fiscal 2013. store occupancy expense for fiscal 2013 increased by $ 3.5 million year over year due primarily to the increase in store count . store occupancy expense as a percentage of net sales in fiscal 2013 decreased by ten basis points compared with fiscal 2012 . story_separator_special_tag in fiscal 2011 and 2012 , we paid quarterly cash dividends of $ 0.075 per share of outstanding common stock , for an annual rate of $ 0.30 per share . in fiscal 2013 , we paid quarterly cash dividends of $ 0.10 per share of 35 outstanding common stock , for an annual rate of $ 0.40 per share . in the first quarter of fiscal 2014 , our board of directors declared a quarterly cash dividend of $ 0.10 per share of outstanding common stock , which will be paid on march 21 , 2014 to stockholders of record as of march 7 , 2014. as of december 29 , 2013 , a total of $ 9.6 million remained available for share repurchases under our share repurchase program . we consider several factors in determining when and if we make share repurchases including , among other things , our alternative cash requirements , existing business conditions and the market price of our stock . we believe we will be able to fund our cash requirements from cash and cash equivalents on hand , operating cash flows and borrowings from our revolving credit facility , for at least the next twelve months . however , our ability to satisfy our cash requirements depends upon our future performance , which in turn is subject to general economic conditions and regional risks , as well as financial , business and other factors affecting our operations , including factors beyond our control . there is no assurance that we will be able to generate sufficient cash flows or that we will be able to maintain our ability to borrow under our revolving credit facility . off-balance sheet arrangements and contractual obligations . our material off-balance sheet arrangements are operating lease obligations and letters of credit . we excluded these items from the balance sheet in accordance with accounting principles generally accepted in the united states of america ( “gaap” ) . a summary of our operating lease obligations and letter of credit commitments by fiscal year is included in the table below . additional information regarding our operating leases is available in item 2 , properties and note 8 , lease commitments , of the notes to consolidated financial statements included in item 8 , financial statements and supplementary data , of this annual report on form 10-k. our future obligations and commitments as of december 29 , 2013 , include the following : replace_table_token_13_th capital lease obligations , which include imputed interest , consist principally of leases for some of our distribution center delivery tractors , management information systems hardware and point-of-sale equipment for our stores . payments for these lease obligations are provided by cash flows generated from operations or through borrowings from our revolving credit facility . operating lease commitments consist principally of leases for our retail store facilities , distribution center and corporate office . these leases frequently include options which permit us to extend the terms beyond the initial fixed lease term . with respect to most of those leases , we intend to renegotiate those leases as they expire . 36 operating lease commitments also include a lease commitment for a building adjacent to our corporate office . the lease term for this property commenced in 2009 and the primary term expires on february 28 , 2019. in accordance with terms of the lease agreement , we are committed to the construction of a new retail building on the premises before the primary term expires in 2019. we are not yet able to determine the ultimate amount of the construction commitment . other occupancy expense includes estimated property maintenance fees and property taxes for our stores , distribution center and corporate headquarters . other liabilities consist principally of actuarially-determined reserve estimates related to self-insurance liabilities , a contractual obligation for the surviving spouse of robert w. miller , our co-founder , and asset retirement obligations related to the removal and retirement of leasehold improvements for certain stores upon termination of their leases . periodic interest payments on the credit agreement are not included in the preceding table because interest expense is based on variable indices , and the balance of our credit agreement fluctuates daily depending on operating , investing and financing cash flows . assuming no changes in our revolving credit facility debt or interest rates as of the fiscal 2013 year-end , our projected annual interest payments would be approximately $ 1.1 million . issued and outstanding letters of credit were $ 0.9 million at december 29 , 2013 , and were related primarily to securing insurance program liabilities . in the ordinary course of business , we enter into arrangements with vendors to purchase merchandise in advance of expected delivery . because most of these purchase orders do not contain any termination payments or other penalties if cancelled , they are not included as outstanding contractual obligations . critical accounting estimates our critical accounting estimates are included in our significant accounting policies as described in note 2 of the consolidated financial statements included in item 8 , financial statements and supplementary data , of this annual report on form 10-k. those consolidated financial statements were prepared in accordance with gaap . critical accounting estimates are those that we believe are most important to the portrayal of our financial condition and results of operations . the preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expense . our estimates are evaluated on an ongoing basis and drawn from historical experience , current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared . actual results may differ from our estimates . management believes that the following accounting estimates reflect the more significant judgments and estimates we use in preparing our consolidated financial statements . valuation of merchandise inventories ,

liquidity and capital resources our principal liquidity requirements are for working capital , capital expenditures and cash dividends . we fund our liquidity requirements primarily through cash and cash equivalents on hand , cash flows from operations and borrowings from our revolving credit facility . we believe our cash and cash equivalents on hand , future cash flows from operations and borrowings from our revolving credit facility will be sufficient to fund our cash requirements for at least the next 12 months . we ended fiscal 2013 with $ 9.4 million of cash and cash equivalents compared with $ 7.6 million in fiscal 2012. after reducing our long-term debt by $ 16.0 million , or 25.2 % , during fiscal 2012 , we further decreased our long-term debt by $ 4.5 million , or 9.5 % , during fiscal 2013 to $ 43.0 million from $ 47.5 million at the end of fiscal 2012. the following table summarizes our cash flows from operating , investing and financing activities for each of the past three fiscal years : replace_table_token_9_th the seasonality of our business historically provides greater cash flows from operations during the holiday and winter selling season . we use operating cash flows and borrowings under our revolving credit facility to fund inventory increases in anticipation of the holidays and our inventory levels are normally at their highest in the months leading up to christmas . as holiday sales typically reduce inventory levels , this reduction , combined with net income , historically provides us with strong cash flows from operations at the end of our fiscal year . for fiscal 2013 , while we increased inventory purchases in the months leading up to christmas , weaker-than-anticipated sales during the fourth quarter of fiscal 2013 resulted in higher-than-expected inventory levels and lower operating cash flows in the fourth quarter of fiscal 2013. however , healthy net sales and net income for the full fiscal year 2013 contributed sufficient levels of operating cash flows that allowed us to pay down debt balances year over year .

international in november 2016 , we signed an exclusive distribution agreement with medikit co. , ltd. ( “ medikit ” ) to sell our diamondback 360 ® coronary and peripheral oas in japan . in march 2017 , we received approval from japan 's ministry of health , labor and welfare for our diamondback 360 ® coronary oas micro crown . pending reimbursement approval , japan will be the first international market for any of our products . we are currently evaluating options for additional international markets to expand the coronary and peripheral opportunities . financial overview net revenues . we derive substantially all of our revenues from the sale of peripheral oas , the coronary oas and ancillary products . the peripheral oas and coronary oas each use a disposable , single-use , low-profile catheter that travels over our proprietary viperwire guide wire . the systems use a saline infusion pump as a power supply for the operation of the catheter . additional ancillary products include the viperslide lubricant and vipertrack radiopaque tape . cost of goods sold . we assemble the single-use catheter with components purchased from third-party suppliers , as well as with components manufactured in-house . the infusion pump and guide wires are purchased from third-party suppliers . our cost of goods sold consists primarily of raw materials , direct labor , and manufacturing overhead . selling , general and administrative expenses . selling , general and administrative expenses include compensation for executive , sales , marketing , finance , information technology , human resources and administrative personnel , including stock-based compensation . other significant expenses include the medical device excise tax , bad debt expense , travel , marketing costs , professional fees and professional education . research and development expenses . research and development expenses include costs associated with the design , development , testing , enhancement and regulatory approval of our products . research and development expenses include employee compensation including stock-based compensation , supplies and materials , patent expenses , consulting expenses , travel and facilities overhead . we also incur significant expenses to operate clinical trials , including trial design , third-party fees , clinical site reimbursement , data management and travel expenses . all research and development expenses are expensed as incurred . approved patent applications are capitalized and amortized using the straight-line method over their remaining estimated lives . patent amortization begins at the time of patent application approval , and does not exceed 20 years . other ( income ) and expense , net . other ( income ) and expense , net primarily includes interest expense from amounts owed under the facility lease and doj settlement , and interest income from money market funds . net operating loss carryforwards . we have established valuation allowances to fully offset our deferred tax assets due to the uncertainty about our ability to generate the future taxable income necessary to realize these deferred assets , particularly in light of our historical losses . the future use of net operating loss carryforwards is dependent on us attaining profitable operations and will be limited in any one year under internal revenue code section 382 due to significant ownership changes ( as defined in section 382 ) resulting from our equity financings . at june 30 , 2017 , we had net operating loss carryforwards for federal and state income tax reporting purposes of approximately $ 239.3 million , which will expire at various dates through fiscal 2036 . 33 critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of our consolidated financial statements requires us to make estimates , assumptions and judgments that affect amounts reported in those statements . our estimates , assumptions and judgments , including those related to revenue recognition , allowance for doubtful accounts , excess and obsolete inventory , and stock-based compensation are updated as appropriate at least quarterly . we use authoritative pronouncements , our technical accounting knowledge , cumulative business experience , valuation specialists , judgment and other factors in the selection and application of our accounting policies . while we believe that the estimates , assumptions and judgments that we use in preparing our consolidated financial statements are appropriate , these estimates , assumptions and judgments are subject to factors and uncertainties regarding their outcome . therefore , actual results may materially differ from these estimates . some of our significant accounting policies require us to make subjective or complex judgments or estimates . an accounting estimate is considered to be critical if it meets both of the following criteria : ( 1 ) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made , and ( 2 ) different estimates that reasonably could have been used , or changes in the estimate that are reasonably likely to occur from period to period , would have a material impact on the presentation of our financial condition , results of operations , or cash flows . revenue recognition . we sell the majority of our products via direct shipment to hospitals or clinics . we recognize revenue when all of the following criteria are met : persuasive evidence of an arrangement exists ; delivery has occurred ; the sales price is fixed or determinable ; and collectability is reasonably assured . revenue recognition may occur upon shipment or upon delivery to the customer site , based on the contract terms . we record estimated sales returns , discounts and rebates as a reduction of net sales . costs related to products delivered are recognized in the period the revenue is recognized . story_separator_special_tag research and development expenses decreased by $ 5.0 million , or 16.3 % , from $ 31.0 million for the year ended june 30 , 2015 to $ 25.9 million for the year ended june 30 , 2016. research and development expenses relate to the specific projects to develop new products or expand into new markets , such as the development of new versions of our peripheral oas and coronary oas , and ancillary products , and pad and cad clinical studies . the decrease primarily related to the completion of enrollment in several of our clinical studies . research and development expenses for the years ended june 30 , 2016 and 2015 include $ 1.8 million and $ 1.5 million , respectively , for stock-based compensation . 37 restructuring charges . in march 2016 , we announced a broad-based restructuring to reduce costs as a key part of our plan to balance revenue growth with a pathway to profitability and positive cash flow . as a result , we recorded a restructuring expense of $ 2.4 million during the year ended june 30 , 2016 , which was comprised of severance and other employee related costs . legal settlement . on june 28 , 2016 , we entered into a settlement agreement with the united states of america , acting through the doj and on behalf of the office of inspector general of the department of health and human services , and the relator , to resolve the previously disclosed investigation by the doj and the qui tam complaint filed by the relator pursuant to the false claims act in the u.s. district court for the western district of north carolina , charlotte division . we recorded an $ 8.0 million legal settlement expense during the year ended june 30 , 2016. non-gaap financial information to supplement our consolidated financial statements prepared in accordance with gaap , our management uses a non-gaap financial measure referred to as “ adjusted ebitda . ” the following table sets forth , for the periods indicated , a reconciliation of adjusted ebitda to the most comparable united states gaap measure expressed as dollar amounts ( in thousands ) : replace_table_token_5_th adjusted ebitda improved as compared to the prior year due to the lower loss from operations as a result of higher revenues and lower costs , slightly offset by lower stock based compensation as a result of reduced headcount . use and economic substance of non-gaap financial measures used and usefulness of such non-gaap financial measures to investors we use adjusted ebitda as a supplemental measure of performance and believe this measure facilitates operating performance comparisons from period to period and company to company by factoring out potential differences caused by depreciation and amortization expense and non-cash charges such as stock-based compensation . our management uses adjusted ebitda to analyze the underlying trends in our business , assess the performance of our core operations , establish operational goals and forecasts that are used to allocate resources and evaluate our performance period over period and in relation to our competitors ' operating results . additionally , our management is partially evaluated on the basis of adjusted ebitda when determining achievement of their incentive compensation performance targets . management does not use this adjusted ebitda measure as a liquidity measure or in the calculation of our financial covenants under the revolving credit facility with silicon valley bank . we believe that presenting adjusted ebitda provides investors greater transparency to the information used by our management for its financial and operational decision-making and allows investors to see our results “ through the eyes ” of management . we also believe that providing this information better enables our investors to understand our operating performance and evaluate the methodology used by our management to evaluate and measure such performance . the following is an explanation of each of the items that management excluded from adjusted ebitda and the reasons for excluding each of these individual items : stock-based compensation . our management believes that excluding this item from our non-gaap results is useful to investors to understand the application of stock-based compensation guidance and its impact on our operational performance and ability to make additional investments in the company , and it allows for greater transparency to certain line items in our financial statements . depreciation and amortization expense . our management believes that excluding these items from our non-gaap results is useful to investors to understand our operational performance and ability to make additional investments in the company . 38 material limitations associated with the use of non-gaap financial measures and manner in which we compensate for these limitations non-gaap financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our financial results prepared in accordance with gaap . some of the limitations associated with our use of these non-gaap financial measures are : items such as stock-based compensation do not directly affect our cash flow position ; however , such items reflect economic costs to us and are not reflected in our adjusted ebitda , and therefore these non-gaap measures do not reflect the full economic effect of these items . non-gaap financial measures are not based on any comprehensive set of accounting rules or principles and therefore other companies may calculate similarly titled non-gaap financial measures differently than we do , limiting the usefulness of those measures for comparative purposes . our management exercises judgment in determining which types of charges or other items should be excluded from the non-gaap financial measures we use . we compensate for these limitations by relying primarily upon our gaap results and using non-gaap financial measures only supplementally . liquidity and capital resources we had cash and cash equivalents of $ 107.9 million and $ 60.6 million at june 30 , 2017 and 2016 , respectively . during the year ended june 30 , 2017 , net cash provided by

liquidity and capital resources our principal liquidity requirements are for working capital , capital expenditures and cash dividends . we fund our liquidity requirements primarily through cash and cash equivalents on hand , cash flows from operations and borrowings from our revolving credit facility . we believe our cash and cash equivalents on hand , future cash flows from operations and borrowings from our revolving credit facility will be sufficient to fund our cash requirements for at least the next 12 months . we ended fiscal 2013 with $ 9.4 million of cash and cash equivalents compared with $ 7.6 million in fiscal 2012. after reducing our long-term debt by $ 16.0 million , or 25.2 % , during fiscal 2012 , we further decreased our long-term debt by $ 4.5 million , or 9.5 % , during fiscal 2013 to $ 43.0 million from $ 47.5 million at the end of fiscal 2012. the following table summarizes our cash flows from operating , investing and financing activities for each of the past three fiscal years : replace_table_token_9_th the seasonality of our business historically provides greater cash flows from operations during the holiday and winter selling season . we use operating cash flows and borrowings under our revolving credit facility to fund inventory increases in anticipation of the holidays and our inventory levels are normally at their highest in the months leading up to christmas . as holiday sales typically reduce inventory levels , this reduction , combined with net income , historically provides us with strong cash flows from operations at the end of our fiscal year . for fiscal 2013 , while we increased inventory purchases in the months leading up to christmas , weaker-than-anticipated sales during the fourth quarter of fiscal 2013 resulted in higher-than-expected inventory levels and lower operating cash flows in the fourth quarter of fiscal 2013. however , healthy net sales and net income for the full fiscal year 2013 contributed sufficient levels of operating cash flows that allowed us to pay down debt balances year over year .

international in november 2016 , we signed an exclusive distribution agreement with medikit co. , ltd. ( “ medikit ” ) to sell our diamondback 360 ® coronary and peripheral oas in japan . in march 2017 , we received approval from japan 's ministry of health , labor and welfare for our diamondback 360 ® coronary oas micro crown . pending reimbursement approval , japan will be the first international market for any of our products . we are currently evaluating options for additional international markets to expand the coronary and peripheral opportunities . financial overview net revenues . we derive substantially all of our revenues from the sale of peripheral oas , the coronary oas and ancillary products . the peripheral oas and coronary oas each use a disposable , single-use , low-profile catheter that travels over our proprietary viperwire guide wire . the systems use a saline infusion pump as a power supply for the operation of the catheter . additional ancillary products include the viperslide lubricant and vipertrack radiopaque tape . cost of goods sold . we assemble the single-use catheter with components purchased from third-party suppliers , as well as with components manufactured in-house . the infusion pump and guide wires are purchased from third-party suppliers . our cost of goods sold consists primarily of raw materials , direct labor , and manufacturing overhead . selling , general and administrative expenses . selling , general and administrative expenses include compensation for executive , sales , marketing , finance , information technology , human resources and administrative personnel , including stock-based compensation . other significant expenses include the medical device excise tax , bad debt expense , travel , marketing costs , professional fees and professional education . research and development expenses . research and development expenses include costs associated with the design , development , testing , enhancement and regulatory approval of our products . research and development expenses include employee compensation including stock-based compensation , supplies and materials , patent expenses , consulting expenses , travel and facilities overhead . we also incur significant expenses to operate clinical trials , including trial design , third-party fees , clinical site reimbursement , data management and travel expenses . all research and development expenses are expensed as incurred . approved patent applications are capitalized and amortized using the straight-line method over their remaining estimated lives . patent amortization begins at the time of patent application approval , and does not exceed 20 years . other ( income ) and expense , net . other ( income ) and expense , net primarily includes interest expense from amounts owed under the facility lease and doj settlement , and interest income from money market funds . net operating loss carryforwards . we have established valuation allowances to fully offset our deferred tax assets due to the uncertainty about our ability to generate the future taxable income necessary to realize these deferred assets , particularly in light of our historical losses . the future use of net operating loss carryforwards is dependent on us attaining profitable operations and will be limited in any one year under internal revenue code section 382 due to significant ownership changes ( as defined in section 382 ) resulting from our equity financings . at june 30 , 2017 , we had net operating loss carryforwards for federal and state income tax reporting purposes of approximately $ 239.3 million , which will expire at various dates through fiscal 2036 . 33 critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of our consolidated financial statements requires us to make estimates , assumptions and judgments that affect amounts reported in those statements . our estimates , assumptions and judgments , including those related to revenue recognition , allowance for doubtful accounts , excess and obsolete inventory , and stock-based compensation are updated as appropriate at least quarterly . we use authoritative pronouncements , our technical accounting knowledge , cumulative business experience , valuation specialists , judgment and other factors in the selection and application of our accounting policies . while we believe that the estimates , assumptions and judgments that we use in preparing our consolidated financial statements are appropriate , these estimates , assumptions and judgments are subject to factors and uncertainties regarding their outcome . therefore , actual results may materially differ from these estimates . some of our significant accounting policies require us to make subjective or complex judgments or estimates . an accounting estimate is considered to be critical if it meets both of the following criteria : ( 1 ) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made , and ( 2 ) different estimates that reasonably could have been used , or changes in the estimate that are reasonably likely to occur from period to period , would have a material impact on the presentation of our financial condition , results of operations , or cash flows . revenue recognition . we sell the majority of our products via direct shipment to hospitals or clinics . we recognize revenue when all of the following criteria are met : persuasive evidence of an arrangement exists ; delivery has occurred ; the sales price is fixed or determinable ; and collectability is reasonably assured . revenue recognition may occur upon shipment or upon delivery to the customer site , based on the contract terms . we record estimated sales returns , discounts and rebates as a reduction of net sales . costs related to products delivered are recognized in the period the revenue is recognized . story_separator_special_tag research and development expenses decreased by $ 5.0 million , or 16.3 % , from $ 31.0 million for the year ended june 30 , 2015 to $ 25.9 million for the year ended june 30 , 2016. research and development expenses relate to the specific projects to develop new products or expand into new markets , such as the development of new versions of our peripheral oas and coronary oas , and ancillary products , and pad and cad clinical studies . the decrease primarily related to the completion of enrollment in several of our clinical studies . research and development expenses for the years ended june 30 , 2016 and 2015 include $ 1.8 million and $ 1.5 million , respectively , for stock-based compensation . 37 restructuring charges . in march 2016 , we announced a broad-based restructuring to reduce costs as a key part of our plan to balance revenue growth with a pathway to profitability and positive cash flow . as a result , we recorded a restructuring expense of $ 2.4 million during the year ended june 30 , 2016 , which was comprised of severance and other employee related costs . legal settlement . on june 28 , 2016 , we entered into a settlement agreement with the united states of america , acting through the doj and on behalf of the office of inspector general of the department of health and human services , and the relator , to resolve the previously disclosed investigation by the doj and the qui tam complaint filed by the relator pursuant to the false claims act in the u.s. district court for the western district of north carolina , charlotte division . we recorded an $ 8.0 million legal settlement expense during the year ended june 30 , 2016. non-gaap financial information to supplement our consolidated financial statements prepared in accordance with gaap , our management uses a non-gaap financial measure referred to as “ adjusted ebitda . ” the following table sets forth , for the periods indicated , a reconciliation of adjusted ebitda to the most comparable united states gaap measure expressed as dollar amounts ( in thousands ) : replace_table_token_5_th adjusted ebitda improved as compared to the prior year due to the lower loss from operations as a result of higher revenues and lower costs , slightly offset by lower stock based compensation as a result of reduced headcount . use and economic substance of non-gaap financial measures used and usefulness of such non-gaap financial measures to investors we use adjusted ebitda as a supplemental measure of performance and believe this measure facilitates operating performance comparisons from period to period and company to company by factoring out potential differences caused by depreciation and amortization expense and non-cash charges such as stock-based compensation . our management uses adjusted ebitda to analyze the underlying trends in our business , assess the performance of our core operations , establish operational goals and forecasts that are used to allocate resources and evaluate our performance period over period and in relation to our competitors ' operating results . additionally , our management is partially evaluated on the basis of adjusted ebitda when determining achievement of their incentive compensation performance targets . management does not use this adjusted ebitda measure as a liquidity measure or in the calculation of our financial covenants under the revolving credit facility with silicon valley bank . we believe that presenting adjusted ebitda provides investors greater transparency to the information used by our management for its financial and operational decision-making and allows investors to see our results “ through the eyes ” of management . we also believe that providing this information better enables our investors to understand our operating performance and evaluate the methodology used by our management to evaluate and measure such performance . the following is an explanation of each of the items that management excluded from adjusted ebitda and the reasons for excluding each of these individual items : stock-based compensation . our management believes that excluding this item from our non-gaap results is useful to investors to understand the application of stock-based compensation guidance and its impact on our operational performance and ability to make additional investments in the company , and it allows for greater transparency to certain line items in our financial statements . depreciation and amortization expense . our management believes that excluding these items from our non-gaap results is useful to investors to understand our operational performance and ability to make additional investments in the company . 38 material limitations associated with the use of non-gaap financial measures and manner in which we compensate for these limitations non-gaap financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our financial results prepared in accordance with gaap . some of the limitations associated with our use of these non-gaap financial measures are : items such as stock-based compensation do not directly affect our cash flow position ; however , such items reflect economic costs to us and are not reflected in our adjusted ebitda , and therefore these non-gaap measures do not reflect the full economic effect of these items . non-gaap financial measures are not based on any comprehensive set of accounting rules or principles and therefore other companies may calculate similarly titled non-gaap financial measures differently than we do , limiting the usefulness of those measures for comparative purposes . our management exercises judgment in determining which types of charges or other items should be excluded from the non-gaap financial measures we use . we compensate for these limitations by relying primarily upon our gaap results and using non-gaap financial measures only supplementally . liquidity and capital resources we had cash and cash equivalents of $ 107.9 million and $ 60.6 million at june 30 , 2017 and 2016 , respectively . during the year ended june 30 , 2017 , net cash provided by

. net cash used in investing activities was $ 1.8 million , $ 3.8 million , and $ 23.0 million for the years ended june 30 , 2017 , 2016 , and 2015 , respectively . cash used in fiscal 2017 was primarily due to the purchase of property and equipment and patents . during fiscal 2016 , cash was used primarily for the purchase of property and equipment and patents , and for the issuance of a convertible note receivable , partially offset by the sale of available-for-sale marketable securities under the deferred compensation plan . during fiscal 2015 , cash was used primarily for the construction of our new headquarters and the related equipment purchases . in addition , we purchased available-for-sale marketable securities for the deferred compensation plans . financing activities . net cash provided by financing activities was $ 29.5 million , $ 4.1 million , and $ 2.6 million during the years ended june 30 , 2017 , 2016 , and 2015 , respectively . cash provided by financing activities during these periods included : proceeds of $ 20.9 million from the sale of the facility in march 2017. employee stock purchase plan purchases of $ 3.3 million , $ 3.1 million , and $ 2.9 million during the years ended june 30 , 2017 , 2016 , and 2015 , respectively . proceeds from the exercise of stock options of $ 5.3 million , $ 1.0 million , and $ 2.2 million during the years ended june 30 , 2017 , 2016 , and 2015 , respectively . cash used in financing activities in these periods included payments on long-term debt of $ 2.4 million during the year ended june 30 , 2015 .

in the second transaction , global trend merged with and into jerash holdings with jerash holdings being the surviving entity , as a result of which jerash holdings became the direct parent of global trend 's wholly owned operating subsidiaries , jerash garments and treasure success . 21 accounting treatment of merger for accounting purposes , global trend is recognized as the accounting acquirer , and jerash holdings is the legal acquirer or accounting acquiree . as such , following the merger , the historical financial statements of global trend are treated as the historical financial statements of the combined company . accordingly , the financial information in this annual report on form 10-k , including management 's discussion and analysis of financial condition and results of operations and the consolidated financial statements and the related notes thereto appearing elsewhere in this filing , reflect the consolidated financial statements of global trend , its subsidiaries and its affiliate , which includes as a variable interest entity victory apparel jordan company limited ( “ victory apparel ” ) . victory apparel was incorporated in jordan in 2005 and it is a wholly owned subsidiary of wcl . wealth choice limited ( “ wcl ” ) acquired global trend and jerash garments from two third-party individuals on march 21 , 2012. on march 31 , 2006 , victory apparel purchased all of the property and equipment of jerash garments at an industrial building in al tajamouat industrial city purchased by jerash garments on july 31 , 2000. the land and building were not registered in victory apparel 's name , and jerash garments continued to hold the land and building in its name in trust for victory apparel . the declaration of trust was never registered with the land registry of jordan , and on june 30 , 2016 , victory apparel and jerash garments dissolved the sale agreement , resulting in the property and equipment being owned free and clear by jerash garments . victory apparel does not currently have any material assets or operations of its own , and mr. choi and mr. lee , the group 's significant stockholders who together indirectly own 100 % of victory apparel through wcl , intend to dissolve the entity seasonality of sales a significant portion of our revenues are received during the first six months of our fiscal year . the majority of our vf corporation orders are derived from winter season fashions , the sales of which occur in spring and summer and are merchandized by vf corporation during the autumn months ( september through november ) . as such , the second half of our fiscal years reflect lower sales in anticipation of the spring and summer seasons . one of our strategies is to increase sales with other customers where clothing lines are stronger during the spring months . this strategy also reflects our current plan to increase the group 's number of customers to mitigate our current concentration risk with vf corporation . results of operations the following table presents certain information from our statement of income for fiscal years 2017 and 2018 and should be read , along with all of the information in this management 's discussion and analysis , in conjunction with the consolidated financial statements and related notes included elsewhere in this filing . ( all amounts , other than percentages , in thousands of u.s. dollars ) replace_table_token_2_th 22 revenue . revenue increased by approximately $ 7.3 million or 12 % , to approximately $ 69.3 million in fiscal 2018 from approximately $ 62.0 million in fiscal 2017. the growth was mainly the result of the expansion of our business with one of our major customers , particularly , in export product types with higher sales value , such as jackets , and the economic recovery of the u.s. , which remains the group 's major export destination . approximately 88 % and 90 % of our products were exported to the u.s. in fiscal 2018 and 2017 respectively . as a garment manufacturing group , we excel in manufacturing sport and outerwear and derive most of our revenue from the manufacturing and sales of sport and outerwear , which is the only segment in which we operate . the table below presents our revenues for fiscal years 2017 and 2018 by geographic area . revenue by geographic area ( all amounts , other than percentages , in thousands of u.s. dollars ) replace_table_token_3_th since december 2001 , all apparel manufactured in jordan could be exported to the u.s. without duty imposed , pursuant to the u.s. customs and border protection jordan free trade treaty . this treaty provides substantial competitiveness and benefit for us to expand the group 's garment export business in the u.s. our sales to the u.s. increased by approximately 9.8 % in fiscal 2018 compared to fiscal 2017. according to the major shippers report issued by the office of textiles and apparel under the u.s. department of commerce , u.s. apparel import from jordan increased by approximately 6.7 % from $ 1.30 billion in the fiscal year ended march 31 , 2017 to approximately $ 1.38 billion in the fiscal year ended march 31 , 2018. the group 's sales growth ratio has been exceeding the industrial average growth ratio , and the group still has plenty of room to expand our garment export business in the u.s. , as jerash accounts for only 4.8 % of the total jordanian garment exports to the u.s. , according to the world bank . cost of goods sold . story_separator_special_tag revenue is recognized when all four of the following criteria are met : ( i ) persuasive evidence that an arrangement exists ( sales agreements and customer purchase orders are used to determine the existence of an arrangement ) ; ( ii ) delivery of goods has occurred and risks and benefits of ownership have been transferred ( which is when the goods are received by the customer at its designated location in accordance with the sales terms ) ; ( iii ) the sales price is both fixed and determinable , and ( iv ) collectability is reasonably assured . most of the company 's products are custom-made for large brand-name retailers . historically , sales returns have been minimal . accounts receivable accounts receivable are recognized and carried at original invoiced amount less an estimated allowance for uncollectible accounts . the company usually grants credit to customers with good credit standing with a maximum of 90 days and determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trends . the company establishes a provision for doubtful receivables when there is objective evidence that the company may not be able to collect amounts due . the allowance is based on management 's best estimates of specific losses on individual exposures , as well as a provision on historical trends of collections . the provision is recorded against accounts receivables balances , with a corresponding charge recorded in the consolidated statements of income and comprehensive income . actual amounts received may differ from management 's estimate of credit worthiness and the economic environment . delinquent account balances are written off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable . no allowance was considered necessary as of march 31 , 2018 and 2017. recent accounting pronouncements the company considers the applicability and impact of all accounting standards updates ( “ asus ” ) . management periodically reviews new accounting standards that are issued . new accounting pronouncements recently adopted in july 2015 , the financial accounting standards board ( “ fasb ” ) issued asu no . 2015-11 , “ simplifying the measurement of inventory . ” asu no . 2015-11 changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value . net realizable value is defined as the estimated selling prices in the ordinary course of business ; less reasonably predictable costs of completion , disposal and transportation . for public business entities , the amendments in this asu are effective for fiscal years beginning after december 15 , 2016 , including interim reporting periods within those fiscal years . the company adopted this guidance in the first quarter of its fiscal year ended march 31 , 2018 using a prospective application . the adoption of this guidance did not have a material impact on the company 's consolidated financial statements and related disclosures . 29 in march 2016 , the fasb issued asu 2016-09 , “ compensation—stock compensation ( topic 718 ) : improvements to employee share-based payment accounting . ” this update addresses several aspects of the accounting for share-based compensation transactions including : ( a ) income tax consequences when awards vest or are settled , ( b ) classification of awards as either equity or liabilities , ( c ) a policy election to account for forfeitures as they occur rather than on an estimated basis and ( d ) classification of excess tax impacts on the statement of cash flows . the company adopted this guidance in the first quarter of its fiscal year ended march 31 , 2018 , which did not have a material impact on the company 's consolidated financial statements and related disclosures . the amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement will be applied prospectively . the company does not expect the future impact to be material to the consolidated results of operations ; however , such determination is subject to change based on facts and circumstances at the time when awards vest or settle . accounting pronouncements not yet adopted in may 2014 , the fasb issued asu no . 2014-09 , “ revenue from contracts with customers ( topic 606 ) ” ( “ topic 606 ” ) . topic 606 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers . topic 606 will replace most existing revenue recognition guidance in u.s. gaap when it becomes effective and permits the use of either the retrospective or cumulative effect transition method . the guidance also requires additional disclosure about the nature , amount , timing and uncertainty of revenue and cash flows arising from customer contracts . in august 2015 , the fasb issued asu no . 2015-14 , “ deferral of the effective date ” , which defers the effective date for topic 606 by one year . for public entities , the guidance in topic 606 will be effective for annual reporting periods beginning after december 15 , 2017 ( including interim reporting periods within those periods ) , and for all other entities , topic 606 will be effective for annual reporting periods beginning after december 15 , 2018 , and interim reporting periods within annual reporting periods beginning after december 15 , 2019. in march 2016 , the fasb issued asu no . 2016-08 , “ principal versus agent considerations ( reporting revenue versus net ) , ” which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard . in april 2016 , the fasb issued asu no . 2016-10 , “ identifying performance obligations and licensing , ” which reduces the complexity when applying the guidance for identifying performance obligations and improves the operability and understandability

. net cash used in investing activities was $ 1.8 million , $ 3.8 million , and $ 23.0 million for the years ended june 30 , 2017 , 2016 , and 2015 , respectively . cash used in fiscal 2017 was primarily due to the purchase of property and equipment and patents . during fiscal 2016 , cash was used primarily for the purchase of property and equipment and patents , and for the issuance of a convertible note receivable , partially offset by the sale of available-for-sale marketable securities under the deferred compensation plan . during fiscal 2015 , cash was used primarily for the construction of our new headquarters and the related equipment purchases . in addition , we purchased available-for-sale marketable securities for the deferred compensation plans . financing activities . net cash provided by financing activities was $ 29.5 million , $ 4.1 million , and $ 2.6 million during the years ended june 30 , 2017 , 2016 , and 2015 , respectively . cash provided by financing activities during these periods included : proceeds of $ 20.9 million from the sale of the facility in march 2017. employee stock purchase plan purchases of $ 3.3 million , $ 3.1 million , and $ 2.9 million during the years ended june 30 , 2017 , 2016 , and 2015 , respectively . proceeds from the exercise of stock options of $ 5.3 million , $ 1.0 million , and $ 2.2 million during the years ended june 30 , 2017 , 2016 , and 2015 , respectively . cash used in financing activities in these periods included payments on long-term debt of $ 2.4 million during the year ended june 30 , 2015 .

in the second transaction , global trend merged with and into jerash holdings with jerash holdings being the surviving entity , as a result of which jerash holdings became the direct parent of global trend 's wholly owned operating subsidiaries , jerash garments and treasure success . 21 accounting treatment of merger for accounting purposes , global trend is recognized as the accounting acquirer , and jerash holdings is the legal acquirer or accounting acquiree . as such , following the merger , the historical financial statements of global trend are treated as the historical financial statements of the combined company . accordingly , the financial information in this annual report on form 10-k , including management 's discussion and analysis of financial condition and results of operations and the consolidated financial statements and the related notes thereto appearing elsewhere in this filing , reflect the consolidated financial statements of global trend , its subsidiaries and its affiliate , which includes as a variable interest entity victory apparel jordan company limited ( “ victory apparel ” ) . victory apparel was incorporated in jordan in 2005 and it is a wholly owned subsidiary of wcl . wealth choice limited ( “ wcl ” ) acquired global trend and jerash garments from two third-party individuals on march 21 , 2012. on march 31 , 2006 , victory apparel purchased all of the property and equipment of jerash garments at an industrial building in al tajamouat industrial city purchased by jerash garments on july 31 , 2000. the land and building were not registered in victory apparel 's name , and jerash garments continued to hold the land and building in its name in trust for victory apparel . the declaration of trust was never registered with the land registry of jordan , and on june 30 , 2016 , victory apparel and jerash garments dissolved the sale agreement , resulting in the property and equipment being owned free and clear by jerash garments . victory apparel does not currently have any material assets or operations of its own , and mr. choi and mr. lee , the group 's significant stockholders who together indirectly own 100 % of victory apparel through wcl , intend to dissolve the entity seasonality of sales a significant portion of our revenues are received during the first six months of our fiscal year . the majority of our vf corporation orders are derived from winter season fashions , the sales of which occur in spring and summer and are merchandized by vf corporation during the autumn months ( september through november ) . as such , the second half of our fiscal years reflect lower sales in anticipation of the spring and summer seasons . one of our strategies is to increase sales with other customers where clothing lines are stronger during the spring months . this strategy also reflects our current plan to increase the group 's number of customers to mitigate our current concentration risk with vf corporation . results of operations the following table presents certain information from our statement of income for fiscal years 2017 and 2018 and should be read , along with all of the information in this management 's discussion and analysis , in conjunction with the consolidated financial statements and related notes included elsewhere in this filing . ( all amounts , other than percentages , in thousands of u.s. dollars ) replace_table_token_2_th 22 revenue . revenue increased by approximately $ 7.3 million or 12 % , to approximately $ 69.3 million in fiscal 2018 from approximately $ 62.0 million in fiscal 2017. the growth was mainly the result of the expansion of our business with one of our major customers , particularly , in export product types with higher sales value , such as jackets , and the economic recovery of the u.s. , which remains the group 's major export destination . approximately 88 % and 90 % of our products were exported to the u.s. in fiscal 2018 and 2017 respectively . as a garment manufacturing group , we excel in manufacturing sport and outerwear and derive most of our revenue from the manufacturing and sales of sport and outerwear , which is the only segment in which we operate . the table below presents our revenues for fiscal years 2017 and 2018 by geographic area . revenue by geographic area ( all amounts , other than percentages , in thousands of u.s. dollars ) replace_table_token_3_th since december 2001 , all apparel manufactured in jordan could be exported to the u.s. without duty imposed , pursuant to the u.s. customs and border protection jordan free trade treaty . this treaty provides substantial competitiveness and benefit for us to expand the group 's garment export business in the u.s. our sales to the u.s. increased by approximately 9.8 % in fiscal 2018 compared to fiscal 2017. according to the major shippers report issued by the office of textiles and apparel under the u.s. department of commerce , u.s. apparel import from jordan increased by approximately 6.7 % from $ 1.30 billion in the fiscal year ended march 31 , 2017 to approximately $ 1.38 billion in the fiscal year ended march 31 , 2018. the group 's sales growth ratio has been exceeding the industrial average growth ratio , and the group still has plenty of room to expand our garment export business in the u.s. , as jerash accounts for only 4.8 % of the total jordanian garment exports to the u.s. , according to the world bank . cost of goods sold . story_separator_special_tag revenue is recognized when all four of the following criteria are met : ( i ) persuasive evidence that an arrangement exists ( sales agreements and customer purchase orders are used to determine the existence of an arrangement ) ; ( ii ) delivery of goods has occurred and risks and benefits of ownership have been transferred ( which is when the goods are received by the customer at its designated location in accordance with the sales terms ) ; ( iii ) the sales price is both fixed and determinable , and ( iv ) collectability is reasonably assured . most of the company 's products are custom-made for large brand-name retailers . historically , sales returns have been minimal . accounts receivable accounts receivable are recognized and carried at original invoiced amount less an estimated allowance for uncollectible accounts . the company usually grants credit to customers with good credit standing with a maximum of 90 days and determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trends . the company establishes a provision for doubtful receivables when there is objective evidence that the company may not be able to collect amounts due . the allowance is based on management 's best estimates of specific losses on individual exposures , as well as a provision on historical trends of collections . the provision is recorded against accounts receivables balances , with a corresponding charge recorded in the consolidated statements of income and comprehensive income . actual amounts received may differ from management 's estimate of credit worthiness and the economic environment . delinquent account balances are written off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable . no allowance was considered necessary as of march 31 , 2018 and 2017. recent accounting pronouncements the company considers the applicability and impact of all accounting standards updates ( “ asus ” ) . management periodically reviews new accounting standards that are issued . new accounting pronouncements recently adopted in july 2015 , the financial accounting standards board ( “ fasb ” ) issued asu no . 2015-11 , “ simplifying the measurement of inventory . ” asu no . 2015-11 changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value . net realizable value is defined as the estimated selling prices in the ordinary course of business ; less reasonably predictable costs of completion , disposal and transportation . for public business entities , the amendments in this asu are effective for fiscal years beginning after december 15 , 2016 , including interim reporting periods within those fiscal years . the company adopted this guidance in the first quarter of its fiscal year ended march 31 , 2018 using a prospective application . the adoption of this guidance did not have a material impact on the company 's consolidated financial statements and related disclosures . 29 in march 2016 , the fasb issued asu 2016-09 , “ compensation—stock compensation ( topic 718 ) : improvements to employee share-based payment accounting . ” this update addresses several aspects of the accounting for share-based compensation transactions including : ( a ) income tax consequences when awards vest or are settled , ( b ) classification of awards as either equity or liabilities , ( c ) a policy election to account for forfeitures as they occur rather than on an estimated basis and ( d ) classification of excess tax impacts on the statement of cash flows . the company adopted this guidance in the first quarter of its fiscal year ended march 31 , 2018 , which did not have a material impact on the company 's consolidated financial statements and related disclosures . the amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement will be applied prospectively . the company does not expect the future impact to be material to the consolidated results of operations ; however , such determination is subject to change based on facts and circumstances at the time when awards vest or settle . accounting pronouncements not yet adopted in may 2014 , the fasb issued asu no . 2014-09 , “ revenue from contracts with customers ( topic 606 ) ” ( “ topic 606 ” ) . topic 606 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers . topic 606 will replace most existing revenue recognition guidance in u.s. gaap when it becomes effective and permits the use of either the retrospective or cumulative effect transition method . the guidance also requires additional disclosure about the nature , amount , timing and uncertainty of revenue and cash flows arising from customer contracts . in august 2015 , the fasb issued asu no . 2015-14 , “ deferral of the effective date ” , which defers the effective date for topic 606 by one year . for public entities , the guidance in topic 606 will be effective for annual reporting periods beginning after december 15 , 2017 ( including interim reporting periods within those periods ) , and for all other entities , topic 606 will be effective for annual reporting periods beginning after december 15 , 2018 , and interim reporting periods within annual reporting periods beginning after december 15 , 2019. in march 2016 , the fasb issued asu no . 2016-08 , “ principal versus agent considerations ( reporting revenue versus net ) , ” which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard . in april 2016 , the fasb issued asu no . 2016-10 , “ identifying performance obligations and licensing , ” which reduces the complexity when applying the guidance for identifying performance obligations and improves the operability and understandability

liquidity and capital resources jerash holdings is a holding company incorporated in delaware . as a holding company , we rely on dividends and other distributions from our jordanian subsidiaries to satisfy our liquidity requirements . current jordanian regulations permit the group 's jordanian subsidiaries to pay dividends to us only out of their accumulated profits , if any , determined in accordance with jordanian accounting standards and regulations . in addition , our jordanian subsidiaries are required to set aside at least 10 % of their respective accumulated profits each year , if any , to fund certain reserve funds . these reserves are not distributable as cash dividends . the group has relied on direct payments of expenses by the group 's subsidiaries ( which generate revenues ) , to meet the group 's obligations to date . to the extent payments are due in u.s. dollars , the group has occasionally paid such amounts in jordanian dinar to an entity controlled by the group 's management capable of paying such amounts in u.s. dollars . such transactions have been made at prevailing exchange rates and have resulted in immaterial losses or gains on currency exchange but no other profit . as of march 31 , 2018 , we had cash of approximately $ 8.6 million and restricted cash of approximately $ 3.6 million compared to cash of approximately $ 3.7 million and restricted cash of approximately $ 0.5 million as of march 31 , 2017 , which was mainly the security deposit for obtaining the credit facilities from hsbc . our current assets as of march 31 , 2018 were approximately $ 36.9 million , and our current liabilities were approximately $ 7.9 million , which resulted in a current ratio of approximately 4.7:1. our current assets as of march 31 , 2017 were approximately $ 30.3 million , and our current liabilities were approximately $ 11.9 million , which resulted in a current ratio of approximately 2.5:1. total equity as of march 31 , 2018 and 2017 was approximately $ 34.1 million and 22.0 million , respectively . we had net working capital of $ 29.0 million and $ 18.4 million as of march 31 , 2018 and 2017 , respectively .

you should carefully review all of these factors , and you should be aware that there may be other factors that could cause these differences . these forward-looking statements were based on information , plans and estimates at the date of this annual report , and we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors , new information , future events or other changes . although the company believes that the expectations reflected in such forward-looking statements are reasonable , actual results may differ materially from the results discussed in these forward-looking statements . readers are also urged to carefully review and consider the various disclosures made by the company , which attempt to advise interested parties of the factors that affect the company 's business . critical accounting policies management 's discussion and analysis of the company 's financial condition and results of operations is based on the consolidated financial statements which are prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . on an ongoing basis , management evaluates its estimates , including those related to the allowance for loan losses , goodwill , the valuation of mortgage servicing rights , and other-than-temporary impairment on securities . management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis in making judgments about the carrying values of assets that are not readily apparent from other sources . actual results could differ from the amounts derived from management 's estimates and assumptions under different assumptions or conditions . the first bancorp - 2016 form 10-k - page 23 allowance for loan losses . management believes the allowance for loan losses requires the most significant estimates and assumptions used in the preparation of the consolidated financial statements . the allowance for loan losses is based on management 's evaluation of the level of the allowance required in relation to the estimated loss exposure in the loan portfolio . management believes the allowance for loan losses is a significant estimate and therefore regularly evaluates it to determine the appropriate level by taking into consideration factors such as prior loan loss experience , the character and size of the loan portfolio , business and economic conditions and management 's estimation of potential losses . the use of different estimates or assumptions could produce different provisions for loan losses . goodwill . management utilizes numerous techniques to estimate the value of various assets held by the company , including methods to determine the appropriate carrying value of goodwill as required under financial accounting standards board ( `` fasb `` ) accounting standards codification ( `` asc `` ) topic 350 `` intangibles – goodwill and other . `` goodwill from purchase acquisitions is subject to ongoing periodic evaluation for impairment . mortgage servicing rights . the valuation of mortgage servicing rights is a critical accounting policy which requires significant estimates and assumptions . the bank often sells mortgage loans it originates and retains the ongoing servicing of such loans , receiving a fee for these services , generally 0.25 % of the outstanding balance of the loan per annum . mortgage servicing rights are recognized at fair value when they are acquired through the sale of loans , and are reported in other assets . they are amortized into non-interest income in proportion to , and over the period of , the estimated future net servicing income of the underlying financial assets . the rights are subsequently carried at the lower of amortized cost or fair value . management uses an independent firm which specializes in the valuation of mortgage servicing rights to determine the fair value . the most important assumption is the anticipated loan prepayment rate , and increases in prepayment speed results in lower valuations of mortgage servicing rights . the valuation also includes an evaluation for impairment based upon the fair value of the rights , which can vary depending upon current interest rates and prepayment expectations , as compared to amortized cost . impairment is determined by stratifying rights by predominant characteristics , such as interest rates and terms . the use of different assumptions could produce a different valuation . all of the assumptions are based on standards the company believes would be utilized by market participants in valuing mortgage servicing rights and are consistently derived and or benchmarked against independent public sources . other-than-temporary impairment on securities . one of the significant estimates related to investment securities is the evaluation of other-than-temporary impairments . the evaluation of securities for other-than-temporary impairments is a quantitative and qualitative process , which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of investments should be recognized in current period earnings . the risks and uncertainties include changes in general economic conditions , the issuer 's financial condition and or future prospects , the effects of changes in interest rates or credit spreads and the expected recovery period of unrealized losses . securities that are in an unrealized loss position are reviewed at least quarterly to determine if other-than-temporary impairment is present based on certain quantitative and qualitative factors and measures . story_separator_special_tag the company 's provision to the allowance for loan losses was $ 1.6 million in 2015 compared to $ 1.2 million in 2014. this was 0.10 % of average assets in 2015 , compared to 0.09 % of average assets for our peer group . the allowance for loan losses stood at 1.00 % of total loans as of december 31 , 2015 , compared to 1.13 % at december 31 , 2014. credit quality improved significantly in 2015. net loan chargeoffs were $ 2.0 million or 0.21 % of average loans , down $ 342,000 from net chargeoffs of $ 2.3 million or 0.26 % of average loans in 2014. non-performing assets stood at 0.57 % of total assets as of december 31 , 2015 compared to 0.97 % of total assets at december 31 , 2014. past-due loans were 0.84 % of total loans as of december 31 , 2015 , down significantly from 1.29 % of total loans as of december 31 , 2014. income taxes income taxes on operating earnings were $ 6.5 million for the year ended december 31 , 2016 , up $ 940,000 from the same period in 2015 . this is in line with the increase in the company 's level of income before taxes . income taxes on operating earnings were $ 5.5 million for the year ended december 31 , 2015 , up $ 948,000 from the same period in 2014 . this is in line with the increase in the company 's level of income before taxes . net income net income for 2016 was $ 18.0 million , up 11.1 % or $ 1.8 million from net income of $ 16.2 million that was posted in 2015 . earnings per share on a fully diluted basis were $ 1.66 , up $ 0.15 or 9.9 % from the $ 1.51 reported for the year ended december 31 , 2015 . net income for 2015 was $ 16.2 million , up 10.2 % or $ 1.5 million from net income of $ 14.7 million that was posted in 2014. earnings per share on a fully diluted basis were $ 1.51 , up $ 0.14 or 10.2 % from the $ 1.37 reported for the year ended december 31 , 2014. key ratios return on average assets in 2016 was 1.12 % , up from the 1.07 % and the 0.99 % posted in 2015 and 2014 , respectively . return on average tangible common equity was 12.42 % in 2016 , compared to 11.90 % in 2015 and 11.57 % in 2014 . in 2016 , the company 's dividend payout ratio ( dividends declared per share divided by earnings per share ) was 61.31 % , compared to 57.24 % in 2015 and 60.14 % in 2014 . the company 's efficiency ratio – a benchmark measure of the amount spent to generate a dollar of income – was 50.43 % in 2016 compared to 63.70 % for the bank 's peer group , on average . in 2015 , the company 's efficiency ratio was 54.26 % compared to 65.23 % for the bank 's peer group , on average . the first bancorp - 2016 form 10-k - page 30 investment management and fiduciary activities as of december 31 , 2016 , first advisors , the bank 's private banking and investment management division , had assets under management with a market value of $ 851.0 million , consisting of 1,031 trust accounts , estate accounts , agency accounts , and self-directed individual retirement accounts . this compares to december 31 , 2015 , when 1,041 accounts with a market value of $ 762.0 million were under management . assets and asset quality total assets of $ 1.713 billion at december 31 , 2016 increased 9.5 % or $ 148.1 million from $ 1.565 billion at december 31 , 2015 . the investment portfolio increased $ 61.9 million or 13.0 % over december 31 , 2015 , and the loan portfolio increased $ 82.9 million or 8.4 % . year-over-year , average assets were up $ 100.4 million in 2016 over 2015 . average loans in 2016 were $ 71.4 million higher than in 2015 , and average investments in 2016 were $ 22.2 million higher than in 2015 . credit quality continued to improve in 2016 . non-performing assets to total assets stood at 0.48 % at december 31 , 2016 , below 0.57 % of total assets at december 31 , 2015 and 0.97 % of total assets at december 31 , 2014 . in management 's opinion , the company 's long-standing approach to working with borrowers and ethical loan underwriting standards helps alleviate some of the payment problems on customers ' loans and minimizes actual loan losses . net chargeoffs in 2016 were $ 1.4 million or 0.13 % of average loans outstanding . this compares to net chargeoffs in 2015 of $ 2.0 million or 0.21 % of average loans outstanding and net charge offs for our ubpr peer group in 2016 of 0.10 % of average loans . residential real estate term loans represent 38.4 % of the total loan portfolio , and this loan category generally has a lower level of losses in comparison to other loan types . in 2016 , the loss ratio for residential mortgages was 0.08 % compared to 0.13 % for the entire loan portfolio . the company does not have a credit card portfolio or offer dealer consumer loans which generally carry more risk and potentially higher losses . the allowance for loan losses ended 2016 at $ 10.1 million and stood at 0.95 % of total loans outstanding compared to $ 9.9 million and 1.00 % of total loans outstanding at december 31 , 2015 . a $ 1.6 million provision for losses was made in 2016 and net charge offs totaled $ 1.4 million , resulting in the allowance for loan

liquidity and capital resources jerash holdings is a holding company incorporated in delaware . as a holding company , we rely on dividends and other distributions from our jordanian subsidiaries to satisfy our liquidity requirements . current jordanian regulations permit the group 's jordanian subsidiaries to pay dividends to us only out of their accumulated profits , if any , determined in accordance with jordanian accounting standards and regulations . in addition , our jordanian subsidiaries are required to set aside at least 10 % of their respective accumulated profits each year , if any , to fund certain reserve funds . these reserves are not distributable as cash dividends . the group has relied on direct payments of expenses by the group 's subsidiaries ( which generate revenues ) , to meet the group 's obligations to date . to the extent payments are due in u.s. dollars , the group has occasionally paid such amounts in jordanian dinar to an entity controlled by the group 's management capable of paying such amounts in u.s. dollars . such transactions have been made at prevailing exchange rates and have resulted in immaterial losses or gains on currency exchange but no other profit . as of march 31 , 2018 , we had cash of approximately $ 8.6 million and restricted cash of approximately $ 3.6 million compared to cash of approximately $ 3.7 million and restricted cash of approximately $ 0.5 million as of march 31 , 2017 , which was mainly the security deposit for obtaining the credit facilities from hsbc . our current assets as of march 31 , 2018 were approximately $ 36.9 million , and our current liabilities were approximately $ 7.9 million , which resulted in a current ratio of approximately 4.7:1. our current assets as of march 31 , 2017 were approximately $ 30.3 million , and our current liabilities were approximately $ 11.9 million , which resulted in a current ratio of approximately 2.5:1. total equity as of march 31 , 2018 and 2017 was approximately $ 34.1 million and 22.0 million , respectively . we had net working capital of $ 29.0 million and $ 18.4 million as of march 31 , 2018 and 2017 , respectively .

you should carefully review all of these factors , and you should be aware that there may be other factors that could cause these differences . these forward-looking statements were based on information , plans and estimates at the date of this annual report , and we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors , new information , future events or other changes . although the company believes that the expectations reflected in such forward-looking statements are reasonable , actual results may differ materially from the results discussed in these forward-looking statements . readers are also urged to carefully review and consider the various disclosures made by the company , which attempt to advise interested parties of the factors that affect the company 's business . critical accounting policies management 's discussion and analysis of the company 's financial condition and results of operations is based on the consolidated financial statements which are prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . on an ongoing basis , management evaluates its estimates , including those related to the allowance for loan losses , goodwill , the valuation of mortgage servicing rights , and other-than-temporary impairment on securities . management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis in making judgments about the carrying values of assets that are not readily apparent from other sources . actual results could differ from the amounts derived from management 's estimates and assumptions under different assumptions or conditions . the first bancorp - 2016 form 10-k - page 23 allowance for loan losses . management believes the allowance for loan losses requires the most significant estimates and assumptions used in the preparation of the consolidated financial statements . the allowance for loan losses is based on management 's evaluation of the level of the allowance required in relation to the estimated loss exposure in the loan portfolio . management believes the allowance for loan losses is a significant estimate and therefore regularly evaluates it to determine the appropriate level by taking into consideration factors such as prior loan loss experience , the character and size of the loan portfolio , business and economic conditions and management 's estimation of potential losses . the use of different estimates or assumptions could produce different provisions for loan losses . goodwill . management utilizes numerous techniques to estimate the value of various assets held by the company , including methods to determine the appropriate carrying value of goodwill as required under financial accounting standards board ( `` fasb `` ) accounting standards codification ( `` asc `` ) topic 350 `` intangibles – goodwill and other . `` goodwill from purchase acquisitions is subject to ongoing periodic evaluation for impairment . mortgage servicing rights . the valuation of mortgage servicing rights is a critical accounting policy which requires significant estimates and assumptions . the bank often sells mortgage loans it originates and retains the ongoing servicing of such loans , receiving a fee for these services , generally 0.25 % of the outstanding balance of the loan per annum . mortgage servicing rights are recognized at fair value when they are acquired through the sale of loans , and are reported in other assets . they are amortized into non-interest income in proportion to , and over the period of , the estimated future net servicing income of the underlying financial assets . the rights are subsequently carried at the lower of amortized cost or fair value . management uses an independent firm which specializes in the valuation of mortgage servicing rights to determine the fair value . the most important assumption is the anticipated loan prepayment rate , and increases in prepayment speed results in lower valuations of mortgage servicing rights . the valuation also includes an evaluation for impairment based upon the fair value of the rights , which can vary depending upon current interest rates and prepayment expectations , as compared to amortized cost . impairment is determined by stratifying rights by predominant characteristics , such as interest rates and terms . the use of different assumptions could produce a different valuation . all of the assumptions are based on standards the company believes would be utilized by market participants in valuing mortgage servicing rights and are consistently derived and or benchmarked against independent public sources . other-than-temporary impairment on securities . one of the significant estimates related to investment securities is the evaluation of other-than-temporary impairments . the evaluation of securities for other-than-temporary impairments is a quantitative and qualitative process , which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of investments should be recognized in current period earnings . the risks and uncertainties include changes in general economic conditions , the issuer 's financial condition and or future prospects , the effects of changes in interest rates or credit spreads and the expected recovery period of unrealized losses . securities that are in an unrealized loss position are reviewed at least quarterly to determine if other-than-temporary impairment is present based on certain quantitative and qualitative factors and measures . story_separator_special_tag the company 's provision to the allowance for loan losses was $ 1.6 million in 2015 compared to $ 1.2 million in 2014. this was 0.10 % of average assets in 2015 , compared to 0.09 % of average assets for our peer group . the allowance for loan losses stood at 1.00 % of total loans as of december 31 , 2015 , compared to 1.13 % at december 31 , 2014. credit quality improved significantly in 2015. net loan chargeoffs were $ 2.0 million or 0.21 % of average loans , down $ 342,000 from net chargeoffs of $ 2.3 million or 0.26 % of average loans in 2014. non-performing assets stood at 0.57 % of total assets as of december 31 , 2015 compared to 0.97 % of total assets at december 31 , 2014. past-due loans were 0.84 % of total loans as of december 31 , 2015 , down significantly from 1.29 % of total loans as of december 31 , 2014. income taxes income taxes on operating earnings were $ 6.5 million for the year ended december 31 , 2016 , up $ 940,000 from the same period in 2015 . this is in line with the increase in the company 's level of income before taxes . income taxes on operating earnings were $ 5.5 million for the year ended december 31 , 2015 , up $ 948,000 from the same period in 2014 . this is in line with the increase in the company 's level of income before taxes . net income net income for 2016 was $ 18.0 million , up 11.1 % or $ 1.8 million from net income of $ 16.2 million that was posted in 2015 . earnings per share on a fully diluted basis were $ 1.66 , up $ 0.15 or 9.9 % from the $ 1.51 reported for the year ended december 31 , 2015 . net income for 2015 was $ 16.2 million , up 10.2 % or $ 1.5 million from net income of $ 14.7 million that was posted in 2014. earnings per share on a fully diluted basis were $ 1.51 , up $ 0.14 or 10.2 % from the $ 1.37 reported for the year ended december 31 , 2014. key ratios return on average assets in 2016 was 1.12 % , up from the 1.07 % and the 0.99 % posted in 2015 and 2014 , respectively . return on average tangible common equity was 12.42 % in 2016 , compared to 11.90 % in 2015 and 11.57 % in 2014 . in 2016 , the company 's dividend payout ratio ( dividends declared per share divided by earnings per share ) was 61.31 % , compared to 57.24 % in 2015 and 60.14 % in 2014 . the company 's efficiency ratio – a benchmark measure of the amount spent to generate a dollar of income – was 50.43 % in 2016 compared to 63.70 % for the bank 's peer group , on average . in 2015 , the company 's efficiency ratio was 54.26 % compared to 65.23 % for the bank 's peer group , on average . the first bancorp - 2016 form 10-k - page 30 investment management and fiduciary activities as of december 31 , 2016 , first advisors , the bank 's private banking and investment management division , had assets under management with a market value of $ 851.0 million , consisting of 1,031 trust accounts , estate accounts , agency accounts , and self-directed individual retirement accounts . this compares to december 31 , 2015 , when 1,041 accounts with a market value of $ 762.0 million were under management . assets and asset quality total assets of $ 1.713 billion at december 31 , 2016 increased 9.5 % or $ 148.1 million from $ 1.565 billion at december 31 , 2015 . the investment portfolio increased $ 61.9 million or 13.0 % over december 31 , 2015 , and the loan portfolio increased $ 82.9 million or 8.4 % . year-over-year , average assets were up $ 100.4 million in 2016 over 2015 . average loans in 2016 were $ 71.4 million higher than in 2015 , and average investments in 2016 were $ 22.2 million higher than in 2015 . credit quality continued to improve in 2016 . non-performing assets to total assets stood at 0.48 % at december 31 , 2016 , below 0.57 % of total assets at december 31 , 2015 and 0.97 % of total assets at december 31 , 2014 . in management 's opinion , the company 's long-standing approach to working with borrowers and ethical loan underwriting standards helps alleviate some of the payment problems on customers ' loans and minimizes actual loan losses . net chargeoffs in 2016 were $ 1.4 million or 0.13 % of average loans outstanding . this compares to net chargeoffs in 2015 of $ 2.0 million or 0.21 % of average loans outstanding and net charge offs for our ubpr peer group in 2016 of 0.10 % of average loans . residential real estate term loans represent 38.4 % of the total loan portfolio , and this loan category generally has a lower level of losses in comparison to other loan types . in 2016 , the loss ratio for residential mortgages was 0.08 % compared to 0.13 % for the entire loan portfolio . the company does not have a credit card portfolio or offer dealer consumer loans which generally carry more risk and potentially higher losses . the allowance for loan losses ended 2016 at $ 10.1 million and stood at 0.95 % of total loans outstanding compared to $ 9.9 million and 1.00 % of total loans outstanding at december 31 , 2015 . a $ 1.6 million provision for losses was made in 2016 and net charge offs totaled $ 1.4 million , resulting in the allowance for loan

capital resources shareholders ' equity as of december 31 , 2016 was $ 172.5 million , compared to $ 167.5 million as of december 31 , 2015 . capital at december 31 , 2016 was sufficient to meet the requirements of regulatory authorities . leverage capital of the company , or total shareholders ' equity divided by average total assets for the current quarter less goodwill and any net unrealized gain or loss on securities available for sale and postretirement benefits , stood at 8.71 % on december 31 , 2016 and 8.81 % at december 31 , 2015 . to be rated `` well-capitalized '' , regulatory requirements call for a minimum leverage capital ratio of 5.00 % . at december 31 , 2016 , the company had tier-one risk-based capital of 14.64 % and tier-two risk-based capital of 15.69 % , versus 14.70 % and 15.78 % , respectively , at december 31 , 2015 . to be rated `` well-capitalized '' , regulatory requirements call for minimum tier-one and tier-two risk-based capital ratios of 8.00 % and 10.00 % , respectively . the the first bancorp - 2016 form 10-k - page 48 company 's actual levels of capitalization were comfortably above the standards to be rated `` well-capitalized '' by regulatory authorities . during 2016 , the company declared cash dividends of $ 0.22 per share in the first quarter and $ 0.23 per share in the remaining three quarters , as well as a special dividend of $ 0.12 per share in the fourth quarter or $ 1.03 per share for the year .

we believe that these adjustments , and the non-gaap measures derived from them , provide information to better analyze our operations between periods , and over time . investors should consider these non-gaap measures in addition to , and not as a substitute for , financial measures prepared in accordance with gaap . 23 a reconciliation of the non-gaap measures to the most comparable gaap measures is included below : replace_table_token_6_th revenue we generate revenue primarily from management fees and performance fees , which we collectively refer to as our advisory fees , by managing assets on behalf of institutional accounts and for retail clients , which are generally open-end mutual funds catering primarily to retail investors . our advisory fee income is recognized over the period in which investment management services are provided . following the preferred method identified in the revenue recognition topic of the financial accounting standards board accounting standards codification ( “ fasb asc ” ) , income from performance fees is recorded at the conclusion of the contractual performance period , when all contingencies are resolved . our advisory fees are primarily driven by the level of our aum . our aum increases or decreases with the net inflows or outflows of funds into our various investment strategies and with the investment performance thereof . in order to increase our aum and expand our business , we must develop and market investment strategies that suit the investment needs of our target clients , and provide attractive returns over the long-term . the value and composition of our aum , and our ability to continue to attract clients , will depend on a variety of factors including , among other things : our ability to educate our target clients about our classic value investment strategies and provide them with exceptional client service ; the relative investment performance of our investment strategies , as compared to competing products and market indices ; competitive conditions in the investment management and broader financial services sectors ; general economic conditions ; investor sentiment and confidence ; and our decision to close strategies when we deem it to be in the best interests of our clients . for our institutional accounts , we are paid fees according to a schedule , which varies by investment strategy . the substantial majority of these accounts pay us management fees pursuant to a schedule in which the rate we earn on the aum declines as the amount of aum increases . pursuant to our sub-investment advisory agreements with our retail clients and advisory agreements with pzena-branded funds , we are generally paid a management fee according to a schedule in which the rate we earn on the aum declines as the 24 amount of aum increases . certain of these funds pay us fixed-rate management fees . due to the substantially larger account size of certain of these accounts , the average advisory fees we earn on them , as a percentage of aum , are lower than the advisory fees we earn on our institutional accounts . certain of our clients pay us fees according to the performance of their accounts relative to certain agreed-upon benchmarks , which results in a lower base fee , but allows us to earn higher fees if the relevant investment strategy outperforms the agreed-upon benchmark . the majority of advisory fees we earn on institutional accounts is based on the value of our aum at a specific date on a quarterly basis , either in arrears or advance . advisory fees on certain of our institutional accounts , and with respect to all of our retail accounts , are calculated based on the average of the monthly or daily market value . advisory fees are also generally adjusted for any cash flows into or out of a portfolio , where the cash flow represents greater than 10 % of the value of the portfolio . while a specific group of accounts may use the same fee rate , the method used to calculate the fee according to the fee rate schedule may differ as described above . our advisory fees may fluctuate based on a number of factors , including the following : changes in aum due to appreciation or depreciation of our investment portfolios , and the levels of the contribution and withdrawal of assets by new and existing clients ; distribution of aum among our investment strategies , which have differing fee schedules ; distribution of aum between institutional accounts and retail accounts , for which we generally earn lower overall advisory fees ; and the level of our performance with respect to accounts on which we are paid performance fees . expenses our expenses consist primarily of compensation and benefits expense , as well as general and administrative expense . our largest expense is compensation and benefits , which includes the salaries , bonuses , equity-based compensation , and related benefits and payroll costs attributable to our employee members and employees . compensation and benefits packages are benchmarked against relevant industry and geographic peer groups in order to attract and retain qualified personnel . general and administrative expense includes lease expenses , professional and outside services fees , depreciation , costs associated with operating and maintaining our research , trading and portfolio accounting systems , and other expenses . our occupancy-related costs and professional services expenses , in particular , generally increase or decrease in relative proportion to the overall size and scale of our business operations . we incur additional expenses associated with being a public company for , among other things , director and officer insurance , director fees , sec reporting and compliance ( including sarbanes-oxley and dodd-frank compliance ) , professional fees , transfer agent fees , and other similar expenses . story_separator_special_tag in addition , an increase in average aum and in revenues typically results in higher operating income and net income , while a decrease in average aum and in revenues typically results in lower operating income , net income , and operating margins . we would expect pressure on our operating income , net income and operating margins in the future if average aum and revenues were to decline . revenues our revenue from advisory fees earned on our institutional accounts and our retail accounts for the three years ended december 31 , 2014 is described below : replace_table_token_11_th year ended december 31 , 2014 versus december 31 , 2013 our total revenue increased $ 16.7 million , or 17.5 % , to $ 112.5 million for the year ended december 31 , 2014 from $ 95.8 million for the year ended december 31 , 2013 . this change was driven primarily by an increase in average assets . for the years ended december 31 , 2014 and 2013 , average assets were $ 26.2 billion and $ 21.0 billion , respectively . this increase in average assets was driven by net inflows and market appreciation during 2014. our weighted average fee rates were 0.430 % and 0.456 % for the years ended december 31 , 2014 and 2013 , respectively . this decrease was primarily due to a shift in mix towards our expanded products and larger relationships as well as a shift in mix between our institutional and retail strategies , which generally carry lower fees . for the year ended december 31 , 2014 , average assets in our institutional and retail strategies were 56.9 % and 43.1 % , respectively , of total average aum . for the year 30 ended december 31 , 2013 , average assets in our institutional and retail strategies were 62.4 % and 37.6 % . average assets in institutional accounts increased $ 1.8 billion , or 13.7 % , to $ 14.9 billion for the year ended december 31 , 2014 , from $ 13.1 billion for the year ended december 31 , 2013 , and had weighted average fees of 0.555 % and 0.580 % for the years ended december 31 , 2014 and 2013 , respectively . weighted-average fee rates decreased primarily due to a a higher mix of assets in our expanded products and larger relationships , which generally carry lower fee rates , as well as a decrease in institutional performance fees recognized during 2014 . average assets in retail accounts increased $ 3.4 billion , or 43.0 % , to $ 11.3 billion for the year ended december 31 , 2014 , from $ 7.9 billion for the year ended december 31 , 2013 , and had weighted average fees of 0.264 % and 0.252 % for the years ended december 31 , 2014 and 2013 , respectively . the increase in weighted average fees in retail accounts was due primarily to an increase in retail performance fees recognized during 2014 as well as the addition of assets in strategies which generally carry higher fee rates . year ended december 31 , 2013 versus december 31 , 2012 our total revenue increased $ 19.5 million , or 25.5 % , to $ 95.8 million for the year ended december 31 , 2013 , from $ 76.3 million for the year ended december 31 , 2012 . this change was driven primarily by a $ 3.6 million increase in performance fees recognized , as well as an increase in average assets . for the years ended december 31 , 2013 and 2012 , average assets were $ 21.0 billion and $ 14.9 billion , respectively . the increase in average assets was driven by market appreciation and net inflows during 2013. our weighted average fee rates were 0.456 % and 0.512 % for the years ended december 31 , 2013 and 2012 , respectively . this decrease was primarily due to a shift in mix towards our expanded products and larger relationships as well as a shift in mix between our institutional and retail strategies , which generally carry lower fees , partially offset by the increase in performance fees recognized in 2013 as noted above . this shift in mix reflects the full year impact of retail inflows associated with our assignment to manage 28 % of the vanguard windsor fund as of the beginning of august 2012 as well as net inflows in our retail accounts during 2013. for the year ended december 31 , 2013 , average assets in our institutional and retail strategies were 62.4 % and 37.6 % , respectively , of total average aum . for the year ended december 31 , 2012 , average assets in our institutional and retail strategies were 75.8 % and 24.2 % . average assets in institutional accounts increased $ 1.8 billion , or 15.9 % , to $ 13.1 billion for the year ended december 31 , 2013 , from $ 11.3 billion for the year ended december 31 , 2012 , and had weighted average fees of 0.580 % and 0.574 % for the years ended december 31 , 2013 and 2012 , respectively . weighted-average fee rates increased primarily due to the increase in performance fees recognized during 2013 , partially offset by a higher mix of assets in our expanded products and larger relationships , which generally carry lower fee rates . average assets in retail accounts increased $ 4.3 billion , or 119 % , to $ 7.9 billion for the year ended december 31 , 2013 , from $ 3.6 billion for the year ended december 31 , 2012 , and had weighted average fees of 0.252 % and 0.316 % for the years ended december 31 , 2013 and 2012 , respectively . the decrease in weighted average fees in retail accounts was due primarily to the full year impact of the vanguard assignment . expenses our

capital resources shareholders ' equity as of december 31 , 2016 was $ 172.5 million , compared to $ 167.5 million as of december 31 , 2015 . capital at december 31 , 2016 was sufficient to meet the requirements of regulatory authorities . leverage capital of the company , or total shareholders ' equity divided by average total assets for the current quarter less goodwill and any net unrealized gain or loss on securities available for sale and postretirement benefits , stood at 8.71 % on december 31 , 2016 and 8.81 % at december 31 , 2015 . to be rated `` well-capitalized '' , regulatory requirements call for a minimum leverage capital ratio of 5.00 % . at december 31 , 2016 , the company had tier-one risk-based capital of 14.64 % and tier-two risk-based capital of 15.69 % , versus 14.70 % and 15.78 % , respectively , at december 31 , 2015 . to be rated `` well-capitalized '' , regulatory requirements call for minimum tier-one and tier-two risk-based capital ratios of 8.00 % and 10.00 % , respectively . the the first bancorp - 2016 form 10-k - page 48 company 's actual levels of capitalization were comfortably above the standards to be rated `` well-capitalized '' by regulatory authorities . during 2016 , the company declared cash dividends of $ 0.22 per share in the first quarter and $ 0.23 per share in the remaining three quarters , as well as a special dividend of $ 0.12 per share in the fourth quarter or $ 1.03 per share for the year .

we believe that these adjustments , and the non-gaap measures derived from them , provide information to better analyze our operations between periods , and over time . investors should consider these non-gaap measures in addition to , and not as a substitute for , financial measures prepared in accordance with gaap . 23 a reconciliation of the non-gaap measures to the most comparable gaap measures is included below : replace_table_token_6_th revenue we generate revenue primarily from management fees and performance fees , which we collectively refer to as our advisory fees , by managing assets on behalf of institutional accounts and for retail clients , which are generally open-end mutual funds catering primarily to retail investors . our advisory fee income is recognized over the period in which investment management services are provided . following the preferred method identified in the revenue recognition topic of the financial accounting standards board accounting standards codification ( “ fasb asc ” ) , income from performance fees is recorded at the conclusion of the contractual performance period , when all contingencies are resolved . our advisory fees are primarily driven by the level of our aum . our aum increases or decreases with the net inflows or outflows of funds into our various investment strategies and with the investment performance thereof . in order to increase our aum and expand our business , we must develop and market investment strategies that suit the investment needs of our target clients , and provide attractive returns over the long-term . the value and composition of our aum , and our ability to continue to attract clients , will depend on a variety of factors including , among other things : our ability to educate our target clients about our classic value investment strategies and provide them with exceptional client service ; the relative investment performance of our investment strategies , as compared to competing products and market indices ; competitive conditions in the investment management and broader financial services sectors ; general economic conditions ; investor sentiment and confidence ; and our decision to close strategies when we deem it to be in the best interests of our clients . for our institutional accounts , we are paid fees according to a schedule , which varies by investment strategy . the substantial majority of these accounts pay us management fees pursuant to a schedule in which the rate we earn on the aum declines as the amount of aum increases . pursuant to our sub-investment advisory agreements with our retail clients and advisory agreements with pzena-branded funds , we are generally paid a management fee according to a schedule in which the rate we earn on the aum declines as the 24 amount of aum increases . certain of these funds pay us fixed-rate management fees . due to the substantially larger account size of certain of these accounts , the average advisory fees we earn on them , as a percentage of aum , are lower than the advisory fees we earn on our institutional accounts . certain of our clients pay us fees according to the performance of their accounts relative to certain agreed-upon benchmarks , which results in a lower base fee , but allows us to earn higher fees if the relevant investment strategy outperforms the agreed-upon benchmark . the majority of advisory fees we earn on institutional accounts is based on the value of our aum at a specific date on a quarterly basis , either in arrears or advance . advisory fees on certain of our institutional accounts , and with respect to all of our retail accounts , are calculated based on the average of the monthly or daily market value . advisory fees are also generally adjusted for any cash flows into or out of a portfolio , where the cash flow represents greater than 10 % of the value of the portfolio . while a specific group of accounts may use the same fee rate , the method used to calculate the fee according to the fee rate schedule may differ as described above . our advisory fees may fluctuate based on a number of factors , including the following : changes in aum due to appreciation or depreciation of our investment portfolios , and the levels of the contribution and withdrawal of assets by new and existing clients ; distribution of aum among our investment strategies , which have differing fee schedules ; distribution of aum between institutional accounts and retail accounts , for which we generally earn lower overall advisory fees ; and the level of our performance with respect to accounts on which we are paid performance fees . expenses our expenses consist primarily of compensation and benefits expense , as well as general and administrative expense . our largest expense is compensation and benefits , which includes the salaries , bonuses , equity-based compensation , and related benefits and payroll costs attributable to our employee members and employees . compensation and benefits packages are benchmarked against relevant industry and geographic peer groups in order to attract and retain qualified personnel . general and administrative expense includes lease expenses , professional and outside services fees , depreciation , costs associated with operating and maintaining our research , trading and portfolio accounting systems , and other expenses . our occupancy-related costs and professional services expenses , in particular , generally increase or decrease in relative proportion to the overall size and scale of our business operations . we incur additional expenses associated with being a public company for , among other things , director and officer insurance , director fees , sec reporting and compliance ( including sarbanes-oxley and dodd-frank compliance ) , professional fees , transfer agent fees , and other similar expenses . story_separator_special_tag in addition , an increase in average aum and in revenues typically results in higher operating income and net income , while a decrease in average aum and in revenues typically results in lower operating income , net income , and operating margins . we would expect pressure on our operating income , net income and operating margins in the future if average aum and revenues were to decline . revenues our revenue from advisory fees earned on our institutional accounts and our retail accounts for the three years ended december 31 , 2014 is described below : replace_table_token_11_th year ended december 31 , 2014 versus december 31 , 2013 our total revenue increased $ 16.7 million , or 17.5 % , to $ 112.5 million for the year ended december 31 , 2014 from $ 95.8 million for the year ended december 31 , 2013 . this change was driven primarily by an increase in average assets . for the years ended december 31 , 2014 and 2013 , average assets were $ 26.2 billion and $ 21.0 billion , respectively . this increase in average assets was driven by net inflows and market appreciation during 2014. our weighted average fee rates were 0.430 % and 0.456 % for the years ended december 31 , 2014 and 2013 , respectively . this decrease was primarily due to a shift in mix towards our expanded products and larger relationships as well as a shift in mix between our institutional and retail strategies , which generally carry lower fees . for the year ended december 31 , 2014 , average assets in our institutional and retail strategies were 56.9 % and 43.1 % , respectively , of total average aum . for the year 30 ended december 31 , 2013 , average assets in our institutional and retail strategies were 62.4 % and 37.6 % . average assets in institutional accounts increased $ 1.8 billion , or 13.7 % , to $ 14.9 billion for the year ended december 31 , 2014 , from $ 13.1 billion for the year ended december 31 , 2013 , and had weighted average fees of 0.555 % and 0.580 % for the years ended december 31 , 2014 and 2013 , respectively . weighted-average fee rates decreased primarily due to a a higher mix of assets in our expanded products and larger relationships , which generally carry lower fee rates , as well as a decrease in institutional performance fees recognized during 2014 . average assets in retail accounts increased $ 3.4 billion , or 43.0 % , to $ 11.3 billion for the year ended december 31 , 2014 , from $ 7.9 billion for the year ended december 31 , 2013 , and had weighted average fees of 0.264 % and 0.252 % for the years ended december 31 , 2014 and 2013 , respectively . the increase in weighted average fees in retail accounts was due primarily to an increase in retail performance fees recognized during 2014 as well as the addition of assets in strategies which generally carry higher fee rates . year ended december 31 , 2013 versus december 31 , 2012 our total revenue increased $ 19.5 million , or 25.5 % , to $ 95.8 million for the year ended december 31 , 2013 , from $ 76.3 million for the year ended december 31 , 2012 . this change was driven primarily by a $ 3.6 million increase in performance fees recognized , as well as an increase in average assets . for the years ended december 31 , 2013 and 2012 , average assets were $ 21.0 billion and $ 14.9 billion , respectively . the increase in average assets was driven by market appreciation and net inflows during 2013. our weighted average fee rates were 0.456 % and 0.512 % for the years ended december 31 , 2013 and 2012 , respectively . this decrease was primarily due to a shift in mix towards our expanded products and larger relationships as well as a shift in mix between our institutional and retail strategies , which generally carry lower fees , partially offset by the increase in performance fees recognized in 2013 as noted above . this shift in mix reflects the full year impact of retail inflows associated with our assignment to manage 28 % of the vanguard windsor fund as of the beginning of august 2012 as well as net inflows in our retail accounts during 2013. for the year ended december 31 , 2013 , average assets in our institutional and retail strategies were 62.4 % and 37.6 % , respectively , of total average aum . for the year ended december 31 , 2012 , average assets in our institutional and retail strategies were 75.8 % and 24.2 % . average assets in institutional accounts increased $ 1.8 billion , or 15.9 % , to $ 13.1 billion for the year ended december 31 , 2013 , from $ 11.3 billion for the year ended december 31 , 2012 , and had weighted average fees of 0.580 % and 0.574 % for the years ended december 31 , 2013 and 2012 , respectively . weighted-average fee rates increased primarily due to the increase in performance fees recognized during 2013 , partially offset by a higher mix of assets in our expanded products and larger relationships , which generally carry lower fee rates . average assets in retail accounts increased $ 4.3 billion , or 119 % , to $ 7.9 billion for the year ended december 31 , 2013 , from $ 3.6 billion for the year ended december 31 , 2012 , and had weighted average fees of 0.252 % and 0.316 % for the years ended december 31 , 2013 and 2012 , respectively . the decrease in weighted average fees in retail accounts was due primarily to the full year impact of the vanguard assignment . expenses our

cash flows year ended december 31 , 2014 versus december 31 , 2013 cash and cash equivalents increased $ 5.2 million to $ 39.1 million in 2014 compared to $ 33.9 million in 2013 . net cash provided by operating activities increased $ 10.9 million in 2014 to $ 55.4 million from $ 44.5 million in 2013 . the increase was primarily due to an increase in net income partially offset by changes in operating assets and liabilities and working capital . net cash used in investing activities was $ 2.6 million in 2014 compared to $ 1.8 million used in 2013 . the $ 0.8 million increase was primarily attributable to a $ 1.9 million increase in purchases of property and equipment related to our new corporate headquarters and a $ 1.0 million net increase in purchases in investments associated primarily with the incubation of new products during 2014 . net cash used in financing activities increased $ 6.2 million in 2014 to $ 47.8 million from $ 41.5 million in 2013 . this increase is primarily due to an $ 11.6 million increase in distributions to non-controlling interests . the increase in these distributions primarily reflects increased tax allocations associated with increased taxable income in 2014 and dividend distributions to members of our operating company . net cash used in financing activities in 2014 also reflects a $ 1.5 million increase in cash dividends paid during 2014. these increases were partially offset by a $ 4.8 million increase in contributions from non-controlling interests primarily reflecting contributions into our consolidated subsidiaries and a $ 1.8 million decrease in the repurchase and retirement of class a common stock , class b units , and class b unit options during 2014 . year ended december 31 , 2013 versus december 31 , 2012 cash and cash equivalents increased $ 1.3 million to $ 33.9 million in 2013 compared to $ 32.6 million in 2012 . net cash provided by operating activities increased $ 12.5 million in 2013 to $ 44.5 million from $ 32.0 million in 2012 .

gem state water company , llc ( gem state ) the ngd segment includes our nw natural local gas distribution business , nwn gas reserves , which is a wholly-owned subsidiary of energy corp , and the ngd-portion of nw natural 's mist storage facility in oregon . other activities aggregated and reported as other at nw natural include the non-ngd storage activity at mist as well as asset management services and the appliance retail center operations . other activities aggregated and reported as other at nw holdings include nwn energy 's equity investment in trail west holding , llc ( twh ) , which is pursuing the development of a proposed natural gas pipeline through its wholly-owned subsidiary , trail west pipeline , llc ( twp ) ; nng financial 's investment in kelso-beaver pipeline ( kb pipeline ) ; and nwn water , which owns and continues to pursue investments in the water sector . see note 4 for further discussion of our business segment and other , as well as our direct and indirect wholly-owned subsidiaries . non-gaap financial measures . in addition to presenting the results of operations and earnings amounts in total , certain financial measures are expressed in cents per share or exclude the effects of certain items , which are non-gaap financial measures . we present net income or loss and earnings or loss per share adjusted for certain items along with the u.s. gaap measures to illustrate their magnitude on ongoing business and operational results . although the excluded amounts are properly included in the determination of net income or loss and earnings or loss per share under u.s. gaap , we believe the amount and nature of these items make period to period comparisons of operations difficult or potentially confusing . we use such non-gaap financial measures to analyze our financial performance because we believe they provide useful information to our investors and creditors in evaluating our financial condition and results of operations . our non-gaap financial measures should not be considered a substitute for , or superior to , measures calculated in accordance with u.s. gaap . reconciliations of the non-gaap financial 29 measures to their closest u.s. gaap measure used in subsequent sections of item 7 are provided below . replace_table_token_7_th replace_table_token_8_th note : totals may not foot due to rounding . ( 1 ) regulatory environmental disallowance of $ 3.3 million in 2016 includes $ 2.8 million recorded in ngd other income ( expense ) , net and $ 0.5 million recorded in ngd operations and maintenance expense . the tax effect of the adjustment is calculated using the combined federal and state statutory rate in effect at the time of 39.5 % . nw holdings ' eps amounts for the 2016 adjustment are calculated using diluted shares of 27.8 million , as shown on the nw holdings consolidated statements of comprehensive income . ( 2 ) non-cash tcja benefit ( expense ) associated with continuing operations of $ 3.4 million was recorded in income tax expense ( benefit ) in the fourth quarter of 2017 as a result of the federal tax rate changing from 35 % to 21 % effective december 22 , 2017. the majority of this benefit was recorded at nw natural . nw holdings eps amounts are calculated using diluted shares of 28.8 million as shown on the nw holdings consolidated statements of comprehensive income . the tcja impacts in the ngd segment and other may not correlate exactly to the consolidated amount due to rounding . see note 10 for additional information on the tcja . 30 executive summary we manage our business and strategic initiatives with a long-term view of providing service safely and reliably to our customers , working with regulators on key policy initiatives , and remaining focused on growing our businesses . see `` 2019 outlook `` below for more information . highlights for the year include : added over 12,500 natural gas customers in 2018 for an annual growth rate of 1.7 % at december 31 , 2018 ; invested $ 215 million in ngd distribution systems and facilities for growth and reliability ; completed key components of the north mist gas storage expansion project and continue to target an in-service date during the spring of 2019 ; nw natural ranked first in the west in the 2018 j.d . power gas utility residential customer satisfaction study and gas utility business customer satisfaction study ; completed key aspects of nw natural 's oregon general rate case and filed for a general rate increase in washington for the first time in a decade ; completed four water distribution acquisitions with several more pending , the largest of which is a water and wastewater business in sunriver , oregon . once pending transactions close , our water business is expected to serve 18,000 connections ; and delivered increasing dividends for the 63 rd consecutive year to shareholders . key financial highlights for nw holdings include : replace_table_token_9_th key financial highlights for nw natural include : replace_table_token_10_th ( 1 ) see the non-gaap reconciliations table at the beginning of item 7 for a reconciliation of this non-gaap financial measure to its closest u.s. gaap measure . 2018 compared to 2017 . nw holdings ' and nw natural 's net income from continuing operations were $ 67.3 million and $ 68.0 million , respectively , in 2018 compared to $ 72.1 million and $ 71.7 million , respectively , in 2017. the decrease was primarily due to the benefit associated with the tcja deferred income tax remeasurement in 2017. excluding the benefit in 2017 associated with the tcja remeasurement , nw holdings adjusted net income from continuing operations decreased $ 1.4 million . see the non-gaap reconciliations at the beginning of item 7 for additional information . the decrease was primarily due to the following factors , all of which were driven by activity at nw natural : an $ 8.9 story_separator_special_tag on october 26 , 2018 , the opuc issued an order regarding nw natural 's general rate case originally filed in december 2017 and approved the following items : annual revenue requirement increase of $ 23.4 million or 3.72 % over nw natural 's revenue from existing rates , which includes approximately $ 12.1 million that would otherwise be recovered under the conservation tariff deferral ; capital structure of 50 % debt and 50 % equity ; return on equity of 9.4 % ; cost of capital of 7.317 % ; rate base of $ 1.186 billion , or an increase of $ 300 million since the last rate case in 2012 ; commencing november 1 , 2018 , asc 715 pension expenses for the qualified pension plan will be recovered through rates with an increase of $ 8.1 million to revenue requirement for a total of $ 11.9 million ; and the sharing of asset management revenues related to ngd business pipeline and storage assets will be 90 % /10 % with 90 % being credited to customers . previously customers received 67 % of these revenues . the rate changes listed above went into effect on november 1 , 2018. in addition to the items above , the opuc issued an order on october 26 , 2018 , to freeze nw natural 's pension balancing account as of october 31 , 2018. the order directed nw natural and the other parties to the rate case to engage in further regulatory proceedings extending the general rate case docket to resolve open issues with respect to the recovery of the pension balancing account , and treatment of the 10-month deferral period benefits associated with the tcja . on february 4 , 2019 , nw natural , opuc staff , oregon citizen 's utility board ( cub ) , and the alliance of western energy customers ( awec ) , which comprise all of the parties to the 2018 oregon rate case , filed with the opuc a joint stipulation addressing remaining items related to nw natural 's pension balancing account and the return of deferred tcja benefits to customers ( settlement ) . the settlement is subject to the review and approval of the opuc . for it to be effective , the opuc must issue an order , which may approve or deny the terms of the settlement or be issued under the opuc 's own terms . under the settlement , the stipulating parties agree that nw natural properly recorded the remeasurement of regulated ngd excess deferred income taxes pursuant to the effects of the tcja , and agree that all of nw natural 's tcja-related dockets will be resolved in accordance with the terms of the settlement . under the settlement , nw natural would return excess deferred income taxes pursuant to the tcja as follows : ( i ) an annual credit to base rates of $ 3.4 million ; ( ii ) a credit of $ 3.0 million per year for five years to sale customers ; ( iii ) a credit to customers ' benefit of $ 5.44 million of deferred income taxes , and $ 7.07 million of tcja benefits deferred between january 1 , 2018 and october 31 , 2018 , reflected as a reduction to nw natural 's pension balancing account , described below . as a result of these returns and credits , nw natural 's rate base is expected to increase by approximately $ 15.38 million , and the revenue requirement is expected to increase approximately $ 1.43 36 million . if nw natural files a general rate case within five years of the date of the order implementing the settlement , this revenue requirement may be adjusted as part of that general rate case . as to the future operation and timing of rate recovery of amounts reflected in nw natural 's pension balancing account , under the settlement , the stipulating parties agree that , effective october 31 , 2018 , nw natural would : ( i ) reduce the amount of the frozen pension balancing account by $ 10.5 million , and apply $ 12.51 million of the company 's deferred tcja benefits , for a total reduction of the pension balancing account of approximately $ 23.01 million ; and ( ii ) reduce the interest rate on the pension balancing account from nw natural 's authorized rate of return of 7.317 percent to 4.3 percent . nw natural would then collect the remainder of the pension balancing account balance over ten years in a customer tariff of $ 7.3 million per year beginning on the rate effective date . if the settlement is approved , nw natural expects to recognize an after-tax charge to earnings of approximately $ 6.7 million in the quarter in which an order is issued . the settlement is subject to the review and approval of the opuc with a decision and order expected in march 2019 , and new rates expected to be effective april 1 , 2019. washington general rate case . on december 31 , 2018 , nw natural filed for a general rate case in the state of washington . the requested increase , the first in approximately 10 years , is intended to recover operating costs and investments made in the washington distribution system and is based upon the following assumptions or requests : capital structure of 49.5 % long-term debt , 1.0 % short-term debt , and 49.5 % common equity ; return on equity of 10.3 % ; cost of capital of 7.63 % ; and rate base of $ 186.5 million , an increase of $ 58.7 million since the last rate case . the filing also includes a proposal to return federal tax reform benefits to customers related to the tcja . nw natural estimates the total liability for tax reform benefits allocated to washington customers to be approximately $ 20.2 million

cash flows year ended december 31 , 2014 versus december 31 , 2013 cash and cash equivalents increased $ 5.2 million to $ 39.1 million in 2014 compared to $ 33.9 million in 2013 . net cash provided by operating activities increased $ 10.9 million in 2014 to $ 55.4 million from $ 44.5 million in 2013 . the increase was primarily due to an increase in net income partially offset by changes in operating assets and liabilities and working capital . net cash used in investing activities was $ 2.6 million in 2014 compared to $ 1.8 million used in 2013 . the $ 0.8 million increase was primarily attributable to a $ 1.9 million increase in purchases of property and equipment related to our new corporate headquarters and a $ 1.0 million net increase in purchases in investments associated primarily with the incubation of new products during 2014 . net cash used in financing activities increased $ 6.2 million in 2014 to $ 47.8 million from $ 41.5 million in 2013 . this increase is primarily due to an $ 11.6 million increase in distributions to non-controlling interests . the increase in these distributions primarily reflects increased tax allocations associated with increased taxable income in 2014 and dividend distributions to members of our operating company . net cash used in financing activities in 2014 also reflects a $ 1.5 million increase in cash dividends paid during 2014. these increases were partially offset by a $ 4.8 million increase in contributions from non-controlling interests primarily reflecting contributions into our consolidated subsidiaries and a $ 1.8 million decrease in the repurchase and retirement of class a common stock , class b units , and class b unit options during 2014 . year ended december 31 , 2013 versus december 31 , 2012 cash and cash equivalents increased $ 1.3 million to $ 33.9 million in 2013 compared to $ 32.6 million in 2012 . net cash provided by operating activities increased $ 12.5 million in 2013 to $ 44.5 million from $ 32.0 million in 2012 .

gem state water company , llc ( gem state ) the ngd segment includes our nw natural local gas distribution business , nwn gas reserves , which is a wholly-owned subsidiary of energy corp , and the ngd-portion of nw natural 's mist storage facility in oregon . other activities aggregated and reported as other at nw natural include the non-ngd storage activity at mist as well as asset management services and the appliance retail center operations . other activities aggregated and reported as other at nw holdings include nwn energy 's equity investment in trail west holding , llc ( twh ) , which is pursuing the development of a proposed natural gas pipeline through its wholly-owned subsidiary , trail west pipeline , llc ( twp ) ; nng financial 's investment in kelso-beaver pipeline ( kb pipeline ) ; and nwn water , which owns and continues to pursue investments in the water sector . see note 4 for further discussion of our business segment and other , as well as our direct and indirect wholly-owned subsidiaries . non-gaap financial measures . in addition to presenting the results of operations and earnings amounts in total , certain financial measures are expressed in cents per share or exclude the effects of certain items , which are non-gaap financial measures . we present net income or loss and earnings or loss per share adjusted for certain items along with the u.s. gaap measures to illustrate their magnitude on ongoing business and operational results . although the excluded amounts are properly included in the determination of net income or loss and earnings or loss per share under u.s. gaap , we believe the amount and nature of these items make period to period comparisons of operations difficult or potentially confusing . we use such non-gaap financial measures to analyze our financial performance because we believe they provide useful information to our investors and creditors in evaluating our financial condition and results of operations . our non-gaap financial measures should not be considered a substitute for , or superior to , measures calculated in accordance with u.s. gaap . reconciliations of the non-gaap financial 29 measures to their closest u.s. gaap measure used in subsequent sections of item 7 are provided below . replace_table_token_7_th replace_table_token_8_th note : totals may not foot due to rounding . ( 1 ) regulatory environmental disallowance of $ 3.3 million in 2016 includes $ 2.8 million recorded in ngd other income ( expense ) , net and $ 0.5 million recorded in ngd operations and maintenance expense . the tax effect of the adjustment is calculated using the combined federal and state statutory rate in effect at the time of 39.5 % . nw holdings ' eps amounts for the 2016 adjustment are calculated using diluted shares of 27.8 million , as shown on the nw holdings consolidated statements of comprehensive income . ( 2 ) non-cash tcja benefit ( expense ) associated with continuing operations of $ 3.4 million was recorded in income tax expense ( benefit ) in the fourth quarter of 2017 as a result of the federal tax rate changing from 35 % to 21 % effective december 22 , 2017. the majority of this benefit was recorded at nw natural . nw holdings eps amounts are calculated using diluted shares of 28.8 million as shown on the nw holdings consolidated statements of comprehensive income . the tcja impacts in the ngd segment and other may not correlate exactly to the consolidated amount due to rounding . see note 10 for additional information on the tcja . 30 executive summary we manage our business and strategic initiatives with a long-term view of providing service safely and reliably to our customers , working with regulators on key policy initiatives , and remaining focused on growing our businesses . see `` 2019 outlook `` below for more information . highlights for the year include : added over 12,500 natural gas customers in 2018 for an annual growth rate of 1.7 % at december 31 , 2018 ; invested $ 215 million in ngd distribution systems and facilities for growth and reliability ; completed key components of the north mist gas storage expansion project and continue to target an in-service date during the spring of 2019 ; nw natural ranked first in the west in the 2018 j.d . power gas utility residential customer satisfaction study and gas utility business customer satisfaction study ; completed key aspects of nw natural 's oregon general rate case and filed for a general rate increase in washington for the first time in a decade ; completed four water distribution acquisitions with several more pending , the largest of which is a water and wastewater business in sunriver , oregon . once pending transactions close , our water business is expected to serve 18,000 connections ; and delivered increasing dividends for the 63 rd consecutive year to shareholders . key financial highlights for nw holdings include : replace_table_token_9_th key financial highlights for nw natural include : replace_table_token_10_th ( 1 ) see the non-gaap reconciliations table at the beginning of item 7 for a reconciliation of this non-gaap financial measure to its closest u.s. gaap measure . 2018 compared to 2017 . nw holdings ' and nw natural 's net income from continuing operations were $ 67.3 million and $ 68.0 million , respectively , in 2018 compared to $ 72.1 million and $ 71.7 million , respectively , in 2017. the decrease was primarily due to the benefit associated with the tcja deferred income tax remeasurement in 2017. excluding the benefit in 2017 associated with the tcja remeasurement , nw holdings adjusted net income from continuing operations decreased $ 1.4 million . see the non-gaap reconciliations at the beginning of item 7 for additional information . the decrease was primarily due to the following factors , all of which were driven by activity at nw natural : an $ 8.9 story_separator_special_tag on october 26 , 2018 , the opuc issued an order regarding nw natural 's general rate case originally filed in december 2017 and approved the following items : annual revenue requirement increase of $ 23.4 million or 3.72 % over nw natural 's revenue from existing rates , which includes approximately $ 12.1 million that would otherwise be recovered under the conservation tariff deferral ; capital structure of 50 % debt and 50 % equity ; return on equity of 9.4 % ; cost of capital of 7.317 % ; rate base of $ 1.186 billion , or an increase of $ 300 million since the last rate case in 2012 ; commencing november 1 , 2018 , asc 715 pension expenses for the qualified pension plan will be recovered through rates with an increase of $ 8.1 million to revenue requirement for a total of $ 11.9 million ; and the sharing of asset management revenues related to ngd business pipeline and storage assets will be 90 % /10 % with 90 % being credited to customers . previously customers received 67 % of these revenues . the rate changes listed above went into effect on november 1 , 2018. in addition to the items above , the opuc issued an order on october 26 , 2018 , to freeze nw natural 's pension balancing account as of october 31 , 2018. the order directed nw natural and the other parties to the rate case to engage in further regulatory proceedings extending the general rate case docket to resolve open issues with respect to the recovery of the pension balancing account , and treatment of the 10-month deferral period benefits associated with the tcja . on february 4 , 2019 , nw natural , opuc staff , oregon citizen 's utility board ( cub ) , and the alliance of western energy customers ( awec ) , which comprise all of the parties to the 2018 oregon rate case , filed with the opuc a joint stipulation addressing remaining items related to nw natural 's pension balancing account and the return of deferred tcja benefits to customers ( settlement ) . the settlement is subject to the review and approval of the opuc . for it to be effective , the opuc must issue an order , which may approve or deny the terms of the settlement or be issued under the opuc 's own terms . under the settlement , the stipulating parties agree that nw natural properly recorded the remeasurement of regulated ngd excess deferred income taxes pursuant to the effects of the tcja , and agree that all of nw natural 's tcja-related dockets will be resolved in accordance with the terms of the settlement . under the settlement , nw natural would return excess deferred income taxes pursuant to the tcja as follows : ( i ) an annual credit to base rates of $ 3.4 million ; ( ii ) a credit of $ 3.0 million per year for five years to sale customers ; ( iii ) a credit to customers ' benefit of $ 5.44 million of deferred income taxes , and $ 7.07 million of tcja benefits deferred between january 1 , 2018 and october 31 , 2018 , reflected as a reduction to nw natural 's pension balancing account , described below . as a result of these returns and credits , nw natural 's rate base is expected to increase by approximately $ 15.38 million , and the revenue requirement is expected to increase approximately $ 1.43 36 million . if nw natural files a general rate case within five years of the date of the order implementing the settlement , this revenue requirement may be adjusted as part of that general rate case . as to the future operation and timing of rate recovery of amounts reflected in nw natural 's pension balancing account , under the settlement , the stipulating parties agree that , effective october 31 , 2018 , nw natural would : ( i ) reduce the amount of the frozen pension balancing account by $ 10.5 million , and apply $ 12.51 million of the company 's deferred tcja benefits , for a total reduction of the pension balancing account of approximately $ 23.01 million ; and ( ii ) reduce the interest rate on the pension balancing account from nw natural 's authorized rate of return of 7.317 percent to 4.3 percent . nw natural would then collect the remainder of the pension balancing account balance over ten years in a customer tariff of $ 7.3 million per year beginning on the rate effective date . if the settlement is approved , nw natural expects to recognize an after-tax charge to earnings of approximately $ 6.7 million in the quarter in which an order is issued . the settlement is subject to the review and approval of the opuc with a decision and order expected in march 2019 , and new rates expected to be effective april 1 , 2019. washington general rate case . on december 31 , 2018 , nw natural filed for a general rate case in the state of washington . the requested increase , the first in approximately 10 years , is intended to recover operating costs and investments made in the washington distribution system and is based upon the following assumptions or requests : capital structure of 49.5 % long-term debt , 1.0 % short-term debt , and 49.5 % common equity ; return on equity of 10.3 % ; cost of capital of 7.63 % ; and rate base of $ 186.5 million , an increase of $ 58.7 million since the last rate case . the filing also includes a proposal to return federal tax reform benefits to customers related to the tcja . nw natural estimates the total liability for tax reform benefits allocated to washington customers to be approximately $ 20.2 million

cash flows operating activities changes in our operating cash flows are primarily affected by net income or loss , changes in working capital requirements , and other cash and non-cash adjustments to operating results . operating activity highlights include : replace_table_token_31_th replace_table_token_32_th the significant drivers of changes in cash provided by operating activities discussed below apply to both nw holdings and nw natural . 2018 compared to 2017 . the significant factors contributing to the $ 37.9 million and $ 33.0 million decrease s in nw holdings and nw natural cash flow provided by operating activities , respectively , were as follows : a decrease of $ 31.5 million in cash flow benefits from changes in deferred gas cost balances primarily due to higher gas prices in the fourth quarter of 2018 and lower current year pga rates reflecting over-collections of certain fixed costs from customers in the prior year when weather was colder than average ; a decrease of $ 12.6 million due to $ 27.4 million income taxes paid in 2018 due to the elimination of bonus depreciation as a result of the tcja , compared to income taxes paid of $ 14.8 million in 2017 ; partially offset by a net increase of $ 10.2 million from changes in working capital related to receivables , inventories , and accounts payable reflecting warmer than average weather in 2018 compared to the prior period ; and an increase of $ 3.9 million due to a decrease in contributions paid to qualified defined benefit pension plans 2017 compared to 2016 .

many states , counties and cities where we conduct our business activities , have instituted quarantines , restrictions on travel , “ shelter in place ” rules , and restrictions on the types of business that may continue to operate , which has and may continue to limit the activity of our sales and financing professionals in engaging with our clients . these factors are also impacting the financial performance of real estate to varying degrees by property type , which in turn has and continues to create challenges in valuations and trading volumes . first and foremost , we have been and remain committed to protecting the health and safety of our employees , investment sales and financing professionals , clients and their families , while at the same time focusing on our clients ' success . we have implemented measures such as increased sanitizing , physical distancing and remote work arrangements , with the goal of protecting our employees , sales and financing professionals and clients . we continue to follow the local guidelines in cities where our offices are located , and all but a few of our offices have re-opened , and those that have not been able to re-open due to state and local restrictions are available to our employees and sales and financing professionals on an as-needed basis . we are closely monitoring the impact of covid-19 pandemic on all aspects of our business and in the regions we operate . since the start of the pandemic , we have taken multiple measures to support our investment 36 sales and financing professionals ' ability to generate and execute business remotely . such measures include multiple technological solutions , intensified internal training and education , as well as a significant increase in client outreach and investor education webcasts . our business was impacted during most of 2020 , with the total number of transactions and total revenues declining 7.9 % and 11.1 % in the year ended december 31 , 2020 , respectively , compared to the same period in 2019. the pandemic caused a major market disruption starting in the second quarter of 2020 as we saw a significant slowing of our real estate brokerage and financing transaction activity , difficulty in pricing assets and , in certain cases , restrictions on the ability of borrowers to access the capital markets and other sources of financing . during the second half of 2020 , we started to see recovery in transaction activity , in part , attributable to historically low interest rates , improved investor confidence due to the progress of vaccines and resurrected deals and cancelled listings continuing to come back . while our financial results continue to be well-below prior levels , returning to prior year levels remains a major priority for us . we are extending the uses of technology and resource sharing measures adopted over the past nine months as ways to achieve more efficiency on a long-term basis . the long-term impact of the disruption in financial markets , consumer spending , unemployment as well as other unanticipated consequences remain unknown . although the negative impact to our business has moderated , we anticipate that total revenues will be negatively impacted for at least the first half of 2021 and until more stable business conditions begin to resume in 2021. due to a high degree of uncertainty and fluidity of this situation , we are unable to predict the extent of the negative impact on our financial condition , results of operations and cash flows . these uncertainties include the scope , severity and duration of the pandemic ; variants in the virus and the effects thereof ; expectation gaps among buyers and sellers on pricing and property operation , vulnerability to further economic weakness and or slow recovery ; a more difficult market environment for new investment sales and financing professionals who are experiencing extended ramp-up time to reach production goals ; the actions taken by state and local governments to contain the pandemic or mitigate its impact , including vaccination programs ; the direct and indirect economic effects of the pandemic and containment measures and actions taken ; and the impact of these and other factors on our employees , independent contractors , clients and potential clients . we continue to monitor the expected trends and related demand for our services and will continue to adjust our operations accordingly . in response to this ongoing period of business disruption , we assessed our cost structure and instituted various expense reduction initiatives , including , but not limited to , compensation reductions , reductions in events and travel , suspension of company matching contributions in our 401 ( k ) plan and layoffs to preserve our balance sheet and financial position . we have recalled some of our furloughed employees and have restored compensation levels for all employees , who received a compensation reduction other than our chief executive officer , who requested that his reduction be extended . our priority is to support our team 's efforts to increase client contact , provide expanded content and advisory services to investors and clients , and preserve our financial position through expense reductions . given our significant liquidity , we expect our company to be well positioned to benefit from and contribute to the real estate transaction recovery when it emerges , including making accretive and synergistic acquisitions , which will help expand service offerings and market coverage . factors affecting our business our business and our operating results , financial condition and liquidity are significantly affected by the number and size of commercial real estate investment sales and financing transactions that we close in any period . the number and size of these transactions are affected by our ability to recruit and retain investment sales and financing professionals , identify and contract properties for sale and identify those that need financing and refinancing . story_separator_special_tag provision for income taxes we are subject to u.s. and canadian federal taxes and individual state and local taxes based on the income generated in the jurisdictions in which we operate . our effective tax rate fluctuates as a result of the change in the mix of our activities in the jurisdictions we operate due to differing tax rates in those jurisdictions and the impact of permanent items , including principally compensation charges , qualified transportation fringe benefits , uncertain tax positions , meals and entertainment and tax-exempt deferred compensation plan assets . our provision for income taxes includes the windfall tax benefits and shortfall expenses , net , from shares issued in connection with our 2013 plan and espp . we record deferred taxes , net based on the tax rate expected to be in effect at the time those items are expected to be recognized for tax purposes . results of operations following is a discussion of our results of operations for the years ended december 31 , 2020 , 2019 and 2018. the tables included in the period comparisons below provide summaries of our results of operations . the period-to-period comparisons of financial results are not necessarily indicative of future results . 42 key operating metrics we regularly review a number of key metrics to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions . we also believe these metrics are relevant to investors ' and others ' assessment of our financial condition and results of operations . during the years ended december 31 , 2020 , 2019 and 2018 , we closed more than 8,900 , 9,700 and 9,400 investment sales , financing and other transactions , respectively , with total sales volume of approximately $ 43.4 billion , $ 49.7 billion and $ 46.4 billion , respectively . such key metrics for real estate brokerage and financing activities ( excluding other transactions ) are as follows : replace_table_token_4_th ( 1 ) operating metrics calculated excluding certain financing fees not directly associated to transactions . 43 comparison of years ended december 31 , 2020 and 2019 below are key operating results for the year ended december 31 , 2020 compared to the results for the year ended december 31 , 2019 ( dollars in thousands ) : replace_table_token_5_th ( 1 ) adjusted ebitda is not a measurement of our financial performance under u.s. generally accepted accounting principles ( “ u.s . gaap ” ) and should not be considered as an alternative to net income , operating income or any other measures derived in accordance with u.s. gaap . for a definition of adjusted ebitda and a reconciliation of adjusted ebitda to net income , see “ non-gaap financial measure . ” revenues our total revenues were $ 716.9 million in 2020 compared to $ 806.4 million in 2019 , a decrease of $ 89.5 million , or 11.1 % . total revenues decreased as a result of decreased real estate brokerage commissions , partially offset by increases in financing fees and other revenues , as described below . real estate brokerage commissions . revenues from real estate brokerage commissions decreased to $ 633.2 million in 2020 from $ 729.4 million in 2019 , a decrease of $ 96.2 million , or 13.2 % . the decrease was driven by a 13.0 % reduction in sales volume . sales volume was impacted by a 10.7 % decrease in the number of transactions and a 2.6 % decrease in the average transaction size , primarily as a result of the economic uncertainty and other transactional impediments related to the covid-19 pandemic . the average commission rates remained comparable . 44 financing fees . revenues from financing fees increased to $ 70.5 million in 2020 from $ 66.3 million in 2019 , an increase of $ 4.2 million , or 6.4 % . the increase was , in part , spurred by growth from acquisitions and was primarily driven by a 6.9 % increase in financing volume , partially offset by a 3 basis points reduction in average fee rates . financing volume was impacted by a 6.9 % increase in the average transaction size as the number of transactions remained relatively comparable . other revenues . other revenues increased to $ 13.2 million in 2020 from $ 10.8 million in 2019 , an increase of $ 2.4 million , or 22.5 % . the increase was primarily driven by increases in consulting and advisory services during 2020 , compared to the same period in 2019. operating expenses our total operating expenses were $ 663.3 million in 2020 compared to $ 710.0 million in 2019 , a decrease of $ 46.7 million , or 6.6 % . the decrease was primarily due to a decrease in cost of services , which are variable commissions paid to our investment sales professionals and compensation related costs in connection with our financing activities , partially offset by increases in selling , general and administrative costs and depreciation and amortization expense , as described below . cost of services . cost of services in 2020 decreased to $ 447.9 million from $ 498.9 million in 2019 , a decrease of $ 51.0 million , or 10.2 % . the decrease was primarily due to decreased commission expenses driven by the related decreased revenues due to the covid-19 pandemic noted above . cost of services as a percent of total revenues increased to 62.5 % for 2020 compared to 61.9 % for 2019 , primarily due to a higher proportion of transactions closed by our more senior investment sales and financing professionals . selling , general and administrative expense . selling , general and administrative expense in 2020 increased $ 1.4 million , or 0.7 % , to $ 204.5 million from $ 203.1 million in 2019. the increase was primarily due to increases in ( i ) business development ,

cash flows operating activities changes in our operating cash flows are primarily affected by net income or loss , changes in working capital requirements , and other cash and non-cash adjustments to operating results . operating activity highlights include : replace_table_token_31_th replace_table_token_32_th the significant drivers of changes in cash provided by operating activities discussed below apply to both nw holdings and nw natural . 2018 compared to 2017 . the significant factors contributing to the $ 37.9 million and $ 33.0 million decrease s in nw holdings and nw natural cash flow provided by operating activities , respectively , were as follows : a decrease of $ 31.5 million in cash flow benefits from changes in deferred gas cost balances primarily due to higher gas prices in the fourth quarter of 2018 and lower current year pga rates reflecting over-collections of certain fixed costs from customers in the prior year when weather was colder than average ; a decrease of $ 12.6 million due to $ 27.4 million income taxes paid in 2018 due to the elimination of bonus depreciation as a result of the tcja , compared to income taxes paid of $ 14.8 million in 2017 ; partially offset by a net increase of $ 10.2 million from changes in working capital related to receivables , inventories , and accounts payable reflecting warmer than average weather in 2018 compared to the prior period ; and an increase of $ 3.9 million due to a decrease in contributions paid to qualified defined benefit pension plans 2017 compared to 2016 .

many states , counties and cities where we conduct our business activities , have instituted quarantines , restrictions on travel , “ shelter in place ” rules , and restrictions on the types of business that may continue to operate , which has and may continue to limit the activity of our sales and financing professionals in engaging with our clients . these factors are also impacting the financial performance of real estate to varying degrees by property type , which in turn has and continues to create challenges in valuations and trading volumes . first and foremost , we have been and remain committed to protecting the health and safety of our employees , investment sales and financing professionals , clients and their families , while at the same time focusing on our clients ' success . we have implemented measures such as increased sanitizing , physical distancing and remote work arrangements , with the goal of protecting our employees , sales and financing professionals and clients . we continue to follow the local guidelines in cities where our offices are located , and all but a few of our offices have re-opened , and those that have not been able to re-open due to state and local restrictions are available to our employees and sales and financing professionals on an as-needed basis . we are closely monitoring the impact of covid-19 pandemic on all aspects of our business and in the regions we operate . since the start of the pandemic , we have taken multiple measures to support our investment 36 sales and financing professionals ' ability to generate and execute business remotely . such measures include multiple technological solutions , intensified internal training and education , as well as a significant increase in client outreach and investor education webcasts . our business was impacted during most of 2020 , with the total number of transactions and total revenues declining 7.9 % and 11.1 % in the year ended december 31 , 2020 , respectively , compared to the same period in 2019. the pandemic caused a major market disruption starting in the second quarter of 2020 as we saw a significant slowing of our real estate brokerage and financing transaction activity , difficulty in pricing assets and , in certain cases , restrictions on the ability of borrowers to access the capital markets and other sources of financing . during the second half of 2020 , we started to see recovery in transaction activity , in part , attributable to historically low interest rates , improved investor confidence due to the progress of vaccines and resurrected deals and cancelled listings continuing to come back . while our financial results continue to be well-below prior levels , returning to prior year levels remains a major priority for us . we are extending the uses of technology and resource sharing measures adopted over the past nine months as ways to achieve more efficiency on a long-term basis . the long-term impact of the disruption in financial markets , consumer spending , unemployment as well as other unanticipated consequences remain unknown . although the negative impact to our business has moderated , we anticipate that total revenues will be negatively impacted for at least the first half of 2021 and until more stable business conditions begin to resume in 2021. due to a high degree of uncertainty and fluidity of this situation , we are unable to predict the extent of the negative impact on our financial condition , results of operations and cash flows . these uncertainties include the scope , severity and duration of the pandemic ; variants in the virus and the effects thereof ; expectation gaps among buyers and sellers on pricing and property operation , vulnerability to further economic weakness and or slow recovery ; a more difficult market environment for new investment sales and financing professionals who are experiencing extended ramp-up time to reach production goals ; the actions taken by state and local governments to contain the pandemic or mitigate its impact , including vaccination programs ; the direct and indirect economic effects of the pandemic and containment measures and actions taken ; and the impact of these and other factors on our employees , independent contractors , clients and potential clients . we continue to monitor the expected trends and related demand for our services and will continue to adjust our operations accordingly . in response to this ongoing period of business disruption , we assessed our cost structure and instituted various expense reduction initiatives , including , but not limited to , compensation reductions , reductions in events and travel , suspension of company matching contributions in our 401 ( k ) plan and layoffs to preserve our balance sheet and financial position . we have recalled some of our furloughed employees and have restored compensation levels for all employees , who received a compensation reduction other than our chief executive officer , who requested that his reduction be extended . our priority is to support our team 's efforts to increase client contact , provide expanded content and advisory services to investors and clients , and preserve our financial position through expense reductions . given our significant liquidity , we expect our company to be well positioned to benefit from and contribute to the real estate transaction recovery when it emerges , including making accretive and synergistic acquisitions , which will help expand service offerings and market coverage . factors affecting our business our business and our operating results , financial condition and liquidity are significantly affected by the number and size of commercial real estate investment sales and financing transactions that we close in any period . the number and size of these transactions are affected by our ability to recruit and retain investment sales and financing professionals , identify and contract properties for sale and identify those that need financing and refinancing . story_separator_special_tag provision for income taxes we are subject to u.s. and canadian federal taxes and individual state and local taxes based on the income generated in the jurisdictions in which we operate . our effective tax rate fluctuates as a result of the change in the mix of our activities in the jurisdictions we operate due to differing tax rates in those jurisdictions and the impact of permanent items , including principally compensation charges , qualified transportation fringe benefits , uncertain tax positions , meals and entertainment and tax-exempt deferred compensation plan assets . our provision for income taxes includes the windfall tax benefits and shortfall expenses , net , from shares issued in connection with our 2013 plan and espp . we record deferred taxes , net based on the tax rate expected to be in effect at the time those items are expected to be recognized for tax purposes . results of operations following is a discussion of our results of operations for the years ended december 31 , 2020 , 2019 and 2018. the tables included in the period comparisons below provide summaries of our results of operations . the period-to-period comparisons of financial results are not necessarily indicative of future results . 42 key operating metrics we regularly review a number of key metrics to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions . we also believe these metrics are relevant to investors ' and others ' assessment of our financial condition and results of operations . during the years ended december 31 , 2020 , 2019 and 2018 , we closed more than 8,900 , 9,700 and 9,400 investment sales , financing and other transactions , respectively , with total sales volume of approximately $ 43.4 billion , $ 49.7 billion and $ 46.4 billion , respectively . such key metrics for real estate brokerage and financing activities ( excluding other transactions ) are as follows : replace_table_token_4_th ( 1 ) operating metrics calculated excluding certain financing fees not directly associated to transactions . 43 comparison of years ended december 31 , 2020 and 2019 below are key operating results for the year ended december 31 , 2020 compared to the results for the year ended december 31 , 2019 ( dollars in thousands ) : replace_table_token_5_th ( 1 ) adjusted ebitda is not a measurement of our financial performance under u.s. generally accepted accounting principles ( “ u.s . gaap ” ) and should not be considered as an alternative to net income , operating income or any other measures derived in accordance with u.s. gaap . for a definition of adjusted ebitda and a reconciliation of adjusted ebitda to net income , see “ non-gaap financial measure . ” revenues our total revenues were $ 716.9 million in 2020 compared to $ 806.4 million in 2019 , a decrease of $ 89.5 million , or 11.1 % . total revenues decreased as a result of decreased real estate brokerage commissions , partially offset by increases in financing fees and other revenues , as described below . real estate brokerage commissions . revenues from real estate brokerage commissions decreased to $ 633.2 million in 2020 from $ 729.4 million in 2019 , a decrease of $ 96.2 million , or 13.2 % . the decrease was driven by a 13.0 % reduction in sales volume . sales volume was impacted by a 10.7 % decrease in the number of transactions and a 2.6 % decrease in the average transaction size , primarily as a result of the economic uncertainty and other transactional impediments related to the covid-19 pandemic . the average commission rates remained comparable . 44 financing fees . revenues from financing fees increased to $ 70.5 million in 2020 from $ 66.3 million in 2019 , an increase of $ 4.2 million , or 6.4 % . the increase was , in part , spurred by growth from acquisitions and was primarily driven by a 6.9 % increase in financing volume , partially offset by a 3 basis points reduction in average fee rates . financing volume was impacted by a 6.9 % increase in the average transaction size as the number of transactions remained relatively comparable . other revenues . other revenues increased to $ 13.2 million in 2020 from $ 10.8 million in 2019 , an increase of $ 2.4 million , or 22.5 % . the increase was primarily driven by increases in consulting and advisory services during 2020 , compared to the same period in 2019. operating expenses our total operating expenses were $ 663.3 million in 2020 compared to $ 710.0 million in 2019 , a decrease of $ 46.7 million , or 6.6 % . the decrease was primarily due to a decrease in cost of services , which are variable commissions paid to our investment sales professionals and compensation related costs in connection with our financing activities , partially offset by increases in selling , general and administrative costs and depreciation and amortization expense , as described below . cost of services . cost of services in 2020 decreased to $ 447.9 million from $ 498.9 million in 2019 , a decrease of $ 51.0 million , or 10.2 % . the decrease was primarily due to decreased commission expenses driven by the related decreased revenues due to the covid-19 pandemic noted above . cost of services as a percent of total revenues increased to 62.5 % for 2020 compared to 61.9 % for 2019 , primarily due to a higher proportion of transactions closed by our more senior investment sales and financing professionals . selling , general and administrative expense . selling , general and administrative expense in 2020 increased $ 1.4 million , or 0.7 % , to $ 204.5 million from $ 203.1 million in 2019. the increase was primarily due to increases in ( i ) business development ,

liquidity we believe that our existing balances of cash and cash equivalents , cash flows expected to be generated from our operations , proceeds from the sale of marketable debt securities , available-for-sale and borrowings available under the credit agreement ( defined below ) will be sufficient to satisfy our operating requirements for at least the next 12 months . if we need to raise additional capital through public or private debt or equity financings , strategic relationships or other arrangements , this capital might not be available to us in a timely manner , on acceptable terms , or at all . our failure to raise sufficient capital when needed could prevent us from funding acquisitions or otherwise financing our growth or operations . in addition , our sars agreements have provisions , which could accelerate repayment of outstanding principal and accrued interest and impact our liquidity . as of december 31 , 2020 , cash on hand and core-cash investments ( generally part of short-term marketable debt securities , available-for-sale ) aggregated $ 401.6 million , and we had $ 59.5 million of borrowing capacity under our credit agreement . in response to this period of business disruption , we assessed our cost structure and have instituted various expense reduction initiatives as discussed in “ overview – covid-19 ” section above . credit agreement we have a credit agreement with wells fargo bank , national association for a $ 60.0 million principal amount senior secured revolving credit facility that is guaranteed by all of our domestic subsidiaries and matures on june 1 , 2022 ( the “ credit agreement ” ) . see note 16 – “ commitments and contingencies ” of our notes to consolidated financial statements for additional information on the credit agreement . 48 contractual obligations and commitments the contractual obligations and other commitments consisted of the following at december 31 , 2020 ( in thousands ) : replace_table_token_8_th ( 1 ) see note 4 – “ operating leases ” of our notes to the consolidated financial statements .

our global designer lifestyle brands , tommy hilfiger and calvin klein , together generated over 75 % of our revenue . results of operations operations overview we generate net sales from ( i ) the wholesale distribution to retailers , franchisees , licensees and distributors of men 's dress shirts , neckwear and underwear , jeanswear , sportswear , intimate apparel , swim products , footwear , accessories and related products under owned and licensed trademarks , and ( ii ) the sale through ( a ) over 1,500 company-operated free-standing retail store locations worldwide under our calvin klein , tommy hilfiger , van heusen and izod trademarks , ( b ) over 1,100 company-operated concessions/shop-in-shops worldwide under our calvin klein and tommy hilfiger trademarks , and ( c ) e-commerce websites in certain regions under our calvin klein and tommy hilfiger trademarks , of apparel , footwear , accessories and other products , and speedo 's own e-commerce website in north america of swimwear and related products . we also operated g.h . bass & co . stores through the end of the third quarter of 2013 , at which time we sold substantially all of the assets of our bass business . we generate royalty , advertising and other revenue from fees for licensing the use of our trademarks . as noted above , a substantial portion of our calvin klein licensing revenue was generated from warnaco prior to the acquisition and , therefore , our royalty , advertising and other revenue decreased significantly in 2013 as compared to 2012. in addition , the loss of such licensing revenue had a negative impact on our gross margin and operating margin as compared to 2012 , as licensing revenue carries no cost of goods sold . we recorded pre-tax charges during 2014 , 2013 and 2012 principally in connection with the warnaco acquisition , integration and restructuring that totaled $ 139 million , $ 471 million and $ 46 million , respectively . the amounts incurred in 2013 included noncash charges of approximately $ 175 million , principally related to short-lived valuation adjustments and amortization . we also recorded pre-tax debt modification and extinguishment charges in 2014 and 2013 that totaled $ 93 million and $ 40 million , respectively . we recorded a net gain of $ 8 million in 2014 resulting from the deconsolidation of certain calvin klein subsidiaries in australia and new zealand and our previously consolidated calvin klein joint venture in india ( please see footnote 5 , “ investments in unconsolidated affiliates ” and footnote 6 , “ redeemable non-controlling interest ” in the notes to consolidated financial statements included in item 8 of this report for a further discussion ) . we expect to incur additional pre-tax charges of approximately $ 50 million during 2015 in connection with the warnaco integration and related restructuring . our future results of operations will continue to be significantly impacted by the warnaco acquisition , particularly through the operations of the calvin klein business and through the changes in our capital structure that were necessary to complete the acquisition , as more fully discussed below . in january 2015 , we announced the closure of our izod retail business , with the closing expected to be completed by the end of 2015. in connection with the closure , we recorded pre-tax charges of $ 21 million in 2014 , including $ 18 million of noncash impairment charges . we expect to incur additional pre-tax charges of approximately $ 20 million during 2015 in connection with the closure of our izod retail business . 31 on november 4 , 2013 , we sold substantially all of the assets of our bass business and recorded a net pre-tax loss of $ 20 million during 2013 in connection with the sale . please see the section entitled “ sale of bass ” within “ liquidity and capital resources ” below for a further discussion . we acquired tommy hilfiger in the second quarter of 2010. we incurred pre-tax charges of $ 21 million during 2012 in connection with the integration of tommy hilfiger and the related restructuring . our calvin klein and tommy hilfiger businesses each have substantial international components , which expose us to foreign exchange risk . amounts recorded in local foreign currencies are translated back to united states dollars using an average exchange rate over the representative period . our international revenue and profit is unfavorably impacted during times of a strengthening united states dollar and favorably impacted during times of a weakening united states dollar . the united states dollar has strengthened recently against certain major currencies , particularly the euro , which is our largest foreign currency exposure . in 2014 , approximately 45 % of our revenue was subject to foreign currency translation , the majority of which relates to our operations in europe , resulting in a negative impact on our 2014 results of operations as more fully discussed below . we currently expect the strength of the united states dollar and resulting unfavorable impact on our revenue and earnings to continue into 2015 as more fully discussed below . our calculations of the comparable store sales percentages throughout this discussion are based on local currencies and comparable weeks and , therefore , exclude an extra week in 2012 , as our 2012 fiscal year included 53 weeks of operations . the following table summarizes our income statements in 2014 , 2013 and 2012 : replace_table_token_1_th total revenue net sales our net sales were $ 7.849 billion in 2014 , $ 7.806 billion in 2013 and $ 5.541 billion in 2012. the net sales increase of $ 43 million in 2014 as compared to 2013 was due principally to the effect of the following items : the aggregate addition of $ 141 million in net sales attributable to growth in our tommy hilfiger north america and tommy hilfiger international segments . story_separator_special_tag we expect that these decreases in our sg & a expenses as a percentage of revenue will be 35 partially offset by the impact of expected faster growth in our higher-expense calvin klein and tommy hilfiger businesses than in our lower-expense heritage brands business . our actual sg & a expense may be significantly different than our projections because of expense associated with our retirement plans . retirement plan expense recorded throughout the year is calculated using actuarial valuations that incorporate assumptions and estimates about financial market , economic and demographic conditions . differences between estimated and actual results give rise to gains and losses that are recorded immediately in earnings , generally in the fourth quarter of the year , which can create volatility in our operating results . debt modification and extinguishment costs we incurred costs totaling $ 93 million in 2014 in connection with the amendment and restatement of our senior secured credit facilities and the related redemption of our 7 3/8 % senior notes due 2020. please refer to the section entitled “ liquidity and capital resources ” below for a further discussion . we incurred costs totaling $ 40 million in 2013 related to the modification and extinguishment of previously outstanding term loans and the replacement of such term loans with the senior secured credit facilities entered into in 2013 in connection with the warnaco acquisition . please refer to the section entitled “ liquidity and capital resources ” below for a further discussion . equity in income of unconsolidated affiliates , net the equity in income of unconsolidated affiliates , net during 2014 was $ 10 million , as compared to $ 8 million during 2013 and $ 5 million during 2012. these amounts relate to our share of income from our joint ventures for the tommy hilfiger brand in china , india and brazil , for the calvin klein brand in india and australia , and for the karl lagerfeld brand . our investments in these joint ventures are being accounted for under the equity method of accounting . please refer to the section entitled “ investments in unconsolidated affiliates ” within “ liquidity and capital resources ” below for a further discussion of our investments in these joint ventures . interest expense , net net interest expense decreased to $ 139 million in 2014 from $ 185 million in 2013 due to lower average debt balances and interest rates as compared to the prior year , combined with the effect of the amendment and restatement of our senior secured credit facilities and the related redemption of our 7 3/8 % senior notes due 2020 in the first quarter of 2014. please see the section entitled “ financing arrangements ” within “ liquidity and capital resources ” below for a further discussion . net interest expense increased to $ 185 million in 2013 from $ 117 million in 2012 due principally to increased debt balances in 2013 incurred to finance the warnaco acquisition . please refer to the section entitled “ financing arrangements ” within “ liquidity and capital resources ” below for a further discussion . net interest expense for 2015 is currently expected to decrease to approximately $ 120 million to $ 125 million from $ 139 million in 2014 as anticipated debt payments of at least $ 425 million in 2015 and the full year impact of payments made in 2014 are expected to result in a decrease to net interest expense as compared to 2014. income taxes income tax expense was as follows : replace_table_token_4_th the effective income tax rate for 2014 was ( 12.1 ) % compared with 56.4 % in 2013 and 20.1 % in 2012. the volatility in our effective income tax rate in the last three years is due in large part to uncertain tax positions which provided a benefit in 2014 and an expense in 2013. the effective income tax rate in 2014 was a benefit to income principally due to the effects of lower tax rates in international jurisdictions where we file tax returns , and a reduction of $ 94 million in our estimate for uncertain tax positions , 36 which provided a 24 % benefit to our tax rate . this benefit resulted from the favorable resolutions of uncertain tax positions in certain international jurisdictions , as well as the expiration of the statute of limitations related to other uncertain tax positions . the effective tax rate in 2013 was higher than the united states statutory tax rate principally due to the recognition of $ 145 million of tax expense related to changes in estimates for uncertain tax positions , which increased the 2013 effective tax rate by 44 % . the majority of this expense relates to an increase to our previously established liability for an uncertain tax position related to european and united states transfer pricing arrangements . also contributing to the higher tax rate in 2013 was an expense related to valuation allowances recorded on deferred tax assets from our business in japan , and also on certain domestic state and local deferred tax assets . partially offsetting these increases was the impact of warnaco integration and restructuring expenses in 2013 , the majority of which were incurred in the united states , which lowered our domestic taxable income in relation to taxable income in lower tax international jurisdictions . the effective tax rate in 2012 was lower than the united states statutory tax rate primarily due to the benefit of lower tax rates in international jurisdictions where we file tax returns , partially offset by non-deductible acquisition expenses incurred in 2012 in connection with the warnaco acquisition . we currently expect our effective tax rate in 2015 to be lower than the united states statutory rate due principally to the benefit of overall lower tax rates in international jurisdictions where we file tax returns . our tax rate is affected by many factors , including the mix

liquidity we believe that our existing balances of cash and cash equivalents , cash flows expected to be generated from our operations , proceeds from the sale of marketable debt securities , available-for-sale and borrowings available under the credit agreement ( defined below ) will be sufficient to satisfy our operating requirements for at least the next 12 months . if we need to raise additional capital through public or private debt or equity financings , strategic relationships or other arrangements , this capital might not be available to us in a timely manner , on acceptable terms , or at all . our failure to raise sufficient capital when needed could prevent us from funding acquisitions or otherwise financing our growth or operations . in addition , our sars agreements have provisions , which could accelerate repayment of outstanding principal and accrued interest and impact our liquidity . as of december 31 , 2020 , cash on hand and core-cash investments ( generally part of short-term marketable debt securities , available-for-sale ) aggregated $ 401.6 million , and we had $ 59.5 million of borrowing capacity under our credit agreement . in response to this period of business disruption , we assessed our cost structure and have instituted various expense reduction initiatives as discussed in “ overview – covid-19 ” section above . credit agreement we have a credit agreement with wells fargo bank , national association for a $ 60.0 million principal amount senior secured revolving credit facility that is guaranteed by all of our domestic subsidiaries and matures on june 1 , 2022 ( the “ credit agreement ” ) . see note 16 – “ commitments and contingencies ” of our notes to consolidated financial statements for additional information on the credit agreement . 48 contractual obligations and commitments the contractual obligations and other commitments consisted of the following at december 31 , 2020 ( in thousands ) : replace_table_token_8_th ( 1 ) see note 4 – “ operating leases ” of our notes to the consolidated financial statements .

our global designer lifestyle brands , tommy hilfiger and calvin klein , together generated over 75 % of our revenue . results of operations operations overview we generate net sales from ( i ) the wholesale distribution to retailers , franchisees , licensees and distributors of men 's dress shirts , neckwear and underwear , jeanswear , sportswear , intimate apparel , swim products , footwear , accessories and related products under owned and licensed trademarks , and ( ii ) the sale through ( a ) over 1,500 company-operated free-standing retail store locations worldwide under our calvin klein , tommy hilfiger , van heusen and izod trademarks , ( b ) over 1,100 company-operated concessions/shop-in-shops worldwide under our calvin klein and tommy hilfiger trademarks , and ( c ) e-commerce websites in certain regions under our calvin klein and tommy hilfiger trademarks , of apparel , footwear , accessories and other products , and speedo 's own e-commerce website in north america of swimwear and related products . we also operated g.h . bass & co . stores through the end of the third quarter of 2013 , at which time we sold substantially all of the assets of our bass business . we generate royalty , advertising and other revenue from fees for licensing the use of our trademarks . as noted above , a substantial portion of our calvin klein licensing revenue was generated from warnaco prior to the acquisition and , therefore , our royalty , advertising and other revenue decreased significantly in 2013 as compared to 2012. in addition , the loss of such licensing revenue had a negative impact on our gross margin and operating margin as compared to 2012 , as licensing revenue carries no cost of goods sold . we recorded pre-tax charges during 2014 , 2013 and 2012 principally in connection with the warnaco acquisition , integration and restructuring that totaled $ 139 million , $ 471 million and $ 46 million , respectively . the amounts incurred in 2013 included noncash charges of approximately $ 175 million , principally related to short-lived valuation adjustments and amortization . we also recorded pre-tax debt modification and extinguishment charges in 2014 and 2013 that totaled $ 93 million and $ 40 million , respectively . we recorded a net gain of $ 8 million in 2014 resulting from the deconsolidation of certain calvin klein subsidiaries in australia and new zealand and our previously consolidated calvin klein joint venture in india ( please see footnote 5 , “ investments in unconsolidated affiliates ” and footnote 6 , “ redeemable non-controlling interest ” in the notes to consolidated financial statements included in item 8 of this report for a further discussion ) . we expect to incur additional pre-tax charges of approximately $ 50 million during 2015 in connection with the warnaco integration and related restructuring . our future results of operations will continue to be significantly impacted by the warnaco acquisition , particularly through the operations of the calvin klein business and through the changes in our capital structure that were necessary to complete the acquisition , as more fully discussed below . in january 2015 , we announced the closure of our izod retail business , with the closing expected to be completed by the end of 2015. in connection with the closure , we recorded pre-tax charges of $ 21 million in 2014 , including $ 18 million of noncash impairment charges . we expect to incur additional pre-tax charges of approximately $ 20 million during 2015 in connection with the closure of our izod retail business . 31 on november 4 , 2013 , we sold substantially all of the assets of our bass business and recorded a net pre-tax loss of $ 20 million during 2013 in connection with the sale . please see the section entitled “ sale of bass ” within “ liquidity and capital resources ” below for a further discussion . we acquired tommy hilfiger in the second quarter of 2010. we incurred pre-tax charges of $ 21 million during 2012 in connection with the integration of tommy hilfiger and the related restructuring . our calvin klein and tommy hilfiger businesses each have substantial international components , which expose us to foreign exchange risk . amounts recorded in local foreign currencies are translated back to united states dollars using an average exchange rate over the representative period . our international revenue and profit is unfavorably impacted during times of a strengthening united states dollar and favorably impacted during times of a weakening united states dollar . the united states dollar has strengthened recently against certain major currencies , particularly the euro , which is our largest foreign currency exposure . in 2014 , approximately 45 % of our revenue was subject to foreign currency translation , the majority of which relates to our operations in europe , resulting in a negative impact on our 2014 results of operations as more fully discussed below . we currently expect the strength of the united states dollar and resulting unfavorable impact on our revenue and earnings to continue into 2015 as more fully discussed below . our calculations of the comparable store sales percentages throughout this discussion are based on local currencies and comparable weeks and , therefore , exclude an extra week in 2012 , as our 2012 fiscal year included 53 weeks of operations . the following table summarizes our income statements in 2014 , 2013 and 2012 : replace_table_token_1_th total revenue net sales our net sales were $ 7.849 billion in 2014 , $ 7.806 billion in 2013 and $ 5.541 billion in 2012. the net sales increase of $ 43 million in 2014 as compared to 2013 was due principally to the effect of the following items : the aggregate addition of $ 141 million in net sales attributable to growth in our tommy hilfiger north america and tommy hilfiger international segments . story_separator_special_tag we expect that these decreases in our sg & a expenses as a percentage of revenue will be 35 partially offset by the impact of expected faster growth in our higher-expense calvin klein and tommy hilfiger businesses than in our lower-expense heritage brands business . our actual sg & a expense may be significantly different than our projections because of expense associated with our retirement plans . retirement plan expense recorded throughout the year is calculated using actuarial valuations that incorporate assumptions and estimates about financial market , economic and demographic conditions . differences between estimated and actual results give rise to gains and losses that are recorded immediately in earnings , generally in the fourth quarter of the year , which can create volatility in our operating results . debt modification and extinguishment costs we incurred costs totaling $ 93 million in 2014 in connection with the amendment and restatement of our senior secured credit facilities and the related redemption of our 7 3/8 % senior notes due 2020. please refer to the section entitled “ liquidity and capital resources ” below for a further discussion . we incurred costs totaling $ 40 million in 2013 related to the modification and extinguishment of previously outstanding term loans and the replacement of such term loans with the senior secured credit facilities entered into in 2013 in connection with the warnaco acquisition . please refer to the section entitled “ liquidity and capital resources ” below for a further discussion . equity in income of unconsolidated affiliates , net the equity in income of unconsolidated affiliates , net during 2014 was $ 10 million , as compared to $ 8 million during 2013 and $ 5 million during 2012. these amounts relate to our share of income from our joint ventures for the tommy hilfiger brand in china , india and brazil , for the calvin klein brand in india and australia , and for the karl lagerfeld brand . our investments in these joint ventures are being accounted for under the equity method of accounting . please refer to the section entitled “ investments in unconsolidated affiliates ” within “ liquidity and capital resources ” below for a further discussion of our investments in these joint ventures . interest expense , net net interest expense decreased to $ 139 million in 2014 from $ 185 million in 2013 due to lower average debt balances and interest rates as compared to the prior year , combined with the effect of the amendment and restatement of our senior secured credit facilities and the related redemption of our 7 3/8 % senior notes due 2020 in the first quarter of 2014. please see the section entitled “ financing arrangements ” within “ liquidity and capital resources ” below for a further discussion . net interest expense increased to $ 185 million in 2013 from $ 117 million in 2012 due principally to increased debt balances in 2013 incurred to finance the warnaco acquisition . please refer to the section entitled “ financing arrangements ” within “ liquidity and capital resources ” below for a further discussion . net interest expense for 2015 is currently expected to decrease to approximately $ 120 million to $ 125 million from $ 139 million in 2014 as anticipated debt payments of at least $ 425 million in 2015 and the full year impact of payments made in 2014 are expected to result in a decrease to net interest expense as compared to 2014. income taxes income tax expense was as follows : replace_table_token_4_th the effective income tax rate for 2014 was ( 12.1 ) % compared with 56.4 % in 2013 and 20.1 % in 2012. the volatility in our effective income tax rate in the last three years is due in large part to uncertain tax positions which provided a benefit in 2014 and an expense in 2013. the effective income tax rate in 2014 was a benefit to income principally due to the effects of lower tax rates in international jurisdictions where we file tax returns , and a reduction of $ 94 million in our estimate for uncertain tax positions , 36 which provided a 24 % benefit to our tax rate . this benefit resulted from the favorable resolutions of uncertain tax positions in certain international jurisdictions , as well as the expiration of the statute of limitations related to other uncertain tax positions . the effective tax rate in 2013 was higher than the united states statutory tax rate principally due to the recognition of $ 145 million of tax expense related to changes in estimates for uncertain tax positions , which increased the 2013 effective tax rate by 44 % . the majority of this expense relates to an increase to our previously established liability for an uncertain tax position related to european and united states transfer pricing arrangements . also contributing to the higher tax rate in 2013 was an expense related to valuation allowances recorded on deferred tax assets from our business in japan , and also on certain domestic state and local deferred tax assets . partially offsetting these increases was the impact of warnaco integration and restructuring expenses in 2013 , the majority of which were incurred in the united states , which lowered our domestic taxable income in relation to taxable income in lower tax international jurisdictions . the effective tax rate in 2012 was lower than the united states statutory tax rate primarily due to the benefit of lower tax rates in international jurisdictions where we file tax returns , partially offset by non-deductible acquisition expenses incurred in 2012 in connection with the warnaco acquisition . we currently expect our effective tax rate in 2015 to be lower than the united states statutory rate due principally to the benefit of overall lower tax rates in international jurisdictions where we file tax returns . our tax rate is affected by many factors , including the mix

cash flow summary cash and cash equivalents at february 1 , 2015 was $ 479 million , a reduction of $ 114 million from the amount at february 2 , 2014 of $ 593 million . this reduction included $ 425 million of debt repayments . cash and cash equivalents at february 1 , 2015 excluded a restricted cash balance of $ 20 million , which was placed into an escrow account prior to year end to contribute funding to our joint venture in australia in the first quarter of 2015. cash flow in 2015 will be impacted by various factors in addition to those noted below in this “ liquidity and capital resources ” section , including the amount of debt repayments we make in 2015. as of february 1 , 2015 , approximately $ 389 million of cash and cash equivalents was held by international subsidiaries whose undistributed earnings are considered permanently reinvested . our intent is to continue to reinvest these funds in international operations . if management decides at a later date to repatriate these funds to the united states , we would be required to pay taxes on these amounts based on applicable united states tax rates , net of foreign taxes already paid . operations cash provided by operating activities was $ 789 million in 2014 as compared with $ 412 million in 2013. the increase in cash provided by operating activities as compared to the prior year was primarily driven by an increase in net income , as adjusted for noncash charges in the current year period and a $ 57 million reduction in pension contributions .

our end-market growth expectations include three to five percent growth in the oil and gas market , two to four percent growth in the electrical transmission and distribution , industrial , and residential markets , and one to three percent growth in the non-residential market . we expect acquisitions to contribute approximately 15 % to net sales growth in 2018 , including net sales growth from the acquisition of aclara . we expect reported earnings per diluted share for 2018 in the range of $ 6.10 to $ 6.50 and adjusted earnings per diluted share in the range of $ 6.95 to $ 7.35 ( 1 ) . finally , with our strong financial position and cash flows provided by operating activities , we expect to continue to enhance shareholder value through capital deployment . we expect free cash flow ( defined as cash flows from operating activities less capital expenditures ) to be equal to net income attributable to hubbell in 2018 . ( 1 ) effective with results of operations reported in the first quarter of 2018 , `` adjusted `` operating measures will no longer exclude restructuring and related costs , as these costs and the related savings are expected to return to a more consistent annual run-rate in 2018 , and therefore no longer affect the comparability of our underlying performance from period to period . our expectation for full year 2018 adjusted earnings per diluted share in the range of $ 6.95 to $ 7.35 excludes aclara acquisition-related and transaction costs . aclara acquisition-related costs include the amortization of identified intangible assets and inventory step-up amortization expense . results of operations our operations are classified into two reportable segments : electrical and power . for a complete description of the company 's segments , see part i , item 1 of this annual report on form 10-k. within these segments , hubbell serves customers in five primary end markets ; non-residential construction , residential construction , industrial , energy-related markets ( also referred to as oil and gas markets ) and utility markets ( also referred to as the electrical transmission and distribution market ) . in order of magnitude of net sales , the company 's served markets are non-residential construction , industrial , utility , oil and gas , and residential construction . growth of our five primary end markets was more consistent in 2017 as compared to recent years . higher margin businesses , such as our harsh and hazardous business , that declined in recent years experienced a recovery , and the gas market was strong , which complemented utility capital spend and storm-related activity that drove growth in electrical transmission and distribution markets . non-residential and residential market demand grew as well , but that growth was restrained by the lighting market , which experienced unit growth that was dampened by pricing headwinds . industrial markets were mixed , with declines in heavy industrial business , but improvement in telecommunications . with the return to more balanced growth and recovery of higher margin businesses , adjusted operating margin of our electrical segment has stabilized year over year , declining by only 30 basis points , while absorbing our investment in iot capabilities ( through the acquisition of idevices ) , restructuring-driven inefficiencies and pricing headwinds in our lighting business as well as material cost headwinds during the year . our power segment grew organic revenues by six percent , benefiting from growth in transmission and distribution markets , and adjusted operating margins in the power segment continued to be strong , expanding by 20 basis points as productivity drove improvement despite increasing material costs . hubbell incorporated - form 10-k 19 summary of consolidated results ( in millions , except per share data ) replace_table_token_4_th in the following discussion of results of operations , we refer to `` adjusted `` operating measures . we believe those adjusted measures , which exclude the impact of certain costs and gains , may provide investors with useful information regarding our underlying performance from period to period and allow investors to understand our results of operations without regard to items we do not consider a component of our core operating performance . the adjusted operating measures also provide useful information to understand the impact of the company 's restructuring and related activities and business transformation initiatives on its results of operations . management uses these adjusted measures when assessing the performance of the business . our adjusted operating measures exclude , where applicable , the following items , as shown in the reconciliations to the comparable gaap measures that follow . income tax expense associated with u.s. tax reform in 2017 , our consolidated results of operations include approximately $ 57 million of income tax expense associated with the tcja . our full year effective tax rate , which includes these income tax effects , was 43.6 % . as provided by sab 118 ( see note 1 — recent accounting pronouncements in the notes to consolidated financial statements ) , the company has included in the current period financial statements a provisional amount with respect to the deemed repatriation provisions of the tcja , the revaluation of u.s. deferred taxes and the u.s. and foreign tax costs associated with anticipated remittances related to certain of our outside basis differences . we have also included provisional amounts with respect to those states with current conformity to the internal revenue code . during the measurement period ( as defined in note 1 — significant accounting policies in the notes to consolidated financial statements ) , additional provisional amounts and adjustments to prior provisional amounts will be required as further guidance is issued and information is obtained , prepared and analyzed . these additional provisional amounts or adjustments to prior provisional amounts may be material . see note 12 — income taxes in the notes to consolidated financial statements for additional information . story_separator_special_tag the adjusted operating margin decreased primarily due to unfavorable product and business mix , pricing headwinds in our electrical segment , foreign exchange headwinds and cost increases that were greater than productivity gains . those unfavorable impacts to the adjusted operating margin were partially offset by realized savings from our restructuring and related actions and lower material costs . total other expense total other expense was $ 47.4 million in 2016 compared to $ 56.0 million in 2015. excluding reclassification costs that were incurred in 2015 , adjusted total other expense was $ 47.4 in 2016 compared to $ 36.3 million in 2015 and increased largely due to a $ 12.4 million increase in interest expense primarily related to the $ 400 million debt offering we completed in march 2016 . 24 hubbell incorporated - form 10-k income taxes the effective tax rate was 30.8 % in 2016 as compared to 32.6 % in 2015. the effective tax rate was higher in 2015 as compared to 2016 due to certain costs of the reclassification that were not deductible partially offset by international reorganization actions in 2015 as well as certain discrete items in 2016. additional information related to the company 's effective tax rate is included in note 12 — income taxes in the notes to consolidated financial statements . net income attributable to hubbell and earnings per diluted share net income attributable to hubbell was $ 293.0 million in 2016 and increased 6 % as compared to 2015. excluding restructuring and related costs and reclassification costs , adjusted net income attributable to hubbell was $ 316.8 million in 2016 and decreased 1 % as compared to 2015 , which reflects flat adjusted operating earnings , higher interest expense in 2016 , partially offset by the benefit of a lower effective tax rate as compared to 2015. earnings per diluted share in 2016 increased 10 % compared to 2015. adjusted earnings per diluted share in 2016 , increased 3 % and reflects a lower average number of diluted shares outstanding for the year , which declined by approximately 2.3 million as compared to 2015. segment results electrical segment replace_table_token_9_th net sales in the electrical segment were $ 2.5 billion , up three percent in 2016 as compared with 2015 due to the contribution of net sales from acquisitions . organic volume was higher , despite pricing headwinds , and was offset by the unfavorable impact of foreign currency translation . net sales were three percentage points higher due to the contribution of acquisitions . organic volume , including pricing headwinds , added one percentage point to net sales and foreign currency translation reduced net sales by one percentage point . within the segment , net sales of our lighting business group increased four percent in 2016 due to organic net sales growth of six percent , partially offset by a two percentage point headwind on pricing . within the lighting business group , organic net sales of residential lighting products increased by thirteen percent , partially offset by a three percentage point headwind on pricing , and commercial and industrial lighting products increased by four percent , partially offset by a two percentage point headwind on pricing . the aggregate net sales of our other business groups in the electrical segment increased by three percentage points , primarily due to five percentage points of net sales growth from acquisitions partially offset by two percentage points from foreign currency translation . the aggregate organic net sales volume of those other business groups was lower , by less than one percent , as lower net sales of products in industrial and energy-related markets , primarily our harsh and hazardous products , were almost entirely offset by net sales growth in construction-related businesses . operating income in the electrical segment for 2016 was $ 267.4 million and decreased four percent compared to 2015. operating margin in 2016 decreased by approximately 80 basis points to 10.9 % . excluding restructuring and related costs , the adjusted operating margin decreased by 90 basis points to 12.2 % in 2016. the decrease in the adjusted operating margin is primarily due to unfavorable product and business mix , foreign exchange headwinds , cost increases that were mostly offset by productivity gains , and pricing headwinds in our lighting business group . those unfavorable impacts were partially offset by realized savings from our restructuring and related actions and lower material costs . power segment replace_table_token_10_th net sales in the power segment were $ 1.0 billion , up four percent compared to 2015 , due to the contribution of net sales from acquisitions . organic volume and the impact of foreign currency translation were effectively flat , as organic volume increased by less than one percent and was offset by foreign currency headwinds of less than one percent . operating income in the power segment increased eight percent to $ 210.4 million in 2016. operating margin in 2016 increased by 60 basis points to 20.1 % . excluding restructuring and related costs , the adjusted operating margin in 2016 increased 30 basis points to 20.4 % . the increase in the adjusted operating margin is primarily due to favorable pricing and material costs , and productivity in excess of cost increases , including the reduction of an environmental liability in the fourth quarter of 2016 , partially offset by acquisitions , which increased operating income , but reduced operating margin by approximately 40 basis points . hubbell incorporated - form 10-k 25 financial condition , liquidity and capital resources cash flow replace_table_token_11_th comparable periods have been recast to reflect the adoption of the new accounting pronouncement for share-based payments ( asu 2016-09 ) as of january 1 , 2017. the following table reconciles our cash flows from operating activities to free cash flows for 2017 , 2016 and 2015 ( in millions ) : replace_table_token_12_th ( 1 ) free cash flow as a percent of net income attributable to

cash flow summary cash and cash equivalents at february 1 , 2015 was $ 479 million , a reduction of $ 114 million from the amount at february 2 , 2014 of $ 593 million . this reduction included $ 425 million of debt repayments . cash and cash equivalents at february 1 , 2015 excluded a restricted cash balance of $ 20 million , which was placed into an escrow account prior to year end to contribute funding to our joint venture in australia in the first quarter of 2015. cash flow in 2015 will be impacted by various factors in addition to those noted below in this “ liquidity and capital resources ” section , including the amount of debt repayments we make in 2015. as of february 1 , 2015 , approximately $ 389 million of cash and cash equivalents was held by international subsidiaries whose undistributed earnings are considered permanently reinvested . our intent is to continue to reinvest these funds in international operations . if management decides at a later date to repatriate these funds to the united states , we would be required to pay taxes on these amounts based on applicable united states tax rates , net of foreign taxes already paid . operations cash provided by operating activities was $ 789 million in 2014 as compared with $ 412 million in 2013. the increase in cash provided by operating activities as compared to the prior year was primarily driven by an increase in net income , as adjusted for noncash charges in the current year period and a $ 57 million reduction in pension contributions .

our end-market growth expectations include three to five percent growth in the oil and gas market , two to four percent growth in the electrical transmission and distribution , industrial , and residential markets , and one to three percent growth in the non-residential market . we expect acquisitions to contribute approximately 15 % to net sales growth in 2018 , including net sales growth from the acquisition of aclara . we expect reported earnings per diluted share for 2018 in the range of $ 6.10 to $ 6.50 and adjusted earnings per diluted share in the range of $ 6.95 to $ 7.35 ( 1 ) . finally , with our strong financial position and cash flows provided by operating activities , we expect to continue to enhance shareholder value through capital deployment . we expect free cash flow ( defined as cash flows from operating activities less capital expenditures ) to be equal to net income attributable to hubbell in 2018 . ( 1 ) effective with results of operations reported in the first quarter of 2018 , `` adjusted `` operating measures will no longer exclude restructuring and related costs , as these costs and the related savings are expected to return to a more consistent annual run-rate in 2018 , and therefore no longer affect the comparability of our underlying performance from period to period . our expectation for full year 2018 adjusted earnings per diluted share in the range of $ 6.95 to $ 7.35 excludes aclara acquisition-related and transaction costs . aclara acquisition-related costs include the amortization of identified intangible assets and inventory step-up amortization expense . results of operations our operations are classified into two reportable segments : electrical and power . for a complete description of the company 's segments , see part i , item 1 of this annual report on form 10-k. within these segments , hubbell serves customers in five primary end markets ; non-residential construction , residential construction , industrial , energy-related markets ( also referred to as oil and gas markets ) and utility markets ( also referred to as the electrical transmission and distribution market ) . in order of magnitude of net sales , the company 's served markets are non-residential construction , industrial , utility , oil and gas , and residential construction . growth of our five primary end markets was more consistent in 2017 as compared to recent years . higher margin businesses , such as our harsh and hazardous business , that declined in recent years experienced a recovery , and the gas market was strong , which complemented utility capital spend and storm-related activity that drove growth in electrical transmission and distribution markets . non-residential and residential market demand grew as well , but that growth was restrained by the lighting market , which experienced unit growth that was dampened by pricing headwinds . industrial markets were mixed , with declines in heavy industrial business , but improvement in telecommunications . with the return to more balanced growth and recovery of higher margin businesses , adjusted operating margin of our electrical segment has stabilized year over year , declining by only 30 basis points , while absorbing our investment in iot capabilities ( through the acquisition of idevices ) , restructuring-driven inefficiencies and pricing headwinds in our lighting business as well as material cost headwinds during the year . our power segment grew organic revenues by six percent , benefiting from growth in transmission and distribution markets , and adjusted operating margins in the power segment continued to be strong , expanding by 20 basis points as productivity drove improvement despite increasing material costs . hubbell incorporated - form 10-k 19 summary of consolidated results ( in millions , except per share data ) replace_table_token_4_th in the following discussion of results of operations , we refer to `` adjusted `` operating measures . we believe those adjusted measures , which exclude the impact of certain costs and gains , may provide investors with useful information regarding our underlying performance from period to period and allow investors to understand our results of operations without regard to items we do not consider a component of our core operating performance . the adjusted operating measures also provide useful information to understand the impact of the company 's restructuring and related activities and business transformation initiatives on its results of operations . management uses these adjusted measures when assessing the performance of the business . our adjusted operating measures exclude , where applicable , the following items , as shown in the reconciliations to the comparable gaap measures that follow . income tax expense associated with u.s. tax reform in 2017 , our consolidated results of operations include approximately $ 57 million of income tax expense associated with the tcja . our full year effective tax rate , which includes these income tax effects , was 43.6 % . as provided by sab 118 ( see note 1 — recent accounting pronouncements in the notes to consolidated financial statements ) , the company has included in the current period financial statements a provisional amount with respect to the deemed repatriation provisions of the tcja , the revaluation of u.s. deferred taxes and the u.s. and foreign tax costs associated with anticipated remittances related to certain of our outside basis differences . we have also included provisional amounts with respect to those states with current conformity to the internal revenue code . during the measurement period ( as defined in note 1 — significant accounting policies in the notes to consolidated financial statements ) , additional provisional amounts and adjustments to prior provisional amounts will be required as further guidance is issued and information is obtained , prepared and analyzed . these additional provisional amounts or adjustments to prior provisional amounts may be material . see note 12 — income taxes in the notes to consolidated financial statements for additional information . story_separator_special_tag the adjusted operating margin decreased primarily due to unfavorable product and business mix , pricing headwinds in our electrical segment , foreign exchange headwinds and cost increases that were greater than productivity gains . those unfavorable impacts to the adjusted operating margin were partially offset by realized savings from our restructuring and related actions and lower material costs . total other expense total other expense was $ 47.4 million in 2016 compared to $ 56.0 million in 2015. excluding reclassification costs that were incurred in 2015 , adjusted total other expense was $ 47.4 in 2016 compared to $ 36.3 million in 2015 and increased largely due to a $ 12.4 million increase in interest expense primarily related to the $ 400 million debt offering we completed in march 2016 . 24 hubbell incorporated - form 10-k income taxes the effective tax rate was 30.8 % in 2016 as compared to 32.6 % in 2015. the effective tax rate was higher in 2015 as compared to 2016 due to certain costs of the reclassification that were not deductible partially offset by international reorganization actions in 2015 as well as certain discrete items in 2016. additional information related to the company 's effective tax rate is included in note 12 — income taxes in the notes to consolidated financial statements . net income attributable to hubbell and earnings per diluted share net income attributable to hubbell was $ 293.0 million in 2016 and increased 6 % as compared to 2015. excluding restructuring and related costs and reclassification costs , adjusted net income attributable to hubbell was $ 316.8 million in 2016 and decreased 1 % as compared to 2015 , which reflects flat adjusted operating earnings , higher interest expense in 2016 , partially offset by the benefit of a lower effective tax rate as compared to 2015. earnings per diluted share in 2016 increased 10 % compared to 2015. adjusted earnings per diluted share in 2016 , increased 3 % and reflects a lower average number of diluted shares outstanding for the year , which declined by approximately 2.3 million as compared to 2015. segment results electrical segment replace_table_token_9_th net sales in the electrical segment were $ 2.5 billion , up three percent in 2016 as compared with 2015 due to the contribution of net sales from acquisitions . organic volume was higher , despite pricing headwinds , and was offset by the unfavorable impact of foreign currency translation . net sales were three percentage points higher due to the contribution of acquisitions . organic volume , including pricing headwinds , added one percentage point to net sales and foreign currency translation reduced net sales by one percentage point . within the segment , net sales of our lighting business group increased four percent in 2016 due to organic net sales growth of six percent , partially offset by a two percentage point headwind on pricing . within the lighting business group , organic net sales of residential lighting products increased by thirteen percent , partially offset by a three percentage point headwind on pricing , and commercial and industrial lighting products increased by four percent , partially offset by a two percentage point headwind on pricing . the aggregate net sales of our other business groups in the electrical segment increased by three percentage points , primarily due to five percentage points of net sales growth from acquisitions partially offset by two percentage points from foreign currency translation . the aggregate organic net sales volume of those other business groups was lower , by less than one percent , as lower net sales of products in industrial and energy-related markets , primarily our harsh and hazardous products , were almost entirely offset by net sales growth in construction-related businesses . operating income in the electrical segment for 2016 was $ 267.4 million and decreased four percent compared to 2015. operating margin in 2016 decreased by approximately 80 basis points to 10.9 % . excluding restructuring and related costs , the adjusted operating margin decreased by 90 basis points to 12.2 % in 2016. the decrease in the adjusted operating margin is primarily due to unfavorable product and business mix , foreign exchange headwinds , cost increases that were mostly offset by productivity gains , and pricing headwinds in our lighting business group . those unfavorable impacts were partially offset by realized savings from our restructuring and related actions and lower material costs . power segment replace_table_token_10_th net sales in the power segment were $ 1.0 billion , up four percent compared to 2015 , due to the contribution of net sales from acquisitions . organic volume and the impact of foreign currency translation were effectively flat , as organic volume increased by less than one percent and was offset by foreign currency headwinds of less than one percent . operating income in the power segment increased eight percent to $ 210.4 million in 2016. operating margin in 2016 increased by 60 basis points to 20.1 % . excluding restructuring and related costs , the adjusted operating margin in 2016 increased 30 basis points to 20.4 % . the increase in the adjusted operating margin is primarily due to favorable pricing and material costs , and productivity in excess of cost increases , including the reduction of an environmental liability in the fourth quarter of 2016 , partially offset by acquisitions , which increased operating income , but reduced operating margin by approximately 40 basis points . hubbell incorporated - form 10-k 25 financial condition , liquidity and capital resources cash flow replace_table_token_11_th comparable periods have been recast to reflect the adoption of the new accounting pronouncement for share-based payments ( asu 2016-09 ) as of january 1 , 2017. the following table reconciles our cash flows from operating activities to free cash flows for 2017 , 2016 and 2015 ( in millions ) : replace_table_token_12_th ( 1 ) free cash flow as a percent of net income attributable to

debt to capital at december 31 , 2017 and 2016 , long-term debt in the consolidated balance sheets was $ 987.1 million and $ 990.5 million , respectively , of long-term unsecured , unsubordinated notes , net of unamortized discount and the unamortized balance of capitalized debt issuance costs . principal amounts of the company 's long-term unsecured , unsubordinated notes at december 31 , 2017 are $ 300 million due in 2022 , $ 400 million due in 2026 , and $ 300 million due in 2027. in august 2017 , the company completed a public debt offering of $ 300 million of long-term , unsecured , unsubordinated notes maturing in august 2027 and bearing interest at a fixed rate of 3.15 % ( the `` 2027 notes '' ) . net proceeds from the issuance were $ 294.6 million after deducting the discount on the notes and offering expenses paid by the company . in september 2017 , the company applied the net proceeds from the 2027 notes to redeem all of its $ 300 million of long-term , unsecured , unsubordinated notes maturing in 2018 and bearing interest at a fixed rate of 5.95 % . in connection with this redemption , the company recognized a loss on the early extinguishment of the 2018 notes of $ 6.3 million on an after-tax basis . the 2022 notes , 2026 notes and 2027 notes are fixed rate indebtedness , are callable at any time with a make whole premium and are only subject to accelerated payment prior to maturity in the event of a default ( including as a result of the company 's failure to meet certain non-financial covenants ) under the indenture governing the notes , as modified by the supplemental indentures creating such notes , or upon a change in control triggering event as defined in such indenture . the company was in compliance with all non-financial covenants as of december 31 , 2017 . at december 31 , 2017 and 2016 , the company had $ 68.1 million and $ 3.2 million , respectively , of short-term debt outstanding .

in conjunction with the redemption , the partnership incurred a debt prepayment premium of $ 7.8 million and a non-cash charge of $ 3.9 million for the write-off of unamortized debt issuance costs and unamortized debt discount related to the redemption of the senior unsecured notes . for a more detailed discussion regarding our financing activities , see “ item 7. management 's discussion and analysis of financial condition and results of operations — liquidity and capital resources . ” subsequent events disposition of floating storage assets . on february 12 , 2015 , we sold six liquefied petroleum gas pressure barges , collectively referred to as the ( `` floating storage assets `` ) for $ 41.3 million . these assets were primarily operated under the floating storage component of our ngl distribution business . the proceeds from the disposition were used to reduce outstanding indebtedness under our revolving credit facility . quarterly distribution . on january 22 , 2015 , we declared a quarterly cash distribution of $ 0.8125 per common unit for the fourth quarter of 2014 , or $ 3.25 per common unit on an annualized basis , which was paid on february 13 , 2015 to unitholders of record as of february 6 , 2015. additionally , we paid a distribution to our general partner in the amount of $ 4.4 million . of this amount , $ 0.7 million is related to the base general partner distribution and $ 3.7 million represents incentive distribution rights paid to our general partner . common unit grants . on january 5 , 2015 , we issued 84,750 restricted common units under our long-term incentive plan to the executive officers of our general partner and certain martin resource management employees who provide services to us . these restricted units vest 100 % on january 5 , 2018. critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on the historical consolidated financial statements included elsewhere herein . we prepared these financial statements in conformity with united states generally accepted accounting principles ( “ u.s . gaap ” or “ gaap ” ) . the preparation of these financial statements required us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods . we based our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances . we routinely evaluate these estimates , utilizing historical experience , consultation with experts and other methods we consider reasonable in the particular circumstances . our results may differ from these estimates , and any effects on our business , financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known . changes in these estimates could materially affect our financial position , results of operations or cash flows . you should also read note 2 , “ significant accounting policies ” in notes to consolidated financial statements . the following table evaluates the potential impact of estimates utilized during the periods ended december 31 , 2014 and 2013 : description judgments and uncertainties effect if actual results differ from estimates and assumptions allowance for doubtful accounts we evaluate our allowance for doubtful accounts on an ongoing basis and record adjustments when , in management 's judgment , circumstances warrant it . reserves are recorded to reduce receivables to the amount ultimately expected to be collected . we evaluate the collectability of our accounts receivable based on factors such as the customer 's ability to pay , the age of the receivable and our historical collection experience . a deterioration in any of these factors could result in an increase in the allowance for doubtful accounts balance . if actual collection results are not consistent with our judgments , we may experience an increase in uncollectible receivables . a 10 % increase in our allowance for doubtful accounts would result in a decrease in net income of approximately $ 0.2 million . depreciation 44 depreciation expense is computed using the straight-line method over the useful life of the assets . determination of depreciation expense requires judgment regarding estimated useful lives and salvage values of property , plant and equipment . as circumstances warrant , estimates are reviewed to determine if any changes in the underlying assumptions are needed . the lives of our fixed assets range from 3 - 50 years . if the depreciable lives of our assets were decreased by 10 % , we estimate that annual depreciation expense would increase approximately $ 7.2 million , resulting in a corresponding reduction in net income . impairment of long-lived assets we periodically evaluate whether the carrying value of long-lived assets has been impaired when circumstances indicate the carrying value of the assets may not be recoverable . these evaluations are based on undiscounted cash flow projections over the remaining useful life of the asset . the carrying value is not recoverable if it exceeds the sum of the undiscounted cash flows . any impairment loss is measured as the excess of the asset 's carrying value over its fair value . our impairment analyses require management to use judgment in estimating future cash flows and useful lives , as well as assessing the probability of different outcomes . story_separator_special_tag a 23 % decrease in sales volumes at our blending and packaging facilities resulted in a $ 33.2 million decrease in cost of products sold . product sales volumes from our shore-based terminals decreased 3 % , resulting in a $ 2.0 million decrease in cost of products sold . increased average cost at our blending and packaging facilities of 10 % resulted in an increase of $ 13.6 million in cost of products sold . decreased average cost at our shore-based terminals of 2 % resulted in a decrease of $ 1.1 million in cost of products sold . operating expenses . increased expenses at our specialty terminals accounted for $ 6.2 million of the total increase , primarily attributable to the corpus christi crude terminal . our shore-based terminal expenses increased $ 0.4 million primarily due to repair and maintenance cost at the terminals . in addition , $ 2.5 million of the increase is attributable to the smackover refining assets , primarily as a result of increased compensation expense . selling , general and administrative expenses . the increase in selling , general and administrative expenses is primarily attributable to increased compensation expense . depreciation and amortization . the increase in depreciation and amortization is due to the impact of recent capital expenditures . 49 other operating income . other operating income consists primarily of business interruption recoveries in 2014 and a gain on an involuntary conversion of property , plant and equipment in 2013. comparative results of operations for the twelve months ended december 31 , 2013 and 2012 replace_table_token_11_th services revenues . services revenue increased primarily due to $ 17.7 million attributable to our new crude terminal in corpus christi , texas , which was placed into service in may 2012. in addition , $ 5.2 million of the increase is due to revenues generated by our talen 's acquisition on december 31 , 2012. the remaining increase is primarily due to increased throughput at the smackover refinery . products revenues . an 8 % increase in sales volumes at our blending and packaging facilities resulted in a $ 10.7 million positive impact on product revenues . product sales volumes from our shore-based terminals decreased 7 % , resulting in a $ 5.6 million reduction in product revenues . the average sales price at our blending and packaging facilities decreased 5 % , resulting in a $ 7.8 million decrease in product revenues . the average sales price at our shore-based terminals decreased 4 % , resulting in a $ 3.3 million decrease in product revenues . cost of products sold . an 8 % increase in sales volumes at our blending and packaging facilities resulted in a $ 9.4 million increase in cost of products sold , which was partially offset by a 7 % decrease in sales volumes at our shore-based terminals , resulting in a $ 5.2 million decrease in cost of products sold . decreased average cost at our blending and packaging facilities of 8 % resulted in a decrease of $ 10.0 million in cost of products sold . decreased average cost at our shore-based terminals of 5 % resulted in a decrease of $ 3.9 million in cost of products sold . operating expenses . increased expenses at our specialty terminals accounted for $ 6.9 million of the total increase , primarily attributable to the corpus christi crude terminal . our shore-based terminal expenses increased $ 1.7 million primarily due to the acquisition of the talen 's terminals . in addition , $ 7.1 million of the increase is attributable to the smackover refining assets , primarily as a result of increased utilities and repair and maintenance expense . selling , general and administrative expenses . the decrease in selling , general and administrative expenses is primarily related to decreased advertising expense in our blending and packaging operations . depreciation and amortization . the increase in depreciation and amortization is due to the impact of recent capital expenditures . 50 other operating income ( loss ) . other operating income in 2013 is primarily attributable to a gain on an involuntary conversion of property , plant and equipment . natural gas services segment comparative results of operations for the twelve months ended december 31 , 2014 and 2013 replace_table_token_12_th revenues . services revenue for 2014 are attributable to the acquisition of cardinal on august 29 , 2014. ngl sales volumes increased 33 % , positively impacting product revenues by $ 246.2 million . our ngl average sales price per barrel decreased $ 14.95 , or 23 % , resulting in an offsetting decrease to product revenues of $ 222.3 million . cost of products sold . our average cost per barrel decreased $ 14.51 , or 23 % . our margins decreased by $ 0.43 , or 17.0 % , per barrel during the period . the impact of lower prices reduced cost of products sold by $ 287.2 million while the growth in volumes increased our costs $ 307.7 million . operating expenses . operating expenses increased $ 5.3 million due to the acquisition of cardinal . in addition , compensation costs and repair and maintenance expenses increased $ 0.7 million and $ 0.6 million , respectively , as a result of the acquisition of ngl storage assets from martin resource management . selling , general and administrative expenses . selling , general and administrative expenses increased $ 2.7 million due to the acquisition of cardinal . also contributing to the increase was compensation expense of $ 1.0 million and property taxes of $ 0.5 million . depreciation and amortization . depreciation and amortization increased due to the acquisition of cardinal . 51 comparative results of operations for the twelve months ended december 31 , 2013 and 2012 replace_table_token_13_th revenues . natural gas services sales volumes increased 23 % , positively impacting revenues by $ 181.6 million , primarily as a result of us entering the louisiana butane

debt to capital at december 31 , 2017 and 2016 , long-term debt in the consolidated balance sheets was $ 987.1 million and $ 990.5 million , respectively , of long-term unsecured , unsubordinated notes , net of unamortized discount and the unamortized balance of capitalized debt issuance costs . principal amounts of the company 's long-term unsecured , unsubordinated notes at december 31 , 2017 are $ 300 million due in 2022 , $ 400 million due in 2026 , and $ 300 million due in 2027. in august 2017 , the company completed a public debt offering of $ 300 million of long-term , unsecured , unsubordinated notes maturing in august 2027 and bearing interest at a fixed rate of 3.15 % ( the `` 2027 notes '' ) . net proceeds from the issuance were $ 294.6 million after deducting the discount on the notes and offering expenses paid by the company . in september 2017 , the company applied the net proceeds from the 2027 notes to redeem all of its $ 300 million of long-term , unsecured , unsubordinated notes maturing in 2018 and bearing interest at a fixed rate of 5.95 % . in connection with this redemption , the company recognized a loss on the early extinguishment of the 2018 notes of $ 6.3 million on an after-tax basis . the 2022 notes , 2026 notes and 2027 notes are fixed rate indebtedness , are callable at any time with a make whole premium and are only subject to accelerated payment prior to maturity in the event of a default ( including as a result of the company 's failure to meet certain non-financial covenants ) under the indenture governing the notes , as modified by the supplemental indentures creating such notes , or upon a change in control triggering event as defined in such indenture . the company was in compliance with all non-financial covenants as of december 31 , 2017 . at december 31 , 2017 and 2016 , the company had $ 68.1 million and $ 3.2 million , respectively , of short-term debt outstanding .

in conjunction with the redemption , the partnership incurred a debt prepayment premium of $ 7.8 million and a non-cash charge of $ 3.9 million for the write-off of unamortized debt issuance costs and unamortized debt discount related to the redemption of the senior unsecured notes . for a more detailed discussion regarding our financing activities , see “ item 7. management 's discussion and analysis of financial condition and results of operations — liquidity and capital resources . ” subsequent events disposition of floating storage assets . on february 12 , 2015 , we sold six liquefied petroleum gas pressure barges , collectively referred to as the ( `` floating storage assets `` ) for $ 41.3 million . these assets were primarily operated under the floating storage component of our ngl distribution business . the proceeds from the disposition were used to reduce outstanding indebtedness under our revolving credit facility . quarterly distribution . on january 22 , 2015 , we declared a quarterly cash distribution of $ 0.8125 per common unit for the fourth quarter of 2014 , or $ 3.25 per common unit on an annualized basis , which was paid on february 13 , 2015 to unitholders of record as of february 6 , 2015. additionally , we paid a distribution to our general partner in the amount of $ 4.4 million . of this amount , $ 0.7 million is related to the base general partner distribution and $ 3.7 million represents incentive distribution rights paid to our general partner . common unit grants . on january 5 , 2015 , we issued 84,750 restricted common units under our long-term incentive plan to the executive officers of our general partner and certain martin resource management employees who provide services to us . these restricted units vest 100 % on january 5 , 2018. critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on the historical consolidated financial statements included elsewhere herein . we prepared these financial statements in conformity with united states generally accepted accounting principles ( “ u.s . gaap ” or “ gaap ” ) . the preparation of these financial statements required us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods . we based our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances . we routinely evaluate these estimates , utilizing historical experience , consultation with experts and other methods we consider reasonable in the particular circumstances . our results may differ from these estimates , and any effects on our business , financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known . changes in these estimates could materially affect our financial position , results of operations or cash flows . you should also read note 2 , “ significant accounting policies ” in notes to consolidated financial statements . the following table evaluates the potential impact of estimates utilized during the periods ended december 31 , 2014 and 2013 : description judgments and uncertainties effect if actual results differ from estimates and assumptions allowance for doubtful accounts we evaluate our allowance for doubtful accounts on an ongoing basis and record adjustments when , in management 's judgment , circumstances warrant it . reserves are recorded to reduce receivables to the amount ultimately expected to be collected . we evaluate the collectability of our accounts receivable based on factors such as the customer 's ability to pay , the age of the receivable and our historical collection experience . a deterioration in any of these factors could result in an increase in the allowance for doubtful accounts balance . if actual collection results are not consistent with our judgments , we may experience an increase in uncollectible receivables . a 10 % increase in our allowance for doubtful accounts would result in a decrease in net income of approximately $ 0.2 million . depreciation 44 depreciation expense is computed using the straight-line method over the useful life of the assets . determination of depreciation expense requires judgment regarding estimated useful lives and salvage values of property , plant and equipment . as circumstances warrant , estimates are reviewed to determine if any changes in the underlying assumptions are needed . the lives of our fixed assets range from 3 - 50 years . if the depreciable lives of our assets were decreased by 10 % , we estimate that annual depreciation expense would increase approximately $ 7.2 million , resulting in a corresponding reduction in net income . impairment of long-lived assets we periodically evaluate whether the carrying value of long-lived assets has been impaired when circumstances indicate the carrying value of the assets may not be recoverable . these evaluations are based on undiscounted cash flow projections over the remaining useful life of the asset . the carrying value is not recoverable if it exceeds the sum of the undiscounted cash flows . any impairment loss is measured as the excess of the asset 's carrying value over its fair value . our impairment analyses require management to use judgment in estimating future cash flows and useful lives , as well as assessing the probability of different outcomes . story_separator_special_tag a 23 % decrease in sales volumes at our blending and packaging facilities resulted in a $ 33.2 million decrease in cost of products sold . product sales volumes from our shore-based terminals decreased 3 % , resulting in a $ 2.0 million decrease in cost of products sold . increased average cost at our blending and packaging facilities of 10 % resulted in an increase of $ 13.6 million in cost of products sold . decreased average cost at our shore-based terminals of 2 % resulted in a decrease of $ 1.1 million in cost of products sold . operating expenses . increased expenses at our specialty terminals accounted for $ 6.2 million of the total increase , primarily attributable to the corpus christi crude terminal . our shore-based terminal expenses increased $ 0.4 million primarily due to repair and maintenance cost at the terminals . in addition , $ 2.5 million of the increase is attributable to the smackover refining assets , primarily as a result of increased compensation expense . selling , general and administrative expenses . the increase in selling , general and administrative expenses is primarily attributable to increased compensation expense . depreciation and amortization . the increase in depreciation and amortization is due to the impact of recent capital expenditures . 49 other operating income . other operating income consists primarily of business interruption recoveries in 2014 and a gain on an involuntary conversion of property , plant and equipment in 2013. comparative results of operations for the twelve months ended december 31 , 2013 and 2012 replace_table_token_11_th services revenues . services revenue increased primarily due to $ 17.7 million attributable to our new crude terminal in corpus christi , texas , which was placed into service in may 2012. in addition , $ 5.2 million of the increase is due to revenues generated by our talen 's acquisition on december 31 , 2012. the remaining increase is primarily due to increased throughput at the smackover refinery . products revenues . an 8 % increase in sales volumes at our blending and packaging facilities resulted in a $ 10.7 million positive impact on product revenues . product sales volumes from our shore-based terminals decreased 7 % , resulting in a $ 5.6 million reduction in product revenues . the average sales price at our blending and packaging facilities decreased 5 % , resulting in a $ 7.8 million decrease in product revenues . the average sales price at our shore-based terminals decreased 4 % , resulting in a $ 3.3 million decrease in product revenues . cost of products sold . an 8 % increase in sales volumes at our blending and packaging facilities resulted in a $ 9.4 million increase in cost of products sold , which was partially offset by a 7 % decrease in sales volumes at our shore-based terminals , resulting in a $ 5.2 million decrease in cost of products sold . decreased average cost at our blending and packaging facilities of 8 % resulted in a decrease of $ 10.0 million in cost of products sold . decreased average cost at our shore-based terminals of 5 % resulted in a decrease of $ 3.9 million in cost of products sold . operating expenses . increased expenses at our specialty terminals accounted for $ 6.9 million of the total increase , primarily attributable to the corpus christi crude terminal . our shore-based terminal expenses increased $ 1.7 million primarily due to the acquisition of the talen 's terminals . in addition , $ 7.1 million of the increase is attributable to the smackover refining assets , primarily as a result of increased utilities and repair and maintenance expense . selling , general and administrative expenses . the decrease in selling , general and administrative expenses is primarily related to decreased advertising expense in our blending and packaging operations . depreciation and amortization . the increase in depreciation and amortization is due to the impact of recent capital expenditures . 50 other operating income ( loss ) . other operating income in 2013 is primarily attributable to a gain on an involuntary conversion of property , plant and equipment . natural gas services segment comparative results of operations for the twelve months ended december 31 , 2014 and 2013 replace_table_token_12_th revenues . services revenue for 2014 are attributable to the acquisition of cardinal on august 29 , 2014. ngl sales volumes increased 33 % , positively impacting product revenues by $ 246.2 million . our ngl average sales price per barrel decreased $ 14.95 , or 23 % , resulting in an offsetting decrease to product revenues of $ 222.3 million . cost of products sold . our average cost per barrel decreased $ 14.51 , or 23 % . our margins decreased by $ 0.43 , or 17.0 % , per barrel during the period . the impact of lower prices reduced cost of products sold by $ 287.2 million while the growth in volumes increased our costs $ 307.7 million . operating expenses . operating expenses increased $ 5.3 million due to the acquisition of cardinal . in addition , compensation costs and repair and maintenance expenses increased $ 0.7 million and $ 0.6 million , respectively , as a result of the acquisition of ngl storage assets from martin resource management . selling , general and administrative expenses . selling , general and administrative expenses increased $ 2.7 million due to the acquisition of cardinal . also contributing to the increase was compensation expense of $ 1.0 million and property taxes of $ 0.5 million . depreciation and amortization . depreciation and amortization increased due to the acquisition of cardinal . 51 comparative results of operations for the twelve months ended december 31 , 2013 and 2012 replace_table_token_13_th revenues . natural gas services sales volumes increased 23 % , positively impacting revenues by $ 181.6 million , primarily as a result of us entering the louisiana butane

cash flows - twelve months ended december 31 , 2014 compared to twelve months ended december 31 , 2013 the following table details the cash flow changes between the twelve months ended december 31 , 2014 and 2013 : replace_table_token_24_th the change in net cash provided by operating activities includes an increase in operating results from continuing operations plus other non cash items of $ 7.5 million , distributions from wtlpg of $ 2.6 million , and a $ 10.1 million 59 unfavorable variance in working capital . changes in working capital are primarily affected by the timing of payments of trade and other accounts payable as well as the collections of trade and other accounts receivable . in addition , cash used in discontinued operations decreased $ 2.0 million in 2014. net cash used in investing activities in 2014 includes the $ 133.9 million net investment in wtlpg . acquisition expenditures increased $ 71.4 million , including the cardinal acquisition of $ 100.2 million , net of cash acquired . contributions to unconsolidated entities and capital expenditures decreased $ 27.5 million and $ 7.9 million in 2014 , respectively . net cash used in discontinued investing activities of $ 42.6 million in 2013 is attributable to the purchase of the six pressure barges which were sold in february 2015. there was no cash provided by or used in discontinued investing activities in 2014. net cash provided by financing activities increased for the year ended december 31 , 2014 as a result of : ( i ) $ 338.7 million in equity offering proceeds , including $ 7.0 million from the general partner ; ( ii ) a $ 228.8 decrease in net proceeds from long-term debt ( borrowings less repayments ) ; ( iii ) a $ 12.8 million increase in cash distributions ; and ( iv ) a $ 5.4 million reduction in the payment of debt issuance costs .

we may also realize gains and additional cash flows from the periodic divestiture of assets . recent developments drilling activity during 2012 , we drilled 5 international wells in colombia , as follows : ● 2 wells were drilled on the la cuerva concession in which we hold a 1.6 % working interest , of which 2 were completed and brought onto production ( both wells were sold in connection with the sale of our interest in hc , llc . see “ sale of la cuerva and lla 62 blocks ” ) . ● 3 wells were drilled on the cpo 4 block in colombia , each of which was determined to be non-commercial . at december 31 , 2012 , no wells were being drilled . during 2012 , no domestic wells were drilled . sale of la cuerva and lla 62 blocks during the first quarter of 2012 , we sold all of our interest in hupecol cuerva , llc ( “ hc , llc ” ) , which holds interests in the la cuerva block and , pending approval of the colombian authorities , the lla 62 block , together covering approximately 90,000 acres in the llanos basin in colombia . hc , llc sold for $ 75 million , adjusted for working capital . 13.3 % of the sales price of hc , llc will be held in escrow to fund potential claims arising from the sale . pursuant to our 1.6 % ownership interest in hc , llc , we received 1.6 % in the net sale proceeds after deduction of commissions , overriding royalty interest , and transaction expenses ; subject to the escrow holdback and a further contingency holdback by hupecol of 1.3 % of the sales price . following completion of the sale of hc , llc , we have no continuing interest in the la cuerva and lla 62 blocks . at december 31 , 2011 , our estimated proved reserves associated with the la cuerva and lla 62 blocks totaled 94,619 barrels of oil , which represented 82 % of our estimated proved oil and natural gas reserves . sales of oil and gas properties under the full cost method of accounting are accounted for as adjustments of capitalized costs with no gain or loss recognized , unless the adjustment significantly alters the relationship between capitalized costs and reserves . since the sale of these oil and gas properties would significantly alter the relationship , we recognized a gain on the sale of $ 315,119 during 2012 , computed as follows : 26 sales price $ 1,224,393 add : transfer of asset retirement and other obligations 34,471 less : transaction costs ( 30,330 ) less : prepaid deposits ( 54,857 ) less : carrying value of oil and gas properties , net ( 858,558 ) net gain on sale $ 315,119 the following table presents pro forma data that reflects revenue , income from continuing operations , net loss and loss per common share for 2011 and 2012 as if the hc , llc sale had occurred at the beginning of each period and excludes the gain on sale . replace_table_token_7_th 2012 capital expenditure program during 2012 , we invested $ 26,033,065 for the development of oil and gas properties , consisting of ( 1 ) drilling and drilling preparation costs on 5 wells in colombia of $ 25,915,741 and leasehold costs on u.s. properties of $ 117,324. cpo 4 developments during 2012 , we completed operations on three test wells on our cpo 4 block in colombia . each of the test wells was determined to be noncommercial and was plugged and abandoned . as a result of the determinations to plug and abandon each of those test wells , we included the costs related to those wells in the full cost pool for inclusion in the ceiling test . we recorded an impairment charge of $ 46,235,574 during 2012 to write off costs not being amortized that were attributable to the drilling of the test wells on the cpo 4 block as well as to write off seismic exploration and evaluation cost , general and administrative cost and environmental and governmental cost that were attributable to the test wells through december 31 , 2012. following drilling of the unsuccessful test wells on the cpo 4 prospect , in march 2013 , we entered into a settlement agreement with sk innovation , operator of the cpo 4 prospect , and terminated our interest in the prospect and were released from past and future funding and other obligations relating to the prospect , including our accrued cash call commitments of $ 3,219,128. serrania developments with respect to development of our serrania block , the national hydrocarbon agency of colombia ( the “ anh ” ) has granted extensions of required development commitments , including drilling of a first test well , until security conditions allow operations . based on those conditions , we anticipate that drilling of a first test well on the serrania block will occur in 2013. gulf united note receivable as a result of gulf united energy 's delinquency in satisfying its financial obligations with respect to the cpo 4 prospect , during 2012 , we wrote-off our receivable from gulf united for $ 3,951,370 . 27 financing activities on may 8 , 2012 , we sold to institutional investors 6,200,000 units , with each unit consisting of one of our common shares and one warrant to purchase one common share , for gross proceeds of approximately $ 13.14 million , before deducting placement agent fees and estimated offering expenses of $ 527,000 recorded as cost of capital , in a `` registered direct `` offering . story_separator_special_tag when leases are developed , expire or are abandoned , the related costs are transferred from unevaluated oil and gas properties to oil and gas properties subject to amortization . additionally , we review the carrying costs of unevaluated oil and gas properties for the purpose of determining probable future lease expirations and abandonments , and prospective discounted future economic benefit attributable to the leases . unevaluated oil and gas properties not subject to amortization include the following at december 31 , 2012 and 2011 : replace_table_token_8_th the carrying value of unevaluated oil and gas prospects includes $ 4,836,412 and $ 22,028,895 expended for properties in south america at december 31 , 2012 and december 31 , 2011 , respectively . we are maintaining our interest in these properties and development has or is anticipated to commence within the next twelve months . stock-based compensation . we use the black-scholes option-pricing model , which requires the input of highly subjective assumptions . these assumptions include estimating the volatility of our common stock price over the expected life of the options , dividend yield , an appropriate risk-free interest rate and the number of options that will ultimately not complete their vesting requirements . changes in the subjective assumptions can materially affect the estimated fair value of stock-based compensation and consequently , the related amount recognized on the statements of operations . results of operations year ended december 31 , 2012 compared to year ended december 31 , 2011 oil and gas revenues . total oil and gas revenues decreased 64.4 % , to $ 411,349 , in 2012 from $ 1,156,178 in 2011. the decrease in revenue was due to the 2012 sale of our interest in the la cuerva block . the following table sets forth the gross and net producing wells , net oil and gas production volumes and average hydrocarbon sales prices for 2012 and 2011 : replace_table_token_9_th the change in gross and net producing wells and production reflects the sale , during the first quarter of 2012 , of our interest in wells associated with the la cuerva block . the change in average sales prices realized reflects fluctuations in global commodity prices . 31 oil and gas sales revenues for 2012 and 2011 by region were as follows : replace_table_token_10_th lease operating expenses . lease operating expenses , excluding joint venture expenses relating to our colombian operations discussed below , decreased 77.1 % to $ 195,381 in 2012 from $ 854,319 in 2011. the decrease in total lease operating expenses was attributable to the 2012 sale of our interest in the la cuerva block . following is a summary comparison of lease operating expenses for the periods . replace_table_token_11_th consistent with our business model and operating history , we experience steep declines in lease operating expenses following strategic divestitures and anticipate lease operating expenses to ramp up to levels consistent with regional costs as new wells are brought on line . joint venture expenses . joint venture expenses totaled $ 3,244 in 2012 compared to $ 13,930 in 2011. the joint venture expenses represent our allocable share of the indirect field operating and region administrative expenses billed by hupecol . the decrease in joint venture expenses was attributable to reduced allocated administrative costs following the march 2012 divestiture of assets operated by hupecol . depreciation and depletion expense . depreciation and depletion expense decreased by 64 % to $ 66,971 in 2012 from $ 185,931 in 2011. the decrease in depreciation and depletion was due to the 2012 sale of assets discussed above . gain ( loss ) on sale of oil and gas properties . the sale of our indirect interests in hupecol cuerva , llc and post-closing price adjustments related to the sale resulted in a gain of $ 387,314 during 2012. post-closing purchase price adjustments relating to our 2010 sale of colombian assets and our prior 2008 sale of colombian assets resulted in a loss on sale of oil and gas properties of $ 1,026,608 in 2011. impairment expense . termination of our testing and completion efforts on , and abandonment of , three test wells on our cpo 4 block resulted in impairment expense of $ 46,235,574 during 2012. general and administrative expenses . general and administrative expense increased by 1.5 % to $ 5,027,024 in 2012 from $ 4,952,560 in 2011. the change in general and administrative expense reflects a combination of ( 1 ) an increase in legal fees and professional fees ( up $ 426,636 ) relating to litigation commenced during 2012 and the ongoing sec investigation , ( 2 ) a decrease in non-cash stock based compensation ( down $ 319,719 ) reflecting lower stock price and a resulting lower value of equity grants , and ( 3 ) decreased cash compensation ( down $ 66,093 ) attributable to reduced bonuses paid during 2012. bad debt expense . as a result of gulf united energy 's delinquency in satisfying its financial obligations with respect to the cpo 4 prospect , during 2012 , we wrote-down our receivable from gulf united for $ 3,951,370. foreign equity tax . during 2012 , we recorded an foreign equity tax expense of $ 1,689,039 relating to a newly enacted colombian equity tax measure based on the equity of our colombian branch as of january 1 , 2011. other income ( expense ) . other income ( expense ) consists of interest earned on cash balances net of other bank fees . net other expense totaled $ 73,319 in 2012 as compared to net other expense of $ 29,020 in 2011. the change was attributable to reduced interest income during 2012 reflecting lower interest rates and lower cash holdings . 32 income tax expense/benefit . we reported income tax expense of approximately $ 216,923 in 2012 as compared to an income tax benefit of approximately $ 1.6 million in 2011. during 2012 , we generated net operating losses , from which a

cash flows - twelve months ended december 31 , 2014 compared to twelve months ended december 31 , 2013 the following table details the cash flow changes between the twelve months ended december 31 , 2014 and 2013 : replace_table_token_24_th the change in net cash provided by operating activities includes an increase in operating results from continuing operations plus other non cash items of $ 7.5 million , distributions from wtlpg of $ 2.6 million , and a $ 10.1 million 59 unfavorable variance in working capital . changes in working capital are primarily affected by the timing of payments of trade and other accounts payable as well as the collections of trade and other accounts receivable . in addition , cash used in discontinued operations decreased $ 2.0 million in 2014. net cash used in investing activities in 2014 includes the $ 133.9 million net investment in wtlpg . acquisition expenditures increased $ 71.4 million , including the cardinal acquisition of $ 100.2 million , net of cash acquired . contributions to unconsolidated entities and capital expenditures decreased $ 27.5 million and $ 7.9 million in 2014 , respectively . net cash used in discontinued investing activities of $ 42.6 million in 2013 is attributable to the purchase of the six pressure barges which were sold in february 2015. there was no cash provided by or used in discontinued investing activities in 2014. net cash provided by financing activities increased for the year ended december 31 , 2014 as a result of : ( i ) $ 338.7 million in equity offering proceeds , including $ 7.0 million from the general partner ; ( ii ) a $ 228.8 decrease in net proceeds from long-term debt ( borrowings less repayments ) ; ( iii ) a $ 12.8 million increase in cash distributions ; and ( iv ) a $ 5.4 million reduction in the payment of debt issuance costs .

we may also realize gains and additional cash flows from the periodic divestiture of assets . recent developments drilling activity during 2012 , we drilled 5 international wells in colombia , as follows : ● 2 wells were drilled on the la cuerva concession in which we hold a 1.6 % working interest , of which 2 were completed and brought onto production ( both wells were sold in connection with the sale of our interest in hc , llc . see “ sale of la cuerva and lla 62 blocks ” ) . ● 3 wells were drilled on the cpo 4 block in colombia , each of which was determined to be non-commercial . at december 31 , 2012 , no wells were being drilled . during 2012 , no domestic wells were drilled . sale of la cuerva and lla 62 blocks during the first quarter of 2012 , we sold all of our interest in hupecol cuerva , llc ( “ hc , llc ” ) , which holds interests in the la cuerva block and , pending approval of the colombian authorities , the lla 62 block , together covering approximately 90,000 acres in the llanos basin in colombia . hc , llc sold for $ 75 million , adjusted for working capital . 13.3 % of the sales price of hc , llc will be held in escrow to fund potential claims arising from the sale . pursuant to our 1.6 % ownership interest in hc , llc , we received 1.6 % in the net sale proceeds after deduction of commissions , overriding royalty interest , and transaction expenses ; subject to the escrow holdback and a further contingency holdback by hupecol of 1.3 % of the sales price . following completion of the sale of hc , llc , we have no continuing interest in the la cuerva and lla 62 blocks . at december 31 , 2011 , our estimated proved reserves associated with the la cuerva and lla 62 blocks totaled 94,619 barrels of oil , which represented 82 % of our estimated proved oil and natural gas reserves . sales of oil and gas properties under the full cost method of accounting are accounted for as adjustments of capitalized costs with no gain or loss recognized , unless the adjustment significantly alters the relationship between capitalized costs and reserves . since the sale of these oil and gas properties would significantly alter the relationship , we recognized a gain on the sale of $ 315,119 during 2012 , computed as follows : 26 sales price $ 1,224,393 add : transfer of asset retirement and other obligations 34,471 less : transaction costs ( 30,330 ) less : prepaid deposits ( 54,857 ) less : carrying value of oil and gas properties , net ( 858,558 ) net gain on sale $ 315,119 the following table presents pro forma data that reflects revenue , income from continuing operations , net loss and loss per common share for 2011 and 2012 as if the hc , llc sale had occurred at the beginning of each period and excludes the gain on sale . replace_table_token_7_th 2012 capital expenditure program during 2012 , we invested $ 26,033,065 for the development of oil and gas properties , consisting of ( 1 ) drilling and drilling preparation costs on 5 wells in colombia of $ 25,915,741 and leasehold costs on u.s. properties of $ 117,324. cpo 4 developments during 2012 , we completed operations on three test wells on our cpo 4 block in colombia . each of the test wells was determined to be noncommercial and was plugged and abandoned . as a result of the determinations to plug and abandon each of those test wells , we included the costs related to those wells in the full cost pool for inclusion in the ceiling test . we recorded an impairment charge of $ 46,235,574 during 2012 to write off costs not being amortized that were attributable to the drilling of the test wells on the cpo 4 block as well as to write off seismic exploration and evaluation cost , general and administrative cost and environmental and governmental cost that were attributable to the test wells through december 31 , 2012. following drilling of the unsuccessful test wells on the cpo 4 prospect , in march 2013 , we entered into a settlement agreement with sk innovation , operator of the cpo 4 prospect , and terminated our interest in the prospect and were released from past and future funding and other obligations relating to the prospect , including our accrued cash call commitments of $ 3,219,128. serrania developments with respect to development of our serrania block , the national hydrocarbon agency of colombia ( the “ anh ” ) has granted extensions of required development commitments , including drilling of a first test well , until security conditions allow operations . based on those conditions , we anticipate that drilling of a first test well on the serrania block will occur in 2013. gulf united note receivable as a result of gulf united energy 's delinquency in satisfying its financial obligations with respect to the cpo 4 prospect , during 2012 , we wrote-off our receivable from gulf united for $ 3,951,370 . 27 financing activities on may 8 , 2012 , we sold to institutional investors 6,200,000 units , with each unit consisting of one of our common shares and one warrant to purchase one common share , for gross proceeds of approximately $ 13.14 million , before deducting placement agent fees and estimated offering expenses of $ 527,000 recorded as cost of capital , in a `` registered direct `` offering . story_separator_special_tag when leases are developed , expire or are abandoned , the related costs are transferred from unevaluated oil and gas properties to oil and gas properties subject to amortization . additionally , we review the carrying costs of unevaluated oil and gas properties for the purpose of determining probable future lease expirations and abandonments , and prospective discounted future economic benefit attributable to the leases . unevaluated oil and gas properties not subject to amortization include the following at december 31 , 2012 and 2011 : replace_table_token_8_th the carrying value of unevaluated oil and gas prospects includes $ 4,836,412 and $ 22,028,895 expended for properties in south america at december 31 , 2012 and december 31 , 2011 , respectively . we are maintaining our interest in these properties and development has or is anticipated to commence within the next twelve months . stock-based compensation . we use the black-scholes option-pricing model , which requires the input of highly subjective assumptions . these assumptions include estimating the volatility of our common stock price over the expected life of the options , dividend yield , an appropriate risk-free interest rate and the number of options that will ultimately not complete their vesting requirements . changes in the subjective assumptions can materially affect the estimated fair value of stock-based compensation and consequently , the related amount recognized on the statements of operations . results of operations year ended december 31 , 2012 compared to year ended december 31 , 2011 oil and gas revenues . total oil and gas revenues decreased 64.4 % , to $ 411,349 , in 2012 from $ 1,156,178 in 2011. the decrease in revenue was due to the 2012 sale of our interest in the la cuerva block . the following table sets forth the gross and net producing wells , net oil and gas production volumes and average hydrocarbon sales prices for 2012 and 2011 : replace_table_token_9_th the change in gross and net producing wells and production reflects the sale , during the first quarter of 2012 , of our interest in wells associated with the la cuerva block . the change in average sales prices realized reflects fluctuations in global commodity prices . 31 oil and gas sales revenues for 2012 and 2011 by region were as follows : replace_table_token_10_th lease operating expenses . lease operating expenses , excluding joint venture expenses relating to our colombian operations discussed below , decreased 77.1 % to $ 195,381 in 2012 from $ 854,319 in 2011. the decrease in total lease operating expenses was attributable to the 2012 sale of our interest in the la cuerva block . following is a summary comparison of lease operating expenses for the periods . replace_table_token_11_th consistent with our business model and operating history , we experience steep declines in lease operating expenses following strategic divestitures and anticipate lease operating expenses to ramp up to levels consistent with regional costs as new wells are brought on line . joint venture expenses . joint venture expenses totaled $ 3,244 in 2012 compared to $ 13,930 in 2011. the joint venture expenses represent our allocable share of the indirect field operating and region administrative expenses billed by hupecol . the decrease in joint venture expenses was attributable to reduced allocated administrative costs following the march 2012 divestiture of assets operated by hupecol . depreciation and depletion expense . depreciation and depletion expense decreased by 64 % to $ 66,971 in 2012 from $ 185,931 in 2011. the decrease in depreciation and depletion was due to the 2012 sale of assets discussed above . gain ( loss ) on sale of oil and gas properties . the sale of our indirect interests in hupecol cuerva , llc and post-closing price adjustments related to the sale resulted in a gain of $ 387,314 during 2012. post-closing purchase price adjustments relating to our 2010 sale of colombian assets and our prior 2008 sale of colombian assets resulted in a loss on sale of oil and gas properties of $ 1,026,608 in 2011. impairment expense . termination of our testing and completion efforts on , and abandonment of , three test wells on our cpo 4 block resulted in impairment expense of $ 46,235,574 during 2012. general and administrative expenses . general and administrative expense increased by 1.5 % to $ 5,027,024 in 2012 from $ 4,952,560 in 2011. the change in general and administrative expense reflects a combination of ( 1 ) an increase in legal fees and professional fees ( up $ 426,636 ) relating to litigation commenced during 2012 and the ongoing sec investigation , ( 2 ) a decrease in non-cash stock based compensation ( down $ 319,719 ) reflecting lower stock price and a resulting lower value of equity grants , and ( 3 ) decreased cash compensation ( down $ 66,093 ) attributable to reduced bonuses paid during 2012. bad debt expense . as a result of gulf united energy 's delinquency in satisfying its financial obligations with respect to the cpo 4 prospect , during 2012 , we wrote-down our receivable from gulf united for $ 3,951,370. foreign equity tax . during 2012 , we recorded an foreign equity tax expense of $ 1,689,039 relating to a newly enacted colombian equity tax measure based on the equity of our colombian branch as of january 1 , 2011. other income ( expense ) . other income ( expense ) consists of interest earned on cash balances net of other bank fees . net other expense totaled $ 73,319 in 2012 as compared to net other expense of $ 29,020 in 2011. the change was attributable to reduced interest income during 2012 reflecting lower interest rates and lower cash holdings . 32 income tax expense/benefit . we reported income tax expense of approximately $ 216,923 in 2012 as compared to an income tax benefit of approximately $ 1.6 million in 2011. during 2012 , we generated net operating losses , from which a

liquidity and capital resources . at december 31 , 2012 , we had a cash balance of $ 5,626,345 and working capital of $ 9,144,869 compared to a cash balance of $ 9,930,284 and working capital of $ 19,636,540 at december 31 , 2011. the decrease in cash and working capital during 2012 was primarily attributable to the operating losses incurred during 2012 , including the costs of drilling operations on the cpo 4 block which were written off during 2012 , partially offset by the receipt of approximately $ 23,144,000 from capital raising transactions during 2012. as a result of our settlement with sk innovation , subsequent to year-end , we received a release from our accrued capital call commitments on cpo 4 which totaled $ 3,219,128 at december 31 , 2012. as adjusted to reflect the release of such commitments , our pro forma working capital at december 31 , 2012 totaled $ 12,363,997. cash flows . operating activities used $ 2,620,837 of cash during 2012 compared to $ 4,633,032 of cash used during 2011. the decrease in cash used in operations was primarily attributable to changes in operating assets and liabilities and various non-cash expenses which more than offset the increase in net loss .

our 2013 net loss attributable to nl stockholders includes : · income of $ .13 per share , net of income taxes , related to insurance recoveries we recognized , · an aggregate charge of $ .09 per share included in our equity in kronos related to unabsorbed fixed production and other costs as a result of kronos ' canadian plant lockout , and costs associated with the terms of a new collective bargaining agreement reached with its canadian workforce , · a charge of $ .09 per share included in our equity in kronos related to kronos ' third quarter litigation settlement charge , and · an aggregate charge of $ .02 per share included in our equity in kronos related to kronos ' voluntary prepayments of $ 390 million of its term loan consisting of the write-off of original issue discount costs and deferred financing costs associated with such prepayments . outlook for 2016 we currently expect our net income attributable to nl stockholders in 2016 to be higher than 2015 primarily due to higher equity in earnings from kronos and lower environmental and related costs in 2016 , offset in part by lower income from operations attributable to compx . critical accounting policies and estimates the accompanying “ 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 accounting principles generally accepted in the united states of america ( gaap ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period . on an ongoing basis , we evaluate our estimates , including those related to the recoverability of long-lived assets , pension and other postretirement benefit obligations and the underlying actuarial assumptions related thereto , the realization of deferred income tax assets and accruals for litigation , income tax and other contingencies . we base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the reported amounts of assets , liabilities , revenues and expenses . actual results may differ significantly from previously-estimated amounts under different assumptions or conditions . the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements : · investments - we own investments in valhi , inc. that we account for as marketable securities carried at fair value or that we account for under the equity method . for these investments , we evaluate the fair value at each balance sheet date . we use quoted market prices , level 1 inputs as defined in accounting standards codification ( asc ) 820-10-35 , fair value measurements and disclosures , to determine fair value for certain of our marketable debt securities and publicly traded investees . we record an impairment charge when we believe an investment has experienced an other-than-temporary decline in fair value below its cost basis ( for marketable securities ) or below its carrying value ( for equity method investees ) . in this regard , as of december 31 , 2015 our cost basis exceeded the market value of our marketable equity security investment . after considering all available evidence we consider such decline in market value to be temporary . see note 5 to our consolidated financial statements . further adverse changes in market conditions or poor operating results of underlying - 32 - investments could result in losses or our inability to recover the carrying value of the investments that may not be reflected in an investment 's current carrying value , thereby possibly requiring us to recognize an impairment charge i n the future . at december 31 , 201 5 , the $ 5 . 64 per share quoted market price of our investment in kronos ( our only equity method investee ) exceeded its per share net carrying value by over 14 0 % . · long-lived assets - we assess property and equipment for impairment only when circumstances ( as specified in asc 360-10-35 , property , plant , and equipment ) indicate an impairment may exist . our determination is based upon , among other things , our estimates of the amount of future net cash flows to be generated by the long-lived asset ( level 3 inputs ) and our estimates of the current fair value of the asset . significant judgment is required in estimating such cash flows . adverse changes in such estimates of future net cash flows or estimates of fair value could result in an inability to recover the carrying value of the long-lived asset , thereby possibly requiring an impairment charge to be recognized in the future . we do not assess our property and equipment for impairment unless certain impairment indicators specified in asc topic 360-10-35 are present . we did not evaluate any long-lived assets for impairment during 2015 because no such impairment indicators were present . · goodwill - our net goodwill totaled $ 27.2 million at december 31 , 2015. we perform a goodwill impairment test annually in the third quarter of each year . goodwill is also evaluated for impairment at other times whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value . all of our net goodwill at december 31 , 2015 is related to compx . since 2013 , we have used the qualitative assessment of asc 350-20-35 for our annual impairment test and determined it was not necessary to perform the two-step quantitative goodwill impairment test . story_separator_special_tag we do not expect to have any outstanding indebtedness during 2016. income tax expense ( benefit ) - we recognized an income tax benefit of $ 41.9 million in 2013 , income tax expense of $ 5.0 million in 2014 and an income tax benefit of $ 28.6 million in 2015. our income tax benefit in 2015 includes a first quarter non-cash income tax benefit of $ 3.0 million related to the release of a portion of our reserve for uncertain tax positions due to the expiration of the applicable statute of limitations . in accordance with gaap , we recognize deferred income taxes on our undistributed equity in earnings ( losses ) of kronos . because we and kronos are part of the same u.s. federal income tax group , any dividends we receive from kronos are nontaxable to us . accordingly , we do not recognize and we are not required to pay income taxes on dividends from kronos . therefore , our effective income tax rate will generally be lower than the u.s. federal statutory income tax rate in periods during which we receive dividends from kronos and recognize equity in earnings of kronos ( such as in 2014 ) . conversely , our effective income tax rate will generally be higher than the u.s. federal statutory income tax rate in periods during which we receive dividends from kronos and recognize equity in losses of kronos ( such as in 2013 and 2015 ) . we received aggregate dividends from kronos of $ 21.1 million in each of 2013 , 2014 and 2015 . - 38 - our effective ta x rate attributable to our equity in earnings ( losses ) of kronos , including the effect of non-taxable dividends we received from kronos , was 58.9 % in 2013 , 10.5 % in 2014 and 49.0 % in 2015. kronos has substantial net operating losses in germany and belgium , the benefit of which kronos had previously recognized under the more-likely-than-not recognition criteria . in the second quarter of 2015 , kronos determined that such losses did not meet the more-likely-than-not recognition criteria , and as a result kron os recognized a non-cash deferred income tax expense of $ 150.3 million in the second quarter of 2015 and an additional $ 8 . 7 million of expense in the second half of 2015 as a valuation allowance against kronos ' net deferred income tax assets in such jurisdictions . our equity in losses of kronos in 2015 includes our equity in such non-cash deferred income tax expense recognized by kronos . see note 13 to our consolidated financial statements for more information about our 2015 income tax items , including a tabular reconciliation of our statutory tax expense ( benefit ) to our actual tax expense ( benefit ) . noncontrolling interest - noncontrolling interest in net income of compx attributable to continuing operations is consistent in each of 2013 , 2014 and 2015. related party transactions - we are a party to certain transactions with related parties . see notes 1 and 15 to our consolidated financial statements . it is our policy to engage in transactions with related parties on terms , in our opinion , no less favorable to us than we could obtain from unrelated parties . - 39 - equity in e arnings ( loss e s ) of kronos worldwide , inc. replace_table_token_10_th industry conditions and 2015 overview – due to competitive pressures , kronos ' average tio 2 selling prices decreased throughout 2014 and 2015. kronos ' average selling prices at the end of 2015 were 17 % lower than at the end of 2014 , with lower prices in all major markets , most notably in north american and certain export markets . kronos ' average selling prices in 2015 were also impacted by a higher percentage of sales to lower-priced export markets in 2015 compared to 2014. kronos experienced higher sales volumes in european and export markets in 2015 as compared to 2014 , partially offset by lower volumes in north american markets in 2015 as compared to 2014 . - 40 - the following table shows kronos ' capacity utilization rates during 2014 and 2015. replace_table_token_11_th kronos ' production capacity utilization rates in the first quarter of 2014 were impacted by a union labor lockout at its canadian production facility that ended in december 2013 , as restart of production at the facility did not begin until february 2014. kronos ' production rates in the fourth quarter of 2014 and the first and fourth quarters of 2015 were impacted by the implementation of certain productivity-enhancing improvement projects at certain facilities , as well as necessary improvements to ensure continued compliance with its permit regulations , which resulted in longer-than-normal maintenance shutdowns in some instances . kronos continued to experience moderation in the cost of tio 2 feedstock ore procured from third parties in 2014 and 2015. given the time lag between when third-party feedstock ore is procured and when the tio 2 product produced with such ore is sold and recognized in kronos ' cost of sales , its cost of sales per metric ton of tio 2 sold declined throughout 2014 and 2015. consequently , kronos ' cost of sales per metric ton of tio 2 sold in 2015 was slightly lower than its cost of sales per metric ton of tio 2 sold in 2014 ( excluding the effect of changes in currency exchange rates ) . in the second quarter of 2015 , kronos initiated a restructuring plan designed to improve its long-term cost structure . a portion of such expected cost savings is planned to occur through workforce reductions . during the second , third and fourth quarters of 2015 , kronos implemented certain voluntary and involuntary workforce reductions at certain of its facilities impacting approximately 160 individuals . kronos recognized an aggregate $ 21.7 million charge in 2015 ( substantially all

liquidity and capital resources . at december 31 , 2012 , we had a cash balance of $ 5,626,345 and working capital of $ 9,144,869 compared to a cash balance of $ 9,930,284 and working capital of $ 19,636,540 at december 31 , 2011. the decrease in cash and working capital during 2012 was primarily attributable to the operating losses incurred during 2012 , including the costs of drilling operations on the cpo 4 block which were written off during 2012 , partially offset by the receipt of approximately $ 23,144,000 from capital raising transactions during 2012. as a result of our settlement with sk innovation , subsequent to year-end , we received a release from our accrued capital call commitments on cpo 4 which totaled $ 3,219,128 at december 31 , 2012. as adjusted to reflect the release of such commitments , our pro forma working capital at december 31 , 2012 totaled $ 12,363,997. cash flows . operating activities used $ 2,620,837 of cash during 2012 compared to $ 4,633,032 of cash used during 2011. the decrease in cash used in operations was primarily attributable to changes in operating assets and liabilities and various non-cash expenses which more than offset the increase in net loss .

our 2013 net loss attributable to nl stockholders includes : · income of $ .13 per share , net of income taxes , related to insurance recoveries we recognized , · an aggregate charge of $ .09 per share included in our equity in kronos related to unabsorbed fixed production and other costs as a result of kronos ' canadian plant lockout , and costs associated with the terms of a new collective bargaining agreement reached with its canadian workforce , · a charge of $ .09 per share included in our equity in kronos related to kronos ' third quarter litigation settlement charge , and · an aggregate charge of $ .02 per share included in our equity in kronos related to kronos ' voluntary prepayments of $ 390 million of its term loan consisting of the write-off of original issue discount costs and deferred financing costs associated with such prepayments . outlook for 2016 we currently expect our net income attributable to nl stockholders in 2016 to be higher than 2015 primarily due to higher equity in earnings from kronos and lower environmental and related costs in 2016 , offset in part by lower income from operations attributable to compx . critical accounting policies and estimates the accompanying “ 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 accounting principles generally accepted in the united states of america ( gaap ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period . on an ongoing basis , we evaluate our estimates , including those related to the recoverability of long-lived assets , pension and other postretirement benefit obligations and the underlying actuarial assumptions related thereto , the realization of deferred income tax assets and accruals for litigation , income tax and other contingencies . we base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the reported amounts of assets , liabilities , revenues and expenses . actual results may differ significantly from previously-estimated amounts under different assumptions or conditions . the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements : · investments - we own investments in valhi , inc. that we account for as marketable securities carried at fair value or that we account for under the equity method . for these investments , we evaluate the fair value at each balance sheet date . we use quoted market prices , level 1 inputs as defined in accounting standards codification ( asc ) 820-10-35 , fair value measurements and disclosures , to determine fair value for certain of our marketable debt securities and publicly traded investees . we record an impairment charge when we believe an investment has experienced an other-than-temporary decline in fair value below its cost basis ( for marketable securities ) or below its carrying value ( for equity method investees ) . in this regard , as of december 31 , 2015 our cost basis exceeded the market value of our marketable equity security investment . after considering all available evidence we consider such decline in market value to be temporary . see note 5 to our consolidated financial statements . further adverse changes in market conditions or poor operating results of underlying - 32 - investments could result in losses or our inability to recover the carrying value of the investments that may not be reflected in an investment 's current carrying value , thereby possibly requiring us to recognize an impairment charge i n the future . at december 31 , 201 5 , the $ 5 . 64 per share quoted market price of our investment in kronos ( our only equity method investee ) exceeded its per share net carrying value by over 14 0 % . · long-lived assets - we assess property and equipment for impairment only when circumstances ( as specified in asc 360-10-35 , property , plant , and equipment ) indicate an impairment may exist . our determination is based upon , among other things , our estimates of the amount of future net cash flows to be generated by the long-lived asset ( level 3 inputs ) and our estimates of the current fair value of the asset . significant judgment is required in estimating such cash flows . adverse changes in such estimates of future net cash flows or estimates of fair value could result in an inability to recover the carrying value of the long-lived asset , thereby possibly requiring an impairment charge to be recognized in the future . we do not assess our property and equipment for impairment unless certain impairment indicators specified in asc topic 360-10-35 are present . we did not evaluate any long-lived assets for impairment during 2015 because no such impairment indicators were present . · goodwill - our net goodwill totaled $ 27.2 million at december 31 , 2015. we perform a goodwill impairment test annually in the third quarter of each year . goodwill is also evaluated for impairment at other times whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value . all of our net goodwill at december 31 , 2015 is related to compx . since 2013 , we have used the qualitative assessment of asc 350-20-35 for our annual impairment test and determined it was not necessary to perform the two-step quantitative goodwill impairment test . story_separator_special_tag we do not expect to have any outstanding indebtedness during 2016. income tax expense ( benefit ) - we recognized an income tax benefit of $ 41.9 million in 2013 , income tax expense of $ 5.0 million in 2014 and an income tax benefit of $ 28.6 million in 2015. our income tax benefit in 2015 includes a first quarter non-cash income tax benefit of $ 3.0 million related to the release of a portion of our reserve for uncertain tax positions due to the expiration of the applicable statute of limitations . in accordance with gaap , we recognize deferred income taxes on our undistributed equity in earnings ( losses ) of kronos . because we and kronos are part of the same u.s. federal income tax group , any dividends we receive from kronos are nontaxable to us . accordingly , we do not recognize and we are not required to pay income taxes on dividends from kronos . therefore , our effective income tax rate will generally be lower than the u.s. federal statutory income tax rate in periods during which we receive dividends from kronos and recognize equity in earnings of kronos ( such as in 2014 ) . conversely , our effective income tax rate will generally be higher than the u.s. federal statutory income tax rate in periods during which we receive dividends from kronos and recognize equity in losses of kronos ( such as in 2013 and 2015 ) . we received aggregate dividends from kronos of $ 21.1 million in each of 2013 , 2014 and 2015 . - 38 - our effective ta x rate attributable to our equity in earnings ( losses ) of kronos , including the effect of non-taxable dividends we received from kronos , was 58.9 % in 2013 , 10.5 % in 2014 and 49.0 % in 2015. kronos has substantial net operating losses in germany and belgium , the benefit of which kronos had previously recognized under the more-likely-than-not recognition criteria . in the second quarter of 2015 , kronos determined that such losses did not meet the more-likely-than-not recognition criteria , and as a result kron os recognized a non-cash deferred income tax expense of $ 150.3 million in the second quarter of 2015 and an additional $ 8 . 7 million of expense in the second half of 2015 as a valuation allowance against kronos ' net deferred income tax assets in such jurisdictions . our equity in losses of kronos in 2015 includes our equity in such non-cash deferred income tax expense recognized by kronos . see note 13 to our consolidated financial statements for more information about our 2015 income tax items , including a tabular reconciliation of our statutory tax expense ( benefit ) to our actual tax expense ( benefit ) . noncontrolling interest - noncontrolling interest in net income of compx attributable to continuing operations is consistent in each of 2013 , 2014 and 2015. related party transactions - we are a party to certain transactions with related parties . see notes 1 and 15 to our consolidated financial statements . it is our policy to engage in transactions with related parties on terms , in our opinion , no less favorable to us than we could obtain from unrelated parties . - 39 - equity in e arnings ( loss e s ) of kronos worldwide , inc. replace_table_token_10_th industry conditions and 2015 overview – due to competitive pressures , kronos ' average tio 2 selling prices decreased throughout 2014 and 2015. kronos ' average selling prices at the end of 2015 were 17 % lower than at the end of 2014 , with lower prices in all major markets , most notably in north american and certain export markets . kronos ' average selling prices in 2015 were also impacted by a higher percentage of sales to lower-priced export markets in 2015 compared to 2014. kronos experienced higher sales volumes in european and export markets in 2015 as compared to 2014 , partially offset by lower volumes in north american markets in 2015 as compared to 2014 . - 40 - the following table shows kronos ' capacity utilization rates during 2014 and 2015. replace_table_token_11_th kronos ' production capacity utilization rates in the first quarter of 2014 were impacted by a union labor lockout at its canadian production facility that ended in december 2013 , as restart of production at the facility did not begin until february 2014. kronos ' production rates in the fourth quarter of 2014 and the first and fourth quarters of 2015 were impacted by the implementation of certain productivity-enhancing improvement projects at certain facilities , as well as necessary improvements to ensure continued compliance with its permit regulations , which resulted in longer-than-normal maintenance shutdowns in some instances . kronos continued to experience moderation in the cost of tio 2 feedstock ore procured from third parties in 2014 and 2015. given the time lag between when third-party feedstock ore is procured and when the tio 2 product produced with such ore is sold and recognized in kronos ' cost of sales , its cost of sales per metric ton of tio 2 sold declined throughout 2014 and 2015. consequently , kronos ' cost of sales per metric ton of tio 2 sold in 2015 was slightly lower than its cost of sales per metric ton of tio 2 sold in 2014 ( excluding the effect of changes in currency exchange rates ) . in the second quarter of 2015 , kronos initiated a restructuring plan designed to improve its long-term cost structure . a portion of such expected cost savings is planned to occur through workforce reductions . during the second , third and fourth quarters of 2015 , kronos implemented certain voluntary and involuntary workforce reductions at certain of its facilities impacting approximately 160 individuals . kronos recognized an aggregate $ 21.7 million charge in 2015 ( substantially all

liquidity and capital resources consolidated cash flows operating activities trends in cash flows from operating activities , excluding the impact of deferred taxes and relative changes in assets and liabilities , are generally similar to trends in our income ( loss ) from operations . changes in working capital are primarily related to changes in receivables and inventories ( as discussed below ) and payables and accrued liabilities . net cash provided by operating activities was $ 28.1 million in 2015 compared to $ 23.6 million in 2014. the $ 4.5 million net increase in cash provided by operating activities includes the net effects of : · lower amount of net cash used for relative changes in receivables ( excluding insurance recoveries ) , inventories , payables and accrued liabilities in 2015 of $ 1.2 million , · lower cash paid for environmental remediation and related costs in 2015 of $ 8.9 million , and · lower cash received for insurance recoveries in 2015 of $ 8.0 million . net cash provided by operating activities was $ 23.6 million in 2014 compared to $ 14.9 million in 2013. the $ 8.7 million net increase in cash provided by operating activities includes the net effects of : · higher income from operations attributable to compx of $ 4.3 million , · lower amount of net cash used for relative changes in receivables ( excluding insurance recoveries ) , inventories , payables and accrued liabilities in 2014 of $ 4.4 million , primarily related to relatively higher accounts receivable and inventory balances in 2014 ( as discussed below ) , · higher cash paid for environmental remediation and related costs in 2014 of $ 6.8 million , and · higher cash received for insurance recoveries in 2014 of $ 3.9 million .

we believe the pace of this convergence is accelerating , driven by price pressure in traditional ffs healthcare , public policy , a regulatory environment that is incentivizing value-based care models , a rapid expansion of retail insurance driven by the emergence of the health insurance exchanges and innovation in data and technology . we believe providers are positioned to lead this transition to value-based care because of their control over large portions of healthcare delivery costs , their primary position with consumers and their strong local brand . we market and sell our services primarily to major providers throughout the united states . we typically work with our partners in two phases . in the transformation phase , we initially work with our partners to develop a strategic plan for their transition to a value-based care model which includes sizing the market opportunity for our partner and creating a blueprint for executing that opportunity . during the second portion of the transformation phase , which typically lasts twelve to fifteen months , we generally work with our partner to implement the blueprint by establishing the resources necessary to launch its strategy and capitalize on the opportunity . during the transformation phase , we seek to enter into long-term agreements which we call the platform and operations phase and for 37 which we deliver a wide range of services that support our partner in the execution of its new strategy . contracts in the platform and operations phase can range from three to ten years in length . in the platform and operations phase we establish a local market presence and typically embed our resources alongside our partners . revenue from these long-term contracts is not guaranteed because certain of these contracts are terminable for convenience by our partners after a notice period has passed , and certain partners would be required to pay us a termination fee in certain circumstances . as of december 31 , 2015 , we had entered into long-term contractual relationships with eleven partners and we have subsequently entered into a long-term contractual relationship with one additional partner , and a significant portion of our revenue is concentrated with several partners . our five largest partners , piedmont wellstar health plan , indiana university health , wakemed health and hospitals , premier health partners and medstar health , inc. comprised 19.6 % , 15.6 % , 14.1 % , 11.8 % and 11.2 % , respectively , of our revenue for 2015 , or 72.3 % in the aggregate . on february 1 , 2016 , the company entered into a strategic alliance with university health care , inc. d./b/a passport health plan ( “ passport ” ) , a leading nonprofit community-based and provider-sponsored health plan administering kentucky medicaid and federal medicare advantage benefits to over 280,000 kentucky medicaid and medicare advantage beneficiaries . as part of the transaction , we issued 1,067,271 class a common shares to acquire capabilities and assets from passport to enable us to build out a medicaid center of excellence based in louisville , kentucky . additional equity consideration of up to $ 10.0 million may be earned by passport should we obtain new third party medicaid businesses in future periods . this transaction also includes a 10-year arrangement under which we will provide various health plan management and managed care services to the passport . we believe the medicaid center of excellence , which combines passport 's capabilities with our existing capabilities and technology platform , will enhance our ability to further expand into the growing market in provider-sponsored , community-based medicaid health plans throughout the united states . we have not yet finalized the accounting for this transaction which will be included in our financial results beginning february 1 , 2016. we expect the revenue from the 10-year service arrangement will contribute significantly to our future revenues . at times our contracts may be amended to change the nature and price of the services and or the time period over which they are provided . for example , in 2015 we signed two amendments to our agreement with piedmont wellstar health plan that reduced our expected revenue under that contract . revenue estimates are based on various assumptions and may vary depending on the performance of our partner 's health plan and other factors . we expect our 2016 revenue attributable to that contract to be approximately 75 % of our revenue attributable to that contract in 2015 or approximately 50 % of our adjusted revenue attributable to that contract in 2015 , with minimal revenue anticipated in subsequent years . in connection with the amendment signed in april 2015 , the partner also sold its 2.2 % ownership interest in us to certain of our pre-ipo investors , consisting of tpg , the advisory board and upmc . during the fourth quarter of 2015 , we agreed to amend the terms of our contract with wakemed health and hospitals and changed our fee structure from a pmpm-based fee to a combination of a fixed-fee and a performance-based fee . the fixed portion of our fee will be an amount equal to approximately 60 % of our 2015 revenue attributable to this customer . the performance-based portion of our fee relates to populations that will move to a new program . the performance-based fee for these populations , which accounted for approximately 30 % of our 2015 revenue attributable to wakemed health and hospitals , is contingent upon our customer achieving certain performance metrics . in addition , if wakemed health and hospitals exceeds the performance metrics , we will be entitled to additional payments under the amended agreement . the performance metrics will be measured and the revenue related to the performance-based fees will be recognized in the calendar year following the relevant service period . story_separator_special_tag expenses in 2015 were $ 139.9 million , as compared to zero in 2014 and $ 46.8 million in 2013. the increase in both revenue and operating expenses in 2015 over the prior years was a result of the consolidation of evolent health llc , growth in the organization and an increase in customers under long-term contracts . see “ evolent health , inc. adjusted results ” below for further discussion of the adjusted operating results . interest income ( expense ) , net as a result of the offering reorganization , the cash and cash equivalents and investments of evolent health llc are now consolidated and reflected on our consolidated balance sheet . interest income consists of interest from investing cash in money market funds and interest from our long-term investments . we expect our average cash and cash equivalents to decline in future periods as we utilize those funds for operations . 41 during the period january 1 , 2013 , through september 22 , 2013 , interim funding for the company was provided from pre-ipo investors in the form of convertible term notes bearing interest at a rate of 8 % per annum , with such interest accruing on a daily basis and compounded annually . the total outstanding principal amount of the interim funding provided was $ 23.0 million which was converted into equity ownership of evolent health , inc. or evolent health llc on the closing of the series b reorganization on september 23 , 2013. evolent health , inc. recorded interest expense of $ 0.8 million in 2013 prior to the conversion of the notes . gain on consolidation as part of the offering reorganization and as a result of gaining control of evolent health llc , we recognized a gain of $ 414.1 million in the second quarter of 2015. we accounted for obtaining control of evolent health llc as a step acquisition and , accordingly , recognized the fair value of evolent health llc 's assets and liabilities as of the effective date of the offering reorganization , including goodwill of $ 608.9 million and intangible assets of $ 169.0 million ( consisting of $ 19.0 million , $ 120.0 million and $ 30.0 million for the corporate trade name , existing customer relationships and existing technology , respectively ) . gain on deconsolidation as part of the series b reorganization and as a result of a loss of control of evolent health llc , we recognized a gain of $ 46.2 million in the third quarter of 2013. income ( loss ) from affiliate evolent health , inc. 's proportionate share of the losses of evolent health llc in 2015 ( prior to the offering reorganization ) was $ 28.2 million which included $ 0.8 million related to the amortization of a basis differential . evolent health , inc. 's proportionate share of the losses of evolent health llc in 2014 and 2013 were $ 25.2 million , and $ 4.2 million , respectively , which included $ 2.0 million and $ 0.7 million , respectively , related to the amortization of a basis differential . as a result of the offering reorganization , the financial results of evolent health llc are now consolidated and reflected in our financial results . provision ( benefit ) for income taxes our income tax expense relates to federal and state jurisdictions in the united states . the difference between our effective tax rate and our statutory rate is due primarily to the fact that we have certain permanent items which include , but are not limited to , income attributable to the non-controlling interest , offering reorganization gain attributable to nondeductible goodwill and our allocable share of evolent health llc 's stock issuance costs associated with the ipo and offering reorganization , nondeductible stock-based compensation expense , the impact of certain tax deduction limits related to meals and entertainment and other permanent nondeductible expenses . evolent expects that the effect of the ipo and offering reorganization related factors on the effective income tax rate will eventually diminish in the future . the company will report taxes only on its share of evolent health llc income and the consolidated income tax benefit therefore excludes earnings allocable to the non-controlling interest . the company expects this factor will continue to impact the consolidated effective tax rate until all class b common units are exchanged . additionally , the income tax expense for the year was impacted by changes to the deferred tax liability related to the increased difference in the book and tax basis in our partnership interest in evolent health llc pursuant to the offering reorganization , which resulted in a step-up in our book basis without a corresponding increase in the tax basis . we recorded $ 23.5 million in income tax provision as a result . additionally , as part of the $ 23.5 million in income tax provision recorded during 2015 , the company recorded an income tax benefit of $ 5.1 million related to a measurement period adjustment in the fourth quarter of 2015 resulting from a decrease in the basis difference related to stock-based awards . during 2015 management examined all sources of taxable income that may be available for the realization of its remaining net deferred tax assets . given the company 's cumulative loss position , management concluded that there are no other current sources of taxable income and are currently reflecting a full valuation allowance in our financial statements . due to the impact of the offering reorganization , our effective tax rate in 2015 was lower than the 35 % u.s. federal statutory rate . net income ( loss ) attributable to non-controlling interests as a result of the offering reorganization and as of june 4 , 2015 , we now consolidate the results of evolent health llc as we have 100 % of the voting rights of the entity ; however , we own 70.3

liquidity and capital resources consolidated cash flows operating activities trends in cash flows from operating activities , excluding the impact of deferred taxes and relative changes in assets and liabilities , are generally similar to trends in our income ( loss ) from operations . changes in working capital are primarily related to changes in receivables and inventories ( as discussed below ) and payables and accrued liabilities . net cash provided by operating activities was $ 28.1 million in 2015 compared to $ 23.6 million in 2014. the $ 4.5 million net increase in cash provided by operating activities includes the net effects of : · lower amount of net cash used for relative changes in receivables ( excluding insurance recoveries ) , inventories , payables and accrued liabilities in 2015 of $ 1.2 million , · lower cash paid for environmental remediation and related costs in 2015 of $ 8.9 million , and · lower cash received for insurance recoveries in 2015 of $ 8.0 million . net cash provided by operating activities was $ 23.6 million in 2014 compared to $ 14.9 million in 2013. the $ 8.7 million net increase in cash provided by operating activities includes the net effects of : · higher income from operations attributable to compx of $ 4.3 million , · lower amount of net cash used for relative changes in receivables ( excluding insurance recoveries ) , inventories , payables and accrued liabilities in 2014 of $ 4.4 million , primarily related to relatively higher accounts receivable and inventory balances in 2014 ( as discussed below ) , · higher cash paid for environmental remediation and related costs in 2014 of $ 6.8 million , and · higher cash received for insurance recoveries in 2014 of $ 3.9 million .

we believe the pace of this convergence is accelerating , driven by price pressure in traditional ffs healthcare , public policy , a regulatory environment that is incentivizing value-based care models , a rapid expansion of retail insurance driven by the emergence of the health insurance exchanges and innovation in data and technology . we believe providers are positioned to lead this transition to value-based care because of their control over large portions of healthcare delivery costs , their primary position with consumers and their strong local brand . we market and sell our services primarily to major providers throughout the united states . we typically work with our partners in two phases . in the transformation phase , we initially work with our partners to develop a strategic plan for their transition to a value-based care model which includes sizing the market opportunity for our partner and creating a blueprint for executing that opportunity . during the second portion of the transformation phase , which typically lasts twelve to fifteen months , we generally work with our partner to implement the blueprint by establishing the resources necessary to launch its strategy and capitalize on the opportunity . during the transformation phase , we seek to enter into long-term agreements which we call the platform and operations phase and for 37 which we deliver a wide range of services that support our partner in the execution of its new strategy . contracts in the platform and operations phase can range from three to ten years in length . in the platform and operations phase we establish a local market presence and typically embed our resources alongside our partners . revenue from these long-term contracts is not guaranteed because certain of these contracts are terminable for convenience by our partners after a notice period has passed , and certain partners would be required to pay us a termination fee in certain circumstances . as of december 31 , 2015 , we had entered into long-term contractual relationships with eleven partners and we have subsequently entered into a long-term contractual relationship with one additional partner , and a significant portion of our revenue is concentrated with several partners . our five largest partners , piedmont wellstar health plan , indiana university health , wakemed health and hospitals , premier health partners and medstar health , inc. comprised 19.6 % , 15.6 % , 14.1 % , 11.8 % and 11.2 % , respectively , of our revenue for 2015 , or 72.3 % in the aggregate . on february 1 , 2016 , the company entered into a strategic alliance with university health care , inc. d./b/a passport health plan ( “ passport ” ) , a leading nonprofit community-based and provider-sponsored health plan administering kentucky medicaid and federal medicare advantage benefits to over 280,000 kentucky medicaid and medicare advantage beneficiaries . as part of the transaction , we issued 1,067,271 class a common shares to acquire capabilities and assets from passport to enable us to build out a medicaid center of excellence based in louisville , kentucky . additional equity consideration of up to $ 10.0 million may be earned by passport should we obtain new third party medicaid businesses in future periods . this transaction also includes a 10-year arrangement under which we will provide various health plan management and managed care services to the passport . we believe the medicaid center of excellence , which combines passport 's capabilities with our existing capabilities and technology platform , will enhance our ability to further expand into the growing market in provider-sponsored , community-based medicaid health plans throughout the united states . we have not yet finalized the accounting for this transaction which will be included in our financial results beginning february 1 , 2016. we expect the revenue from the 10-year service arrangement will contribute significantly to our future revenues . at times our contracts may be amended to change the nature and price of the services and or the time period over which they are provided . for example , in 2015 we signed two amendments to our agreement with piedmont wellstar health plan that reduced our expected revenue under that contract . revenue estimates are based on various assumptions and may vary depending on the performance of our partner 's health plan and other factors . we expect our 2016 revenue attributable to that contract to be approximately 75 % of our revenue attributable to that contract in 2015 or approximately 50 % of our adjusted revenue attributable to that contract in 2015 , with minimal revenue anticipated in subsequent years . in connection with the amendment signed in april 2015 , the partner also sold its 2.2 % ownership interest in us to certain of our pre-ipo investors , consisting of tpg , the advisory board and upmc . during the fourth quarter of 2015 , we agreed to amend the terms of our contract with wakemed health and hospitals and changed our fee structure from a pmpm-based fee to a combination of a fixed-fee and a performance-based fee . the fixed portion of our fee will be an amount equal to approximately 60 % of our 2015 revenue attributable to this customer . the performance-based portion of our fee relates to populations that will move to a new program . the performance-based fee for these populations , which accounted for approximately 30 % of our 2015 revenue attributable to wakemed health and hospitals , is contingent upon our customer achieving certain performance metrics . in addition , if wakemed health and hospitals exceeds the performance metrics , we will be entitled to additional payments under the amended agreement . the performance metrics will be measured and the revenue related to the performance-based fees will be recognized in the calendar year following the relevant service period . story_separator_special_tag expenses in 2015 were $ 139.9 million , as compared to zero in 2014 and $ 46.8 million in 2013. the increase in both revenue and operating expenses in 2015 over the prior years was a result of the consolidation of evolent health llc , growth in the organization and an increase in customers under long-term contracts . see “ evolent health , inc. adjusted results ” below for further discussion of the adjusted operating results . interest income ( expense ) , net as a result of the offering reorganization , the cash and cash equivalents and investments of evolent health llc are now consolidated and reflected on our consolidated balance sheet . interest income consists of interest from investing cash in money market funds and interest from our long-term investments . we expect our average cash and cash equivalents to decline in future periods as we utilize those funds for operations . 41 during the period january 1 , 2013 , through september 22 , 2013 , interim funding for the company was provided from pre-ipo investors in the form of convertible term notes bearing interest at a rate of 8 % per annum , with such interest accruing on a daily basis and compounded annually . the total outstanding principal amount of the interim funding provided was $ 23.0 million which was converted into equity ownership of evolent health , inc. or evolent health llc on the closing of the series b reorganization on september 23 , 2013. evolent health , inc. recorded interest expense of $ 0.8 million in 2013 prior to the conversion of the notes . gain on consolidation as part of the offering reorganization and as a result of gaining control of evolent health llc , we recognized a gain of $ 414.1 million in the second quarter of 2015. we accounted for obtaining control of evolent health llc as a step acquisition and , accordingly , recognized the fair value of evolent health llc 's assets and liabilities as of the effective date of the offering reorganization , including goodwill of $ 608.9 million and intangible assets of $ 169.0 million ( consisting of $ 19.0 million , $ 120.0 million and $ 30.0 million for the corporate trade name , existing customer relationships and existing technology , respectively ) . gain on deconsolidation as part of the series b reorganization and as a result of a loss of control of evolent health llc , we recognized a gain of $ 46.2 million in the third quarter of 2013. income ( loss ) from affiliate evolent health , inc. 's proportionate share of the losses of evolent health llc in 2015 ( prior to the offering reorganization ) was $ 28.2 million which included $ 0.8 million related to the amortization of a basis differential . evolent health , inc. 's proportionate share of the losses of evolent health llc in 2014 and 2013 were $ 25.2 million , and $ 4.2 million , respectively , which included $ 2.0 million and $ 0.7 million , respectively , related to the amortization of a basis differential . as a result of the offering reorganization , the financial results of evolent health llc are now consolidated and reflected in our financial results . provision ( benefit ) for income taxes our income tax expense relates to federal and state jurisdictions in the united states . the difference between our effective tax rate and our statutory rate is due primarily to the fact that we have certain permanent items which include , but are not limited to , income attributable to the non-controlling interest , offering reorganization gain attributable to nondeductible goodwill and our allocable share of evolent health llc 's stock issuance costs associated with the ipo and offering reorganization , nondeductible stock-based compensation expense , the impact of certain tax deduction limits related to meals and entertainment and other permanent nondeductible expenses . evolent expects that the effect of the ipo and offering reorganization related factors on the effective income tax rate will eventually diminish in the future . the company will report taxes only on its share of evolent health llc income and the consolidated income tax benefit therefore excludes earnings allocable to the non-controlling interest . the company expects this factor will continue to impact the consolidated effective tax rate until all class b common units are exchanged . additionally , the income tax expense for the year was impacted by changes to the deferred tax liability related to the increased difference in the book and tax basis in our partnership interest in evolent health llc pursuant to the offering reorganization , which resulted in a step-up in our book basis without a corresponding increase in the tax basis . we recorded $ 23.5 million in income tax provision as a result . additionally , as part of the $ 23.5 million in income tax provision recorded during 2015 , the company recorded an income tax benefit of $ 5.1 million related to a measurement period adjustment in the fourth quarter of 2015 resulting from a decrease in the basis difference related to stock-based awards . during 2015 management examined all sources of taxable income that may be available for the realization of its remaining net deferred tax assets . given the company 's cumulative loss position , management concluded that there are no other current sources of taxable income and are currently reflecting a full valuation allowance in our financial statements . due to the impact of the offering reorganization , our effective tax rate in 2015 was lower than the 35 % u.s. federal statutory rate . net income ( loss ) attributable to non-controlling interests as a result of the offering reorganization and as of june 4 , 2015 , we now consolidate the results of evolent health llc as we have 100 % of the voting rights of the entity ; however , we own 70.3

liquidity and capital resources as noted in “ results of operations ” above , evolent health , inc. is the managing member of evolent health llc and the financial statements of evolent health , inc. include the consolidated results and cash flows of evolent health llc for the periods june 4 , 2015 , through december 31 , 2015 , and january 1 , 2013 , through september 22 , 2013 , and reflect the results of evolent health llc as an equity method investment for the period september 23 , 2013 , through june 3 , 2015. since its inception , the company has incurred operating losses and cash outflows from operations . the company incurred operating losses of $ 43.0 million , zero , and $ 21.2 million , in 2015 , 2014 and 2013 , respectively . net cash used in operating activities was $ 18.5 million , zero and $ 13.6 million in 2015 , 2014 and 2013 , respectively . as of december 31 , 2015 , the company had $ 145.7 million of cash and cash equivalents . we believe our current cash , short-term investments and other sources of liquidity will be sufficient to meet our working capital and capital expenditure requirements for the next 12 months .

consolidated net income attributable to common stockholders decreased $ 282.8 million , or 54 % , to $ 236.8 million for twelve months 2018 from $ 519.6 million for twelve months 2017. the decrease was driven by the absence of a $ 177.0 million one-time benefit related to the reduction of net deferred tax liabilities following the enactment of the u.s. tax cuts and jobs act ( the “ tcja ” ) in 2017 , an increase in net realized losses on investments and higher expenses related to the twg acquisition . these decreases were partially offset by the impact of a lower effective tax rate , net operating income from twg and lower reportable catastrophes ( reportable catastrophe losses , net of reinsurance and client profit sharing adjustments , and including reinstatement and other premiums ) . global housing net income increased $ 53.4 million , or 55 % , to $ 150.8 million for twelve months 2018 from $ 97.4 million for twelve months 2017 , primarily due to a lower effective tax rate and lower reportable catastrophes . segment net income for twelve months 2018 included $ 169.7 million of after-tax reportable catastrophes compared to $ 190.5 million of after-tax reportable catastrophes for twelve months 2017. reportable catastrophes for twelve months 2018 reflect a corporate tax rate of 21 % as compared to 35 % in 2017 as a result of the enactment of the tcja . excluding the lower effective tax rate 40 and reportable catastrophes , segment net income decreased due to a lower contribution from our lender-placed insurance business primarily due to less favorable non-catastrophe loss experience , the ongoing declines in placement rates and lower reo volumes . this decrease was partially offset by growth in multifamily housing and a lower net loss from our mortgage solutions business , which was sold on august 1 , 2018. global housing net earned premiums , fees and other income decreased $ 85.8 million to $ 2.09 billion for twelve months 2018 compared with $ 2.18 billion for twelve months 2017 , primarily due to the sale of mortgage solutions . excluding mortgage solutions , net earned premiums , fees and other income increased approximately 3 % due to growth from specialty property offerings , including commercial property and multifamily housing . these increases were partially offset by lower volumes from our reo lender-placed insurance product and the ongoing declines in placement rates in our lender-placed insurance business . global lifestyle net income increased $ 119.7 million , or 67 % , to $ 297.7 million for twelve months 2018 from $ 178.0 million for twelve months 2017. the increase was primarily driven by $ 74.7 million of net operating income contribution from twg and the impact of a lower effective tax rate . excluding the impact of these items , segment net income increased primarily due to increased income from our connected living business , which was driven by growth from recently launched mobile programs and continued growth in existing mobile programs , partially offset by continued declines in global financial services , primarily from expected discontinued partnerships , and unfavorable foreign exchange . global lifestyle net earned premiums , fees and other income increased $ 1.79 billion to $ 5.18 billion for the twelve months 2018 compared with $ 3.40 billion for twelve months 2017 , primarily due to the addition of $ 1.47 billion of net earned premiums and fee income from twg . excluding twg , net earned premiums , fees and other income increased 9 % due to increased revenue from our connected living business , due to growth from existing and recently launched mobile programs , as well as growth from our global automotive business . these increases were partially offset by lower earned premiums and fees from our international extended service contracts and global financial services business due to unfavorable foreign exchange . global preneed net income increased $ 18.1 million , or 46 % , to $ 57.7 million for twelve months 2018 from $ 39.6 million for twelve months 2017. this increase was primarily due to the lower effective tax rate . excluding the impact of a lower effective tax rate , segment net income increased due to higher investment income and the absence of $ 5.0 million in after-tax software impairment recorded in 2017. global preneed net earned premiums , fees and other income increased $ 8.5 million to $ 189.5 million for twelve months 2018 compared with $ 181.0 million for twelve months 2017 primarily due to growth in pre-funded funeral policies in the u.s. and canada , as well as prior period sales of the final need product . critical factors affecting results our results depend on , among other things , the appropriateness of our product pricing , underwriting , the accuracy of our reserving methodology for future policyholder benefits and claims , the frequency and severity of reportable and non-reportable catastrophes , returns on and values of invested assets and our ability to manage our expenses and achieve expense savings . our results will also depend on our ability to profitably grow our connected living , multifamily housing and global automotive businesses , and manage the pace of declines in placement rates in our lender-placed insurance business and the u.s. credit insurance business in global financial services . in addition , our results will be impacted by our ability to integrate twg and achieve benefits and synergies from the acquisition . factors affecting these items , including , but not limited to , conditions in financial markets , the global economy and the markets in which we operate , fluctuations in exchange rates and inflation , may have a material adverse effect on our results of operations or financial condition . for more information on these and other factors that could affect our results , see “ item 1a – risk factors . story_separator_special_tag disposed and runoff long duration lines risks related to the reserves recorded for certain discontinued individual life , annuity , and long-term care insurance policies have been fully ceded via reinsurance . while we have not been released from our contractual obligation to the policyholders , changes in and deviations from economic , mortality , morbidity , and withdrawal assumptions used in the calculation of these reserves will not directly affect our results of operations unless there is a default by the assuming reinsurer . 45 deferred acquisition costs ( “ dac ” ) and value of business acquired ( “ voba ” ) only direct incremental costs associated with the successful acquisition of new or renewal insurance contracts are deferred to the extent that such costs are deemed recoverable from future premiums or gross profits . acquisition costs primarily consist of commissions and premium taxes . certain direct response advertising expenses are deferred when the primary purpose of the advertising is to elicit sales to customers who can be shown to have specifically responded to the advertising and the direct response advertising results in probable future benefits . premium deficiency testing is performed annually and generally reviewed quarterly . such testing involves the use of best estimate assumptions including the anticipation of investment income to determine if anticipated future policy premiums are adequate to recover all dac and related claims , benefits and expenses . to the extent a premium deficiency exists , it is recognized immediately by a charge to the consolidated statement of operations and a corresponding reduction in dac . if the premium deficiency is greater than unamortized dac , a loss ( and related liability ) is recorded for the excess deficiency . long duration contracts acquisition costs for pre-funded funeral ( “ preneed ” ) life insurance policies issued prior to 2009 and certain life insurance policies no longer offered are deferred and amortized in proportion to anticipated premiums over the premium-paying period . these acquisition costs consist primarily of first year commissions paid to agents . for preneed investment-type annuities , preneed life insurance policies with discretionary death benefit growth issued after january 1 , 2009 , universal life insurance policies and investment-type annuities no longer offered , dac is amortized in proportion to the present value of estimated gross profits from investment , mortality , expense margins and surrender charges over the estimated life of the policy or contract . estimated gross profits include the impact of unrealized gains or losses on investments as if these gains or losses had been realized , with corresponding credits or charges included in accumulated other comprehensive income ( “ aoci ” ) . the assumptions used for the estimates are consistent with those used in computing the policy or contract liabilities . short duration contracts acquisition costs relating to extended service contracts , vehicle service contracts , mobile device protection , credit insurance , lender-placed homeowners insurance and flood , multifamily housing and manufactured housing are amortized over the term of the contracts in relation to premiums earned . these acquisition costs consist primarily of advance commissions paid to agents . acquisition costs relating to disposed lines of business ( group term life , group disability , group dental and group vision ) consist primarily of compensation to sales representatives . such costs are deferred and amortized over the estimated terms of the underlying contracts . voba as part of the acquisition of businesses that sell long-term extended service contracts , such as warranty contracts sold by twg , and long-duration insurance contracts , such as life products , we establish an intangible asset related to voba , which represents the fair value of the expected future profits in unearned premium for insurance contracts acquired . for vehicle service contracts and extended service contracts such as those purchased in connection with the twg acquisition , the amount is determined using estimates , for premium earnings patterns , paid loss development patterns , expense loads , and discount rates applied to cash flows that include a provision for credit risk . for vehicle service contracts and extended service contracts , voba is amortized consistent with the premium earning patterns of the underlying in-force contracts . for limited payment policies , preneed life insurance policies , universal life policies and annuities , the valuation of voba at the time of acquisition is derived from similar assumptions to those used to establish the associated claim or benefit reserves and is amortized over the expected life of the policies . investments we regularly monitor our investment portfolio to ensure that investments that may be other-than-temporarily impaired are timely identified , properly valued and charged against earnings in the proper period . the determination that a security has incurred an other-than-temporary decline in value requires the judgment of management . assessment factors include , but are not limited to , the length of time and the extent to which the market value has been less than cost , the financial condition and rating of the issuer , whether any collateral is held , our intent and ability to retain the investment for a period of time sufficient to allow for recovery and our intent to sell or whether it is more likely than not that we will be required to sell for fixed maturity securities . inherently , there are risks and uncertainties involved in making these judgments . changes in circumstances and critical assumptions such as a continued weak economy , a more pronounced economic downturn or unforeseen events that affect one or more companies , industry sectors , or countries could result in additional impairments in future periods for other-than-temporary declines in value . 46 the impairment of a fixed maturity security that we have the intent to sell or that we will more likely than not be required to sell is deemed other-than-temporary and is written down to its market value at the balance sheet date with

liquidity and capital resources as noted in “ results of operations ” above , evolent health , inc. is the managing member of evolent health llc and the financial statements of evolent health , inc. include the consolidated results and cash flows of evolent health llc for the periods june 4 , 2015 , through december 31 , 2015 , and january 1 , 2013 , through september 22 , 2013 , and reflect the results of evolent health llc as an equity method investment for the period september 23 , 2013 , through june 3 , 2015. since its inception , the company has incurred operating losses and cash outflows from operations . the company incurred operating losses of $ 43.0 million , zero , and $ 21.2 million , in 2015 , 2014 and 2013 , respectively . net cash used in operating activities was $ 18.5 million , zero and $ 13.6 million in 2015 , 2014 and 2013 , respectively . as of december 31 , 2015 , the company had $ 145.7 million of cash and cash equivalents . we believe our current cash , short-term investments and other sources of liquidity will be sufficient to meet our working capital and capital expenditure requirements for the next 12 months .

consolidated net income attributable to common stockholders decreased $ 282.8 million , or 54 % , to $ 236.8 million for twelve months 2018 from $ 519.6 million for twelve months 2017. the decrease was driven by the absence of a $ 177.0 million one-time benefit related to the reduction of net deferred tax liabilities following the enactment of the u.s. tax cuts and jobs act ( the “ tcja ” ) in 2017 , an increase in net realized losses on investments and higher expenses related to the twg acquisition . these decreases were partially offset by the impact of a lower effective tax rate , net operating income from twg and lower reportable catastrophes ( reportable catastrophe losses , net of reinsurance and client profit sharing adjustments , and including reinstatement and other premiums ) . global housing net income increased $ 53.4 million , or 55 % , to $ 150.8 million for twelve months 2018 from $ 97.4 million for twelve months 2017 , primarily due to a lower effective tax rate and lower reportable catastrophes . segment net income for twelve months 2018 included $ 169.7 million of after-tax reportable catastrophes compared to $ 190.5 million of after-tax reportable catastrophes for twelve months 2017. reportable catastrophes for twelve months 2018 reflect a corporate tax rate of 21 % as compared to 35 % in 2017 as a result of the enactment of the tcja . excluding the lower effective tax rate 40 and reportable catastrophes , segment net income decreased due to a lower contribution from our lender-placed insurance business primarily due to less favorable non-catastrophe loss experience , the ongoing declines in placement rates and lower reo volumes . this decrease was partially offset by growth in multifamily housing and a lower net loss from our mortgage solutions business , which was sold on august 1 , 2018. global housing net earned premiums , fees and other income decreased $ 85.8 million to $ 2.09 billion for twelve months 2018 compared with $ 2.18 billion for twelve months 2017 , primarily due to the sale of mortgage solutions . excluding mortgage solutions , net earned premiums , fees and other income increased approximately 3 % due to growth from specialty property offerings , including commercial property and multifamily housing . these increases were partially offset by lower volumes from our reo lender-placed insurance product and the ongoing declines in placement rates in our lender-placed insurance business . global lifestyle net income increased $ 119.7 million , or 67 % , to $ 297.7 million for twelve months 2018 from $ 178.0 million for twelve months 2017. the increase was primarily driven by $ 74.7 million of net operating income contribution from twg and the impact of a lower effective tax rate . excluding the impact of these items , segment net income increased primarily due to increased income from our connected living business , which was driven by growth from recently launched mobile programs and continued growth in existing mobile programs , partially offset by continued declines in global financial services , primarily from expected discontinued partnerships , and unfavorable foreign exchange . global lifestyle net earned premiums , fees and other income increased $ 1.79 billion to $ 5.18 billion for the twelve months 2018 compared with $ 3.40 billion for twelve months 2017 , primarily due to the addition of $ 1.47 billion of net earned premiums and fee income from twg . excluding twg , net earned premiums , fees and other income increased 9 % due to increased revenue from our connected living business , due to growth from existing and recently launched mobile programs , as well as growth from our global automotive business . these increases were partially offset by lower earned premiums and fees from our international extended service contracts and global financial services business due to unfavorable foreign exchange . global preneed net income increased $ 18.1 million , or 46 % , to $ 57.7 million for twelve months 2018 from $ 39.6 million for twelve months 2017. this increase was primarily due to the lower effective tax rate . excluding the impact of a lower effective tax rate , segment net income increased due to higher investment income and the absence of $ 5.0 million in after-tax software impairment recorded in 2017. global preneed net earned premiums , fees and other income increased $ 8.5 million to $ 189.5 million for twelve months 2018 compared with $ 181.0 million for twelve months 2017 primarily due to growth in pre-funded funeral policies in the u.s. and canada , as well as prior period sales of the final need product . critical factors affecting results our results depend on , among other things , the appropriateness of our product pricing , underwriting , the accuracy of our reserving methodology for future policyholder benefits and claims , the frequency and severity of reportable and non-reportable catastrophes , returns on and values of invested assets and our ability to manage our expenses and achieve expense savings . our results will also depend on our ability to profitably grow our connected living , multifamily housing and global automotive businesses , and manage the pace of declines in placement rates in our lender-placed insurance business and the u.s. credit insurance business in global financial services . in addition , our results will be impacted by our ability to integrate twg and achieve benefits and synergies from the acquisition . factors affecting these items , including , but not limited to , conditions in financial markets , the global economy and the markets in which we operate , fluctuations in exchange rates and inflation , may have a material adverse effect on our results of operations or financial condition . for more information on these and other factors that could affect our results , see “ item 1a – risk factors . story_separator_special_tag disposed and runoff long duration lines risks related to the reserves recorded for certain discontinued individual life , annuity , and long-term care insurance policies have been fully ceded via reinsurance . while we have not been released from our contractual obligation to the policyholders , changes in and deviations from economic , mortality , morbidity , and withdrawal assumptions used in the calculation of these reserves will not directly affect our results of operations unless there is a default by the assuming reinsurer . 45 deferred acquisition costs ( “ dac ” ) and value of business acquired ( “ voba ” ) only direct incremental costs associated with the successful acquisition of new or renewal insurance contracts are deferred to the extent that such costs are deemed recoverable from future premiums or gross profits . acquisition costs primarily consist of commissions and premium taxes . certain direct response advertising expenses are deferred when the primary purpose of the advertising is to elicit sales to customers who can be shown to have specifically responded to the advertising and the direct response advertising results in probable future benefits . premium deficiency testing is performed annually and generally reviewed quarterly . such testing involves the use of best estimate assumptions including the anticipation of investment income to determine if anticipated future policy premiums are adequate to recover all dac and related claims , benefits and expenses . to the extent a premium deficiency exists , it is recognized immediately by a charge to the consolidated statement of operations and a corresponding reduction in dac . if the premium deficiency is greater than unamortized dac , a loss ( and related liability ) is recorded for the excess deficiency . long duration contracts acquisition costs for pre-funded funeral ( “ preneed ” ) life insurance policies issued prior to 2009 and certain life insurance policies no longer offered are deferred and amortized in proportion to anticipated premiums over the premium-paying period . these acquisition costs consist primarily of first year commissions paid to agents . for preneed investment-type annuities , preneed life insurance policies with discretionary death benefit growth issued after january 1 , 2009 , universal life insurance policies and investment-type annuities no longer offered , dac is amortized in proportion to the present value of estimated gross profits from investment , mortality , expense margins and surrender charges over the estimated life of the policy or contract . estimated gross profits include the impact of unrealized gains or losses on investments as if these gains or losses had been realized , with corresponding credits or charges included in accumulated other comprehensive income ( “ aoci ” ) . the assumptions used for the estimates are consistent with those used in computing the policy or contract liabilities . short duration contracts acquisition costs relating to extended service contracts , vehicle service contracts , mobile device protection , credit insurance , lender-placed homeowners insurance and flood , multifamily housing and manufactured housing are amortized over the term of the contracts in relation to premiums earned . these acquisition costs consist primarily of advance commissions paid to agents . acquisition costs relating to disposed lines of business ( group term life , group disability , group dental and group vision ) consist primarily of compensation to sales representatives . such costs are deferred and amortized over the estimated terms of the underlying contracts . voba as part of the acquisition of businesses that sell long-term extended service contracts , such as warranty contracts sold by twg , and long-duration insurance contracts , such as life products , we establish an intangible asset related to voba , which represents the fair value of the expected future profits in unearned premium for insurance contracts acquired . for vehicle service contracts and extended service contracts such as those purchased in connection with the twg acquisition , the amount is determined using estimates , for premium earnings patterns , paid loss development patterns , expense loads , and discount rates applied to cash flows that include a provision for credit risk . for vehicle service contracts and extended service contracts , voba is amortized consistent with the premium earning patterns of the underlying in-force contracts . for limited payment policies , preneed life insurance policies , universal life policies and annuities , the valuation of voba at the time of acquisition is derived from similar assumptions to those used to establish the associated claim or benefit reserves and is amortized over the expected life of the policies . investments we regularly monitor our investment portfolio to ensure that investments that may be other-than-temporarily impaired are timely identified , properly valued and charged against earnings in the proper period . the determination that a security has incurred an other-than-temporary decline in value requires the judgment of management . assessment factors include , but are not limited to , the length of time and the extent to which the market value has been less than cost , the financial condition and rating of the issuer , whether any collateral is held , our intent and ability to retain the investment for a period of time sufficient to allow for recovery and our intent to sell or whether it is more likely than not that we will be required to sell for fixed maturity securities . inherently , there are risks and uncertainties involved in making these judgments . changes in circumstances and critical assumptions such as a continued weak economy , a more pronounced economic downturn or unforeseen events that affect one or more companies , industry sectors , or countries could result in additional impairments in future periods for other-than-temporary declines in value . 46 the impairment of a fixed maturity security that we have the intent to sell or that we will more likely than not be required to sell is deemed other-than-temporary and is written down to its market value at the balance sheet date with

net cash provided by operating activities was $ 656.7 million and $ 530.4 million for twelve months 2018 and twelve months 2017 , respectively . the increase in net cash provided by operating activities was primarily due to the absence of an $ 85.0 million payment made during twelve months 2017 related to lender-placed market conduct examination settlement agreements . the increase was also due to higher cash from operations due to growth of our connected living business and $ 26.7 million of cash from the settlement of a series of derivative transactions exercised in connection with acquisition-related 66 financing . these increases were partially offset by a $ 41.5 million payment of an accrued indemnification liability related to the previous sale of our general agency business and claim payments made , net of reinsurance , related to losses from 2017 reportable catastrophes . net cash provided by operating activities was $ 530.4 million and $ 108.6 million for twelve months 2017 and twelve months 2016 , respectively . the increase in net cash provided by operating activities was primarily due to prior year activity as assurant health was paying significant claims without a corresponding collection of premiums while in run-off . also contributing to the increase was the timing of payments in the normal course of business . these items were partially offset by changes in the premium stabilization program receivables related to assurant health and an $ 85.0 million payment during twelve months 2017 related to the lender-placed market conduct examination settlement agreements . see note 26 to the consolidated financial statements included elsewhere in this report for additional information . investing activities : net cash used in investing activities was $ 2.20 billion and $ 541.2 million for twelve months 2018 and twelve months 2017 , respectively . the change in net cash ( used in ) provided by investing activities is primarily due to cash used for the twg acquisition .

diluted earnings per share was $ 3.34 in 2014. excluding the effect of the aforementioned special charges and the 2013 loss on voluntary pension settlement , adjusted diluted earnings per share was $ 3.37 in 2014 , an increase of approximately 8 % over adjusted diluted earnings per share of $ 3.13 in 2013. this increase was mainly driven by higher adjusted operating income , higher income from unconsolidated operations and our share repurchases . mccormick continues to generate strong cash flow . net cash provided by operating activities reached $ 503.6 million in 2014 , an increase from $ 465.2 million in 2013. we continued to have a balanced use of cash for capital expenditures , acquisitions and the return of cash to shareholders through dividends and share repurchases . in 2014 , that return of cash to our shareholders was a record $ 436.7 million . results of operations—2014 compared to 2013 replace_table_token_2_th sales for the fiscal year 2014 rose 2.9 % from 2013 , with growth in both the consumer and industrial segments . pricing actions , taken in response to increased raw material and packaging costs , added 1.9 % to sales . the incremental impact of the wuhan asia pacific condiments ( wapc ) acquisition , completed in mid-2013 , accounted for a 1.8 % increase to sales , while volume and product mix in the base business reduced sales 0.2 % . the impact of foreign exchange rates was unfavorable in 2014 , reducing sales by 0.6 % . in 2015 , we expect to grow sales in local currency by 4 % to 6 % from 2014 , to include the impact of higher volume and pricing . we expect this range to be significantly reduced as a result of unfavorable foreign currency exchange rates . replace_table_token_3_th in 2014 , gross profit increased 3.9 % while gross profit margin rose 40 basis points over the 2013 level to 40.8 % . we offset a low single-digit increase in raw material and packaging costs with our pricing actions and cci cost savings . our cci program generated cost savings of $ 65 million in 2014 , of which $ 54 million lowered cost of goods sold . in 2015 , we expect a favorable impact from pricing actions and cost savings , largely offset by a mid-single digit increase in raw material and packaging costs . replace_table_token_4_th selling , general and administrative expenses were $ 1,122.0 million in 2014 compared to $ 1,075.0 million in 2013 , an increase of $ 47.0 million or 40 basis points as a percentage of net sales . that 40 basis point increase was driven by an $ 18.8 million increase in our brand marketing support from the 2013 level to $ 226.6 million in 2014 , with 40 % of that increase related to digital marketing , which is one of our highest return investments in brand marketing support . in addition , compared to 2013 , lower pension and other postretirement benefit expenses in 2014 were partially offset by increased employee incentive compensation expenses in 2014. replace_table_token_5_th we are evaluating changes to our organization structure to enable us to reduce fixed costs , simplify or improve processes , and improve our competitiveness . special charges of $ 5.2 million were recorded in 2014 to enable us to implement these changes . of the $ 5.2 million of special charges recorded in 2014 , which were principally related to employee severance , $ 2.1 million related to actions undertaken with respect to the emea reorganization announced in late 2013 , $ 1.3 million related to the realignment of certain manufacturing activities in the u.s. industrial business , $ 1.1 million related to the elimination of certain administrative positions in the u.s. consumer and industrial businesses , and $ 0.7 million related to the elimination of certain administrative and manufacturing positions in the australian consumer business . in late 2013 , we announced several reorganization activities in the emea region to further improve emea 's profitability and process standardization while supporting its competitiveness and long-term growth . at that time , we indicated our expectation that we would recognize approximately $ 27 million of cash and non-cash charges related to this plan , of which $ 25.0 million in special charges was recognized in 2013 , with $ 15.9 million related to employee severance , $ 6.4 million for asset write-downs and $ 2.7 million for other exit costs . total cash expenditures to implement this emea reorganization plan were $ 10.7 million in 2014. we expect to complete the implementation of this plan in 2015 , spending an additional $ 10 million in cash in that year . see note 3 of the financial statements for further information with respect to special charges recorded in 2014 and 2013. in addition to the special charges outlined above , we recorded a loss on voluntary pension settlement of $ 15.3 million in 2013 for the settlement of a portion of our u.s. defined benefit obligation , which reduced the size of our pension obligation and should reduce potential pension volatility in the future . the settlement charge relates to a lump sum distribution elected by certain former u.s. employees in exchange for their deferred vested pension plan benefits . this lump sum payout program was completed in 2013. see note 10 of the financial statements for additional information . story_separator_special_tag our innovation in 2013 included the development and introduction of recipe mixes in france and poland , the launch of grilling items in a number of markets , and new varieties of vahiné brand dessert items . as in the americas , higher brand marketing support was devoted to building awareness and trial of new products and towards digital marketing . in the asia/pacific region , sales rose 32.6 % . the impact of our 2013 acquisition of wapc added 30.6 % to net sales , pricing added 10.0 % , base business volume and product mix declined 4.7 % and unfavorable foreign currency exchange rates lowered sales by 3.3 % . we achieved a double-digit increase in our base business volume and product mix in china . however , crop shortages of basmati rice led to a steep increase in cost and pricing of basmati rice in india during 2013 , and a subsequent decline in our sales volume as consumers turned toward lower cost rice varieties . consumer business operating income , excluding special charges and loss on voluntary pension settlement , rose to $ 472.3 million from $ 456.1 million in 2012 , a 3.6 % increase . the growth in operating income was the result of higher sales and cci savings , offset , in part , by higher retirement benefit expense , a $ 6.9 million increase in brand marketing support , $ 4.3 million of transaction costs related to the acquisition of wapc and higher material costs . operating income margin , excluding the impact of special charges and loss on voluntary pension settlement , was 18.6 % in 2013 compared to 18.9 % in 2012. this reduction was due , in part , to the mix of business across regions , as sales in international markets grew at a faster rate than in the u.s. , where our profit margin is higher due to larger scale and less complexity . industrial business replace_table_token_21_th sales for the industrial business declined 0.8 % in 2013. pricing actions taken to offset the impact of higher material costs added 1.2 % , while volume and product mix lowered sales by 1.2 % and unfavorable foreign exchange rates decreased sales 0.8 % . the decline in volume and product mix was largely attributable to weak demand from quick service restaurants in the u.s. and china . in the u.s. , sales to quick service restaurants were impacted by lower restaurant traffic and customer emphasis on menu items for which mccormick is not a leading supplier . in china , consumer concerns , including avian flu , led to reduced demand for poultry throughout most of 2013. as a leading supplier of coatings and seasonings for chicken , this adversely impacted our sales in 2013. in the americas , industrial business sales declined 1.7 % . while pricing added 1.2 % to sales and favorable foreign currency exchange rates added 0.1 % , lower volume and product mix reduced sales 3.0 % . innovation and category growth drove increased sales of seasonings for snack products and sales of branded foodservice items were steady in 2013. however , as indicated , demand from quick service restaurants was weak in the u.s. in 2013. in emea , industrial business sales rose 1.4 % , with a 3.9 % increase in volume and product mix as well as a 2.0 % increase from pricing actions . these increases were partially offset by unfavorable foreign exchange rates that reduced sales by 4.5 % . demand from quick service restaurants remained robust , and we met this demand with products that we supply from our facilities in the u.k. , turkey and south africa . industrial business sales in the asia/pacific region rose slightly , increasing by 0.2 % . higher volume and product mix added 0.6 % and was largely offset by lower pricing of 0.1 % and unfavorable foreign exchange rates of 0.3 % . product innovation in other parts of the region largely offset the weaker demand from quick service restaurants in china that was previously described . by the end of our fiscal year 2013 , the situation in china had improved . industrial business operating income , excluding special charges and loss on voluntary pension settlement , was $ 118.5 million compared to $ 122.2 million in 2012. the benefit of cci cost savings was more than offset by higher retirement benefit expense , increased material costs and a $ 2.7 million increase in marketing support for branded foodservice items . industrial business operating income margin , excluding the impact of special charges and loss on voluntary pension settlement , was 7.5 % in 2013 compared to 7.6 % in 2012. non-gaap financial measures the tables below include financial measures of adjusted operating income , adjusted net income and adjusted diluted earnings per share , each excluding the impact of special charges in 2014 and 2013 , and loss on voluntary pension settlement in 2013. there were no adjustments to 2012 financial results . these represent non-gaap financial measures , which are prepared as a complement to our financial results prepared in accordance with united states generally accepted accounting principles . we believe this non-gaap information is important for purposes of comparison to prior periods and development of future projections and earnings growth prospects . this information is also used by management to measure the profitability of our ongoing operations and analyze our business performance and trends . special charges of $ 5.2 million were recorded in 2014 to enable us to implement changes to our organization structure in order to reduce fixed costs , simplify or improve processes , and improve our competitiveness . of the $ 5.2 million of special charges recorded in 2014 , $ 2.1 million related to actions undertaken with respect to the emea reorganization announced in 2013 , $ 1.3 million related to the realignment of manufacturing activities in the u.s. industrial business

net cash provided by operating activities was $ 656.7 million and $ 530.4 million for twelve months 2018 and twelve months 2017 , respectively . the increase in net cash provided by operating activities was primarily due to the absence of an $ 85.0 million payment made during twelve months 2017 related to lender-placed market conduct examination settlement agreements . the increase was also due to higher cash from operations due to growth of our connected living business and $ 26.7 million of cash from the settlement of a series of derivative transactions exercised in connection with acquisition-related 66 financing . these increases were partially offset by a $ 41.5 million payment of an accrued indemnification liability related to the previous sale of our general agency business and claim payments made , net of reinsurance , related to losses from 2017 reportable catastrophes . net cash provided by operating activities was $ 530.4 million and $ 108.6 million for twelve months 2017 and twelve months 2016 , respectively . the increase in net cash provided by operating activities was primarily due to prior year activity as assurant health was paying significant claims without a corresponding collection of premiums while in run-off . also contributing to the increase was the timing of payments in the normal course of business . these items were partially offset by changes in the premium stabilization program receivables related to assurant health and an $ 85.0 million payment during twelve months 2017 related to the lender-placed market conduct examination settlement agreements . see note 26 to the consolidated financial statements included elsewhere in this report for additional information . investing activities : net cash used in investing activities was $ 2.20 billion and $ 541.2 million for twelve months 2018 and twelve months 2017 , respectively . the change in net cash ( used in ) provided by investing activities is primarily due to cash used for the twg acquisition .

diluted earnings per share was $ 3.34 in 2014. excluding the effect of the aforementioned special charges and the 2013 loss on voluntary pension settlement , adjusted diluted earnings per share was $ 3.37 in 2014 , an increase of approximately 8 % over adjusted diluted earnings per share of $ 3.13 in 2013. this increase was mainly driven by higher adjusted operating income , higher income from unconsolidated operations and our share repurchases . mccormick continues to generate strong cash flow . net cash provided by operating activities reached $ 503.6 million in 2014 , an increase from $ 465.2 million in 2013. we continued to have a balanced use of cash for capital expenditures , acquisitions and the return of cash to shareholders through dividends and share repurchases . in 2014 , that return of cash to our shareholders was a record $ 436.7 million . results of operations—2014 compared to 2013 replace_table_token_2_th sales for the fiscal year 2014 rose 2.9 % from 2013 , with growth in both the consumer and industrial segments . pricing actions , taken in response to increased raw material and packaging costs , added 1.9 % to sales . the incremental impact of the wuhan asia pacific condiments ( wapc ) acquisition , completed in mid-2013 , accounted for a 1.8 % increase to sales , while volume and product mix in the base business reduced sales 0.2 % . the impact of foreign exchange rates was unfavorable in 2014 , reducing sales by 0.6 % . in 2015 , we expect to grow sales in local currency by 4 % to 6 % from 2014 , to include the impact of higher volume and pricing . we expect this range to be significantly reduced as a result of unfavorable foreign currency exchange rates . replace_table_token_3_th in 2014 , gross profit increased 3.9 % while gross profit margin rose 40 basis points over the 2013 level to 40.8 % . we offset a low single-digit increase in raw material and packaging costs with our pricing actions and cci cost savings . our cci program generated cost savings of $ 65 million in 2014 , of which $ 54 million lowered cost of goods sold . in 2015 , we expect a favorable impact from pricing actions and cost savings , largely offset by a mid-single digit increase in raw material and packaging costs . replace_table_token_4_th selling , general and administrative expenses were $ 1,122.0 million in 2014 compared to $ 1,075.0 million in 2013 , an increase of $ 47.0 million or 40 basis points as a percentage of net sales . that 40 basis point increase was driven by an $ 18.8 million increase in our brand marketing support from the 2013 level to $ 226.6 million in 2014 , with 40 % of that increase related to digital marketing , which is one of our highest return investments in brand marketing support . in addition , compared to 2013 , lower pension and other postretirement benefit expenses in 2014 were partially offset by increased employee incentive compensation expenses in 2014. replace_table_token_5_th we are evaluating changes to our organization structure to enable us to reduce fixed costs , simplify or improve processes , and improve our competitiveness . special charges of $ 5.2 million were recorded in 2014 to enable us to implement these changes . of the $ 5.2 million of special charges recorded in 2014 , which were principally related to employee severance , $ 2.1 million related to actions undertaken with respect to the emea reorganization announced in late 2013 , $ 1.3 million related to the realignment of certain manufacturing activities in the u.s. industrial business , $ 1.1 million related to the elimination of certain administrative positions in the u.s. consumer and industrial businesses , and $ 0.7 million related to the elimination of certain administrative and manufacturing positions in the australian consumer business . in late 2013 , we announced several reorganization activities in the emea region to further improve emea 's profitability and process standardization while supporting its competitiveness and long-term growth . at that time , we indicated our expectation that we would recognize approximately $ 27 million of cash and non-cash charges related to this plan , of which $ 25.0 million in special charges was recognized in 2013 , with $ 15.9 million related to employee severance , $ 6.4 million for asset write-downs and $ 2.7 million for other exit costs . total cash expenditures to implement this emea reorganization plan were $ 10.7 million in 2014. we expect to complete the implementation of this plan in 2015 , spending an additional $ 10 million in cash in that year . see note 3 of the financial statements for further information with respect to special charges recorded in 2014 and 2013. in addition to the special charges outlined above , we recorded a loss on voluntary pension settlement of $ 15.3 million in 2013 for the settlement of a portion of our u.s. defined benefit obligation , which reduced the size of our pension obligation and should reduce potential pension volatility in the future . the settlement charge relates to a lump sum distribution elected by certain former u.s. employees in exchange for their deferred vested pension plan benefits . this lump sum payout program was completed in 2013. see note 10 of the financial statements for additional information . story_separator_special_tag our innovation in 2013 included the development and introduction of recipe mixes in france and poland , the launch of grilling items in a number of markets , and new varieties of vahiné brand dessert items . as in the americas , higher brand marketing support was devoted to building awareness and trial of new products and towards digital marketing . in the asia/pacific region , sales rose 32.6 % . the impact of our 2013 acquisition of wapc added 30.6 % to net sales , pricing added 10.0 % , base business volume and product mix declined 4.7 % and unfavorable foreign currency exchange rates lowered sales by 3.3 % . we achieved a double-digit increase in our base business volume and product mix in china . however , crop shortages of basmati rice led to a steep increase in cost and pricing of basmati rice in india during 2013 , and a subsequent decline in our sales volume as consumers turned toward lower cost rice varieties . consumer business operating income , excluding special charges and loss on voluntary pension settlement , rose to $ 472.3 million from $ 456.1 million in 2012 , a 3.6 % increase . the growth in operating income was the result of higher sales and cci savings , offset , in part , by higher retirement benefit expense , a $ 6.9 million increase in brand marketing support , $ 4.3 million of transaction costs related to the acquisition of wapc and higher material costs . operating income margin , excluding the impact of special charges and loss on voluntary pension settlement , was 18.6 % in 2013 compared to 18.9 % in 2012. this reduction was due , in part , to the mix of business across regions , as sales in international markets grew at a faster rate than in the u.s. , where our profit margin is higher due to larger scale and less complexity . industrial business replace_table_token_21_th sales for the industrial business declined 0.8 % in 2013. pricing actions taken to offset the impact of higher material costs added 1.2 % , while volume and product mix lowered sales by 1.2 % and unfavorable foreign exchange rates decreased sales 0.8 % . the decline in volume and product mix was largely attributable to weak demand from quick service restaurants in the u.s. and china . in the u.s. , sales to quick service restaurants were impacted by lower restaurant traffic and customer emphasis on menu items for which mccormick is not a leading supplier . in china , consumer concerns , including avian flu , led to reduced demand for poultry throughout most of 2013. as a leading supplier of coatings and seasonings for chicken , this adversely impacted our sales in 2013. in the americas , industrial business sales declined 1.7 % . while pricing added 1.2 % to sales and favorable foreign currency exchange rates added 0.1 % , lower volume and product mix reduced sales 3.0 % . innovation and category growth drove increased sales of seasonings for snack products and sales of branded foodservice items were steady in 2013. however , as indicated , demand from quick service restaurants was weak in the u.s. in 2013. in emea , industrial business sales rose 1.4 % , with a 3.9 % increase in volume and product mix as well as a 2.0 % increase from pricing actions . these increases were partially offset by unfavorable foreign exchange rates that reduced sales by 4.5 % . demand from quick service restaurants remained robust , and we met this demand with products that we supply from our facilities in the u.k. , turkey and south africa . industrial business sales in the asia/pacific region rose slightly , increasing by 0.2 % . higher volume and product mix added 0.6 % and was largely offset by lower pricing of 0.1 % and unfavorable foreign exchange rates of 0.3 % . product innovation in other parts of the region largely offset the weaker demand from quick service restaurants in china that was previously described . by the end of our fiscal year 2013 , the situation in china had improved . industrial business operating income , excluding special charges and loss on voluntary pension settlement , was $ 118.5 million compared to $ 122.2 million in 2012. the benefit of cci cost savings was more than offset by higher retirement benefit expense , increased material costs and a $ 2.7 million increase in marketing support for branded foodservice items . industrial business operating income margin , excluding the impact of special charges and loss on voluntary pension settlement , was 7.5 % in 2013 compared to 7.6 % in 2012. non-gaap financial measures the tables below include financial measures of adjusted operating income , adjusted net income and adjusted diluted earnings per share , each excluding the impact of special charges in 2014 and 2013 , and loss on voluntary pension settlement in 2013. there were no adjustments to 2012 financial results . these represent non-gaap financial measures , which are prepared as a complement to our financial results prepared in accordance with united states generally accepted accounting principles . we believe this non-gaap information is important for purposes of comparison to prior periods and development of future projections and earnings growth prospects . this information is also used by management to measure the profitability of our ongoing operations and analyze our business performance and trends . special charges of $ 5.2 million were recorded in 2014 to enable us to implement changes to our organization structure in order to reduce fixed costs , simplify or improve processes , and improve our competitiveness . of the $ 5.2 million of special charges recorded in 2014 , $ 2.1 million related to actions undertaken with respect to the emea reorganization announced in 2013 , $ 1.3 million related to the realignment of manufacturing activities in the u.s. industrial business

liquidity and financial condition replace_table_token_24_th we generate strong cash flow from operations which enables us to fund operating projects and investments that are designed to meet our growth objectives , increase our dividend , fund capital projects and make share repurchases when appropriate . in 2015 , we expect to continue our share repurchase activity and fund all or a portion of possible future acquisitions with cash flow from operations . in the cash flow statement , the changes in operating assets and liabilities are presented excluding the effects of changes in foreign currency exchange rates , as these do not reflect actual cash flows . accordingly , the amounts in the cash flow statement do not agree with changes in the operating assets and liabilities that are presented in the balance sheet . the reported values of our assets and liabilities held in our non-u.s. subsidiaries and affiliates can be significantly affected by fluctuations in foreign exchange rates between periods . at november 30 , 2014 , the exchange rate for the euro , british pound sterling , canadian dollar , polish zloty and australian dollar were lower versus the u.s. dollar than at november 30 , 2013. operating cash flow – operating cash flow was $ 503.6 million in 2014 , $ 465.2 million in 2013 and $ 455.0 million in 2012. the variability between years is due in part to changes in pension contributions , which were $ 16.8 million in 2014 , $ 42.7 million in 2013 and $ 104.3 million in 2012. these contributions include payments to unfunded plans . we did not make any contribution to our major u.s. pension plan in 2014 as the plan was already funded within our company funding guidelines .

on july 24 , 2017 , the company and beijing medfron medical technologies co. , ltd. agreed to dissolve zhejiang sunmy , subject to approval by applicable chinese regulatory authorities which was granted on december 11 , 2017. at december 31 , 2017 , we reflected a long-term asset on our consolidated balance sheet which represented our investment in zhejiang sunmy , net of our portion of any generated loss or income . in april 2018 , we received proceeds of $ 0.6 million from the dissolution of the joint venture and liquidation of our investment , resulting in an immaterial gain recorded within other expense , net in the statement of operations for the year ended december 31 , 2018. revenues and cost of revenues we did not recognize any revenue for the years ended december 31 , 2018 , 2017 or 2016. in october 2011 , we entered into an agreement with kissei pharmaceutical co. , ltd. ( kissei ) to perform research and development services relating to mn-221 ( bedoradrine ) 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 . the $ 2.5 million was initially recorded as deferred revenue of which $ 0.8 million was recognized through 2013 for the completion of the first study . the timing of the second study is 53 undetermined as of december 31 , 2018. no revenue was recorded in 201 8 , 201 7 and 201 6 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 2019 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_4_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 . key elements of our strategy are as follows : pursue the development of mn-166 ( ibudilast ) for multiple potential indications with the support of non-dilutive financings . we intend to advance our diverse mn-166 ( ibudilast ) program through a combination of investigator-sponsored clinical trials , trials funded through government grants or other grants , and trials funded by us . in addition to providing drug supply and regulatory support , we have funded portions of some of the consortium-sponsored trials . for example , we contributed financially to the secondary and primary progressive ibudilast neuronext trial in multiple sclerosis ( sprint-ms ) phase 2b clinical trial of mn-166 ( ibudilast ) for the treatment of progressive ms , which was primarily funded by the nih . in addition , we contributed financially to the clinical trial of mn-166 ( ibudilast ) for the treatment of als as well as the ongoing als / biomarker study . we intend to pursue additional strategic alliances to help support further clinical development of mn-166 ( ibudilast ) . pursue the development of mn-001 ( tipelukast ) for fibrotic diseases and other diseases . 54 we intend to advance development of mn-001 ( tipelukast ) through a variety of means , which may include investigato r-sponsored trials with or without grant funding as well as trials funded by us . consider strategic partnerships with one or more leading pharmaceutical companies to complete late-stage product development and successfully commercialize our products . we develop and maintain relationships with pharmaceutical companies that are therapeutic category leaders . upon completion of proof-of-concept phase 2 clinical trials , we intend to discuss strategic alliances with leading pharmaceutical companies who seek late-stage product candidates , such as mn-166 ( ibudilast ) , mn-001 ( tipelukast ) , mn-221 ( bedoradrine ) and mn-029 , which could support further clinical development and product commercialization . general and administrative our general and administrative costs primarily consist of salaries , benefits and consulting and professional fees related to our administrative , finance , human resources , business development , legal , information systems support functions , facilities and insurance costs . general and administrative costs are expensed as incurred . story_separator_special_tag when impaired , the carrying value of goodwill is written down to fair value . the goodwill impairment test involves consideration of qualitative information to determine if it is more likely than not , that the fair value of a reporting unit is less than its carrying value . if the carrying value of the reporting unit exceeds its fair value , a goodwill impairment charge is recorded for the difference ( up to the carrying value of the intangible asset ) . there was no impairment of goodwill for all periods presented . 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. 56 results of operations comparison of the years ended december 31 , 2018 and 2017 revenues we did not recognize any revenue for the years ended december 31 , 2018 and 2017. research , development and patent expenses research , development and patent expenses for the year ended december 31 , 2018 increased by $ 1.4 million as compared to the same period in 2017 , primarily due to an increase in clinical trial activities related to the mn-166 ( ibudilast ) trials as well as higher stock compensation expense for performance-based stock options . general and administrative general and administrative expenses for the year ended december 31 , 2018 increased by $ 1.2 million compared to the same period in 2017 , primarily driven by higher stock compensation expense for performance-based stock options . other expense , net other expense for the years ended 2018 and 2017 was approximately $ 23,000 and $ 26,000 , respectively . other expense consisted of net losses from the joint venture accounted for under the equity method according to our percentage ownership , interest expense and net transaction losses related to vendor invoices denominated in foreign currencies . interest income interest income for the year ended december 31 , 2018 was approximately $ 940,000 , as compared to approximately $ 146,000 for the same period in 2017. interest income consists of interest earned on our cash and cash equivalents . comparison of the years ended december 31 , 2017 and 2016 revenues we did not recognize any revenue for the years ended december 31 , 2017 and 2016. research , development and patent expenses research , development and patent expenses for the year ended december 31 , 2017 increased by $ 0.7 million compared to the same period in 2016 , primarily due to an increase in clinical trial activities related to the mn-001 ( tipelukast ) and mn-166 ( ibudilast ) trials as well as higher stock compensation expense for performance-based stock options . general and administrative general and administrative expenses for the year ended december 31 , 2017 increased by $ 1.4 million compared to the same period in 2016 , primarily driven by higher stock compensation expense for performance-based stock options as well as an increase in legal fees related to the company 's sec filings and other legal matters . other expense , net other expense for the years ended 2017 and 2016 was approximately $ 26,000 and $ 47,000 , respectively . other expense consisted of net losses from the joint venture accounted for under the equity method according to our 57 percentage ownership , interest expense and net transaction losses related to vendor invoices denominated in foreign currencies . interest income interest income for the year ended december 31 , 2017 was approximately $ 146,000 , as compared to approximately $ 67,000 for the same period in 2016. interest income consists of interest earned on our cash and cash equivalents . story_separator_special_tag roman ' ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; `` > 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 ; 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 any expansion of 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 31 , 2018 ( in thousands ) : replace_table_token_6_th ( 1 ) in october 2011 , we entered into an agreement with kissei to perform research and development services relating to mn-221 ( bedoradrine ) in exchange for a non-refundable upfront payment

liquidity and financial condition replace_table_token_24_th we generate strong cash flow from operations which enables us to fund operating projects and investments that are designed to meet our growth objectives , increase our dividend , fund capital projects and make share repurchases when appropriate . in 2015 , we expect to continue our share repurchase activity and fund all or a portion of possible future acquisitions with cash flow from operations . in the cash flow statement , the changes in operating assets and liabilities are presented excluding the effects of changes in foreign currency exchange rates , as these do not reflect actual cash flows . accordingly , the amounts in the cash flow statement do not agree with changes in the operating assets and liabilities that are presented in the balance sheet . the reported values of our assets and liabilities held in our non-u.s. subsidiaries and affiliates can be significantly affected by fluctuations in foreign exchange rates between periods . at november 30 , 2014 , the exchange rate for the euro , british pound sterling , canadian dollar , polish zloty and australian dollar were lower versus the u.s. dollar than at november 30 , 2013. operating cash flow – operating cash flow was $ 503.6 million in 2014 , $ 465.2 million in 2013 and $ 455.0 million in 2012. the variability between years is due in part to changes in pension contributions , which were $ 16.8 million in 2014 , $ 42.7 million in 2013 and $ 104.3 million in 2012. these contributions include payments to unfunded plans . we did not make any contribution to our major u.s. pension plan in 2014 as the plan was already funded within our company funding guidelines .

on july 24 , 2017 , the company and beijing medfron medical technologies co. , ltd. agreed to dissolve zhejiang sunmy , subject to approval by applicable chinese regulatory authorities which was granted on december 11 , 2017. at december 31 , 2017 , we reflected a long-term asset on our consolidated balance sheet which represented our investment in zhejiang sunmy , net of our portion of any generated loss or income . in april 2018 , we received proceeds of $ 0.6 million from the dissolution of the joint venture and liquidation of our investment , resulting in an immaterial gain recorded within other expense , net in the statement of operations for the year ended december 31 , 2018. revenues and cost of revenues we did not recognize any revenue for the years ended december 31 , 2018 , 2017 or 2016. in october 2011 , we entered into an agreement with kissei pharmaceutical co. , ltd. ( kissei ) to perform research and development services relating to mn-221 ( bedoradrine ) 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 . the $ 2.5 million was initially recorded as deferred revenue of which $ 0.8 million was recognized through 2013 for the completion of the first study . the timing of the second study is 53 undetermined as of december 31 , 2018. no revenue was recorded in 201 8 , 201 7 and 201 6 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 2019 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_4_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 . key elements of our strategy are as follows : pursue the development of mn-166 ( ibudilast ) for multiple potential indications with the support of non-dilutive financings . we intend to advance our diverse mn-166 ( ibudilast ) program through a combination of investigator-sponsored clinical trials , trials funded through government grants or other grants , and trials funded by us . in addition to providing drug supply and regulatory support , we have funded portions of some of the consortium-sponsored trials . for example , we contributed financially to the secondary and primary progressive ibudilast neuronext trial in multiple sclerosis ( sprint-ms ) phase 2b clinical trial of mn-166 ( ibudilast ) for the treatment of progressive ms , which was primarily funded by the nih . in addition , we contributed financially to the clinical trial of mn-166 ( ibudilast ) for the treatment of als as well as the ongoing als / biomarker study . we intend to pursue additional strategic alliances to help support further clinical development of mn-166 ( ibudilast ) . pursue the development of mn-001 ( tipelukast ) for fibrotic diseases and other diseases . 54 we intend to advance development of mn-001 ( tipelukast ) through a variety of means , which may include investigato r-sponsored trials with or without grant funding as well as trials funded by us . consider strategic partnerships with one or more leading pharmaceutical companies to complete late-stage product development and successfully commercialize our products . we develop and maintain relationships with pharmaceutical companies that are therapeutic category leaders . upon completion of proof-of-concept phase 2 clinical trials , we intend to discuss strategic alliances with leading pharmaceutical companies who seek late-stage product candidates , such as mn-166 ( ibudilast ) , mn-001 ( tipelukast ) , mn-221 ( bedoradrine ) and mn-029 , which could support further clinical development and product commercialization . general and administrative our general and administrative costs primarily consist of salaries , benefits and consulting and professional fees related to our administrative , finance , human resources , business development , legal , information systems support functions , facilities and insurance costs . general and administrative costs are expensed as incurred . story_separator_special_tag when impaired , the carrying value of goodwill is written down to fair value . the goodwill impairment test involves consideration of qualitative information to determine if it is more likely than not , that the fair value of a reporting unit is less than its carrying value . if the carrying value of the reporting unit exceeds its fair value , a goodwill impairment charge is recorded for the difference ( up to the carrying value of the intangible asset ) . there was no impairment of goodwill for all periods presented . 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. 56 results of operations comparison of the years ended december 31 , 2018 and 2017 revenues we did not recognize any revenue for the years ended december 31 , 2018 and 2017. research , development and patent expenses research , development and patent expenses for the year ended december 31 , 2018 increased by $ 1.4 million as compared to the same period in 2017 , primarily due to an increase in clinical trial activities related to the mn-166 ( ibudilast ) trials as well as higher stock compensation expense for performance-based stock options . general and administrative general and administrative expenses for the year ended december 31 , 2018 increased by $ 1.2 million compared to the same period in 2017 , primarily driven by higher stock compensation expense for performance-based stock options . other expense , net other expense for the years ended 2018 and 2017 was approximately $ 23,000 and $ 26,000 , respectively . other expense consisted of net losses from the joint venture accounted for under the equity method according to our percentage ownership , interest expense and net transaction losses related to vendor invoices denominated in foreign currencies . interest income interest income for the year ended december 31 , 2018 was approximately $ 940,000 , as compared to approximately $ 146,000 for the same period in 2017. interest income consists of interest earned on our cash and cash equivalents . comparison of the years ended december 31 , 2017 and 2016 revenues we did not recognize any revenue for the years ended december 31 , 2017 and 2016. research , development and patent expenses research , development and patent expenses for the year ended december 31 , 2017 increased by $ 0.7 million compared to the same period in 2016 , primarily due to an increase in clinical trial activities related to the mn-001 ( tipelukast ) and mn-166 ( ibudilast ) trials as well as higher stock compensation expense for performance-based stock options . general and administrative general and administrative expenses for the year ended december 31 , 2017 increased by $ 1.4 million compared to the same period in 2016 , primarily driven by higher stock compensation expense for performance-based stock options as well as an increase in legal fees related to the company 's sec filings and other legal matters . other expense , net other expense for the years ended 2017 and 2016 was approximately $ 26,000 and $ 47,000 , respectively . other expense consisted of net losses from the joint venture accounted for under the equity method according to our 57 percentage ownership , interest expense and net transaction losses related to vendor invoices denominated in foreign currencies . interest income interest income for the year ended december 31 , 2017 was approximately $ 146,000 , as compared to approximately $ 67,000 for the same period in 2016. interest income consists of interest earned on our cash and cash equivalents . story_separator_special_tag roman ' ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; `` > 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 ; 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 any expansion of 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 31 , 2018 ( in thousands ) : replace_table_token_6_th ( 1 ) in october 2011 , we entered into an agreement with kissei to perform research and development services relating to mn-221 ( bedoradrine ) in exchange for a non-refundable upfront payment

liquidity and capital resources we incurred losses of $ 14.7 million , $ 11.2 million , and $ 10.9 million for the years ended december 31 , 2018 , 2017 , and 2016 , respectively . at december 31 , 2018 , our accumulated deficit was $ 356.1 million . 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 founder 's warrants , net of treasury stock repurchases . the following table shows a summary of our cash flows for the years ended december 31 : replace_table_token_5_th equity financing on may 22 , 2015 , we entered into an at-the-market issuance sales agreement ( the “ atm agreement ” ) with mlv & co. llc ( mlv ) , pursuant to which we may sell common stock through mlv from time to time up to an aggregate offering price of $ 30.0 million . sales of our common stock through mlv , if any , will be made by any method that is deemed to be an “ at-the-market ” equity offering as defined in rule 415 promulgated under the securities act of 1933 , as amended , including sales made directly on nasdaq , on any other existing trading market for the common stock or to or through a market maker .

we were founded on may 17 , 2007. to date , our operations have been funded through the sale of our common stock and convertible debt , through u.s. department of energy grants and , to a lesser extent , through technology licensing revenue . our total revenue generated from inception to date as of december 31 , 2013 is $ 4,283,102 , with the majority of that revenue coming from government grants and engineering fees . we have successfully applied these revenues to research and product development , reducing our capital requirements . we will continue to pursue research and development grants , where available , for the purpose of performing the necessary research and development of our products . we can make no assurances that additional grants will be available in the future . 27 we have completed development and industry certification of our first two products , a 30kw pv inverter and a 30kw battery converter , both using the same universal power converter hardware design with different embedded software . we are currently developing our third product , which is a 30kw 3-port hybrid converter . these are products that we plan to use to promote long term licensing opportunities for the company . as a result , we believe the revenue from our early product sales is not the most important metric of our growing success . we believe the quality and the level of interest from prospective customers and potential licensees is the most important metric , although we can not provide any assurance that such prospective customers and potential licensees will materialize for us . we are currently focused on three vertical markets — pv inverters , distributed grid energy storage , and ev dc charging . the pv inverter market is the largest and most mature , but it is also in a hypercompetitive state with slow growth and an increasing number of suppliers . our initial pv inverter product was developed as the first implementation of ppsa in order to validate our technology . we continue to leverage the pv inverter market for valuable product refinement feedback , including feature and performance requirements as well as improving the quality and robustness of our product designs . we plan to integrate our proven pv inverter functionality with grid energy storage and or dc charging functionality to create high value hybrid and micro-grid systems . the distributed grid energy storage market is an evolving market . we believe that this market will grow quickly , but is currently limited by the lack of commercially available , certified solutions . we believe our battery converter is highly competitive in this market . we have achieved several design wins with customers that we believe can generate product sales and may be converted to licensing agreements longer term . most of our initial battery converter sales have been made to potential customers as they evaluate our converters for possible integration into their commercial grid energy storage market products . we believe our ability to negotiate attractive licensing terms would improve if high market demand is established for our products . we believe the ev dc charging market is an attractive market . our approach to this market offers features to reduce installation costs , operational costs , and create new value-added capabilities . similar to the distributed grid energy storage market , we are working with several customers to achieve design wins and help them integrate our product into their solutions . our initial focus is on the california ev dc charging market , and we believe we can establish design wins and ecosystem relationships in this space . we are also developing next generation products , including our 3-port hybrid converter , micro-grid converter , and new power switch components that we believe will further extend the differentiation and value of our products . we developed a new 3-port hardware design that will be used for both products , although we expect to make some incremental hardware design improvements based on initial hardware testing . our next step will be to develop enhanced embedded control software for these products . when that step is complete , we plan to sell sample products to early customers , and then make incremental hardware and software improvements based on feedback from them . after these improvements are implemented , we expect to work with intertek on industry certification , including ul1741 compliance . as discussed below , the development of new power switch components is being funded by the u.s. department of energy 's $ 2.5 million arpa-e grant . we believe the department of energy grant will be sufficient to prove this technology 's capability and build a prototype ppsa product with these switches . after the bi-directional power switch technology is proven , we plan to redesign our growing number of products to use these new components . plan of operation our strategy is to continue to commercialize our technology though the development of a variety of products and licensing . we have completed development of our first two products , we are developing additional products and , based on customer feedback from system installations , we will continue to improve our products . our goal is to have these products validate our technology and lay the foundation for licensing our technology platform into applications across the global power converter marketplace . story_separator_special_tag revenues for the year ended december 31 , 2013 of $ 1,892,424 were $ 765,517 , or 68 % , higher than the $ 1,126,907 we earned in revenues for the year ended december 31 , 2012. the increase in revenue was due to a $ 667,599 increase in grant revenues and a $ 97,918 increase in the sale of products and services . total grant revenues for the year ended december 31 , 2013 were $ 1,374,956 , including $ 1,229,036 from the arpa-e grant and $ 145,920 from a department of energy sbir grant , as compared to grant revenues for the year ended december 31 , 2012 of $ 707,357 , including $ 693,938 from the arpa-e grant and $ 13,419 from other grants . revenues related to the arpa-e grant increased because the project was fully underway for the full year ended december 31 , 2013. in the year ended december 31 , 2013 , revenue from the sale of our products was $ 417,468. in the year ended december 31 , 2012 , revenue from the sale of products and services was $ 319,550 , of which $ 265,650 was from the sale of our products and $ 53,900 was for engineering services . revenues from royalties from lockheed martin corporation for both years were $ 100,000. cost of revenues . as a result of the increase in grant research and development costs and the cost of sales of our products , cost of revenues increased for the year ended december 31 , 2013 , to $ 2,146,973 from $ 1,123,864 for the year ended december 31 , 2012 , which is an increase of $ 1,023,109 , or approximately 91 % . the increase in cost of revenues was due to a $ 720,844 increase in grant research and development costs and a $ 302,265 increase in cost of revenues for the sale of product and services . the increase in grant research and development costs arose from our increase in grant revenue primarily under our arpa-e grant and sbir grant . during the years ended december 31 , 2013 and 2012 , we recognized $ 1,229,036 and $ 693,938 , respectively , in grant revenue and $ 1,284,878 and $ 709,954 , respectively , in grant research and development costs from our arpa-e grant . we have a cost-sharing arrangement with arpa-e whereby we contribute ten percent of the total costs of the project ( less any costs that our subcontractors have agreed to share ) , which results in our costs exceeding our revenue . during the year ended december 31 , 2013 , we recognized $ 145,920 in grant revenues and $ 145,920 in grant research and development costs from our sbir grant . during the year ended december 31 , 2012 , we recognized $ 13,419 in grant revenues and $ 0 in grant research and development costs from our other grants . in the year ended december 31 , 2013 , cost of revenues from the sale of products was $ 716,175. in the year ended december 31 , 2012 , the cost of revenues from the sale of products and services was $ 413,910 of which $ 393,058 was for the sale of products and $ 20,852 related to engineering services . the increase in cost of revenues from the sale of products and services was due to higher unit sales and personnel costs . gross profit ( loss ) . gross profit ( loss ) for the years ended december 31 , 2013 and 2012 were $ ( 254,549 ) and $ 3,043 , respectively . gross profit ( loss ) for the year ended december 31 , 2013 was $ 257,592 lower than in the year ended december 31 , 2012 primarily due to increased engineering personnel costs in 32 2013 as we added resources to support our existing products . we recognized $ 166,504 in higher compensation costs within cost of revenues in the year ended december 31 , 2013 as compared to the year ended december 31 , 2012. in addition , net losses on our grants were $ 53,245 higher in the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 and we recognized gross profit of $ 0 and $ 33,048 , respectively , on contract services for lmc in the years ended december 31 , 2013 and 2012. in the year ended december 31 , 2013 , grant costs exceeded revenues by $ 55,842 while for the year ended december 31 , 2012 revenues exceeded costs by $ 2,597. general and administrative expenses . general and administrative expenses increased by $ 369,179 , or 21 % , to $ 2,139,036 in the year ended december 31 , 2013 from $ 1,769,857 in the year ended december 31 , 2012. the increase was due primarily to higher stock compensation expense of $ 340,638 , personnel costs of $ 297,081 , severance costs of $ 97,369 , insurance costs of $ 45,378 and board fees of $ 37,500 partially offset by lower legal and professional fees of $ 512,026. professional fees in the year ended december 31 , 2012 included advisory warrants with a fair value of $ 670,947. research and development expenses . research and development expenses increased by $ 162,141 , or 15 % , to $ 1,212,298 in the year ended december 31 , 2013 from $ 1,050,157 in the year ended december 31 , 2012. the increase was due primarily to higher stock compensation expense of $ 118,881 and personnel costs of $ 83,022. sales and marketing expenses . sales and marketing expenses increased by $ 235,956 , or 107 % , to $ 457,292 in the year ended december 31 , 2013 from $ 221,336 in the year ended december 31 , 2012. the increase was due to higher personnel costs of $ 155,306 , contract sales representative fees of $

liquidity and capital resources we incurred losses of $ 14.7 million , $ 11.2 million , and $ 10.9 million for the years ended december 31 , 2018 , 2017 , and 2016 , respectively . at december 31 , 2018 , our accumulated deficit was $ 356.1 million . 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 founder 's warrants , net of treasury stock repurchases . the following table shows a summary of our cash flows for the years ended december 31 : replace_table_token_5_th equity financing on may 22 , 2015 , we entered into an at-the-market issuance sales agreement ( the “ atm agreement ” ) with mlv & co. llc ( mlv ) , pursuant to which we may sell common stock through mlv from time to time up to an aggregate offering price of $ 30.0 million . sales of our common stock through mlv , if any , will be made by any method that is deemed to be an “ at-the-market ” equity offering as defined in rule 415 promulgated under the securities act of 1933 , as amended , including sales made directly on nasdaq , on any other existing trading market for the common stock or to or through a market maker .

we were founded on may 17 , 2007. to date , our operations have been funded through the sale of our common stock and convertible debt , through u.s. department of energy grants and , to a lesser extent , through technology licensing revenue . our total revenue generated from inception to date as of december 31 , 2013 is $ 4,283,102 , with the majority of that revenue coming from government grants and engineering fees . we have successfully applied these revenues to research and product development , reducing our capital requirements . we will continue to pursue research and development grants , where available , for the purpose of performing the necessary research and development of our products . we can make no assurances that additional grants will be available in the future . 27 we have completed development and industry certification of our first two products , a 30kw pv inverter and a 30kw battery converter , both using the same universal power converter hardware design with different embedded software . we are currently developing our third product , which is a 30kw 3-port hybrid converter . these are products that we plan to use to promote long term licensing opportunities for the company . as a result , we believe the revenue from our early product sales is not the most important metric of our growing success . we believe the quality and the level of interest from prospective customers and potential licensees is the most important metric , although we can not provide any assurance that such prospective customers and potential licensees will materialize for us . we are currently focused on three vertical markets — pv inverters , distributed grid energy storage , and ev dc charging . the pv inverter market is the largest and most mature , but it is also in a hypercompetitive state with slow growth and an increasing number of suppliers . our initial pv inverter product was developed as the first implementation of ppsa in order to validate our technology . we continue to leverage the pv inverter market for valuable product refinement feedback , including feature and performance requirements as well as improving the quality and robustness of our product designs . we plan to integrate our proven pv inverter functionality with grid energy storage and or dc charging functionality to create high value hybrid and micro-grid systems . the distributed grid energy storage market is an evolving market . we believe that this market will grow quickly , but is currently limited by the lack of commercially available , certified solutions . we believe our battery converter is highly competitive in this market . we have achieved several design wins with customers that we believe can generate product sales and may be converted to licensing agreements longer term . most of our initial battery converter sales have been made to potential customers as they evaluate our converters for possible integration into their commercial grid energy storage market products . we believe our ability to negotiate attractive licensing terms would improve if high market demand is established for our products . we believe the ev dc charging market is an attractive market . our approach to this market offers features to reduce installation costs , operational costs , and create new value-added capabilities . similar to the distributed grid energy storage market , we are working with several customers to achieve design wins and help them integrate our product into their solutions . our initial focus is on the california ev dc charging market , and we believe we can establish design wins and ecosystem relationships in this space . we are also developing next generation products , including our 3-port hybrid converter , micro-grid converter , and new power switch components that we believe will further extend the differentiation and value of our products . we developed a new 3-port hardware design that will be used for both products , although we expect to make some incremental hardware design improvements based on initial hardware testing . our next step will be to develop enhanced embedded control software for these products . when that step is complete , we plan to sell sample products to early customers , and then make incremental hardware and software improvements based on feedback from them . after these improvements are implemented , we expect to work with intertek on industry certification , including ul1741 compliance . as discussed below , the development of new power switch components is being funded by the u.s. department of energy 's $ 2.5 million arpa-e grant . we believe the department of energy grant will be sufficient to prove this technology 's capability and build a prototype ppsa product with these switches . after the bi-directional power switch technology is proven , we plan to redesign our growing number of products to use these new components . plan of operation our strategy is to continue to commercialize our technology though the development of a variety of products and licensing . we have completed development of our first two products , we are developing additional products and , based on customer feedback from system installations , we will continue to improve our products . our goal is to have these products validate our technology and lay the foundation for licensing our technology platform into applications across the global power converter marketplace . story_separator_special_tag revenues for the year ended december 31 , 2013 of $ 1,892,424 were $ 765,517 , or 68 % , higher than the $ 1,126,907 we earned in revenues for the year ended december 31 , 2012. the increase in revenue was due to a $ 667,599 increase in grant revenues and a $ 97,918 increase in the sale of products and services . total grant revenues for the year ended december 31 , 2013 were $ 1,374,956 , including $ 1,229,036 from the arpa-e grant and $ 145,920 from a department of energy sbir grant , as compared to grant revenues for the year ended december 31 , 2012 of $ 707,357 , including $ 693,938 from the arpa-e grant and $ 13,419 from other grants . revenues related to the arpa-e grant increased because the project was fully underway for the full year ended december 31 , 2013. in the year ended december 31 , 2013 , revenue from the sale of our products was $ 417,468. in the year ended december 31 , 2012 , revenue from the sale of products and services was $ 319,550 , of which $ 265,650 was from the sale of our products and $ 53,900 was for engineering services . revenues from royalties from lockheed martin corporation for both years were $ 100,000. cost of revenues . as a result of the increase in grant research and development costs and the cost of sales of our products , cost of revenues increased for the year ended december 31 , 2013 , to $ 2,146,973 from $ 1,123,864 for the year ended december 31 , 2012 , which is an increase of $ 1,023,109 , or approximately 91 % . the increase in cost of revenues was due to a $ 720,844 increase in grant research and development costs and a $ 302,265 increase in cost of revenues for the sale of product and services . the increase in grant research and development costs arose from our increase in grant revenue primarily under our arpa-e grant and sbir grant . during the years ended december 31 , 2013 and 2012 , we recognized $ 1,229,036 and $ 693,938 , respectively , in grant revenue and $ 1,284,878 and $ 709,954 , respectively , in grant research and development costs from our arpa-e grant . we have a cost-sharing arrangement with arpa-e whereby we contribute ten percent of the total costs of the project ( less any costs that our subcontractors have agreed to share ) , which results in our costs exceeding our revenue . during the year ended december 31 , 2013 , we recognized $ 145,920 in grant revenues and $ 145,920 in grant research and development costs from our sbir grant . during the year ended december 31 , 2012 , we recognized $ 13,419 in grant revenues and $ 0 in grant research and development costs from our other grants . in the year ended december 31 , 2013 , cost of revenues from the sale of products was $ 716,175. in the year ended december 31 , 2012 , the cost of revenues from the sale of products and services was $ 413,910 of which $ 393,058 was for the sale of products and $ 20,852 related to engineering services . the increase in cost of revenues from the sale of products and services was due to higher unit sales and personnel costs . gross profit ( loss ) . gross profit ( loss ) for the years ended december 31 , 2013 and 2012 were $ ( 254,549 ) and $ 3,043 , respectively . gross profit ( loss ) for the year ended december 31 , 2013 was $ 257,592 lower than in the year ended december 31 , 2012 primarily due to increased engineering personnel costs in 32 2013 as we added resources to support our existing products . we recognized $ 166,504 in higher compensation costs within cost of revenues in the year ended december 31 , 2013 as compared to the year ended december 31 , 2012. in addition , net losses on our grants were $ 53,245 higher in the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 and we recognized gross profit of $ 0 and $ 33,048 , respectively , on contract services for lmc in the years ended december 31 , 2013 and 2012. in the year ended december 31 , 2013 , grant costs exceeded revenues by $ 55,842 while for the year ended december 31 , 2012 revenues exceeded costs by $ 2,597. general and administrative expenses . general and administrative expenses increased by $ 369,179 , or 21 % , to $ 2,139,036 in the year ended december 31 , 2013 from $ 1,769,857 in the year ended december 31 , 2012. the increase was due primarily to higher stock compensation expense of $ 340,638 , personnel costs of $ 297,081 , severance costs of $ 97,369 , insurance costs of $ 45,378 and board fees of $ 37,500 partially offset by lower legal and professional fees of $ 512,026. professional fees in the year ended december 31 , 2012 included advisory warrants with a fair value of $ 670,947. research and development expenses . research and development expenses increased by $ 162,141 , or 15 % , to $ 1,212,298 in the year ended december 31 , 2013 from $ 1,050,157 in the year ended december 31 , 2012. the increase was due primarily to higher stock compensation expense of $ 118,881 and personnel costs of $ 83,022. sales and marketing expenses . sales and marketing expenses increased by $ 235,956 , or 107 % , to $ 457,292 in the year ended december 31 , 2013 from $ 221,336 in the year ended december 31 , 2012. the increase was due to higher personnel costs of $ 155,306 , contract sales representative fees of $

liquidity and capital resources although our revenues have increased every year from the date of our inception , we do not generate enough revenue to sustain our operations . our revenues are derived from sales of our products and from grants we have received for the development of our technology . we have funded our operations through the sale of our common stock , including proceeds from our initial public offering , and preferred stock ( later converted to common stock ) and debt securities . as of december 31 , 2013 and 2012 , we had cash and cash equivalents of $ 14,137,097 and $ 1,972,301 , respectively . our net working capital increased from $ 528,603 as of december 31 , 2012 to $ 14,140,317 as of december 31 , 2013 due to the proceeds from our initial public offering . operating activities in the year ended december 31 , 2013 resulted in cash outflows of $ 3,240,792 , which were due primarily to the net loss for the period of $ 9,551,698 , offset by amortization of debt discount of $ 5,318,257 , stock-based compensation of $ 458,983 and other non-cash items of $ 527,871. operating activities in the year ended december 31 , 2012 resulted in cash outflows of $ 2,171,489 , which were due primarily to the net loss for the period of $ 4,647,219 , offset by amortization of debt discount of $ 1,472,904 , the fair value of warrants issued for consulting services of $670,947 and other non-cash items of $ 362,436 .

except as may be required by law , we do not undertake to update any forward-looking statements in this form 10-k. garmin 's fiscal year is a 52-53 week period ending on the last saturday of the calendar year . fiscal years 2020 , 2019 and 2018 contained 52 weeks . unless otherwise stated , all years and dates refer to the company 's fiscal year and fiscal periods . unless the context otherwise requires , references in this document to `` we , `` `` us , `` `` our `` and similar terms refer to garmin ltd. and its subsidiaries . unless otherwise indicated , dollar amounts set forth in the tables are in thousands , except per share data . overview we are a leading worldwide provider of navigation , communications and information devices , most of which are enabled by global positioning system , or gps , technology . garmin is organized in the six operating segments of auto oem , aviation , consumer auto , fitness , marine , and outdoor . the company 's chief executive officer , who has been identified as the chief operating decision maker ( codm ) , allocates resources and assesses performance of each operating segment individually . the aviation , fitness , marine , and outdoor operating segments represent reportable segments . the auto oem and consumer auto operating segments , which serve the auto market , do not meet the quantitative thresholds to separately qualify as reportable segments , and they are therefore reported together in an “ all other ” category captioned as auto . auto , aviation , fitness , marine , and outdoor are collectively referred to as our reported segments . the operating segments offer products through our network of subsidiary distributors and independent dealers and distributors , our own webshop , as well as through various auto , aviation , and marine oems . each of the operating segments is managed separately . the consumer auto operating segment was previously referred to as our auto pnd operating segment . we have revised the name of this operating segment to reflect the evolution of the product lines and focus of that part of our business . the name change did not impact the composition or operating results of the segment . since our first products were delivered in 1991 , we have generated positive income from consolidated operations each year and have funded our growth from these profits . 34 impacts of covid-19 the covid-19 pandemic has created disruption and uncertainty in the global economy and has affected our business , suppliers , and customers . our operating segments were not all impacted equally , as covid-19 had an unfavorable impact on net sales and profitability of the auto and aviation segments during fiscal year 2020. however , the diversity of our business and product offerings helped mitigate the impacts to our consolidated net sales and operating income . with pre-existing fundamentals such as trade credit insurance , direct online sales through our webshops , direct fulfillment arrangements with certain retailers , our strong cash and marketable securities position , market and product diversity , a vertically integrated business model , and ample inventory on hand , we were well-positioned to mitigate the initial impacts of covid-19 . while covid-19 continues to evolve into a complicated and prolonged global pandemic , we have implemented further mitigation measures , such as initiating additional direct fulfillment arrangements with retailers , mitigating single source supplier dependencies , enhancing cleaning and sanitation within our facilities to maintain a healthy and safe environment for essential on-site functions , boosting functionality and security of technology for employees who are working from home , and fostering the safe reintegration of our on-site workforce . these mitigation efforts complement our top priorities of ensuring the health and safety of our employees and continuing to serve our customers . additional benefits have been provided to many of our employees , including increased flexible work arrangements , remote work access , and flexible paid leave policies . we have also focused on mitigating impacts to operating income and liquidity by monitoring our expense structure and balance sheet , reducing and prioritizing certain discretionary operating expenses and capital expenditures , and slowing the number of new employees hired . sustained adverse impacts to us , our suppliers or our customers may affect the future valuation of certain assets and therefore may increase the likelihood of an impairment charge , write-off , write-down , reserve , or accelerated expense associated with such assets , including marketable securities , accounts receivable , inventories , prepaid expenses , property and equipment , tax assets , goodwill , indefinite and finite-lived intangible assets , capitalized preproduction design and development costs , and other assets . although we believe we have taken appropriate actions to help mitigate risks associated with covid-19 as described above , the duration and magnitude of covid-19 impacts to our business operations and financial results may be affected by a number of factors including uncertainty regarding the evolution of the pandemic , the imposition or relaxation of government restrictions on business and social gathering activities , voluntary behavior changes associated with public health guidance , the efficacy , distribution and uptake of vaccines , and those presented above in item 1a . risk factors of this annual report . critical accounting policies and estimates general our discussion and analysis of financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . story_separator_special_tag advertising expenses replace_table_token_7_th 40 advertising expense decreased 8 % in absolute dollars and decreased slightly as a percent of revenue in fiscal year 2020 compared to fiscal year 2019. the overall decrease in absolute dollars was primarily attributable to decreased media advertising in fitness and outdoor and decreased cooperative advertising in consumer auto . these decreases were partially offset by increased cooperative advertising expense in fitness , outdoor , and marine . advertising expenses in all operating segments decreased slightly as a percent of revenue compared to the prior year . selling , general and administrative expenses replace_table_token_8_th selling , general and administrative expense increased 10 % in absolute dollars and was relatively flat as a percent of revenue when compared to the prior year . the absolute dollar increase was primarily attributable to information technology costs and personnel related expenses . as noted above and in note 8 to the consolidated financial statements , the company refined its methodology to allocate certain selling , general and administrative expenses at the beginning of the 2019 fiscal year . the prior year amounts are presented here as originally reported . for comparative purposes , we estimate selling , general and administrative expenses for fiscal year 2018 would have been approximately $ 18 million more for aviation , approximately $ 11 million less for marine , approximately $ 7 million less for outdoor , and not significantly different for fitness and auto . research and development expense replace_table_token_9_th 41 research and development expense increased 17 % in absolute dollars when compared to the year-ago period and increased slightly as a percent of revenue . the absolute dollar increase was primarily due to engineering personnel costs across all of our operating segments and other expenses related to auto oem programs . the auto oem increase in absolute dollars and as a percent of revenue was primarily attributable to higher engineering personnel costs and other expenses related to investments in auto oem programs and a lower proportion of such costs being contractually reimbursable in fiscal year 2020. this trend of increasing auto oem research and development expense is expected to continue in 2021 as we expect higher total costs and the majority of costs will not be contractually reimbursable . operating income replace_table_token_10_th total operating income increased 11 % in absolute dollars and was relatively flat as a percent of revenue when compared to fiscal year 2019. the growth in total operating income on an absolute dollar basis was the result of revenue growth as discussed above . operating income , in absolute dollars and as a percent of revenue , decreased in aviation primarily due to a decline in sales compared to the year-ago period . auto oem experienced an operating loss in fiscal year 2020 , and we expect this trend of an operating loss to continue in 2021 , primarily due to a lower gross margin and increased expense associated with certain programs , as described above . other income ( expense ) replace_table_token_11_th the average returns on cash and investments , including interest and capital gain/loss returns during the 52-weeks ended december 26 , 2020 and december 28 , 2019 , were 1.4 % and 2.0 % , respectively . interest income decreased primarily due to lower yields on fixed-income securities . 42 foreign currency gains and losses for the company are typically driven by movements of a number of currencies in relation to the u.s. dollar . the taiwan dollar is the functional currency of garmin corporation , the euro is the functional currency of several subsidiaries , and the u.s. dollar is the functional currency of garmin ( europe ) ltd. , although some transactions and balances are denominated in british pounds . other notable currency exposures include the australian dollar , and chinese yuan . the majority of the company 's consolidated foreign currency gain or loss is typically driven by the significant cash and marketable securities , receivables and payables held in a currency other than the functional currency at a given legal entity . the $ 2.8 million currency gain recognized in fiscal 2020 was primarily due to the u.s. dollar weakening against the euro , australian dollar , chinese yuan , and british pound sterling , partially offset by the u.s. dollar weakening against the taiwan dollar . during fiscal 2020 , the u.s. dollar weakened 9.2 % against the euro , 9.4 % against the australian dollar , 7.2 % against the chinese yuan , and 3.6 % against the british pound sterling , resulting in gains of $ 21.1 million , $ 6.5 million , $ 2.9 million , and $ 2.6 million , respectively , while the u.s. dollar weakened 7.1 % against the taiwan dollar , resulting in a loss of $ 32.2 million . the remaining net currency gain of $ 1.9 million is related to the timing of transactions and impacts of other currencies , each of which was individually immaterial . the $ 16.8 million currency loss recognized in fiscal 2019 was primarily due to the u.s. dollar strengthening against the euro and weakening against the taiwan dollar , offset by the u.s. dollar weakening against the british pound sterling . during fiscal 2019 , the u.s. dollar strengthened 2.3 % against the euro and weakened 1.5 % against the taiwan dollar , resulting in losses of $ 9.3 million and $ 7.1 million , respectively , while the u.s. dollar weakened 2.9 % against the british pound sterling , resulting in a gain of $ 2.8 million . the remaining net currency loss of $ 3.2 million is related to the timing of transactions and impacts of other currencies , each of which was individually immaterial . income tax provision income tax expense for the fiscal year ended december 26 , 2020 was $ 111.1 million compared to income tax expense of $ 34.7 million for the fiscal year ended december 28 , 2019 , representing

liquidity and capital resources although our revenues have increased every year from the date of our inception , we do not generate enough revenue to sustain our operations . our revenues are derived from sales of our products and from grants we have received for the development of our technology . we have funded our operations through the sale of our common stock , including proceeds from our initial public offering , and preferred stock ( later converted to common stock ) and debt securities . as of december 31 , 2013 and 2012 , we had cash and cash equivalents of $ 14,137,097 and $ 1,972,301 , respectively . our net working capital increased from $ 528,603 as of december 31 , 2012 to $ 14,140,317 as of december 31 , 2013 due to the proceeds from our initial public offering . operating activities in the year ended december 31 , 2013 resulted in cash outflows of $ 3,240,792 , which were due primarily to the net loss for the period of $ 9,551,698 , offset by amortization of debt discount of $ 5,318,257 , stock-based compensation of $ 458,983 and other non-cash items of $ 527,871. operating activities in the year ended december 31 , 2012 resulted in cash outflows of $ 2,171,489 , which were due primarily to the net loss for the period of $ 4,647,219 , offset by amortization of debt discount of $ 1,472,904 , the fair value of warrants issued for consulting services of $670,947 and other non-cash items of $ 362,436 .

except as may be required by law , we do not undertake to update any forward-looking statements in this form 10-k. garmin 's fiscal year is a 52-53 week period ending on the last saturday of the calendar year . fiscal years 2020 , 2019 and 2018 contained 52 weeks . unless otherwise stated , all years and dates refer to the company 's fiscal year and fiscal periods . unless the context otherwise requires , references in this document to `` we , `` `` us , `` `` our `` and similar terms refer to garmin ltd. and its subsidiaries . unless otherwise indicated , dollar amounts set forth in the tables are in thousands , except per share data . overview we are a leading worldwide provider of navigation , communications and information devices , most of which are enabled by global positioning system , or gps , technology . garmin is organized in the six operating segments of auto oem , aviation , consumer auto , fitness , marine , and outdoor . the company 's chief executive officer , who has been identified as the chief operating decision maker ( codm ) , allocates resources and assesses performance of each operating segment individually . the aviation , fitness , marine , and outdoor operating segments represent reportable segments . the auto oem and consumer auto operating segments , which serve the auto market , do not meet the quantitative thresholds to separately qualify as reportable segments , and they are therefore reported together in an “ all other ” category captioned as auto . auto , aviation , fitness , marine , and outdoor are collectively referred to as our reported segments . the operating segments offer products through our network of subsidiary distributors and independent dealers and distributors , our own webshop , as well as through various auto , aviation , and marine oems . each of the operating segments is managed separately . the consumer auto operating segment was previously referred to as our auto pnd operating segment . we have revised the name of this operating segment to reflect the evolution of the product lines and focus of that part of our business . the name change did not impact the composition or operating results of the segment . since our first products were delivered in 1991 , we have generated positive income from consolidated operations each year and have funded our growth from these profits . 34 impacts of covid-19 the covid-19 pandemic has created disruption and uncertainty in the global economy and has affected our business , suppliers , and customers . our operating segments were not all impacted equally , as covid-19 had an unfavorable impact on net sales and profitability of the auto and aviation segments during fiscal year 2020. however , the diversity of our business and product offerings helped mitigate the impacts to our consolidated net sales and operating income . with pre-existing fundamentals such as trade credit insurance , direct online sales through our webshops , direct fulfillment arrangements with certain retailers , our strong cash and marketable securities position , market and product diversity , a vertically integrated business model , and ample inventory on hand , we were well-positioned to mitigate the initial impacts of covid-19 . while covid-19 continues to evolve into a complicated and prolonged global pandemic , we have implemented further mitigation measures , such as initiating additional direct fulfillment arrangements with retailers , mitigating single source supplier dependencies , enhancing cleaning and sanitation within our facilities to maintain a healthy and safe environment for essential on-site functions , boosting functionality and security of technology for employees who are working from home , and fostering the safe reintegration of our on-site workforce . these mitigation efforts complement our top priorities of ensuring the health and safety of our employees and continuing to serve our customers . additional benefits have been provided to many of our employees , including increased flexible work arrangements , remote work access , and flexible paid leave policies . we have also focused on mitigating impacts to operating income and liquidity by monitoring our expense structure and balance sheet , reducing and prioritizing certain discretionary operating expenses and capital expenditures , and slowing the number of new employees hired . sustained adverse impacts to us , our suppliers or our customers may affect the future valuation of certain assets and therefore may increase the likelihood of an impairment charge , write-off , write-down , reserve , or accelerated expense associated with such assets , including marketable securities , accounts receivable , inventories , prepaid expenses , property and equipment , tax assets , goodwill , indefinite and finite-lived intangible assets , capitalized preproduction design and development costs , and other assets . although we believe we have taken appropriate actions to help mitigate risks associated with covid-19 as described above , the duration and magnitude of covid-19 impacts to our business operations and financial results may be affected by a number of factors including uncertainty regarding the evolution of the pandemic , the imposition or relaxation of government restrictions on business and social gathering activities , voluntary behavior changes associated with public health guidance , the efficacy , distribution and uptake of vaccines , and those presented above in item 1a . risk factors of this annual report . critical accounting policies and estimates general our discussion and analysis of financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . story_separator_special_tag advertising expenses replace_table_token_7_th 40 advertising expense decreased 8 % in absolute dollars and decreased slightly as a percent of revenue in fiscal year 2020 compared to fiscal year 2019. the overall decrease in absolute dollars was primarily attributable to decreased media advertising in fitness and outdoor and decreased cooperative advertising in consumer auto . these decreases were partially offset by increased cooperative advertising expense in fitness , outdoor , and marine . advertising expenses in all operating segments decreased slightly as a percent of revenue compared to the prior year . selling , general and administrative expenses replace_table_token_8_th selling , general and administrative expense increased 10 % in absolute dollars and was relatively flat as a percent of revenue when compared to the prior year . the absolute dollar increase was primarily attributable to information technology costs and personnel related expenses . as noted above and in note 8 to the consolidated financial statements , the company refined its methodology to allocate certain selling , general and administrative expenses at the beginning of the 2019 fiscal year . the prior year amounts are presented here as originally reported . for comparative purposes , we estimate selling , general and administrative expenses for fiscal year 2018 would have been approximately $ 18 million more for aviation , approximately $ 11 million less for marine , approximately $ 7 million less for outdoor , and not significantly different for fitness and auto . research and development expense replace_table_token_9_th 41 research and development expense increased 17 % in absolute dollars when compared to the year-ago period and increased slightly as a percent of revenue . the absolute dollar increase was primarily due to engineering personnel costs across all of our operating segments and other expenses related to auto oem programs . the auto oem increase in absolute dollars and as a percent of revenue was primarily attributable to higher engineering personnel costs and other expenses related to investments in auto oem programs and a lower proportion of such costs being contractually reimbursable in fiscal year 2020. this trend of increasing auto oem research and development expense is expected to continue in 2021 as we expect higher total costs and the majority of costs will not be contractually reimbursable . operating income replace_table_token_10_th total operating income increased 11 % in absolute dollars and was relatively flat as a percent of revenue when compared to fiscal year 2019. the growth in total operating income on an absolute dollar basis was the result of revenue growth as discussed above . operating income , in absolute dollars and as a percent of revenue , decreased in aviation primarily due to a decline in sales compared to the year-ago period . auto oem experienced an operating loss in fiscal year 2020 , and we expect this trend of an operating loss to continue in 2021 , primarily due to a lower gross margin and increased expense associated with certain programs , as described above . other income ( expense ) replace_table_token_11_th the average returns on cash and investments , including interest and capital gain/loss returns during the 52-weeks ended december 26 , 2020 and december 28 , 2019 , were 1.4 % and 2.0 % , respectively . interest income decreased primarily due to lower yields on fixed-income securities . 42 foreign currency gains and losses for the company are typically driven by movements of a number of currencies in relation to the u.s. dollar . the taiwan dollar is the functional currency of garmin corporation , the euro is the functional currency of several subsidiaries , and the u.s. dollar is the functional currency of garmin ( europe ) ltd. , although some transactions and balances are denominated in british pounds . other notable currency exposures include the australian dollar , and chinese yuan . the majority of the company 's consolidated foreign currency gain or loss is typically driven by the significant cash and marketable securities , receivables and payables held in a currency other than the functional currency at a given legal entity . the $ 2.8 million currency gain recognized in fiscal 2020 was primarily due to the u.s. dollar weakening against the euro , australian dollar , chinese yuan , and british pound sterling , partially offset by the u.s. dollar weakening against the taiwan dollar . during fiscal 2020 , the u.s. dollar weakened 9.2 % against the euro , 9.4 % against the australian dollar , 7.2 % against the chinese yuan , and 3.6 % against the british pound sterling , resulting in gains of $ 21.1 million , $ 6.5 million , $ 2.9 million , and $ 2.6 million , respectively , while the u.s. dollar weakened 7.1 % against the taiwan dollar , resulting in a loss of $ 32.2 million . the remaining net currency gain of $ 1.9 million is related to the timing of transactions and impacts of other currencies , each of which was individually immaterial . the $ 16.8 million currency loss recognized in fiscal 2019 was primarily due to the u.s. dollar strengthening against the euro and weakening against the taiwan dollar , offset by the u.s. dollar weakening against the british pound sterling . during fiscal 2019 , the u.s. dollar strengthened 2.3 % against the euro and weakened 1.5 % against the taiwan dollar , resulting in losses of $ 9.3 million and $ 7.1 million , respectively , while the u.s. dollar weakened 2.9 % against the british pound sterling , resulting in a gain of $ 2.8 million . the remaining net currency loss of $ 3.2 million is related to the timing of transactions and impacts of other currencies , each of which was individually immaterial . income tax provision income tax expense for the fiscal year ended december 26 , 2020 was $ 111.1 million compared to income tax expense of $ 34.7 million for the fiscal year ended december 28 , 2019 , representing

liquidity and capital resources as of december 26 , 2020 , we had approximately $ 3.0 billion of cash , cash equivalents , and marketable securities . we primarily use cash flow from operations , and expect that future cash requirements may be used , to fund our capital expenditures , support our working capital requirements , pay dividends , and fund strategic acquisitions . we believe that our existing cash balances and cash flow from operations will be sufficient to meet our short- and long-term projected working capital needs , capital expenditures , and other cash requirements . it is management 's goal to invest the on-hand cash in accordance with the investment policy , which has been approved by the company 's board of directors . the investment policy 's primary purpose is to preserve capital , maintain an acceptable degree of liquidity , and maximize yield within the constraint of low credit risk . garmin 's average interest rate returns on cash and investments during fiscal 2020 , 2019 , and 2018 were approximately 1.4 % , 2.0 % and 1.9 % , respectively . the fair value of our securities varies from period to period due to changes in interest rates , in the performance of the underlying collateral , and in the credit performance of the underlying issuer , among other factors . see note 8 for additional information regarding marketable securities .

our portfolio consists of 15 properties contributed by the easterly funds and 14 properties contributed by western devcon in the formation transactions which occurred concurrently with the completion of our initial public offering on february 11 , 2015. financial information analyzed below reflects the audited predecessor financial statements as of december 31 , 2014 , included in the f pages of this annual report on form 10-k. we have not included for the 14 properties acquired from western devcon inc. in this discussion and analysis of our financial conditions and results of operations since they were not owned by our predecessor on december 31 , 2014 and are not reflected in the financial statements attached here to . our predecessor the term “our predecessor” refers to easterly partners , llc and its consolidated subsidiaries , including the easterly funds , which held 100 % of the fee interests in the entities that owned 15 of the properties , or the property-owning subsidiaries , that were contributed to us in the formation transactions , as well as the management entities . prior to our initial public offering the easterly funds used investment company accounting and , accordingly , account for their investments on a fair value basis , as reflected in the consolidated financial statements of our predecessor . going forward we will account for the properties owned by the easterly funds using historical cost accounting instead of investment company accounting . moving from investment company accounting to historical cost accounting will result in a significant change in the presentation of our consolidated financial statements following the formation transactions . our future financial condition and results of operations will differ significantly from , and will not be comparable with , the historical financial position and results of operations of our predecessor . formation transactions each of the properties in our portfolio was owned prior to the completion of our initial public offering by either the easterly funds or by western devcon . each of the easterly funds entered into a contribution agreement with us and our operating partnership pursuant to which they contributed their interests in their property-owning subsidiaries to our operating partnership . western devcon entered into a contribution agreement with us and our operating partnership pursuant to which it contributed its fee interest in 14 properties to our operating partnership . in addition , the owner of the management entities , which is in turn owned by darrell w. crate , our chairman , entered into a contribution agreement with us and our operating partnership pursuant to which it contributed all of the interests in the management entities to our operating partnership . the easterly funds , western devcon and the owner of the management entities received a combination of shares of common stock and common units in exchange for these contributions to our operating partnership . 42 results of operations—our predecessor comparison of results of operations for the years ended december 31 , 2014 and december 31 , 2013 the following table summarizes the consolidated historical results of operations of our predecessor for the years ended december 31 , 2014 and 2013. replace_table_token_6_th income from real estate investments income from real estate investments is attributable to distributions from real estate entities that are recorded as dividend income to the extent distributed from the estimated taxable earnings and profits of the underlying investment vehicle and as a return of capital to the extent not in excess of estimated taxable earnings and profits . income from real estate investments increased by $ 2.3 million , or 57.9 % , to $ 6.3 million for the year ended december 31 , 2014 from $ 4.0 million for the year ended december 31 , 2013. of the $ 2.3 million increase , $ 1.5 million was attributable to distributions from four properties that made their first distribution after december 31 , 2013 : dot—lakewood , fbi—omaha , fbi—little rock and pto—arlington . fund general and administrative fund general and administrative includes professional , organizational , insurance and other administration expenses incurred in connection with the formation and operations of the easterly funds and any related entities . fund general and administrative decreased by $ 0.5 million , or 37.0 % , to $ 0.8 million for the years ended december 31 , 2014 from $ 1.3 million for the year ended december 31 , 2013. this decrease was primarily attributable to a $ 0.5 million decrease in organizational expenses due to the organization of easterly fund ii in february 2013. no new funds or entities were organized subsequent to the formation of easterly fund ii . corporate general and administrative corporate general and administrative consists of employee compensation , professional fees and other administrative costs . corporate general and administrative increased by $ 4.8 million , or 113.0 % , to $ 9.1 million for the year ended december 31 , 2014 from $ 4.3 million for the year ended december 31 , 2013. this increase was primarily attributable to a $ 4.0 million increase in expenses related to this offering , a $ 1.5 million increase in compensation expense , which was primarily attributable to a $ 1.0 million increase in non-cash compensation expense as well as an increase in the number of employees an overall increase in compensation , as well as a $ 0.5 million increase in acquisition expenses associated with the acquisition of the 14 western devcon properties . this increase was partially offset by a $ 1.2 million decrease in marketing expense due to the renegotiation of a contract resulting in a credit received in 2014 from a marketing vendor . 43 net unrealized gain on investments net unrealized gain on investments consists of the net unrealized appreciation in the fair value of the easterly funds ' real estate investments . story_separator_special_tag for certain of our properties , expenses may vary with occupancy , while costs arising from our property investments , interest expense and general maintenance will not be materially reduced even if a property is not fully occupied . as a result , our future cash flow and results of operations may be adversely affected and losses could be incurred if revenues decrease in the future . cost of funds and interest rates we expect future changes in interest rates will impact our overall performance . in order to limit interest rate risk , we may enter into interest rate swap agreements or similar instruments , subject to maintaining our qualification as a reit for u.s. federal income tax purposes . although we may seek to cost-effectively manage our exposure to future rate increases through such means , a portion of our overall debt may at various times float at then current rates . development activities we intend to engage in development and redevelopment activities with respect to our properties , including build-to-suit new developments and redevelopments for existing u.s. government tenant agencies . these development activities may include some risks such as : the availability and timely receipt of zoning and other regulatory approvals ; development costs exceeding expectations ; cost overruns and untimely completion of construction ( including risks beyond our control , such as weather or labor conditions , or material shortages ) ; the inability to complete construction and leasing of a property on schedule , resulting in increased debt service expense and development and redevelopment costs ; and the availability and pricing of financing on favorable terms or at all . off-balance sheet arrangements we had no material off-balance sheet arrangements as of december 31 , 2014. inflation substantially all of our leases provide for operating expense escalations . we believe inflationary increases in expenses may be at least partially offset by the contractual expense escalations described above . we do not believe inflation has had a material impact on our historical financial position or results of operations . 51 critical accounting policies and significant estimates of our predecessor basis of accounting each of the easterly funds reflected in the consolidated financial statements of easterly partners , llc qualifies as an investment company pursuant to asc 946 and reflects its underlying investments at fair value . our predecessor 's historical consolidated financial statements reflect such specialized accounting for the easterly funds . thus , the easterly funds ' real estate fund investments are reflected at fair value on the consolidated statement of assets , liabilities and capital , with unrealized gains and losses resulting from changes in fair value reflected as a component of change in fair value of real estate fund investments in the consolidated statements of operations . upon the consummation of the initial public offering on february 11 , 2015 , the basis of presentation for the assets that will be contributed to us by the easterly funds will convert to historical cost accounting . our accounting basis for purposes of historical cost accounting will be equal to the fair value of the investments at the completion of the formation transactions . realized and unrealized gains , net our predecessor accounts for its private real estate fund investments at fair value ( which is predominantly based on the fair value of the underlying real estate ) . realized and net changes in unrealized gains and losses resulting from changes in fair value are reflected in the accompanying consolidated statements of operations as “realized and unrealized gains , net.” the fair value of the investments in real estate held by easterly funds is the amount that would be received to sell an asset , or paid to transfer a liability , in an orderly transaction between market participants at the measurement date . real estate fund investments for which observable market prices in active markets do not exist are reported at fair value , using a discounted cash flow analysis . the amounts determined to be fair value , predominantly based on the fair value of the underlying real estate , incorporate our predecessor 's own assumptions including appropriate risk adjustments , which involves a significant degree of judgment . the assumptions used in determining fair value of the underlying real estate include capitalization rates , discount rates , rental rates and interest and inflation rates , which are subject to change based on changes in economic and market conditions and or changes in use or timing of exit . further , the valuation models encompass a number of uncertainties . for example , a change in the fair value of the investments resulting from a change in the residual capitalization rate may be partially offset by a change in the discount rate . due to the absence of readily determinable fair values and the inherent uncertainty of valuations , the estimated fair values may differ significantly from values that would have been used had a ready market for the property existed , and the differences could be material . prospective critical accounting policies in light of the significant differences that will exist between our future basis of accounting ( historical cost accounting ) and our predecessor 's historical basis of accounting ( investment company accounting ) we believe that presenting the prospective accounting policies will be useful to investors in understanding our future accounting policies . the following policies are our critical accounting policies that will be applicable upon the formation transactions and application of historical cost accounting . real estate properties real estate properties comprise all tangible assets we hold for rent or the supply of services to tenants as a building owner and operator or for administrative purposes . real property is recognized at cost less accumulated depreciation . betterments , major renovations and certain costs directly related to the improvement of real properties are capitalized . maintenance and repair expenses are charged to expense as incurred . 52 depreciation

liquidity and capital resources as of december 26 , 2020 , we had approximately $ 3.0 billion of cash , cash equivalents , and marketable securities . we primarily use cash flow from operations , and expect that future cash requirements may be used , to fund our capital expenditures , support our working capital requirements , pay dividends , and fund strategic acquisitions . we believe that our existing cash balances and cash flow from operations will be sufficient to meet our short- and long-term projected working capital needs , capital expenditures , and other cash requirements . it is management 's goal to invest the on-hand cash in accordance with the investment policy , which has been approved by the company 's board of directors . the investment policy 's primary purpose is to preserve capital , maintain an acceptable degree of liquidity , and maximize yield within the constraint of low credit risk . garmin 's average interest rate returns on cash and investments during fiscal 2020 , 2019 , and 2018 were approximately 1.4 % , 2.0 % and 1.9 % , respectively . the fair value of our securities varies from period to period due to changes in interest rates , in the performance of the underlying collateral , and in the credit performance of the underlying issuer , among other factors . see note 8 for additional information regarding marketable securities .

our portfolio consists of 15 properties contributed by the easterly funds and 14 properties contributed by western devcon in the formation transactions which occurred concurrently with the completion of our initial public offering on february 11 , 2015. financial information analyzed below reflects the audited predecessor financial statements as of december 31 , 2014 , included in the f pages of this annual report on form 10-k. we have not included for the 14 properties acquired from western devcon inc. in this discussion and analysis of our financial conditions and results of operations since they were not owned by our predecessor on december 31 , 2014 and are not reflected in the financial statements attached here to . our predecessor the term “our predecessor” refers to easterly partners , llc and its consolidated subsidiaries , including the easterly funds , which held 100 % of the fee interests in the entities that owned 15 of the properties , or the property-owning subsidiaries , that were contributed to us in the formation transactions , as well as the management entities . prior to our initial public offering the easterly funds used investment company accounting and , accordingly , account for their investments on a fair value basis , as reflected in the consolidated financial statements of our predecessor . going forward we will account for the properties owned by the easterly funds using historical cost accounting instead of investment company accounting . moving from investment company accounting to historical cost accounting will result in a significant change in the presentation of our consolidated financial statements following the formation transactions . our future financial condition and results of operations will differ significantly from , and will not be comparable with , the historical financial position and results of operations of our predecessor . formation transactions each of the properties in our portfolio was owned prior to the completion of our initial public offering by either the easterly funds or by western devcon . each of the easterly funds entered into a contribution agreement with us and our operating partnership pursuant to which they contributed their interests in their property-owning subsidiaries to our operating partnership . western devcon entered into a contribution agreement with us and our operating partnership pursuant to which it contributed its fee interest in 14 properties to our operating partnership . in addition , the owner of the management entities , which is in turn owned by darrell w. crate , our chairman , entered into a contribution agreement with us and our operating partnership pursuant to which it contributed all of the interests in the management entities to our operating partnership . the easterly funds , western devcon and the owner of the management entities received a combination of shares of common stock and common units in exchange for these contributions to our operating partnership . 42 results of operations—our predecessor comparison of results of operations for the years ended december 31 , 2014 and december 31 , 2013 the following table summarizes the consolidated historical results of operations of our predecessor for the years ended december 31 , 2014 and 2013. replace_table_token_6_th income from real estate investments income from real estate investments is attributable to distributions from real estate entities that are recorded as dividend income to the extent distributed from the estimated taxable earnings and profits of the underlying investment vehicle and as a return of capital to the extent not in excess of estimated taxable earnings and profits . income from real estate investments increased by $ 2.3 million , or 57.9 % , to $ 6.3 million for the year ended december 31 , 2014 from $ 4.0 million for the year ended december 31 , 2013. of the $ 2.3 million increase , $ 1.5 million was attributable to distributions from four properties that made their first distribution after december 31 , 2013 : dot—lakewood , fbi—omaha , fbi—little rock and pto—arlington . fund general and administrative fund general and administrative includes professional , organizational , insurance and other administration expenses incurred in connection with the formation and operations of the easterly funds and any related entities . fund general and administrative decreased by $ 0.5 million , or 37.0 % , to $ 0.8 million for the years ended december 31 , 2014 from $ 1.3 million for the year ended december 31 , 2013. this decrease was primarily attributable to a $ 0.5 million decrease in organizational expenses due to the organization of easterly fund ii in february 2013. no new funds or entities were organized subsequent to the formation of easterly fund ii . corporate general and administrative corporate general and administrative consists of employee compensation , professional fees and other administrative costs . corporate general and administrative increased by $ 4.8 million , or 113.0 % , to $ 9.1 million for the year ended december 31 , 2014 from $ 4.3 million for the year ended december 31 , 2013. this increase was primarily attributable to a $ 4.0 million increase in expenses related to this offering , a $ 1.5 million increase in compensation expense , which was primarily attributable to a $ 1.0 million increase in non-cash compensation expense as well as an increase in the number of employees an overall increase in compensation , as well as a $ 0.5 million increase in acquisition expenses associated with the acquisition of the 14 western devcon properties . this increase was partially offset by a $ 1.2 million decrease in marketing expense due to the renegotiation of a contract resulting in a credit received in 2014 from a marketing vendor . 43 net unrealized gain on investments net unrealized gain on investments consists of the net unrealized appreciation in the fair value of the easterly funds ' real estate investments . story_separator_special_tag for certain of our properties , expenses may vary with occupancy , while costs arising from our property investments , interest expense and general maintenance will not be materially reduced even if a property is not fully occupied . as a result , our future cash flow and results of operations may be adversely affected and losses could be incurred if revenues decrease in the future . cost of funds and interest rates we expect future changes in interest rates will impact our overall performance . in order to limit interest rate risk , we may enter into interest rate swap agreements or similar instruments , subject to maintaining our qualification as a reit for u.s. federal income tax purposes . although we may seek to cost-effectively manage our exposure to future rate increases through such means , a portion of our overall debt may at various times float at then current rates . development activities we intend to engage in development and redevelopment activities with respect to our properties , including build-to-suit new developments and redevelopments for existing u.s. government tenant agencies . these development activities may include some risks such as : the availability and timely receipt of zoning and other regulatory approvals ; development costs exceeding expectations ; cost overruns and untimely completion of construction ( including risks beyond our control , such as weather or labor conditions , or material shortages ) ; the inability to complete construction and leasing of a property on schedule , resulting in increased debt service expense and development and redevelopment costs ; and the availability and pricing of financing on favorable terms or at all . off-balance sheet arrangements we had no material off-balance sheet arrangements as of december 31 , 2014. inflation substantially all of our leases provide for operating expense escalations . we believe inflationary increases in expenses may be at least partially offset by the contractual expense escalations described above . we do not believe inflation has had a material impact on our historical financial position or results of operations . 51 critical accounting policies and significant estimates of our predecessor basis of accounting each of the easterly funds reflected in the consolidated financial statements of easterly partners , llc qualifies as an investment company pursuant to asc 946 and reflects its underlying investments at fair value . our predecessor 's historical consolidated financial statements reflect such specialized accounting for the easterly funds . thus , the easterly funds ' real estate fund investments are reflected at fair value on the consolidated statement of assets , liabilities and capital , with unrealized gains and losses resulting from changes in fair value reflected as a component of change in fair value of real estate fund investments in the consolidated statements of operations . upon the consummation of the initial public offering on february 11 , 2015 , the basis of presentation for the assets that will be contributed to us by the easterly funds will convert to historical cost accounting . our accounting basis for purposes of historical cost accounting will be equal to the fair value of the investments at the completion of the formation transactions . realized and unrealized gains , net our predecessor accounts for its private real estate fund investments at fair value ( which is predominantly based on the fair value of the underlying real estate ) . realized and net changes in unrealized gains and losses resulting from changes in fair value are reflected in the accompanying consolidated statements of operations as “realized and unrealized gains , net.” the fair value of the investments in real estate held by easterly funds is the amount that would be received to sell an asset , or paid to transfer a liability , in an orderly transaction between market participants at the measurement date . real estate fund investments for which observable market prices in active markets do not exist are reported at fair value , using a discounted cash flow analysis . the amounts determined to be fair value , predominantly based on the fair value of the underlying real estate , incorporate our predecessor 's own assumptions including appropriate risk adjustments , which involves a significant degree of judgment . the assumptions used in determining fair value of the underlying real estate include capitalization rates , discount rates , rental rates and interest and inflation rates , which are subject to change based on changes in economic and market conditions and or changes in use or timing of exit . further , the valuation models encompass a number of uncertainties . for example , a change in the fair value of the investments resulting from a change in the residual capitalization rate may be partially offset by a change in the discount rate . due to the absence of readily determinable fair values and the inherent uncertainty of valuations , the estimated fair values may differ significantly from values that would have been used had a ready market for the property existed , and the differences could be material . prospective critical accounting policies in light of the significant differences that will exist between our future basis of accounting ( historical cost accounting ) and our predecessor 's historical basis of accounting ( investment company accounting ) we believe that presenting the prospective accounting policies will be useful to investors in understanding our future accounting policies . the following policies are our critical accounting policies that will be applicable upon the formation transactions and application of historical cost accounting . real estate properties real estate properties comprise all tangible assets we hold for rent or the supply of services to tenants as a building owner and operator or for administrative purposes . real property is recognized at cost less accumulated depreciation . betterments , major renovations and certain costs directly related to the improvement of real properties are capitalized . maintenance and repair expenses are charged to expense as incurred . 52 depreciation

liquidity and capital resources we anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months for all anticipated uses , including all scheduled principal and interest payments on our outstanding indebtedness , current and anticipated tenant improvements , stockholder distributions to maintain our qualification as a reit and other capital obligations associated with conducting our business . our primary expected sources and uses and capital are as follows : sources cash and cash equivalents ; operating cash flow ; available borrowings under our existing revolving credit facility ; secured loans collateralized by individual properties ; issuance of long-term debt ; issuance of equity ; and asset sales . uses short term : redevelopments ; tenant improvements allowances and leasing costs ; recurring maintenance capital expenditures ; debt repayment requirements ; corporate and administrative costs ; and distribution payments . long term : major redevelopment , renovation or expansion programs at individual properties ; development ; acquisitions ; and debt maturities . although we may be able to anticipate and plan for certain of our liquidity needs , unexpected increases in uses of cash that are beyond our control and which affect our financial condition and results of operations may arise , or our sources of liquidity may be fewer than , and the funds available from such sources may be less than , anticipated or required . initial public offering we completed our initial public offering on february 11 , 2015 , pursuant to which we registered and sold 13,800,000 shares of our common stock for an aggregate offering amount of $ 207,000,000. the net proceeds of our initial public offering were approximately $ 191.7 million after deducting underwriting discounts and 46 commissions of approximately $ 13.5 million and estimated offering expenses of approximately $ 1.8 million . citigroup global markets inc. , raymond james & associates , inc. and rbc capital markets , llc acted as joint book-running managers for our initial public offering and as representatives of the underwriters .

the increase in driver lease expense is the result of an increase in the average number of owner operators under contract from 48 during 2011 to 149 during 2012. the increase in costs in this category , as they relate to the increase in owner operators , are partially offset by a decrease in other expense categories , such as repairs and fuel , which are generally borne by the owner operator . partially offsetting the increase related to owner operator expenses was a decrease in expenses associated with employee workers ' compensation benefits . 21 fuel expense , net of fuel surcharge , decreased from 18.8 % of revenues , before fuel surcharges , during 2011 to 10.4 % of revenues , before fuel surcharges , during 2012. the decrease relates primarily to a decrease in the average surcharge-adjusted fuel price paid per gallon of diesel fuel and to an increase in the average miles-per-gallon ( “ mpg ” ) experienced . the average surcharge-adjusted fuel price paid per gallon of diesel fuel decreased from $ 1.43 during 2011 to $ 0.91 during 2012 as a result of more favorable fuel surcharge arrangements made with customers and to an increase in the number of owner operators in our fleet . fuel surcharge collections can fluctuate significantly from period to period as they are generally based on changes in fuel prices from period to period so that during periods of rising fuel prices fuel surcharge collections increase while fuel surcharge collections decrease during periods of falling fuel prices . fuel surcharge revenue generated from transportation services performed by owner operators is reflected as a reduction in net fuel expense , while fuel surcharges paid to owner operators for their services is reported along with their base rate of pay in the salaries , wages and benefits category . these categorizations have the effect of reducing our net fuel expense while increasing salaries , wages and benefits category , as discussed above . the average mpg experienced increased during 2012 as compared to the mpg experienced during 2011 as a result of replacing older trucks with newer trucks , which are more fuel efficient and to the implementation of driver bonus programs which are tied directly to fuel efficiency . rent and purchased transportation decreased from 1.6 % of revenues , before fuel surcharges , during 2011 to 0.3 % of revenues , before fuel surcharges , during 2012. the decrease relates primarily to a decrease in amounts paid for third-party equipment rentals and to third-party transportation service providers as well as a decrease in amounts reserved for excess mileage fees paid to certain equipment manufacturers upon the trade of older trucks for new trucks . depreciation and amortization increased from 12.8 % of revenues , before fuel surcharges , during 2011 to 14.0 % of revenues , before fuel surcharges , during 2012. the increase relates primarily to purchases of new trucks made during 2012 which replaced older trucks within the fleet . these new truck replacements have a significantly higher purchase price than those trucks that are being replaced and are also being depreciated over a shorter period of time as the company accelerates its truck replacement cycle from every five years to a replacement cycle of every three years . this reduction in replacement cycle , combined with a higher purchase price , results in higher depreciation expense over a shorter period of time . the decrease in the truck replacement cycle time is intended to reduce fuel costs , improve driver and customer satisfaction , and to reduce long-term maintenance costs as well as increase fleet efficiency by reducing maintenance down-time . operating supplies and expenses decreased from 14.5 % of revenues , before fuel surcharges , during 2011 to 14.3 % of revenues , before fuel surcharges , during 2012. the decrease relates primarily to a decrease in amounts paid for equipment maintenance costs during 2012 as compared to amounts paid during 2011 as a result of replacing older equipment with new equipment . partially offsetting this decrease was an increase in amounts paid for driver training schools during 2012 as compared to amounts paid during 2011. the increase in driver training and recruiting costs are a result of heightened competition for qualified drivers as industry demand has increased and increased regulations have forced some drivers to exit the profession . operating taxes and licenses decreased from 1.9 % of revenues , before fuel surcharges , during 2011 to 1.8 % of revenues , before fuel surcharges , during 2012. the decrease , as a percentage of revenue , resulted from the interaction of expenses with fixed-cost characteristics , such as registration fees , with an increase in revenues for the periods compared . on a dollar basis , operating taxes and licenses , which consists primarily of equipment registration fees , increased from $ 4.9 million during 2011 to $ 5.0 million during 2012. insurance and claims expense increased from 4.9 % of revenues , before fuel surcharges , during 2011 to 5.0 % of revenues , before fuel surcharges , during 2012. the increase relates primarily to an increase in auto liability and cargo related claims expenses incurred during 2012 as compared to 2011 . 22 other expenses decreased from 2.3 % of revenues , before fuel surcharges , during 2011 to 1.9 % of revenues , before fuel surcharges , during 2012. the decrease relates primarily to a decrease in amounts expensed for uncollectible revenue , professional services , and for other supplies and expenses . story_separator_special_tag current maturities of long-term debt and long-term debt , on an aggregate basis at december 31 , 2012 , increased approximately $ 45.9 million as compared to december 31 , 2011. the increase was related to additional borrowings received during 2012 net of the principal portion of scheduled installment note payments made during 2012. during 2012 , the company paid cash dividends of approximately $ 17.4 million and we currently intend to retain our future earnings to finance our growth and do not anticipate paying additional dividends in the foreseeable future . for 2013 , we expect to purchase 550 new trucks and 720 new trailers while continuing to sell or trade older equipment , which we expect to result in net capital expenditures of approximately $ 53.1 million . management believes we will be able to finance our near term needs for working capital over the next twelve months , as well as acquisitions of revenue equipment during such period , with cash balances , cash flows from operations , and borrowings believed to be available from financing sources . we will continue to have significant capital requirements over the long-term , which may require us to incur debt or seek additional equity capital . the availability of additional capital will depend upon prevailing market conditions , the market price of our common stock and several other factors over which we have limited control , as well as our financial condition and results of operations . nevertheless , based on our anticipated future cash flows and sources of financing that we expect will be available to us , we do not expect that we will experience any significant liquidity constraints in the foreseeable future . 29 contractual obligations and commercial commitments the following table sets forth the company 's contractual obligations and commercial commitments as of december 31 , 2012 : replace_table_token_8_th ( 1 ) including interest . ( 2 ) represents equipment , building , facilities , and drop yard operating leases . off-balance sheet arrangements during 2010 , the company entered into an operating lease for the lease of trailers . this lease included a requirement that we guarantee a portion of the residual value of the trailers at the end of the lease term up to a certain amount . as a result , we are subject to the risk that equipment values may decline below the amount of the guaranteed residual amount which would result in the company being required to make cash payments for a limited deficiency amount . at december 31 , 2012 , the maximum amount of the potential deficiency obligation equates to $ 197,000. we currently anticipate that the value of the trailers at the end of the lease will be sufficient to cover the guaranteed portion of the expected residual value of the trailers and that a cash payment will not be required . to the extent the expected value at the end of the lease becomes lower than the amount of the residual value guaranteed , we would begin accruing for the difference over the remaining lease term . the trailers held under operating leases are not carried on our balance sheet and respective lease payments are reflected in our consolidated statement of operations as a component of the caption “ rents and purchased transportation ” . rent expense related to the trailers under the operating lease agreements totaled $ 371,000 for the year ended december 31 , 2012. insurance with respect to physical damage for trucks , cargo loss and auto liability , the company maintains insurance coverage to protect it from certain business risks . these policies are with various carriers and have per occurrence deductibles of $ 2,500 , $ 10,000 and $ 2,500 respectively . the company maintains workers ' compensation coverage in arkansas , ohio , oklahoma , mississippi , and florida with a $ 500,000 self-insured retention and a $ 500,000 per occurrence excess policy . the company has elected to opt out of workers ' compensation coverage in texas and is providing coverage through the p.a.m. texas injury plan . the company has reserved for estimated losses to pay such claims as well as claims incurred but not yet reported . the company has not experienced any adverse trends involving differences in claims experienced versus claims estimates for workers ' compensation claims . letters of credit aggregating approximately $ 1,101,000 and certificates of deposit totaling $ 300,000 are held by banks as security for workers ' compensation claims . the company self insures for employee health claims with a stop loss of $ 275,000 per covered employee per year and estimates its liability for claims incurred but not reported . inflation inflation has an impact on most of our operating costs . over the past three years , the effect of inflation has been minimal . 30 adoption of accounting policies see “ item 8. financial statements and supplementary data , note 1 to the consolidated financial statements - recent accounting pronouncements . ” critical accounting policies the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america requires management to adopt accounting policies and make significant judgments and estimates that impact the amounts reported in our consolidated financial statements and accompanying notes . therefore , the reported amounts of assets , liabilities , revenue , expenses , and associated disclosures of contingent assets and liabilities are affected by judgments and estimates . in many cases , there are alternative assumptions , policies , or estimation techniques that could be used . management evaluates its assumptions , policies , and estimates on an ongoing basis , utilizing historical experience , and other methods considered reasonable in the particular circumstances . nevertheless , actual results may differ significantly from our estimates and assumptions , and it is possible that materially different amounts would be reported using differing estimates or assumptions . management considers our critical accounting

liquidity and capital resources we anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months for all anticipated uses , including all scheduled principal and interest payments on our outstanding indebtedness , current and anticipated tenant improvements , stockholder distributions to maintain our qualification as a reit and other capital obligations associated with conducting our business . our primary expected sources and uses and capital are as follows : sources cash and cash equivalents ; operating cash flow ; available borrowings under our existing revolving credit facility ; secured loans collateralized by individual properties ; issuance of long-term debt ; issuance of equity ; and asset sales . uses short term : redevelopments ; tenant improvements allowances and leasing costs ; recurring maintenance capital expenditures ; debt repayment requirements ; corporate and administrative costs ; and distribution payments . long term : major redevelopment , renovation or expansion programs at individual properties ; development ; acquisitions ; and debt maturities . although we may be able to anticipate and plan for certain of our liquidity needs , unexpected increases in uses of cash that are beyond our control and which affect our financial condition and results of operations may arise , or our sources of liquidity may be fewer than , and the funds available from such sources may be less than , anticipated or required . initial public offering we completed our initial public offering on february 11 , 2015 , pursuant to which we registered and sold 13,800,000 shares of our common stock for an aggregate offering amount of $ 207,000,000. the net proceeds of our initial public offering were approximately $ 191.7 million after deducting underwriting discounts and 46 commissions of approximately $ 13.5 million and estimated offering expenses of approximately $ 1.8 million . citigroup global markets inc. , raymond james & associates , inc. and rbc capital markets , llc acted as joint book-running managers for our initial public offering and as representatives of the underwriters .

the increase in driver lease expense is the result of an increase in the average number of owner operators under contract from 48 during 2011 to 149 during 2012. the increase in costs in this category , as they relate to the increase in owner operators , are partially offset by a decrease in other expense categories , such as repairs and fuel , which are generally borne by the owner operator . partially offsetting the increase related to owner operator expenses was a decrease in expenses associated with employee workers ' compensation benefits . 21 fuel expense , net of fuel surcharge , decreased from 18.8 % of revenues , before fuel surcharges , during 2011 to 10.4 % of revenues , before fuel surcharges , during 2012. the decrease relates primarily to a decrease in the average surcharge-adjusted fuel price paid per gallon of diesel fuel and to an increase in the average miles-per-gallon ( “ mpg ” ) experienced . the average surcharge-adjusted fuel price paid per gallon of diesel fuel decreased from $ 1.43 during 2011 to $ 0.91 during 2012 as a result of more favorable fuel surcharge arrangements made with customers and to an increase in the number of owner operators in our fleet . fuel surcharge collections can fluctuate significantly from period to period as they are generally based on changes in fuel prices from period to period so that during periods of rising fuel prices fuel surcharge collections increase while fuel surcharge collections decrease during periods of falling fuel prices . fuel surcharge revenue generated from transportation services performed by owner operators is reflected as a reduction in net fuel expense , while fuel surcharges paid to owner operators for their services is reported along with their base rate of pay in the salaries , wages and benefits category . these categorizations have the effect of reducing our net fuel expense while increasing salaries , wages and benefits category , as discussed above . the average mpg experienced increased during 2012 as compared to the mpg experienced during 2011 as a result of replacing older trucks with newer trucks , which are more fuel efficient and to the implementation of driver bonus programs which are tied directly to fuel efficiency . rent and purchased transportation decreased from 1.6 % of revenues , before fuel surcharges , during 2011 to 0.3 % of revenues , before fuel surcharges , during 2012. the decrease relates primarily to a decrease in amounts paid for third-party equipment rentals and to third-party transportation service providers as well as a decrease in amounts reserved for excess mileage fees paid to certain equipment manufacturers upon the trade of older trucks for new trucks . depreciation and amortization increased from 12.8 % of revenues , before fuel surcharges , during 2011 to 14.0 % of revenues , before fuel surcharges , during 2012. the increase relates primarily to purchases of new trucks made during 2012 which replaced older trucks within the fleet . these new truck replacements have a significantly higher purchase price than those trucks that are being replaced and are also being depreciated over a shorter period of time as the company accelerates its truck replacement cycle from every five years to a replacement cycle of every three years . this reduction in replacement cycle , combined with a higher purchase price , results in higher depreciation expense over a shorter period of time . the decrease in the truck replacement cycle time is intended to reduce fuel costs , improve driver and customer satisfaction , and to reduce long-term maintenance costs as well as increase fleet efficiency by reducing maintenance down-time . operating supplies and expenses decreased from 14.5 % of revenues , before fuel surcharges , during 2011 to 14.3 % of revenues , before fuel surcharges , during 2012. the decrease relates primarily to a decrease in amounts paid for equipment maintenance costs during 2012 as compared to amounts paid during 2011 as a result of replacing older equipment with new equipment . partially offsetting this decrease was an increase in amounts paid for driver training schools during 2012 as compared to amounts paid during 2011. the increase in driver training and recruiting costs are a result of heightened competition for qualified drivers as industry demand has increased and increased regulations have forced some drivers to exit the profession . operating taxes and licenses decreased from 1.9 % of revenues , before fuel surcharges , during 2011 to 1.8 % of revenues , before fuel surcharges , during 2012. the decrease , as a percentage of revenue , resulted from the interaction of expenses with fixed-cost characteristics , such as registration fees , with an increase in revenues for the periods compared . on a dollar basis , operating taxes and licenses , which consists primarily of equipment registration fees , increased from $ 4.9 million during 2011 to $ 5.0 million during 2012. insurance and claims expense increased from 4.9 % of revenues , before fuel surcharges , during 2011 to 5.0 % of revenues , before fuel surcharges , during 2012. the increase relates primarily to an increase in auto liability and cargo related claims expenses incurred during 2012 as compared to 2011 . 22 other expenses decreased from 2.3 % of revenues , before fuel surcharges , during 2011 to 1.9 % of revenues , before fuel surcharges , during 2012. the decrease relates primarily to a decrease in amounts expensed for uncollectible revenue , professional services , and for other supplies and expenses . story_separator_special_tag current maturities of long-term debt and long-term debt , on an aggregate basis at december 31 , 2012 , increased approximately $ 45.9 million as compared to december 31 , 2011. the increase was related to additional borrowings received during 2012 net of the principal portion of scheduled installment note payments made during 2012. during 2012 , the company paid cash dividends of approximately $ 17.4 million and we currently intend to retain our future earnings to finance our growth and do not anticipate paying additional dividends in the foreseeable future . for 2013 , we expect to purchase 550 new trucks and 720 new trailers while continuing to sell or trade older equipment , which we expect to result in net capital expenditures of approximately $ 53.1 million . management believes we will be able to finance our near term needs for working capital over the next twelve months , as well as acquisitions of revenue equipment during such period , with cash balances , cash flows from operations , and borrowings believed to be available from financing sources . we will continue to have significant capital requirements over the long-term , which may require us to incur debt or seek additional equity capital . the availability of additional capital will depend upon prevailing market conditions , the market price of our common stock and several other factors over which we have limited control , as well as our financial condition and results of operations . nevertheless , based on our anticipated future cash flows and sources of financing that we expect will be available to us , we do not expect that we will experience any significant liquidity constraints in the foreseeable future . 29 contractual obligations and commercial commitments the following table sets forth the company 's contractual obligations and commercial commitments as of december 31 , 2012 : replace_table_token_8_th ( 1 ) including interest . ( 2 ) represents equipment , building , facilities , and drop yard operating leases . off-balance sheet arrangements during 2010 , the company entered into an operating lease for the lease of trailers . this lease included a requirement that we guarantee a portion of the residual value of the trailers at the end of the lease term up to a certain amount . as a result , we are subject to the risk that equipment values may decline below the amount of the guaranteed residual amount which would result in the company being required to make cash payments for a limited deficiency amount . at december 31 , 2012 , the maximum amount of the potential deficiency obligation equates to $ 197,000. we currently anticipate that the value of the trailers at the end of the lease will be sufficient to cover the guaranteed portion of the expected residual value of the trailers and that a cash payment will not be required . to the extent the expected value at the end of the lease becomes lower than the amount of the residual value guaranteed , we would begin accruing for the difference over the remaining lease term . the trailers held under operating leases are not carried on our balance sheet and respective lease payments are reflected in our consolidated statement of operations as a component of the caption “ rents and purchased transportation ” . rent expense related to the trailers under the operating lease agreements totaled $ 371,000 for the year ended december 31 , 2012. insurance with respect to physical damage for trucks , cargo loss and auto liability , the company maintains insurance coverage to protect it from certain business risks . these policies are with various carriers and have per occurrence deductibles of $ 2,500 , $ 10,000 and $ 2,500 respectively . the company maintains workers ' compensation coverage in arkansas , ohio , oklahoma , mississippi , and florida with a $ 500,000 self-insured retention and a $ 500,000 per occurrence excess policy . the company has elected to opt out of workers ' compensation coverage in texas and is providing coverage through the p.a.m. texas injury plan . the company has reserved for estimated losses to pay such claims as well as claims incurred but not yet reported . the company has not experienced any adverse trends involving differences in claims experienced versus claims estimates for workers ' compensation claims . letters of credit aggregating approximately $ 1,101,000 and certificates of deposit totaling $ 300,000 are held by banks as security for workers ' compensation claims . the company self insures for employee health claims with a stop loss of $ 275,000 per covered employee per year and estimates its liability for claims incurred but not reported . inflation inflation has an impact on most of our operating costs . over the past three years , the effect of inflation has been minimal . 30 adoption of accounting policies see “ item 8. financial statements and supplementary data , note 1 to the consolidated financial statements - recent accounting pronouncements . ” critical accounting policies the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america requires management to adopt accounting policies and make significant judgments and estimates that impact the amounts reported in our consolidated financial statements and accompanying notes . therefore , the reported amounts of assets , liabilities , revenue , expenses , and associated disclosures of contingent assets and liabilities are affected by judgments and estimates . in many cases , there are alternative assumptions , policies , or estimation techniques that could be used . management evaluates its assumptions , policies , and estimates on an ongoing basis , utilizing historical experience , and other methods considered reasonable in the particular circumstances . nevertheless , actual results may differ significantly from our estimates and assumptions , and it is possible that materially different amounts would be reported using differing estimates or assumptions . management considers our critical accounting

liquidity and capital resources our business has required , and will continue to require , a significant investment in new revenue equipment . our primary sources of liquidity have been funds provided by operations , proceeds from the sales of revenue equipment , issuances of equity securities , and borrowings under our lines of credit , installment notes , and investment margin account . during 2012 , we generated $ 33.6 million in cash from operating activities compared to $ 34.9 million and $ 15.0 million in 2011 and 2010 , respectively . investing activities used $ 72.6 million in cash during 2012 compared to $ 61.4 million and $ 14.2 million in 2011 and 2010 , respectively . the cash used for investing activities in all three years related primarily to the purchase of revenue equipment such as trucks and trailers or related equipment such as auxiliary power units . financing activities provided $ 39.3 million in cash during 2012 compared to $ 12.9 million and $ 3.1 million in cash provided during 2011 and 2010 , respectively . see the consolidated statements of cash flows in item 8 of this report . our primary use of funds is for the purchase of revenue equipment . we typically use installment notes , our existing lines of credit on an interim basis , proceeds from the sale or trade of equipment , and cash flows from operations , to finance capital expenditures and repay long-term debt . during 2012 and 2011 , we utilized cash on hand , installment notes , and our lines of credit to finance revenue equipment purchases of approximately $ 95.1 million and $ 67.6 million , respectively . occasionally we finance the acquisition of revenue equipment through installment notes with fixed interest rates and terms ranging from 12 to 60 months . at december 31 , 2012 , the company 's subsidiaries had combined outstanding indebtedness under such installment notes of $ 102.1 million . these installment notes are payable in monthly installments , ranging from 36 monthly installments to 60 monthly installments , at a weighted average interest rate of 3.02 % .

revenues from the iads segment were $ 1.2 million for the year ended december 31 , 2012. there were no revenues from the iads segment for the year ended december 31 , 2011. the $ 11.4 million increase in the content services segment is principally attributable to higher revenues from e-book related services that we performed for one of our significant clients . we experienced sequential declines in revenue from this client in the last three quarters of 2012. our top two clients generated $ 35 million or 41 % and $ 22.2 million or 30 % of our total revenues in the fiscal years ended december 31 , 2012 and 2011 , respectively . another client accounted for less than 10 % of our total revenues for the year ended december 31 , 2012 , but for 14 % of our total revenues for the year ended december 31 , 2011. no other client accounted for 10 % or more of revenues during these periods . further , in the years ended december 31 , 2012 and 2011 , revenues from non-u.s. clients accounted for 24 % and 30 % , respectively , of our total revenues . direct operating costs direct operating costs were approximately $ 57.4 million and $ 50.2 million for years ended december 31 , 2012 and 2011 , respectively , an increase of $ 7.2 million or approximately 14 % . direct operating costs for the content services segment were $ 53.3 million and $ 49.6 million for the years ended december 31 , 2012 and 2011 , respectively , an increase of $ 3.7 million or approximately 7 % . direct operating costs for the iads segment were approximately $ 4.1 million and $ 0.6 million for the respective periods , net of intersegment profits . 25 the increase in direct operating costs for the content services segment was principally attributable to an increase in production headcount and other operating costs in support of increased revenues . the increase in direct operating costs was partially offset by a decrease in direct labor costs achieved primarily from productivity gains . the productivity gains were principally the result of increased efficiency , improvements in our processes and innovation in our technology . the increase in direct operating costs for the iads segment represents production costs for initial engagements , increase in production labor costs to perform pilot engagements and facility overhead costs for our new delivery center in asia . direct operating costs as a percentage of total revenues declined to 66 % for the year ended december 31 , 2012 compared to 68 % for the year ended december 31 , 2011. direct operating costs for the content services segment as a percentage of content services segment revenues were approximately 62 % for the year ended december 31 , 2012 , compared to 67 % for the year ended december 31 , 2011. selling and administrative expenses selling and administrative expenses were $ 22.2 million and $ 19.1 million for the years ended december 31 , 2012 and 2011 , respectively , an increase of $ 3.1 million , or approximately 16 % . selling and administrative costs for the content services segment were $ 19.3 million and $ 17.5 million in these respective periods . selling and administrative expenses for the iads segment for the respective periods were $ 2.9 million and $ 1.6 million , net of intersegment profits . the increase in selling and administrative expenses for the content services segment for the year ended december 31 , 2012 is principally attributable to compensation costs of new hires , wage increases and an increase in other miscellaneous administrative costs . during the year ended december 31 , 2011 , we recorded approximately $ 0.5 million from the recovery of bad debts from a previously fully reserved account receivable . selling and administrative expenses for the content services segment , as a percentage of content services segment revenues , declined to 23 % for the year ended december 31 , 2012 , from 24 % for the year ended 2011 , and this was primarily as a result of higher revenues . the $ 1.3 million increase in selling and administrative expenses for the iads segment is primarily attributable to compensation costs of new personnel hired for sales and marketing and increases in other administrative costs . impairment charge docgenix provided services to three clients in 2012 and we expect to continue to provide services to some of these clients in 2013. the existing docgenix product and service offering did not gain traction in the market place beyond its initial clients . in order to reach a broader market we will need to revise our approach from that represented by the existing product and service . as a result in the fourth quarter of 2012 , we evaluated the carrying value of the fixed assets of our docgenix subsidiary compared to its fair value and concluded that the carrying value exceeds its fair value . this resulted in an impairment charge of $ 0.5 million . restructuring costs in the second half of 2012 , we restructured our operations , and recorded a one-time charge of approximately $ 0.2 million ( $ 0.1 million in direct operating costs and $ 0.1 million in selling , general and administrative costs ) representing severance and other personnel-related expenses . we expect cost savings of approximately $ 3.0 million per year from this restructuring activity . 26 income taxes for the year ended december 31 , 2012 , our u.s. entity recorded a benefit from income tax on account of losses incurred by our u.s. entity . with respect to our foreign subsidiaries , we recorded a provision for income taxes in accordance with the local tax regulations . story_separator_special_tag at present , we do not enter into any hedging instruments to mitigate foreign exchange risk on such assets , however , we may do so in the future . future liquidity and capital resource requirements we have a $ 15.0 million line of credit pursuant to which we may borrow up to 80 % of eligible accounts receivable . borrowings under the credit line bear interest at the bank 's alternate base rate plus 0.5 % or libor plus 2.5 % . the line , which expires in june 2013 , is collateralized by our accounts receivable . we have no outstanding obligations under this credit line as of december 31 , 2012. we believe that our existing cash and cash equivalents , short-term and long-term investments , funds generated from our operating activities and funds available under our credit facility will provide sufficient sources of liquidity to satisfy our financial needs for the next twelve months . however , if circumstances change , we may need to raise debt or additional equity capital in the future . we have historically funded our foreign expenditures from our u.s. corporate headquarters on an as-needed basis . in the second quarter of 2012 , we filed a shelf registration statement on form s-3 , which will give us the ability to offer from time to time up to an aggregate of $ 70 million of securities , which may consist of common stock , preferred stock , debt securities , warrants , or units consisting of any of the foregoing . the registration is intended to give us flexibility should financing opportunities arise . contractual obligations the table below summarizes our contractual obligations ( in thousands ) at december 31 , 2012 , and the effect that those obligations are expected to have on our liquidity and cash flows in future periods . 32 replace_table_token_6_th future expected obligations under our pension benefit plans have not been included in the contractual cash obligations table above . inflation , seasonality and prevailing economic conditions our most significant costs are the salaries and related benefits of our employees in asia . we are exposed to higher inflation in wage rates in the countries in which we operate . we generally perform work for our clients under project-specific contracts , requirements-based contracts or long-term contracts . we must adequately anticipate wage increases , particularly on our fixed-price contracts . there can be no assurance that we will be able to recover cost increases through increases in the prices that we charge for our services to our clients . our quarterly operating results are subject to certain fluctuations . we experience fluctuations in our revenue and earnings as we replace and begin new projects , which may have some normal start-up delays , or we may be unable to replace a project entirely . these and other factors may contribute to fluctuations in our operating results from quarter to quarter . in addition , as some of our asian facilities are closed during holidays in the fourth quarter , we typically incur higher wages , due to overtime , that reduce our margins . critical accounting policies and estimates basis of presentation and use of estimates our discussion and analysis of our results of operations , liquidity and capital resources are based on our consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and disclosures of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition , allowance for doubtful accounts and billing adjustments , long-lived assets , goodwill , valuation of deferred tax assets , value of securities underlying stock-based compensation , litigation accruals , pension benefits , valuation of derivative instruments and estimated accruals for various tax exposures . we base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances , including assumptions as to future events . these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . by their nature , estimates are subject to an inherent degree of uncertainty . actual results may differ from our estimates and could have a significant adverse effect on our consolidated results of operations and financial position . we believe the following critical accounting policies affect our more significant estimates and judgments in the preparation of our consolidated financial statements . 33 allowance for doubtful accounts we establish credit terms for new clients based upon management 's review of their credit information and project terms , and perform ongoing credit evaluations of our clients , adjusting credit terms when management believes appropriate , based upon payment history and an assessment of their current credit worthiness . we record an allowance for doubtful accounts for estimated losses resulting from the inability of our clients to make required payments . we determine this allowance by considering a number of factors , including the length of time trade accounts receivable are past due , our previous loss history , our estimate of the client 's current ability to pay its obligation to us , and the condition of the general economy and the industry as a whole . while credit losses have generally been within expectations and the provisions established , we can not guarantee that credit loss rates in the future will be consistent with those experienced in the past . in addition , we would have credit exposure if the financial condition of one of our major clients were to deteriorate . in the event that the financial condition of our clients were to deteriorate ,

liquidity and capital resources our business has required , and will continue to require , a significant investment in new revenue equipment . our primary sources of liquidity have been funds provided by operations , proceeds from the sales of revenue equipment , issuances of equity securities , and borrowings under our lines of credit , installment notes , and investment margin account . during 2012 , we generated $ 33.6 million in cash from operating activities compared to $ 34.9 million and $ 15.0 million in 2011 and 2010 , respectively . investing activities used $ 72.6 million in cash during 2012 compared to $ 61.4 million and $ 14.2 million in 2011 and 2010 , respectively . the cash used for investing activities in all three years related primarily to the purchase of revenue equipment such as trucks and trailers or related equipment such as auxiliary power units . financing activities provided $ 39.3 million in cash during 2012 compared to $ 12.9 million and $ 3.1 million in cash provided during 2011 and 2010 , respectively . see the consolidated statements of cash flows in item 8 of this report . our primary use of funds is for the purchase of revenue equipment . we typically use installment notes , our existing lines of credit on an interim basis , proceeds from the sale or trade of equipment , and cash flows from operations , to finance capital expenditures and repay long-term debt . during 2012 and 2011 , we utilized cash on hand , installment notes , and our lines of credit to finance revenue equipment purchases of approximately $ 95.1 million and $ 67.6 million , respectively . occasionally we finance the acquisition of revenue equipment through installment notes with fixed interest rates and terms ranging from 12 to 60 months . at december 31 , 2012 , the company 's subsidiaries had combined outstanding indebtedness under such installment notes of $ 102.1 million . these installment notes are payable in monthly installments , ranging from 36 monthly installments to 60 monthly installments , at a weighted average interest rate of 3.02 % .

revenues from the iads segment were $ 1.2 million for the year ended december 31 , 2012. there were no revenues from the iads segment for the year ended december 31 , 2011. the $ 11.4 million increase in the content services segment is principally attributable to higher revenues from e-book related services that we performed for one of our significant clients . we experienced sequential declines in revenue from this client in the last three quarters of 2012. our top two clients generated $ 35 million or 41 % and $ 22.2 million or 30 % of our total revenues in the fiscal years ended december 31 , 2012 and 2011 , respectively . another client accounted for less than 10 % of our total revenues for the year ended december 31 , 2012 , but for 14 % of our total revenues for the year ended december 31 , 2011. no other client accounted for 10 % or more of revenues during these periods . further , in the years ended december 31 , 2012 and 2011 , revenues from non-u.s. clients accounted for 24 % and 30 % , respectively , of our total revenues . direct operating costs direct operating costs were approximately $ 57.4 million and $ 50.2 million for years ended december 31 , 2012 and 2011 , respectively , an increase of $ 7.2 million or approximately 14 % . direct operating costs for the content services segment were $ 53.3 million and $ 49.6 million for the years ended december 31 , 2012 and 2011 , respectively , an increase of $ 3.7 million or approximately 7 % . direct operating costs for the iads segment were approximately $ 4.1 million and $ 0.6 million for the respective periods , net of intersegment profits . 25 the increase in direct operating costs for the content services segment was principally attributable to an increase in production headcount and other operating costs in support of increased revenues . the increase in direct operating costs was partially offset by a decrease in direct labor costs achieved primarily from productivity gains . the productivity gains were principally the result of increased efficiency , improvements in our processes and innovation in our technology . the increase in direct operating costs for the iads segment represents production costs for initial engagements , increase in production labor costs to perform pilot engagements and facility overhead costs for our new delivery center in asia . direct operating costs as a percentage of total revenues declined to 66 % for the year ended december 31 , 2012 compared to 68 % for the year ended december 31 , 2011. direct operating costs for the content services segment as a percentage of content services segment revenues were approximately 62 % for the year ended december 31 , 2012 , compared to 67 % for the year ended december 31 , 2011. selling and administrative expenses selling and administrative expenses were $ 22.2 million and $ 19.1 million for the years ended december 31 , 2012 and 2011 , respectively , an increase of $ 3.1 million , or approximately 16 % . selling and administrative costs for the content services segment were $ 19.3 million and $ 17.5 million in these respective periods . selling and administrative expenses for the iads segment for the respective periods were $ 2.9 million and $ 1.6 million , net of intersegment profits . the increase in selling and administrative expenses for the content services segment for the year ended december 31 , 2012 is principally attributable to compensation costs of new hires , wage increases and an increase in other miscellaneous administrative costs . during the year ended december 31 , 2011 , we recorded approximately $ 0.5 million from the recovery of bad debts from a previously fully reserved account receivable . selling and administrative expenses for the content services segment , as a percentage of content services segment revenues , declined to 23 % for the year ended december 31 , 2012 , from 24 % for the year ended 2011 , and this was primarily as a result of higher revenues . the $ 1.3 million increase in selling and administrative expenses for the iads segment is primarily attributable to compensation costs of new personnel hired for sales and marketing and increases in other administrative costs . impairment charge docgenix provided services to three clients in 2012 and we expect to continue to provide services to some of these clients in 2013. the existing docgenix product and service offering did not gain traction in the market place beyond its initial clients . in order to reach a broader market we will need to revise our approach from that represented by the existing product and service . as a result in the fourth quarter of 2012 , we evaluated the carrying value of the fixed assets of our docgenix subsidiary compared to its fair value and concluded that the carrying value exceeds its fair value . this resulted in an impairment charge of $ 0.5 million . restructuring costs in the second half of 2012 , we restructured our operations , and recorded a one-time charge of approximately $ 0.2 million ( $ 0.1 million in direct operating costs and $ 0.1 million in selling , general and administrative costs ) representing severance and other personnel-related expenses . we expect cost savings of approximately $ 3.0 million per year from this restructuring activity . 26 income taxes for the year ended december 31 , 2012 , our u.s. entity recorded a benefit from income tax on account of losses incurred by our u.s. entity . with respect to our foreign subsidiaries , we recorded a provision for income taxes in accordance with the local tax regulations . story_separator_special_tag at present , we do not enter into any hedging instruments to mitigate foreign exchange risk on such assets , however , we may do so in the future . future liquidity and capital resource requirements we have a $ 15.0 million line of credit pursuant to which we may borrow up to 80 % of eligible accounts receivable . borrowings under the credit line bear interest at the bank 's alternate base rate plus 0.5 % or libor plus 2.5 % . the line , which expires in june 2013 , is collateralized by our accounts receivable . we have no outstanding obligations under this credit line as of december 31 , 2012. we believe that our existing cash and cash equivalents , short-term and long-term investments , funds generated from our operating activities and funds available under our credit facility will provide sufficient sources of liquidity to satisfy our financial needs for the next twelve months . however , if circumstances change , we may need to raise debt or additional equity capital in the future . we have historically funded our foreign expenditures from our u.s. corporate headquarters on an as-needed basis . in the second quarter of 2012 , we filed a shelf registration statement on form s-3 , which will give us the ability to offer from time to time up to an aggregate of $ 70 million of securities , which may consist of common stock , preferred stock , debt securities , warrants , or units consisting of any of the foregoing . the registration is intended to give us flexibility should financing opportunities arise . contractual obligations the table below summarizes our contractual obligations ( in thousands ) at december 31 , 2012 , and the effect that those obligations are expected to have on our liquidity and cash flows in future periods . 32 replace_table_token_6_th future expected obligations under our pension benefit plans have not been included in the contractual cash obligations table above . inflation , seasonality and prevailing economic conditions our most significant costs are the salaries and related benefits of our employees in asia . we are exposed to higher inflation in wage rates in the countries in which we operate . we generally perform work for our clients under project-specific contracts , requirements-based contracts or long-term contracts . we must adequately anticipate wage increases , particularly on our fixed-price contracts . there can be no assurance that we will be able to recover cost increases through increases in the prices that we charge for our services to our clients . our quarterly operating results are subject to certain fluctuations . we experience fluctuations in our revenue and earnings as we replace and begin new projects , which may have some normal start-up delays , or we may be unable to replace a project entirely . these and other factors may contribute to fluctuations in our operating results from quarter to quarter . in addition , as some of our asian facilities are closed during holidays in the fourth quarter , we typically incur higher wages , due to overtime , that reduce our margins . critical accounting policies and estimates basis of presentation and use of estimates our discussion and analysis of our results of operations , liquidity and capital resources are based on our consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and disclosures of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition , allowance for doubtful accounts and billing adjustments , long-lived assets , goodwill , valuation of deferred tax assets , value of securities underlying stock-based compensation , litigation accruals , pension benefits , valuation of derivative instruments and estimated accruals for various tax exposures . we base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances , including assumptions as to future events . these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . by their nature , estimates are subject to an inherent degree of uncertainty . actual results may differ from our estimates and could have a significant adverse effect on our consolidated results of operations and financial position . we believe the following critical accounting policies affect our more significant estimates and judgments in the preparation of our consolidated financial statements . 33 allowance for doubtful accounts we establish credit terms for new clients based upon management 's review of their credit information and project terms , and perform ongoing credit evaluations of our clients , adjusting credit terms when management believes appropriate , based upon payment history and an assessment of their current credit worthiness . we record an allowance for doubtful accounts for estimated losses resulting from the inability of our clients to make required payments . we determine this allowance by considering a number of factors , including the length of time trade accounts receivable are past due , our previous loss history , our estimate of the client 's current ability to pay its obligation to us , and the condition of the general economy and the industry as a whole . while credit losses have generally been within expectations and the provisions established , we can not guarantee that credit loss rates in the future will be consistent with those experienced in the past . in addition , we would have credit exposure if the financial condition of one of our major clients were to deteriorate . in the event that the financial condition of our clients were to deteriorate ,

liquidity and capital resources selected measures of liquidity and capital resources , expressed in thousands , are as follows : replace_table_token_5_th at december 31 , 2012 we had cash and cash equivalents of $ 25.4 million , of which $ 15.1 million was held by our foreign subsidiaries , and short term investments of $ 3.1 million which was entirely held by our operating foreign subsidiaries located in asia . a significant portion of the amounts held outside of the unites states could be repatriated to the united states , but under current law , would be subject to unites states federal income taxes , less applicable foreign tax credit . however , our intent is to permanently reinvest these funds outside the unites states . we have used , and plan to use , our existing cash for ( i ) expansion of existing operations ; ( ii ) general corporate purposes , including working capital ; ( iii ) possible business acquisitions ; and ( iv ) continuing investments in iads . as of december 31 , 2012 , we had no third party debt and had working capital of approximately $ 32.8 million compared to working capital of approximately $ 28.1 million at december 31 , 2011. we do not anticipate any near-term liquidity issues . cash balances are held in bank deposits at leading u.s. and foreign commercial banks . 30 net cash provided by ( used in ) operating activities cash provided by our operating activities in 2012 was $ 17.8 million , resulting from net income of $ 5.7 million , adjustments for non-cash items of $ 5.3 million , and $ 6.8 million provided for working capital . adjustments for non-cash items principally consisted of $ 3.9 million for depreciation and amortization , stock compensation expense of $ 1.0 million and an impairment charge of approximately $ 0.5 million relating to the iads segment .

we have historically increased our reserves and production through acquisitions , our drilling programs , and other projects that optimize production on existing wells . our production increased 11.3 % in 2019 from the prior year and we added 73.4 mmboe of proved reserves in 2019 , almost doubling our proved reserves and replacing our production by six times . the 87 % net increase in proved reserves year-over-year is primarily due to our acquisition of the mobile bay properties ( discussed below ) , as well as successful drilling , favorable technical revisions driven by improved well performance , recompletion , and workover efforts . partially offsetting these increases were decreases in proved reserves from lower commodity prices and production . during 2019 , we drilled and completed six additional wells which all began producing during 2019. in august 2019 , we acquired the mobile bay properties with the purchase of exxon 's interests in and operatorship of oil and gas producing properties in the eastern region of the gulf of mexico offshore alabama and related onshore and offshore facilities and pipelines . after taking into account customary closing adjustments and an effective date of january 1 , 2019 , cash consideration was $ 169.8 million , of which substantially all was paid by us at closing . we also assumed the related aro and certain other obligations associated with these assets . the acquisition was funded from cash on hand and borrowings of $ 150.0 million under the credit agreement , which were previously undrawn . as of december 31 , 2019 , the mobile bay properties had approximately 76.6 mmboe of net proved reserves , of which 99 % were proved developed producing reserves consisting primarily of natural gas and ngls with 20 % of the proved net reserves from liquids on a mmboe basis , based on sec pricing methodology . for the fourth quarter of 2019 , the average production of the mobile bay properties was approximately 18,500 net boe per day . the properties include working interests in nine gulf of mexico offshore producing fields and an onshore treatment facility that are adjacent to existing properties owned and operated by us . with this purchase , we became the largest operator in the area . 51 during 2019 , the percentage of our production from our fields on the conventional shelf increased to 73 % in 2019 from 59 % in 2018 of our total production ( measured on an mmboe basis ) primarily due to acquisition of the mobile bay properties and increases in production at the mahogany field . in the fourth quarter of 2019 , which included the mobile bay properties ' production for the entire quarter , the percentage of our production from our fields on the conventional shelf increased to 79 % measured on an mmboe basis . the mobile bay properties accounted for 35 % of our production measured on an mmboe basis in the fourth quarter of 2019. based on a reserve report prepared by nsai , our independent petroleum consultants , our total proved reserves at december 31 , 2019 were 157.4 mmboe compared to 84.0 mmboe as of december 31 , 2018. approximately 78 % of our proved reserves as of december 31 , 2019 were classified as proved developed producing , 7 % as proved developed non-producing and 15 % as proved undeveloped . classified by product , our proved reserves at december 31 , 2019 were 24 % crude oil , 16 % ngls and 60 % natural gas . these percentages and other energy-equivalent measurements stated in this form 10-k were determined using the industry standard energy-equivalent ratio of six mcf of natural gas to one bbl of crude oil , condensate or ngls . this energy-equivalent ratio does not assume price equivalency , and the energy-equivalent prices for crude oil , ngls and natural gas may differ significantly . our total proved reserves had an estimated pv-10 of $ 1,302.5 million before consideration of cash outflows related to aro . our pv-10 after considering future cash outflows related to aro was $ 1,117.6 million , and our standardized measure of discounted future cash flows was $ 986.9 million as of december 31 , 2019. neither pv-10 nor pv-10 after aro is a financial measure defined under gaap . for additional information about our proved reserves and a reconciliation of pv-10 and pv-10 after aro to the standardized measure of discounted future net cash flows , see properties – proved reserves under part i , item 2 in this form 10-k. to provide additional financial flexibility , we created the joint venture drilling program with private investors during 2018 and completed nine drilling projects by the end of 2019. the joint venture drilling program enables w & t to receive returns on its investment on a promoted basis and enables private investors to participate in certain drilling projects . it also allows more projects to be taken on with our capital expenditures budget , thereby helping us reduce our level of concentration risk via diversification . in the joint venture drilling program , five wells came on line during 2019 and four wells came on line during 2018. for the first half of 2020 , two wells are scheduled to be drilled and , assuming success , the wells are expected to start producing in late 2020 or early 2021. see financial statements and supplementary data – note 4 – joint venture drilling program under part ii , item 8 in this form 10-k for additional information on the joint venture drilling program . in october 2018 , we entered into a series of transactions to effect a refinancing of substantially all of our outstanding indebtedness . story_separator_special_tag lease operating expenses , which include base lease operating expenses , insurance premiums , workovers , and facilities maintenance expenses , increased $ 31.0 million , or 20.2 % , to $ 184.3 million in 2019 compared to $ 153.3 million in 2018. the acquisition of the mobile bay properties accounted for approximately half of the lease operating expense increase . on a per boe basis , lease operating expenses increased to $ 12.43 per boe during 2019 compared to $ 11.50 per boe during 2018. on a component basis , base lease operating expenses increased $ 17.6 million , insurance premiums increased $ 0.2 million , workover expenses increased $ 7.3 million and facilities maintenance expenses increased $ 5.9 million . base lease operating expenses increased primarily due to the addition of the mobile bay properties , acquired in august 2019 , and the heidelberg field , acquired in april 2018. the increase in workover expenses is primarily attributable to additional projects at our mahogany and gladden fields to increase production . the increase in facilities maintenance expenses involved several projects with no one project representing the majority of the increase . production taxes . production taxes were $ 2.5 million , an increase of $ 0.7 million due to the acquisition of the mobile bay properties . most of our production is from federal waters where no production taxes are imposed . the mobile bay properties and our fairway field , both of which are in state waters , are subject to production taxes . gathering and transportation costs . gathering and transportation costs increased to $ 26.0 million , or 15.9 % , in 2019 compared to $ 22.4 million in 2018 primarily related to the mobile bay properties and the heidelberg field . depreciation , depletion , amortization and accretion . dd & a , which includes accretion for aro , decreased to $ 10.01 per boe in 2019 from $ 11.24 per boe in 2018. on a nominal basis , dd & a decreased to $ 148.5 million ( 0.9 % ) in 2019 from $ 149.9 million in 2018. dd & a on a nominal basis decreased primarily due to a lower rate per boe due to the year-over-year increase in proved reserves . other factors affecting the dd & a rate are capital expenditures and changes in future development costs on remaining reserves . general and administrative expenses ( “ g & a ” ) . for 2019 , g & a expenses were $ 55.1 million compared to $ 60.1 million in 2018. we experienced reductions in expense primarily from higher overhead charged out ( credits ) on certain drilling projects ; lower medical claims ; lower incentive compensation expenses ; and lower surety bond expenses , partially offset by increased contractor and professional services expenses . g & a on a per boe basis was $ 3.72 boe for 2019 compared to $ 4.51 boe for 2018. derivative loss ( gain ) . for 2019 , a $ 59.9 million derivative loss was recorded for crude oil and natural gas derivative contracts . we entered into derivative contracts for crude oil during the fourth quarter of 2019 for both certain crude oil and natural gas derivative contracts . for 2018 , a $ 53.8 million derivative gain was recorded for crude oil and natural gas derivative contracts . the gain in 2018 and loss in 2019 are primary due to crude oil prices falling in the latter months of 2018 and subsequently increasing in 2019 relative to the year-end 2018 crude oil prices , which impacted future prices used to value the derivative contracts in 2018 and 2019 , respectively . see financial statements and supplementary data – note 9 – derivative financial instruments under part ii , item 8 in this form 10-k for additional information . 55 interest expense , net . interest expense , net , was $ 59.6 million in 2019 , increasing 22.5 % from $ 48.6 million in 2018. the increase was primarily attributable to the issuance of the senior second lien notes , execution of the credit agreement and extinguishment of the company 's prior debt instruments ( the “ refinancing transaction ” ) . prior to the refinancing transaction , $ 25.6 million of interest costs on certain debt instruments for the period of january 1 , 2018 to october 18 , 2018 was recorded against the carrying value adjustments established under accounting standard codification topic 470-60 , troubled debt restructuring ( “ asc 470-60 ” ) . after the refinancing transaction , all of our interest cost is reported as interest expense . in addition , interest expense increased related to increased borrowings under the credit agreement in 2019 compared to 2018. partially offsetting the increase in interest expenses was an increase in interest income to $ 7.7 million in 2019 compared to $ 2.4 million in 2018 , primarily due to interest income related to the income tax refunds , apache and rik matters , each matter containing an element of interest income . see financial statements and supplementary data - note 2 – long-term debt under part ii , item 8 in this form 10-k for additional information on our debt . gain on exchange of debt . during 2018 , the refinancing transaction resulted in a gain of $ 47.1 million for 2018. see financial statements and supplementary data – note 2 – long-term debt under part ii , item 8 in this form 10-k for additional information . other ( income ) expense , net . during 2019 , other expense , net , was $ 0.2 million , compared to $ 3.9 million of other income , net , for 2018. for 2019 , the amount consists primarily of federal royalty obligation reductions claimed in the current year related to capital deductions from prior periods , and partially offset by expenses related to the amortization of the

liquidity and capital resources selected measures of liquidity and capital resources , expressed in thousands , are as follows : replace_table_token_5_th at december 31 , 2012 we had cash and cash equivalents of $ 25.4 million , of which $ 15.1 million was held by our foreign subsidiaries , and short term investments of $ 3.1 million which was entirely held by our operating foreign subsidiaries located in asia . a significant portion of the amounts held outside of the unites states could be repatriated to the united states , but under current law , would be subject to unites states federal income taxes , less applicable foreign tax credit . however , our intent is to permanently reinvest these funds outside the unites states . we have used , and plan to use , our existing cash for ( i ) expansion of existing operations ; ( ii ) general corporate purposes , including working capital ; ( iii ) possible business acquisitions ; and ( iv ) continuing investments in iads . as of december 31 , 2012 , we had no third party debt and had working capital of approximately $ 32.8 million compared to working capital of approximately $ 28.1 million at december 31 , 2011. we do not anticipate any near-term liquidity issues . cash balances are held in bank deposits at leading u.s. and foreign commercial banks . 30 net cash provided by ( used in ) operating activities cash provided by our operating activities in 2012 was $ 17.8 million , resulting from net income of $ 5.7 million , adjustments for non-cash items of $ 5.3 million , and $ 6.8 million provided for working capital . adjustments for non-cash items principally consisted of $ 3.9 million for depreciation and amortization , stock compensation expense of $ 1.0 million and an impairment charge of approximately $ 0.5 million relating to the iads segment .

we have historically increased our reserves and production through acquisitions , our drilling programs , and other projects that optimize production on existing wells . our production increased 11.3 % in 2019 from the prior year and we added 73.4 mmboe of proved reserves in 2019 , almost doubling our proved reserves and replacing our production by six times . the 87 % net increase in proved reserves year-over-year is primarily due to our acquisition of the mobile bay properties ( discussed below ) , as well as successful drilling , favorable technical revisions driven by improved well performance , recompletion , and workover efforts . partially offsetting these increases were decreases in proved reserves from lower commodity prices and production . during 2019 , we drilled and completed six additional wells which all began producing during 2019. in august 2019 , we acquired the mobile bay properties with the purchase of exxon 's interests in and operatorship of oil and gas producing properties in the eastern region of the gulf of mexico offshore alabama and related onshore and offshore facilities and pipelines . after taking into account customary closing adjustments and an effective date of january 1 , 2019 , cash consideration was $ 169.8 million , of which substantially all was paid by us at closing . we also assumed the related aro and certain other obligations associated with these assets . the acquisition was funded from cash on hand and borrowings of $ 150.0 million under the credit agreement , which were previously undrawn . as of december 31 , 2019 , the mobile bay properties had approximately 76.6 mmboe of net proved reserves , of which 99 % were proved developed producing reserves consisting primarily of natural gas and ngls with 20 % of the proved net reserves from liquids on a mmboe basis , based on sec pricing methodology . for the fourth quarter of 2019 , the average production of the mobile bay properties was approximately 18,500 net boe per day . the properties include working interests in nine gulf of mexico offshore producing fields and an onshore treatment facility that are adjacent to existing properties owned and operated by us . with this purchase , we became the largest operator in the area . 51 during 2019 , the percentage of our production from our fields on the conventional shelf increased to 73 % in 2019 from 59 % in 2018 of our total production ( measured on an mmboe basis ) primarily due to acquisition of the mobile bay properties and increases in production at the mahogany field . in the fourth quarter of 2019 , which included the mobile bay properties ' production for the entire quarter , the percentage of our production from our fields on the conventional shelf increased to 79 % measured on an mmboe basis . the mobile bay properties accounted for 35 % of our production measured on an mmboe basis in the fourth quarter of 2019. based on a reserve report prepared by nsai , our independent petroleum consultants , our total proved reserves at december 31 , 2019 were 157.4 mmboe compared to 84.0 mmboe as of december 31 , 2018. approximately 78 % of our proved reserves as of december 31 , 2019 were classified as proved developed producing , 7 % as proved developed non-producing and 15 % as proved undeveloped . classified by product , our proved reserves at december 31 , 2019 were 24 % crude oil , 16 % ngls and 60 % natural gas . these percentages and other energy-equivalent measurements stated in this form 10-k were determined using the industry standard energy-equivalent ratio of six mcf of natural gas to one bbl of crude oil , condensate or ngls . this energy-equivalent ratio does not assume price equivalency , and the energy-equivalent prices for crude oil , ngls and natural gas may differ significantly . our total proved reserves had an estimated pv-10 of $ 1,302.5 million before consideration of cash outflows related to aro . our pv-10 after considering future cash outflows related to aro was $ 1,117.6 million , and our standardized measure of discounted future cash flows was $ 986.9 million as of december 31 , 2019. neither pv-10 nor pv-10 after aro is a financial measure defined under gaap . for additional information about our proved reserves and a reconciliation of pv-10 and pv-10 after aro to the standardized measure of discounted future net cash flows , see properties – proved reserves under part i , item 2 in this form 10-k. to provide additional financial flexibility , we created the joint venture drilling program with private investors during 2018 and completed nine drilling projects by the end of 2019. the joint venture drilling program enables w & t to receive returns on its investment on a promoted basis and enables private investors to participate in certain drilling projects . it also allows more projects to be taken on with our capital expenditures budget , thereby helping us reduce our level of concentration risk via diversification . in the joint venture drilling program , five wells came on line during 2019 and four wells came on line during 2018. for the first half of 2020 , two wells are scheduled to be drilled and , assuming success , the wells are expected to start producing in late 2020 or early 2021. see financial statements and supplementary data – note 4 – joint venture drilling program under part ii , item 8 in this form 10-k for additional information on the joint venture drilling program . in october 2018 , we entered into a series of transactions to effect a refinancing of substantially all of our outstanding indebtedness . story_separator_special_tag lease operating expenses , which include base lease operating expenses , insurance premiums , workovers , and facilities maintenance expenses , increased $ 31.0 million , or 20.2 % , to $ 184.3 million in 2019 compared to $ 153.3 million in 2018. the acquisition of the mobile bay properties accounted for approximately half of the lease operating expense increase . on a per boe basis , lease operating expenses increased to $ 12.43 per boe during 2019 compared to $ 11.50 per boe during 2018. on a component basis , base lease operating expenses increased $ 17.6 million , insurance premiums increased $ 0.2 million , workover expenses increased $ 7.3 million and facilities maintenance expenses increased $ 5.9 million . base lease operating expenses increased primarily due to the addition of the mobile bay properties , acquired in august 2019 , and the heidelberg field , acquired in april 2018. the increase in workover expenses is primarily attributable to additional projects at our mahogany and gladden fields to increase production . the increase in facilities maintenance expenses involved several projects with no one project representing the majority of the increase . production taxes . production taxes were $ 2.5 million , an increase of $ 0.7 million due to the acquisition of the mobile bay properties . most of our production is from federal waters where no production taxes are imposed . the mobile bay properties and our fairway field , both of which are in state waters , are subject to production taxes . gathering and transportation costs . gathering and transportation costs increased to $ 26.0 million , or 15.9 % , in 2019 compared to $ 22.4 million in 2018 primarily related to the mobile bay properties and the heidelberg field . depreciation , depletion , amortization and accretion . dd & a , which includes accretion for aro , decreased to $ 10.01 per boe in 2019 from $ 11.24 per boe in 2018. on a nominal basis , dd & a decreased to $ 148.5 million ( 0.9 % ) in 2019 from $ 149.9 million in 2018. dd & a on a nominal basis decreased primarily due to a lower rate per boe due to the year-over-year increase in proved reserves . other factors affecting the dd & a rate are capital expenditures and changes in future development costs on remaining reserves . general and administrative expenses ( “ g & a ” ) . for 2019 , g & a expenses were $ 55.1 million compared to $ 60.1 million in 2018. we experienced reductions in expense primarily from higher overhead charged out ( credits ) on certain drilling projects ; lower medical claims ; lower incentive compensation expenses ; and lower surety bond expenses , partially offset by increased contractor and professional services expenses . g & a on a per boe basis was $ 3.72 boe for 2019 compared to $ 4.51 boe for 2018. derivative loss ( gain ) . for 2019 , a $ 59.9 million derivative loss was recorded for crude oil and natural gas derivative contracts . we entered into derivative contracts for crude oil during the fourth quarter of 2019 for both certain crude oil and natural gas derivative contracts . for 2018 , a $ 53.8 million derivative gain was recorded for crude oil and natural gas derivative contracts . the gain in 2018 and loss in 2019 are primary due to crude oil prices falling in the latter months of 2018 and subsequently increasing in 2019 relative to the year-end 2018 crude oil prices , which impacted future prices used to value the derivative contracts in 2018 and 2019 , respectively . see financial statements and supplementary data – note 9 – derivative financial instruments under part ii , item 8 in this form 10-k for additional information . 55 interest expense , net . interest expense , net , was $ 59.6 million in 2019 , increasing 22.5 % from $ 48.6 million in 2018. the increase was primarily attributable to the issuance of the senior second lien notes , execution of the credit agreement and extinguishment of the company 's prior debt instruments ( the “ refinancing transaction ” ) . prior to the refinancing transaction , $ 25.6 million of interest costs on certain debt instruments for the period of january 1 , 2018 to october 18 , 2018 was recorded against the carrying value adjustments established under accounting standard codification topic 470-60 , troubled debt restructuring ( “ asc 470-60 ” ) . after the refinancing transaction , all of our interest cost is reported as interest expense . in addition , interest expense increased related to increased borrowings under the credit agreement in 2019 compared to 2018. partially offsetting the increase in interest expenses was an increase in interest income to $ 7.7 million in 2019 compared to $ 2.4 million in 2018 , primarily due to interest income related to the income tax refunds , apache and rik matters , each matter containing an element of interest income . see financial statements and supplementary data - note 2 – long-term debt under part ii , item 8 in this form 10-k for additional information on our debt . gain on exchange of debt . during 2018 , the refinancing transaction resulted in a gain of $ 47.1 million for 2018. see financial statements and supplementary data – note 2 – long-term debt under part ii , item 8 in this form 10-k for additional information . other ( income ) expense , net . during 2019 , other expense , net , was $ 0.2 million , compared to $ 3.9 million of other income , net , for 2018. for 2019 , the amount consists primarily of federal royalty obligation reductions claimed in the current year related to capital deductions from prior periods , and partially offset by expenses related to the amortization of the

cash flows . net cash provided by operating activities for 2019 was $ 232.2 million , decreasing $ 89.5 million , or 27.8 % , from 2018. the change between periods is primarily due to lower realized prices for crude oil , ngls and natural gas , changes in cash advances and working capital changes , partially offset by increased volumes , lower spending for aro activities , derivatives and income tax refunds . our combined average realized sales price per boe decreased 17.5 % in 2019 , which caused total revenues to decrease $ 74.3 million , partially offset by increases of 11.3 % in overall production volumes which caused revenues to increase by $ 27.2 million . other items affecting operating cash flows for 2019 were : aro settlements of $ 11.4 million , which decreased from $ 28.6 million in 2018 ; cash advances from joint venture partners decreased $ 15.3 million during 2019 compared to an increase of $ 16.6 million during 2018 ; derivative receipts , net , were $ 13.9 million in 2019 compared to derivative cash payments , net , of $ 28.2 million in 2018 ; and income tax refunds were $ 51.8 million in 2019 compared to income tax refunds of $ 11.1 million in 2018. net cash used in investing activities during 2019 and 2018 was $ 313.8 million and $ 66.4 million , respectively , which represents our acquisitions and investments in oil and gas properties and equipment . investments in oil and natural gas properties 2019 were $ 125.7 million , which was an increase of $ 19.5 million from 2018. the majority of our capital expenditures for 2019 related to investments on the conventional shelf in the gulf of mexico and , to a lesser extent , in the deepwater of the gulf of mexico . the acquisition of property interest of $ 188.0 million was primarily related to the acquisition of the mobile bay properties and , to a lesser extent , the acquisition of the magnolia field .

if we do not offset lost committed revenues in this manner , our overall revenues will decrease . our unit prices offered to some customers have declined as a result of increased competition . these price reductions primarily impacted customers for which we deliver high volumes of traffic over our network , such as digital media customers . if we continue to experience decreases in unit prices and are unable to offset such reductions with increased traffic , enhanced efficiencies in our network , lower co-location and bandwidth expenses , or increased sales of incremental services to existing customers , our revenues and profit margins could decrease . during 2011 , we experienced a moderation in the rate of traffic growth in our video and software download solutions as compared prior periods . if this trend continues , our ability to generate revenue growth could be adversely impacted . historically , we have experienced seasonal variations of higher revenues in the fourth quarter of the year and lower revenues during the summer months . we primarily attribute such variations to patterns of usage of e-commerce services by our retail customers . if this trend continues , our ability to generate quarterly revenue growth on a sequential basis could be impacted . during 2011 , revenues derived from customers outside the united states accounted for 29 % of our total revenues . for 2012 , we anticipate revenues from such customers as a percentage of our total revenues to be consistent with 2011. costs and expenses during 2011 , we continued to reduce our network bandwidth costs per unit and to invest in internal-use software development to improve the performance and efficiency of our network . our total bandwidth costs increased in 2011 as compared to 2010 due to traffic growth on our network . we believe that our overall bandwidth costs will continue to increase as a result of expected higher traffic levels , partially offset by anticipated continued reductions in bandwidth costs per unit . if we do not experience lower per unit bandwidth pricing or we are unsuccessful at effectively routing traffic over our network through lower cost providers , total network bandwidth costs could increase more than expected in 2012. in 2011 , co-location costs increased and became a higher percentage of total cost of revenues due to continued expansion of our network . by improving our internal-use software to enable us to use servers more efficiently , we believe we can manage the growth of co-location costs by deploying fewer servers . if we are unable to achieve such cost reductions , our profitability will be negatively impacted . depreciation and amortization expense related to our network equipment and internal-use software development costs increased by $ 23.5 million during 2011 as compared to 2010. due to expected future purchases of network equipment during 2012 , we believe that depreciation expense related to our network equipment will continue to increase in 2012. we expect to continue to enhance and add functionality to our service offerings , which would increase capitalized stock-based compensation expense attributable to employees working on such projects . as a result , we believe that the amortization of internal-use software development costs , which we include in cost of revenues , will be higher in 2012 as compared to 2011. all of these increased costs could negatively affect our profitability . we expect to continue to grant restricted stock units , or rsus , to employees in the future ; therefore , we anticipate that stock-based compensation expense will increase . as of december 31 , 2011 , our total unrecognized compensation costs for stock-based awards were $ 110.9 million , which we expect to recognize as expense over a weighted average period of 1.3 years . this expense is expected to be recognized through 2015. for fiscal 2011 , our effective income tax rate was 34.6 % . we expect our annual effective income tax rate in 2012 to increase due to the expiration of the federal research and development credit at the end of 2011 , as well as the change in mix of income in various jurisdictions ; this expectation does not take into consideration the effect of discrete items recorded as a result of our compliance with the accounting guidance for stock-based compensation , any tax planning strategies or the effect of changes in tax laws and regulations . based on our analysis of , among other things , the aforementioned trends and events , as of the date of this annual report on form 10-k , we expect to continue to generate net income on a quarterly and annual basis during 2012 ; however , our future results are likely to be affected by many factors identified in the section captioned “ risk factors ” and elsewhere in this annual report on form 10-k , including our ability to : 21 increase our revenue by adding customers through recurring revenue contracts and limiting customer cancellations and terminations ; offset unit price declines for our services with higher volumes of traffic delivered on our network as well as increased sales of our value-added solutions ; prevent disruptions to our services and network due to accidents or intentional attacks ; and maintain our network bandwidth costs and other operating expenses consistent with our revenues . as a result , there is no assurance that we will achieve our expected financial objectives , including generating positive net income , in any future period . application of critical accounting policies and estimates overview our md & a 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 . these principles require us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , cash flow and related disclosure of contingent assets and liabilities . story_separator_special_tag capitalized internal-use software costs : we capitalize the salaries and payroll-related costs , as well as stock-based compensation expense , of employees and consultants who devote time to the development of internal-use software projects . if a project constitutes an enhancement to previously-developed software , we assess whether the enhancement is significant and creates additional functionality to the software , thus qualifying the work incurred for capitalization . once the project is complete , we estimate the useful life of the internal-use software , and we periodically assess whether the software is impaired . changes in our estimates related to internal-use software would increase or decrease operating expenses or amortization recorded during the period . results of operations revenues . total revenues increased 13 % , or $ 135.0 million , to $ 1,158.5 million for the year ended december 31 , 2011 as compared to $ 1,023.6 million for the year ended december 31 , 2010 . total revenues increased 19 % , or $ 163.8 million , to $ 1,023.6 million for the year ended december 31 , 2010 as compared to $ 859.8 million for the year ended december 31 , 2009 . the following table quantifies the increase in revenues attributable to the different industry verticals in which we sell our services ( in millions ) : replace_table_token_4_th we believe that the continued growth in use of the internet by businesses and consumers was the principal factor driving increased purchases of our services during each of the last several years . we expect this trend to continue in 2012 but at lower rates of growth due to general economic conditions and competitive factors . the increase in revenues for 2011 as compared to 2010 , as well as 2010 as compared to 2009 , was driven by increased revenues from our media and entertainment vertical due to traffic growth , partially offset by reduced prices charged to our customers . revenues from our commerce and enterprise verticals increased due to growth in application and cloud performance solutions sold to customers in these verticals . revenues from our high tech vertical in 2011 as compared to 2010 remained relatively flat as increased demand for application and cloud performance solutions offset the decline in software download revenues . the increase in revenues from our high tech vertical in 2010 as compared to 2009 , was due to an increase in traffic growth as well as an increase in demand for our application and cloud performance solution services . our 2011 revenues from the public sector vertical did not materially change as compared to 2010. the increase in 2010 revenues from public sector customers as compared to 2009 was primarily attributable to the addition of new customers and government contracts . for 2011 , 2010 and 2009 , 29 % , 28 % and 28 % , respectively , of our total revenues were derived from our operations located outside of the united states . revenue from our operations in europe represented 18 % , 17 % and 18 % of total revenues for 2011 , 25 2010 and 2009 , respectively . other than the united states , no single country accounted for 10 % or more of our total revenues during these periods . we expect international sales as a percentage of our total sales in 2012 to remain consistent as compared to 2011. resellers accounted for 19 % of total revenues in 2011 , 18 % in 2010 and 18 % in 2009 . for 2011 , 2010 and 2009 , no single customer accounted for 10 % or more of total revenues . cost of revenues . cost of revenues includes fees paid to network providers for bandwidth and co-location of our network equipment . cost of revenues also includes payroll and related costs and stock-based compensation expense for network operations personnel , cost of software licenses , depreciation of network equipment used to deliver our services and amortization of internal-use software . cost of revenues was comprised of the following ( in millions ) : replace_table_token_5_th cost of revenues increased 23 % , or $ 71.1 million , to $ 374.5 million for the year ended december 31 , 2011 as compared to $ 303.4 million for the year ended december 31 , 2010 . cost of revenues increased 21 % , or $ 53.5 million , to $ 303.4 million for the year ended december 31 , 2010 as compared to $ 249.9 million for the year ended december 31 , 2009 . in each instance , these increases were primarily due to an increase in the amounts paid to network providers due to higher traffic levels , partially offset by reduced bandwidth costs per unit , an increase in co-location costs as we deployed more servers , and increases in depreciation expense of network equipment and amortization of internal-use software as we continued to invest in our infrastructure . additionally , in each of 2011 , 2010 and 2009 , cost of revenues included stock-based compensation expense and amortization of capitalized stock-based compensation ; such expense decreased by $ 0.7 million in 2011 as compared to 2010 and increased by $ 1.7 million in 2010 as compared to 2009. cost of revenues during each of 2011 , 2010 and 2009 also included credits received of approximately $ 6.9 million , $ 7.1 million and $ 3.5 million , respectively , from settlements and renegotiations entered into in connection with billing disputes related to bandwidth contracts . credits of this nature may occur in the future ; however , the timing and amount of future credits , if any , are unpredictable . we have long-term purchase commitments for bandwidth usage and co-location with various networks and internet service providers . as of december 31 , 2011 , our current minimum commitments for the years ending december 31 , 2012 , 2013 , 2014 and 2015 were approximately $ 88.8 million , $

cash flows . net cash provided by operating activities for 2019 was $ 232.2 million , decreasing $ 89.5 million , or 27.8 % , from 2018. the change between periods is primarily due to lower realized prices for crude oil , ngls and natural gas , changes in cash advances and working capital changes , partially offset by increased volumes , lower spending for aro activities , derivatives and income tax refunds . our combined average realized sales price per boe decreased 17.5 % in 2019 , which caused total revenues to decrease $ 74.3 million , partially offset by increases of 11.3 % in overall production volumes which caused revenues to increase by $ 27.2 million . other items affecting operating cash flows for 2019 were : aro settlements of $ 11.4 million , which decreased from $ 28.6 million in 2018 ; cash advances from joint venture partners decreased $ 15.3 million during 2019 compared to an increase of $ 16.6 million during 2018 ; derivative receipts , net , were $ 13.9 million in 2019 compared to derivative cash payments , net , of $ 28.2 million in 2018 ; and income tax refunds were $ 51.8 million in 2019 compared to income tax refunds of $ 11.1 million in 2018. net cash used in investing activities during 2019 and 2018 was $ 313.8 million and $ 66.4 million , respectively , which represents our acquisitions and investments in oil and gas properties and equipment . investments in oil and natural gas properties 2019 were $ 125.7 million , which was an increase of $ 19.5 million from 2018. the majority of our capital expenditures for 2019 related to investments on the conventional shelf in the gulf of mexico and , to a lesser extent , in the deepwater of the gulf of mexico . the acquisition of property interest of $ 188.0 million was primarily related to the acquisition of the mobile bay properties and , to a lesser extent , the acquisition of the magnolia field .