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32 table of contents critical accounting policies and estimates the preparation of financial statements and related disclosures in conformity with u.s. generally accepted accounting principles ( “ gaap ” ) requires us to make judgments , assumptions , and estimates that affect the reported amounts of assets , liabilities , revenue , costs of sales , operating expenses , and related disclosures . we consider the accounting polices described below to be our critical accounting policies . these critical accounting policies are impacted significantly by judgments , assumptions , and estimates used in the preparation of the consolidated financial statements , and actual results could differ materially from the amounts reported based on these policies . our accounting policies are more fully described in note 1 of our accompanying notes to consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” of this annual report on form 10-k. revenue recognition revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration that we expect to receive in exchange for those products or services . revenue is recognized net of allowance for returns and any taxes collected from customers . we enter into contracts that can include various combinations of products and services , which are generally capable of being distinct and accounted for as separate performance obligations ; however , determining whether products or services are considered distinct performance obligations that should be accounted for separately versus together may sometimes require significant judgment . judgment is required to determine stand-alone selling price ( “ ssp ” ) for each distinct performance obligation . we use a range of amounts to estimate ssp when products and services are sold separately and determine whether there is a discount to be allocated based on the relative ssp of the various products and services . in instances where ssp is not directly observable , we determine ssp using information that may include market conditions and other observable inputs . income taxes we are a u.s. based multinational company operating in multiple u.s. and foreign jurisdictions . judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes . we consider many factors when evaluating and estimating our tax positions and tax benefits , which may require periodic adjustments and may not accurately forecast actual tax audit outcomes . determining whether an uncertain tax position is effectively settled requires judgment . changes in recognition or measurement of our uncertain tax positions would result in the recognition of a tax benefit or an additional charge to the tax provision . income taxes are accounted for under the liability method , whereby deferred tax assets or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income . a valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if we believe it is more likely than not such assets will not be realized . we are subject to the periodic examination of our domestic and foreign tax returns by the irs , state , local , and foreign tax authorities who may challenge our tax positions . we regularly assess the likelihood of adverse outcomes from these examinations in determining the adequacy of our provision for income taxes . business combinations and valuation of goodwill and purchased intangible assets we allocate the fair value of purchase consideration to the assets acquired , liabilities assumed , and non-controlling interests in the acquiree based on their fair values at the acquisition date . the excess of the fair value of purchase consideration over the fair value of these assets acquired , liabilities assumed , and non-controlling interests in the acquiree is recorded as goodwill . when determining the fair values of assets acquired , liabilities assumed , and non-controlling interests in the acquiree , management makes significant estimates and assumptions , especially with respect to intangible assets . critical estimates in valuing intangible assets include , but are not limited to , expected future cash flows , which includes consideration of future growth rates and margins , customer attrition rates , future changes in technology and brand awareness , loyalty and position , and discount rates . identifiable intangible assets are comprised of distribution channels and distribution rights , patents , licenses , technology , acquired backlog , trademarks , and in-process research and development . we evaluate goodwill on an annual basis or more frequently if indicators of potential impairment exist . we utilize either a qualitative assessment or a quantitative test to assess the likelihood of an impairment . in performing the qualitative assessment , we consider macroeconomic conditions , industry and market considerations , overall financial performance , and other relevant events and factors that may impact the reporting units . when we perform a quantitative test , the estimation of the fair value of a reporting unit involves the use of certain estimates and assumptions including expected future operating performance using risk-adjusted discount rates . 33 table of contents we amortize identifiable intangible assets over their estimated useful lives on a straight-line basis . changes in circumstances such as technological advances , changes to business models , or changes in the capital strategy could result in a revised useful life . if the useful life of an asset is revised , the net book value of the estimated residual value is amortized over its revised remaining useful life . intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable based on their future cash flows . the estimated future cash flows are primarily based upon assumptions about expected future operating performance . story_separator_special_tag 44 table of contents non-gaap net income this measure provides a supplemental view of net income trends , which are driven by non-gaap income before taxes and our non-gaap tax rate . non-gaap net income excludes the effects of purchase accounting adjustments to certain acquired deferred revenue and acquired capitalized commissions , amortization of purchased intangible assets , amortization of acquisition related inventory step-up , acquisition/divestiture items , stock-based compensation , restructuring charges , executive transition costs , covid-19 expenses , debt issuance costs , and non-gaap tax adjustments . we believe our investors benefit from understanding these adjustments and from an alternative view of our net income performance as compared to prior periods and trends . non-gaap diluted net income per share we believe our investors benefit by understanding our non-gaap operating performance as reflected in a per share calculation as a way of measuring non-gaap operating performance by ownership in the company . non-gaap diluted net income per share excludes the effects of purchase accounting adjustments to certain acquired deferred revenue and acquired capitalized commissions , amortization of purchased intangible assets , amortization of acquisition related inventory step-up , acquisition/divestiture items , stock-based compensation , restructuring charges , executive transition costs , covid-19 expenses , debt issuance costs , and non-gaap tax adjustments . we believe that these adjustments offer investors a useful view of our diluted net income per share as compared to prior periods and trends . adjusted ebitda adjusted ebitda is a performance measure that we believe offers a useful view of the overall operations of our business . we believe it is useful because it facilitates company-to-company operating performance comparisons by removing potential differences caused by variations unrelated to operating performance , such as capital structures ( interest expense ) , income taxes , depreciation and amortization expenses . we define adjusted ebitda as non-gaap operating income plus depreciation expense and income from equity method investments , net . other companies define adjusted ebitda differently and so our measure may not be directly comparable to similarly titled measures . our investors should consider the limitations of using adjusted ebitda , including the fact that this measure does not provide a complete measure of our operating performance . adjusted ebitda is not intended to purport to be an alternative to net income or operating income as a measure of operating performance or to cash flow from operating activities as a measure of liquidity . in particular , adjusted ebitda is not intended to be a measure of cash flow available for our discretionary expenditures , as this measure does not consider certain cash requirements , such as restructuring charges , executive transition costs , acquisition and divestiture items , interest payments , tax payments and other debt service requirements . these non-gaap measures can be used to evaluate our historical and prospective financial performance , as well as our performance relative to competitors . we believe some of our investors track our `` core operating performance `` as a means of evaluating our performance in the ordinary , ongoing , and customary course of our operations . core operating performance excludes items that are non-cash , not expected to recur , or not reflective of ongoing financial results . management also believes that looking at our core operating performance provides a supplemental way to provide consistency in period-to-period comparisons . accordingly , management excludes from non-gaap the effects of purchase accounting adjustments to certain acquired deferred revenue and acquired capitalized commissions , amortization of purchased intangible assets , amortization of acquisition related inventory step-up , acquisition/divestiture items , stock-based compensation , deferred compensation , restructuring charges , executive transition costs , covid-19 expenses , debt issuance costs , and non-gaap tax adjustments . ( a ) acquired deferred revenue adjustment . purchase accounting generally requires us to write-down acquired deferred revenue to fair value . our gaap revenue includes the fair value impact from purchase accounting for post-contract support and subscriptions contracts assumed in connection with our acquisitions . the non-gaap adjustment to our revenue is intended to reflect the full amount of such revenue . we believe this adjustment is useful to investors as a measure of the ongoing performance of our business and facilitates analysis of revenue growth and business trends . ( b ) amortization of acquired capitalized commissions . purchase accounting generally requires us to eliminate capitalized sales commissions balances as of the acquisition date . our gaap sales and marketing expenses generally do not reflect the amortization of these capitalized sales commissions balances . the non-gaap adjustment to increase our sales and marketing expenses is intended to reflect the full amount of amortization related to such balances as though the acquired companies operated independently in the periods presented . we believe this adjustment to sales and marketing expenses is useful to investors as a measure of the ongoing performance of our business . ( c ) amortization of purchased intangible assets . included in our gaap presentation of cost of sales and operating expenses is amortization of purchased intangible assets . we believe that by excluding the amortization of purchased intangible assets , which primarily represents technology and or customer relationships already developed , this provides an 45 table of contents alternative way for investors to compare our operations pre-acquisition to those post-acquisition and to those of our competitors that have pursued internal growth strategies . however , we note that companies that grow internally will incur costs to develop intangible assets that will be expensed in the period incurred , which may make a direct comparison more difficult . ( d ) amortization of acquisition-related inventory step-up . the purchase accounting entries associated with our business acquisitions require us to record inventory at its fair value , which is sometimes greater than the previous book value of the inventory . included in our gaap presentation , the increase in inventory value is amortized to cost of sales over the

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liquidity and capital resources replace_table_token_8_th cash and cash equivalents our ability to continue to generate cash from operations will depend in large part on profitability , the rate of collections of accounts receivable , our inventory turns , and our ability to manage other areas of working capital . our cash and cash equivalents are maintained with several financial institutions . deposits held with banks may exceed the amount of insurance provided on such deposits . generally , these deposits may be redeemed upon demand and are maintained with financial institutions considered to be of reputable credit and to present little credit risk . we believe that our cash and cash equivalents , and borrowings , as described below under the heading “ debt ” , along with cash provided by operations , will be sufficient to meet our anticipated operating cash needs , debt service , stock repurchases under our 2017 stock repurchase program , and planned capital expenditures . operating activities cash provided by operating activities was $ 672.0 million for fiscal 2020 , compared to $ 585.0 million for fiscal 2019. the increase of $ 87.0 million was primarily driven by an increase in net income , net of non-cash items , and favorable working capital changes , including positive accounts receivable impact , due to improved sales linearity and higher accrued compensation , partially offset by deferred revenue and accrued liabilities changes . investing activities cash used in investing activities was $ 231.8 million for fiscal 2020 , compared to $ 275.3 million for fiscal 2019. the decrease of $ 43.5 million was primarily due to decreased spending for business acquisitions , and to a lessor extent , reduced spending on property and equipment .

we believe that our continued innovation and new solutions , such as online benefits marketplaces , also known as private exchanges , enhanced mobile offerings , and more robust data analytics capabilities will help us attract additional large employer customers and increase our revenue from existing customers . we believe that there is a substantial market for our services , and we have been investing in growth over the past four years . in particular , we have continued to invest in technology and services to better serve our larger employer customers , which we believe are an important source of growth for our business . we have also substantially increased our marketing and sales efforts and expect those increased efforts to continue . as we have invested in growth , we have had operating losses in each of the last five years , and expect our operating losses to continue for at least the next year . due to the nature of our customer relationships , which have been very stable with relatively few customer losses over the past years , and the subscription nature of our financial model , we believe that our current investment in growth should lead to substantially increased revenue , which will allow us to achieve profitability in the relatively near future . of course , our ability to achieve profitability will continue to be subject to many factors beyond our control . key financial and operating performance metrics we regularly monitor a number of financial and operating metrics in order to measure our current performance and project our future performance . these metrics help us develop and refine our growth strategies and make strategic decisions . we discuss revenue , gross margin , and the components of operating loss , as well as segment revenue and segment gross profit , in “management 's discussion and analysis of financial condition and results of operations—components of operating results” . in addition , we utilize other key metrics as described below . number of large employer and carrier customers we believe the number of large employer and carrier customers is a key indicator of our market penetration , growth , and future revenue . we have aggressively invested in and intend to continue to invest in our direct sales force to grow our customer base . we generally define a customer as an entity with an active software services contract as of the measurement date . the following table sets forth the number of large employer and carrier customers for the periods indicated : replace_table_token_8_th 56 software services revenue retention rate we believe that our ability to retain our customers and expand the revenue they generate for us over time is an important component of our growth strategy and reflects the long-term value of our customer relationships . we measure our performance on this basis using a metric we refer to as our software services revenue retention rate . we calculate this metric for a particular period by establishing the group of our customers that had active contracts for a given period . we then calculate our software services revenue retention rate by taking the amount of software services revenue we recognized for this group in the subsequent comparable period ( for which we are reporting the rate ) and dividing it by the software services revenue we recognized for the group in the prior period . for 2015 , 2014 and 2013 our software services revenue retention rate exceeded 95 % . adjusted ebitda adjusted ebitda represents our earnings before net interest and other expense , taxes , and depreciation and amortization expense , adjusted to eliminate stock-based compensation and impairment of goodwill and intangible assets . adjusted ebitda is not a measure calculated in accordance with united states generally accepted accounting principles , or gaap . please refer to “selected consolidated financial data” in this report for a discussion of the limitations of adjusted ebitda and reconciliation of adjusted ebitda to net loss , the most comparable gaap measurement , respectively , for 2015 , 2014 and 2013. components of operating results revenue we derive the majority of our revenue from software services fees , which consist primarily of monthly subscription fees paid to us by our employer and carrier customers for access to , and usage of , our cloud-based benefits software solutions for a specified contract term . we also derive revenue from professional services fees , which primarily include fees related to the implementation of our customers onto our platform . our professional services typically include discovery , configuration and deployment , integration , testing , and training . the following table sets forth a breakdown of our revenue between software services and professional services for the periods indicated ( in thousands ) : replace_table_token_9_th we generally recognize software services fees monthly based on the number of employees covered by the relevant benefits plans at contracted rates for a specified period of time , provided that an enforceable contract has been signed by both parties , access to our software has been granted to the customer and it is available for their use , the fee for the software services is fixed or determinable , and collection is reasonably assured . we defer recognition of our professional services fees paid by customers related to implementation services that are determined to not have stand-alone value and are sold with our software services , and recognize them , beginning once the software services have commenced , ratably over the longer of the contract term or the estimated expected life of the customer relationship , which was 7 years in 2015 and 10 years in 2014 and 2013. we periodically evaluate the term over which revenue is recognized for professional services as we gain more experience with customer contract renewals . story_separator_special_tag we also experienced a to a $ 2.5 million increase in consulting and professional fees and insurance related to being a publicly traded company . in addition , we experienced a $ 1.1 million increase related primarily to increases in facilities and overhead costs . comparison of years ended december 31 , 2014 and 2013 revenue replace_table_token_20_th growth in software services revenue was primarily attributable to the addition of new customers , as the number of large employer and carrier customers increased to 596 as of december 31 , 2014 from 433 as of december 31 , 2013. our professional services revenue increased in absolute terms between the year ended december 31 , 2013 and the year ended december 31 , 2014 , primarily due to revenue recognized from newly completed implementations of $ 3.2 million in addition to $ 2.1 million from the acceleration of the customer relationship period for customers that did not renew their contracts . segment revenue replace_table_token_21_th the growth in our employer revenue was primarily attributable to a $ 20.0 million increase in our employer software services revenue driven primarily by an increase in the number of large employer customers using our platform as of december 31 , 2014 as compared to december 31 , 2013. additionally , employer professional services contributed an increase of $ 1.4 million primarily related to newly completed implementations . the growth in our carrier revenue was primarily attributable to an increase of $ 7.3 million in our carrier software services revenue driven primarily by an increase in software services revenue from recent customer product implementations during the year ended december 31 , 2014 as compared to the year ended december 31 , 2013. the remaining increase of $ 4.0 million is related to carrier 65 professional services and is comprised of an increase of $ 1.9 million in revenue related to customers who went live on the platform and $ 2.1 million related to the acceleration of the customer relationship period for customers that did not renew their contracts . cost of revenue replace_table_token_22_th the increase in cost of revenue was in part attributable to an $ 18.6 million increase in salaries and personnel-related costs and professional fees , including an increase of $ 0.7 million related to stock-based compensation , of which $ 16.0 million was associated with increased client service capacity to support our growing number of customers and an increase in engineering costs of $ 1.2 million . also , we experienced a $ 6.4 million increase in infrastructure maintenance costs to support our platform and additional depreciation and amortization and facilities costs related to the increase in the number of employees . gross profit replace_table_token_23_th the increase in software services gross profit in absolute terms was driven by a $ 27.4 million , or 28.0 % , increase in software services revenue . this increase was partially offset by a $ 13.7 million , or 37.9 % , increase in software services cost of revenue . software services cost of revenue included $ 0.4 million and $ 0.1 million of stock-based compensation expense for the years ended december 31 , 2014 and 2013 , respectively , and $ 7.2 million and $ 6.7 million of depreciation and amortization for the years ended december 31 , 2014 and 2013 , respectively . the increase in professional services gross loss was driven by an $ 11.4 million , or 43.3 % , increase in professional services cost of revenue , partially offset by an increase in professional services revenue of $ 5.3 million . professional services cost of revenue included $ 0.5 million and $ 0.2 million of stock-based compensation expense for the years ended december 31 , 2014 and 2013 , respectively . in addition , professional services cost of revenue included $ 0.8 million and $ 0.4 million in depreciation and amortization for the years ended december 31 , 2014 and 2013 , respectively . as discussed in “components of operating results—cost of revenue” , our cost of revenue is expensed as we incur the costs . however , the related revenue from fees we receive for our implementation services performed before a customer is operating on our platform is deferred until the commencement of the monthly subscription and recognized as revenue ratably over the longer of the related contract term or the estimated expected life of the customer relationship , which is 10 years for the years presented . therefore , the cost incurred in providing these services is expensed in periods prior to the 66 recognition of the corresponding revenue . for this reason , as well as due to the personnel-related costs associated with providing implementation services , our cost associated with providing implementation services has been significantly higher as a percentage of related revenue than our cost associated with providing our monthly subscription services . segment gross profit replace_table_token_24_th employer gross profit increased in absolute terms by $ 2.9 million , or 21.6 % , between the year ended december 31 , 2013 and the year ended december 31 , 2014. the $ 21.4 million , or 52.5 % , increase in employer revenue was offset by an $ 18.5 million , or 67.6 % , increase in employer cost of revenue . the increase in cost of revenue is attributable to costs associated with supporting the increased number of employer customers live on the platform and the increased cost of providing services , including customer implementations . our employer gross profit included $ 3.5 million and $ 2.5 million of depreciation and amortization for the years ended december 31 , 2014 and december 31 , 2013 , respectively . in addition , our employer gross profit included $ 0.5 million and $ 0.1 million of stock-based compensation expense for the years ended december 31 , 2014 and 2013 , respectively . carrier gross profit increased by $ 4.7 million , or 16.3 % , between the year ended december 31

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cash flows our cash flows for the years ended december 31 , 2015 , 2014 , and 2013 were as follows : replace_table_token_27_th operating activities cash flows from operations decreased $ 12.7 million during 2015 to $ ( 31.5 ) million , as changes in working capital provided $ 1.3 million cash and adjustments for non-cash items of $ 29.3 million partially offset a net loss of $ ( 62.1 ) million . the cash provided by changes in working capital primarily consisted of an increase in accrued compensation and benefits of $ 3.3 million , an increase in accrued expenses of $ 3.0 million , and an increase in accounts payable of $ 3.4 million , offset by an increase in accounts receivable of $ 7.8 million . the increase in accrued compensation and benefits resulted from an increase in the number of associates . the increases in accrued expenses and accounts payable are 73 the result of timing of the receipt of invoices and the timing of payments . the increase in accounts receivable resulted from a few significant invoices related to new contracts and the normal timing of customer payments . for the year ended december 31 , 2014 , our operating activities used $ 18.9 million of cash , as $ 24.8 million of cash provided by changes in working capital and $ 19.5 million in adjustments for non-cash items , were more than offset by a net loss of $ 63.2 million . adjustments for non-cash items primarily consisted of depreciation and amortization expense of $ 9.5 million , non-cash stock compensation expense of $ 5.6 million , change in fair value and accretion of warrant of $ 0.7 million , and accrual of interest on financing obligations of $ 3.6 million . the cash provided by changes in working capital primarily consisted of an increase in deferred revenue of $ 14.3 million , an increase in accrued compensation and benefits of $ 3.2 million , an increase in accrued expenses of $ 2.5 million , and a decrease in accounts receivable of $ 2.4 million .

`` other `` also includes interest expense for the company and certain corporate operating expenses that are not allocated to the other segments , which include , among other expenses , share-based compensation , merger and acquisition costs , and certain non-recurring charges . we anticipate that the black hawk casinos will operate as a separate operating segment and we are still evaluating the reporting segment structure inclusive of the black hawk casinos . results of operations the following table presents , for the periods indicated , certain revenue and income items : replace_table_token_4_th the following table presents , for the periods indicated , certain income and expense items expressed as a percentage of total revenue : replace_table_token_5_th note : amounts in table may not subtotal due to rounding . 36 segment information the following table sets forth certain financial information associated with results of operations for the years ended december 31 , 2019 , 2018 and 2017 . non-gaming revenue includes hotel , food and beverage and other revenue . non-gaming expenses include hotel , food and beverage and retail , entertainment and other expenses . replace_table_token_6_th 37 year ended december 31 , 2019 compared to year ended december 31 , 2018 total revenue total revenue for the year ended december 31 , 2019 increased 19.7 % to $ 523.6 million , from $ 437.5 million in 2018 . this increase was primarily attributable to the addition of dover downs , which added $ 80.8 million of revenue in 2019 . revenue was also favorably impacted by incremental revenue at the tiverton casino , which opened on september 1 , 2018 replacing newport grand which closed on august 28 , 2018. new competition in the new england market , and the associated increases in marketing and promotional activity , significantly impacted revenue in the second half of 2019 at twin river casino hotel . we expect this unusually high level of competitive market activity to moderate over time and are responding with new initiatives of our own , the combination of which we believe will result in some recaptured market share over time . in 2019 , tiverton casino hotel continued to demonstrate marked resilience in the face of the new regional competition mentioned above and hard rock biloxi gaming revenue performance remained strong . gaming revenue for the year ended december 31 , 2019 increased $ 40.2 million , or 12.3 % , food and beverage revenue increased $ 21.5 million , or 44.5 % , and hotel revenue increased $ 17.6 million , or 82.7 % , each compared to the prior year . operating costs and expenses for 2019 , we recorded total operating costs and expenses of $ 409.0 million , up 29.1 % compared to the $ 316.9 million we recorded in 2018. gaming and racing expenses for the year ended december 31 , 2019 increased $ 22.7 million , or 28.1 % , to $ 103.6 million from $ 80.8 million in 2018 . gaming and racing expenses from dover downs and incremental gaming and racing expenses from tiverton casino hotel , partially offset by the closing of newport grand , accounted for $ 23.1million of the increase year-over-year . non-gaming expenses for the year ended december 31 , 2019 increased $ 27.2 million , or 50.0 % , to $ 81.6 million from $ 54.4 million in 2018 . this increase was primarily attributable to the inclusion of dover downs , coupled with increases of $ 0.8 million and $ 1.7 million in our rhode island segment due to the opening of the tiverton casino hotel and the new hotel at twin river casino hotel , respectively , partially offset by the closing of newport grand . we expect our total operating costs and expenses to increase in 2020 as compared to 2019 as a result of the inclusion of four quarters of dover downs operations , our black hawk casinos operations and the operations that we expect to acquire in mississippi and missouri . advertising , general and administrative advertising , general and administrative expenses for the year ended december 31 , 2019 increased $ 37.1 million , or 25.9 % , to $ 180.4 million from $ 143.3 million , in 2018 . the increase in advertising , general and administrative expenses year-over-year is primarily due to the following : the addition of dover downs , which accounted for $ 25.6 million for the year ended december 31 , 2019 ; an increase in share-based compensation expense of $ 3.8 million in the year ended december 31 , 2019 compared to a benefit of $ 1.5 million in 2018 , due to a reduction in the fair value of outstanding liability classified awards as well as the timing of grants and the mix of liability classified awards , creating expense volatility in 2018 ; professional advisory fees of $ 3.5 million for the year ended december 31 , 2019 associated with our capital return program ; higher corporate overhead costs as we made corporate investments in preparation of future growth coupled with the additional costs to meet reporting requirements associated with becoming a publicly traded company ; and credit agreement amendment expenses of $ 2.9 million related to the company 's debt refinancing for the year ended december 31 , 2019 , compared to $ 0.5 million in 2018 . we expect share-based compensation expense to increase meaningfully in the year ended december 31 , 2020 compared to 2019 , with a significant portion recorded during the first quarter of 2020 . 38 acquisition , integration and restructuring expense we incurred $ 12.2 million of acquisition , integration and restructuring expense during the year ended december 31 , 2019 compared to $ 6.8 million in 2018 . the dover downs merger and going public expenses were $ 7.9 million for 2019 , compared to $ 6.6 million in 2018 . story_separator_special_tag in accordance with sab 118 , a company must reflect in its financial statements the income tax effects of those aspects of the tcja for which the accounting under asc 740 is complete . sab 118 provides that to the extent that a company 's accounting for certain income tax effects of the tcja is incomplete , but it is able to determine a reasonable estimate , it must record a provisional estimate in the financial statements . we recorded the impact of enactment of u.s. tax reform subject to sab 118 , which provided for a twelve-month remeasurement period to complete the accounting required under accounting standards codification ( “ asc ” ) 740 , income taxes . during the fourth quarter of 2018 , we completed our analysis to determine the deferred tax effect of the tcja and recorded immaterial adjustments as of december 22 , 2018 . 44 business combinations we account for acquired businesses using the acquisition method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of the acquisition at their respective estimated fair values . goodwill represents the excess of cost over the fair value of net assets acquired in a business combination . the judgments made in determining the estimated fair value assigned to each class of assets acquired , as well as the estimated useful life of each asset , can materially impact the net income of the periods subsequent to the acquisition through depreciation and amortization , and in certain instances through impairment charges , if the asset becomes impaired in the future . in determining the estimated fair value for intangible assets , we typically utilize the income approach , which discounts the projected future net cash flow using a discount rate deemed appropriate by management that reflects the risks associated with such projected future cash flow . determining the useful life of an intangible asset also requires judgment , as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives . intangible assets determined to have an indefinite useful life are reassessed periodically based on the expected use of the asset by us , legal or contractual provisions that may affect the useful life or renewal or extension of the asset 's contractual life without substantial cost , and the effects of demand , competition and other economic factors . pension plan we sponsor a defined benefit pension plan that covers certain employees who meet eligibility requirements . on june 15 , 2011 , it was announced that the dover downs pension plan was frozen to participation and benefit accruals as of july 31 , 2011. the benefits provided by our defined benefit pension plan are based on years of service and employee 's remuneration through july 31 , 2011. while we believe the valuation methods used to determine the fair value of plan assets are appropriate and consistent with other market participants , the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date . the determination of our obligation and related expense for company-sponsored pension benefits is dependent , in part , on management 's selection of certain actuarial assumptions used in calculating these amounts . these assumptions include , among other things , the discount rate and the expected long-term rate of return on plan assets . see note 14 “ employee benefit plans ” in the notes to consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for information related to the actuarial assumptions used in determining pension liabilities and expenses . we review and select the discount rate to be used in connection with our pension obligation annually . the discount rate reflects the current rate at which the associated liabilities could be effectively settled at the end of the year . we set our rate to reflect the yield of a portfolio of high quality , fixed-income debt instruments that would produce cash flows sufficient in timing and amount to settle projected future benefits . our assumption regarding expected long-term rate of return on plan assets is determined based on the portfolio 's actual and target composition , current market conditions , forward-looking return and risk assumptions by asset class , and historical long-term investment performance . in accordance with applicable accounting standards , actual results that differ from our assumptions are accumulated and amortized over future periods and , therefore , affect expense and obligations in future periods . for 2019 , each 25 basis point increase/decrease in the discount rate and expected return on plan assets would , collectively , increase/decrease pension expense by less than $ 0.1 million . although we believe our assumptions are appropriate , the actuarial assumptions may differ from actual results due to changing market and economic conditions , higher or lower withdrawal rates and longer or shorter life spans of participants . amortization of net actuarial loss or gain expense recognition we recognize the amortization of net actuarial loss or gain on the dover downs pension plan over the remaining life expectancy of all plan participants . this is based on the fact that the defined benefit pension plan is both closed to new entrants and all benefit accruals have been frozen . 45 full yield curve expense recognition we utilize the “ full yield curve ” approach for determining the interest and service cost components of net periodic benefit cost for defined benefit pension plans . under this method , the discount rate assumption used in the interest and service cost components of net periodic benefit cost is built through applying the specific spot rates along the yield curve used in the determination of the benefit obligation described above , to the relevant projected future cash flows of our

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net cash used in investing activities for the year ended december 31 , 2019 was $ 38.9 million , a decrease of $ 78.7 million compared to $ 117.6 million used in investing activities for 2018 . the change was primarily driven by a reduction in capital expenditures compared to the prior year related to the tiverton casino hotel and the new hotel at twin river casino hotel of $ 92.7 million and $ 18.6 million , respectively . this decrease was partially offset by the cash outlay for the acquisition of dover downs , net of cash acquired of $ 9.6 million , and a year-over-year increase in maintenance and small project capital expenditures of $ 10.7 million . net cash used in investing activities for the year ended december 31 , 2018 was $ 117.6 million , an increase of $ 70.1 million compared to $ 47.5 million used in investing activities for 2017. the change was primarily driven by an increase in capital expenditures for the tiverton casino hotel and the new hotel at twin river casino hotel of $ 60.2 million and $ 17.5 million , respectively , partially offset by proceeds of $ 7.1 million from the sale of the land and building relating of the closing of the newport grand and an increase in the repayments of the loans to officers and directors related to taxes on stock options of $ 5.0 million . all loans to officers and directors were repaid during 2018 . 40 financing activities net cash provided by financing activities for the year ended december 31 , 2019 was $ 48.9 million compared to net cash used in financing activities of $ 3.4 million for 2018 . this change was primarily driven by proceeds received from the term loan facility and senior notes ( both defined below ) net of fees incurred , of $ 683.2 million , partially offset by an increase in debt repayments of $ 309.4 million on our previous term loan and the required quarterly payments on our new term loan facility .

factors that could cause our actual results to differ materially include , but are not limited to , those discussed under “ risk factors ” in this report . we also face risks and uncertainties relating to our business including : our ability to obtain additional financing in future offerings ; our operating losses ; our collaboration with roche pursuant to the license agreement to develop and commercialize prx002 , as well as any future licensed products targeting alpha-synuclein ; our ability to successfully complete research and development of our drug candidates and the growth of the markets for those drug candidates ; our ability to develop and commercialize products before competitors that are superior to the alternatives developed by such competitors ; expected activities and responsibilities of us and roche under the license agreement ; our potential receipt of revenue under the license agreement , including milestone and royalty revenue ; the satisfaction of conditions under the license agreement required for continued commercialization , and the payment of potential milestone payments , royalties and fulfillment of other roche obligations under the license agreement ; expectations with respect to our intent and ability to carry out plans to promote prx002 for the treatment of parkinson 's disease in the united states through our co-promotion option under the license agreement ; our ability to protect our patents and other intellectual property ; loss of key employees ; tax treatment of our separation from elan , now owned by perrigo , and subsequent distribution of our ordinary shares ; restrictions on our taking certain actions due to tax rules and covenants with elan ; our ability to maintain financial flexibility and sufficient cash , cash equivalents , and investments and other assets capable of being monetized to meet our liquidity requirements ; disruptions in the u.s. and global capital and credit markets ; fluctuations in foreign currency exchange rates ; extensive government regulation ; the volatility of our share price ; business disruptions caused by information technology failures ; and the other risks and uncertainties described in part ii , item 1 , “ risk factors . ” we undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that arises after the date of this report , or to conform such statements to actual results or changes in our expectations . except with respect to our trademarks , the trademarks , trade names and service marks appearing in this report are the property of their respective owners . 38 this discussion should be read in conjunction with the consolidated financial statements and notes presented in item 8 of this form 10-k. overview we are a clinical stage biotechnology company focused on the discovery , development and commercialization of novel antibodies for the potential treatment of diseases that involve protein misfolding or cell adhesion . we focus on therapeutic monoclonal antibodies directed specifically to disease causing proteins . our antibody-based product candidates target a number of potential indications including al and aa forms of amyloidosis ( neod001 ) , parkinson 's disease and related synucleinopathies ( prx002 ) and novel cell adhesion targets involved in inflammatory diseases and cancers ( prx003 ) . we initiated a phase 1 clinical trial for neod001 , with the first successful patient dosing in april 2013. the phase 1 clinical trial of neod001 is evaluating its safety and tolerability in patients with al amyloidosis . we also plan to initiate phase 1 clinical trials for prx002 and prx003 in 2014 and 2015 , respectively . our strategy is to identify antibody candidates for clinical development and commercialization by applying our extensive expertise in generating novel therapeutic antibodies and working with collaborators having expertise in specific animal models of disease . we are a public limited company formed under the laws of ireland . we separated from elan corporation limited ( formerly elan corporation , plc ) , or elan , which subsequently became a wholly owned subsidiary of perrigo company plc , or perrigo , on december 20 , 2012. our ordinary shares began trading on the nasdaq global market under the symbol “ prta ” on december 21 , 2012 and currently trade on the nasdaq global select market . our business consists of a substantial portion of elan 's former drug discovery business platform , including neotope biosciences limited and its wholly owned subsidiaries onclave therapeutics limited and prothena biosciences inc ( which for the period prior to separation and distribution we refer to herein as the “ prothena business ” ) . prior to december 21 , 2012 , the prothena business operated as part of elan and not as a separate stand-alone entity . our financial statements for the periods prior to december 21 , 2012 have been derived from elan 's historical accounting records and reflect significant allocations of direct costs and expenses . all of the allocations and estimates in these financial statements are based on assumptions that we believe are reasonable . however , the financial statements do not necessarily represent our financial position or results of operations had we been operating as a separate independent entity . see “ critical accounting policies and estimates ” below as well as note 2 of the “ notes to the consolidated financial statements ” included in item 8 of this form 10-k. recent developments collaboration with roche in december 2013 , we entered into a license , development , and commercialization agreement , or the license agreement , with f. hoffmann-la roche ltd and hoffmann-la roche inc. , or collectively , roche , to develop and commercialize certain antibodies that target alpha-synuclein , including prx002 , which are referred to collectively as “ licensed products . story_separator_special_tag this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : the scope , rate of progress and expense of our drug discovery efforts and other r & d activities ; the potential benefits of our product candidates over other therapies ; clinical trial results ; and the terms and timing of regulatory approvals . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of a product candidate or if we experience significant delays in enrollment in any clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . the following table sets forth the r & d expenses for our major program ( specifically , any program with successful first patient dosing in a phase 1 clinical trial ) , neod001 , and other r & d expenses for the years ended december 31 , 2013 , 2012 , and 2011 , and the cumulative amounts to date ( in thousands ) : replace_table_token_5_th ( 1 ) cumulative r & d costs to date for neod001 include the costs incurred from the date when the program has been separately tracked in preclinical development . expenditures in early discovery stage are not tracked by program and accordingly have been excluded from this cumulative amount . ( 2 ) other r & d is comprised of preclinical development and discovery programs that have not had successful first patient dosing in a phase 1 clinical trial , including prx002 and prx003 , and research costs we incurred in providing research services to elan 's elnd005 program . general and administrative expenses our g & a expenses increased by $ 5.1 million , or 52 % , for the year ended december 31 , 2013 compared to the prior year . g & a expenses consisted primarily of professional services fees ( including payments to elan under a transitional services agreement ) , internal personnel costs and share-based compensation expense of $ 2.1 million for the year ended december 31 , 2013 . for the periods prior to december 21 , 2012 , g & a expenses were presented on a “ carve-out ” basis as the prothena business consisted of a substantial portion of elan 's former drug discovery business platform . accordingly , g & a expenses during the year ended december 31 , 2012 consisted of $ 2.2 million of direct expense incurred by the prothena business and $ 7.7 million of indirect expenses which was based on an allocation to the prothena business by elan . g & a expenses increased by $ 4.4 million , or 78 % in 2012 compared to 2011 . the increase was primarily due to increases in support costs allocated to the prothena business by elan . the company expects g & a expenses to increase modestly in 2014 over the prior year as the result of increases in personnel , legal and other administrative expenses associated with a growing public company . 43 other income ( expense ) replace_table_token_6_th nm = not meaningful interest income increased by $ 66,000 for the year ended december 31 , 2013 compared to the prior year primarily due to interest earned on our cash and money market accounts . for the years ended december 31 , 2012 and 2011 , no interest income was allocated to the prothena business by elan . other income ( expense ) , net was primarily made up of foreign exchange losses from transactions with vendors denominated in euros . provision for income taxes replace_table_token_7_th subsequent to the separation from elan , we began to file our own u.s. and foreign income tax returns and income taxes are presented in the consolidated financial statements using the asset and liability method prescribed by the accounting guidance for income taxes . prior to the separation from elan , income taxes as presented in the consolidated financial statements represented current and deferred income taxes of elan attributed to us in a manner that is systematic , rational and consistent with the asset and liability method prescribed by the accounting guidance for income taxes . our income tax provision prior to the separation from elan was prepared under the “ separate return method . ” the separate return method applies the accounting guidance for income taxes to the standalone financial statements as if we were a separate taxpayer and a standalone enterprise . the tax provision for the years ended december 31 , 2013 , 2012 and 2011 was $ 415,000 , $ 6,000 and $ 426,000 , respectively . the tax provision reflects u.s. federal taxes associated with nominal , recurring profits attributable to intercompany services that the company 's u.s. subsidiary performs for the company . no tax benefit has been recorded related to tax losses recognized in ireland and any deferred tax assets for those losses are offset by a valuation allowance . story_separator_special_tag style= `` font-family : inherit ; font-size:10pt ; font-style : italic ; `` > cash used in operating activities net cash used in operating activities was $ 32.1 million , $ 42.1 million and $ 19.7 million for the years ended december 31 , 2013 , 2012 and 2011 , respectively , in each case consisting primarily of net losses ( adjusted to exclude non-cash charges ) and changes in working capital accounts . the decrease in cash used in operating activities from the prior year was primarily due to fact that in the prior year more cash was used to settle liabilities at the end of

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liquidity and capital resources overview replace_table_token_8_th prior to the separation and distribution , our operating and capital resource requirements were funded by elan . as part of the separation and distribution , elan made a cash investment in us of $ 99.0 million , which we have been using to fund working capital expenses and for other general corporate purposes . additionally , a wholly-owned subsidiary of elan made a cash payment of $ 26.0 million to subscribe for 18 % of our outstanding ordinary shares ( as calculated immediately following the subscription ) . 44 working capital was $ 170.8 million at december 31 , 2013 , an increase of $ 46.7 million from working capital as of december 31 , 2012 . this increase was principally attributable to a higher net cash and cash equivalents balance of $ 51.8 million due primarily to the net proceeds from the october 2013 equity financing discussed below , partially offset by a $ 1.5 million increase in accrued research and development and a $ 4.2 million increase in accounts payable and other current liabilities . as of december 31 , 2013 , we had $ 176.7 million in cash and cash equivalents .

our semiconductor products are electronic components that our customers generally incorporate into larger electronic systems , such as , wireless basestations , high capacity optical networks , radar , medical systems and test and measurement . our primary markets are : ( 1 ) telecom , which includes carrier infrastructure such as long-haul/metro , 5g and fttx/pon , among others ; ( 2 ) i & d , which includes military and commercial radar , rf jammers , electronic countermeasures , communication data links , satellite communications and multi-market applications , which include industrial , medical , test and measurement and scientific applications ; and ( 3 ) data center , enabled by our broad portfolio of analog ics and photonic components for high speed optical module customers . see “ item 1 - business ” for additional information . basis of presentation we have one reportable operating segment and all intercompany balances have been eliminated in consolidation . we have a 52 or 53-week fiscal year ending on the friday closest to the last day of september . fiscal year 2020 included 53 weeks and fiscal years 2019 and 2018 each consisted of 52 weeks . to offset the effect of holidays , for fiscal years in which there are 53 weeks , we typically include the extra week in the first quarter of our fiscal year . our first quarter of fiscal year 2020 , ended january 3 , 2020 , included 14 weeks . description of our revenue revenue . our revenue is derived from sales of high-performance rf , microwave , millimeter wave , optical and photonic semiconductor products . we design , integrate , manufacture and package differentiated , semiconductor-based products that we sell to customers through our direct sales organization , our network of independent sales representatives and our distributors . we believe the primary drivers of our future revenue growth will include : continued growth in the demand for high-performance analog , digital and optical semiconductors in our three primary markets ; introducing new products using advanced technologies , added features , higher levels of integration and improved performance ; increasing content of our semiconductor solutions in customers ' systems through cross-selling our product lines ; leveraging our core strength and leadership position in standard , catalog products that service all of our end applications ; and engaging early with our lead customers to develop custom and standard products . our core strategy is to develop and innovate high-performance products that address our customers ' most difficult technical challenges in our primary markets : telecom , i & d and data center . we expect our revenue in the telecom market to be driven by 5g deployments , with continued upgrades and expansion of communications equipment , and increasing adoption of our high-performance rf , millimeter wave , optical and photonic components . we expect our revenue in the i & d market to be driven by the expanding product portfolio that we offer which services applications such as test and measurement , satellite communications , civil and military radar , industrial , scientific and medical applications , further supported by growth in applications for our multi-market catalog products . we expect our revenue in the data center market to be driven by the adoption of cloud-based services and the upgrade of data center architectures , to 100g , 200g , 400g and 800g interconnects , which we expect will drive adoption of higher speed optical and photonic components . covid-19 impact see “ item 1 - business . ” for additional information on risk factors that could impact our future results , please refer to “ item 1a - risk factors ” in this annual report . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements . the preparation of financial statements , in conformity with generally accepted accounting principles ( “ gaap ” ) in the u.s. , requires management 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 amounts of revenue and expenses during the reporting period . by their nature , these estimates and judgments are subject to an inherent degree of uncertainty and could be material 27 if our actual or expected experience were to change unexpectedly . on an ongoing basis , we re-evaluate our estimates and judgments . due to the covid-19 pandemic , there has been uncertainty and disruption in the global economy and financial markets . we are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of the date of filing of this annual report on form 10-k with the sec . these estimates may change as new events occur and additional information is obtained . actual results could differ materially from these estimates under different assumptions or conditions . we base our estimates and judgments on our historical experience and on other assumptions that we believe are reasonable under the circumstances , the results of which form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results could differ from those estimates and material effects on our operating results and financial position may result . the accounting policies which our management believes involve the most significant application of judgment or involve complex estimation , are inventories and associated reserves ; goodwill and intangibles asset valuations and associated impairment assessments ; revenue reserves ; share-based compensation valuations and income taxes . story_separator_special_tag in fiscal year 2019 , our i & d market revenues increased by $ 19.3 million , or 10.4 % , compared to fiscal year 2018. the increase was related to higher revenue from sales across the product portfolio . in fiscal year 2019 , our data center market revenue decreased by $ 48.0 million , or 29.6 % , compared to fiscal year 2018. the decrease was primarily due to lower revenue related to sales of legacy optical products and lasers , partially offset by the recognition of $ 7.0 million of licensing revenue during the fiscal year ended september 27 , 2019. gross profit . in fiscal year 2019 , our gross profit decreased by $ 25.0 million , or 10.2 % , compared to fiscal year 2018. gross margin of 44.2 % in fiscal year 2019 decreased 110 basis points , compared to fiscal year 2018. gross profit during 2019 was primarily impacted by lower fiscal year 2019 revenue , lower gross profit as a result of the may 2018 sale of the lr4 business and higher inventory reserves primarily associated with data center products , partially offset by the recognition of $ 7.0 million of licensing revenue during fiscal year 2019. research and development . in fiscal year 2019 , research and development expense decreased by $ 14.2 million , or 8.0 % , to $ 163.5 million representing 32.7 % of revenue , compared with $ 177.7 million , representing 31.2 % of revenue in fiscal year 2018. research and development expense decreased in the 2019 period primarily as a result of lower compensation-related costs , lower share-based compensation , as well the closure of certain design facilities associated with restructuring actions . research and development expense increased as a percentage of revenue due to the decrease in net revenue during fiscal year 2019. selling , general and administrative . in fiscal year 2019 , selling , general and administrative expenses decreased by $ 8.4 million , or 5.2 % , to $ 153.3 million , or 30.7 % of revenue , compared with $ 161.7 million , or 28.3 % of revenue , for fiscal year 2018. selling , general and administrative expenses decreased in the fiscal year 2019 period primarily due to lower share-based compensation , lower amortization expense , and lower other compensation-related costs as a result of restructuring actions . selling , general and administrative expense increased as a percentage of revenue due to the decrease in net revenue during fiscal year 2019. impairment charges . in fiscal year 2019 impairment charges were $ 264.8 million , or 53.0 % of revenue , primarily related to the $ 257.0 million impairment of intangible assets , as well as the impairment of $ 7.1 million impairment of equipment from construction 32 in process that will not be placed in service . see note 16 - impairments to the consolidated financial statements included in this annual report for additional information . restructuring charges . in fiscal year 2019 , restructuring charges were $ 19.5 million , or 3.9 % of our revenue , compared with $ 6.3 million , or 1.1 % of our revenue , for fiscal year 2018. during the fiscal quarter ended june 28 , 2019 , we committed to the 2019 plan . we incurred restructuring charges of $ 11.6 million in fiscal year 2019 under such plan , including $ 6.3 million of employee-related costs , $ 4.0 million of impairment of fixed assets and $ 1.3 million of other facility-related costs . during the fiscal quarter ended march 29 , 2019 , we committed to a plan to exit certain design facilities and activities ( the “ design facilities plan ” ) . we incurred restructuring charges of $ 2.5 million in fiscal year 2019 under this plan , which primarily consists of $ 0.3 million of employee-related costs and $ 2.2 million of facility-related costs . this action was completed in fiscal year 2019 and no further costs were incurred . during the fiscal quarter ended september 28 , 2018 , we committed to a plan to exit certain production and product lines , primarily related to certain production facilities located in ithaca , new york ( the “ ithaca plan ” ) . for these facilities , we incurred restructuring charges of $ 5.5 million in fiscal year 2019 , including $ 1.5 million of employee-related costs and $ 4.0 million of facility-related costs . this action was completed in fiscal year 2019 and no further costs were incurred . refer to note 14 - restructurings in this annual report on form 10-k for additional information . warrant liability gain . in fiscal year 2019 , we recorded a warrant gain of $ 0.8 million , or 0.2 % of revenue , compared to a gain of $ 27.6 million , or 4.8 % of revenue , for fiscal year 2018. the difference between periods was driven by a decrease in the estimated fair value of common stock warrants we issued in december 2010 , which we carry as a liability at fair value . provision for income taxes . in fiscal year 2019 , the provision for income taxes was a benefit of $ 39.4 million , or 7.9 % of revenue , compared to a benefit of $ 21.5 million , or 3.8 % of revenue , for fiscal year 2018. the provision decreased primarily due to the immediate recognition of the current and deferred income tax effects totaling $ 39.8 million from an intra-entity transfer of a license for intellectual property to a higher taxed jurisdiction that received a tax basis step-up . for fiscal year 2018 , the blended u.s. federal income tax rate was 24.5 % . for fiscal year 2019 , the u.s. federal income tax rate was 21 % . the difference between the u.s. federal income tax rate of 21 % and our effective income tax rate

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liquidity and capital resources the following table summarizes our cash flow activities for the fiscal years ended october 2 , 2020 and september 27 , 2019 , respectively ( in thousands ) : replace_table_token_8_th cash flow from operating activities : our cash flow from operating activities for fiscal year 2020 was $ 171.4 million and consisted of a net loss of $ 46.1 million , plus adjustments to reconcile our net loss to cash provided by operating activities of $ 142.1 million plus changes in operating assets and liabilities of $ 75.5 million . adjustments to reconcile our net loss to cash provided by operating activities of $ 142.1 million primarily included depreciation and intangible amortization expense of $ 78.8 million , share-based compensation expense of $ 35.7 million , warrant liability expense of $ 12.9 million , impairment and loss on minority equity investments of $ 5.9 million , amortization of deferred financing costs of $ 4.1 million and a decrease in deferred tax assets of $ 3.3 million . in addition , cash from operating assets and liabilities was $ 75.5 million for fiscal year 2020 , primarily driven by a decrease in accounts receivable of $ 23.9 million due to improved revenue linearity , a decrease in inventory of $ 16.3 million , a decrease in income tax receivable of $ 14.9 million and a decrease in prepaid expenses and other assets of $ 18.1 million . 33 our cash flow from operating activities for fiscal year 2019 was $ 20.7 million and consisted of a net loss of $ 383.8 million , plus adjustments to reconcile our net loss to cash provided by operating activities of $ 371.5 million plus changes in operating assets and liabilities of $ 33.0 million .

with respect to our graphics products , we introduced the new amd radeon r9 fury x and r9 fury graphics , the amd radeon r7 300 and r9 300 series graphics as well as the amd radeon m300 series graphics to reinforce our graphics leadership in both power efficiency for notebooks and best-in class performance for desktops . we also expanded our amd firepro server gpu family by introducing the amd firepro s9170 , designed for high performance compute ( hpc ) environments . the amd firepro s9170 is based on second-generation amd graphics core next ( gcn ) gpu architecture and a unified scalable gpu optimized for graphics and compute . we announced the amd firepro w4300 graphics card designed for computer-aided design ( cad ) for both small and full-size workstations . we also launched the amd radeon r9 nano , a small-form-factor mini-itx enthusiast graphics card designed to deliver energy efficiency and performance for ultra-high resolutions , improved virtual reality experiences and smoother gameplay . with respect 34 to our embedded products , we introduced the amd embedded r-series soc processor designed for digital signage , retail signage , medical imaging , electronic gaming , media storage and communications and networking . during 2015 , we continued to focus on reducing our expenses . our operating expenses in 2015 decreased to $ 1.56 billion , from $ 1.99 billion in 2014. our operating expenses in 2014 included a goodwill impairment charge of $ 233 million . we also took steps to simplify our business and better align resources around our priorities and business outlook . in the third quarter of 2015 , we implemented a restructuring plan ( 2015 restructuring plan ) . the 2015 restructuring plan provides for a workforce reduction of approximately 5 % and includes organizational actions such as outsourcing certain it services and application development . the 2015 restructuring plan also anticipates a charge for the consolidation of certain real estate facilities . we realized operational savings , primarily in operating expenses , of approximately $ 8 million in 2015. we expect the 2015 restructuring plan to result in operational savings , primarily in operating expenses , of approximately $ 48 million in 2016. on october 15 , 2015 , we entered into an equity interest purchase agreement ( the equity interest purchase agreement ) with nantong fujitsu microelectronics co. , ltd. , a chinese joint stock company ( jv party ) , under which we will sell to jv party a majority of the equity interests in amd technologies ( china ) co. ltd. , a wholly-foreign owned enterprise incorporated as a limited liability company ( the chinese target company ) , and advanced micro devices export sdn . bhd . , a malaysian limited liability company ( the malaysian target company and , together with the chinese target company , the target companies ) , thereby forming two joint ventures ( collectively , the jvs ) with jv party in a transaction valued at approximately $ 436 million ( the transaction ) . the jv party will acquire 85 % of the equity interests in each jv for approximately $ 371 million and we estimate we will receive approximately $ 320 million cash , net of taxes and other customary expenses . after closing , jv party 's affiliates will own 85 % of the equity interests in each jv while certain of our subsidiaries will own the remaining 15 % . the transaction will result in the jvs providing assembly , testing , marking , packing and packaging services ( atmp ) to us . we plan to account for our investment in the jvs under the equity method of accounting . our cash , cash equivalents and marketable securities as of december 26 , 2015 were $ 785 million compared to $ 1.0 billion as of december 27 , 2014. total debt as of december 26 , 2015 was $ 2.26 billion , compared to $ 2.2 billion as of december 27 , 2014. globalfoundries formation and accounting on march 2 , 2009 , we consummated the transactions contemplated by the master transaction agreement among us , advanced technology investment company llc ( currently known as mubadala technology investments llc ( mubadala tech ) and west coast hitech l.p. ( wch ) , pursuant to which we formed gf . in connection with the consummation of the transactions contemplated by the master transaction agreement , amd , mubadala tech and gf entered into a wafer supply agreement ( the wsa ) , a funding agreement ( the funding agreement ) and a shareholders ' agreement ( the shareholders ' agreement ) on march 2 , 2009. at gf 's formation on march 2 , 2009 and through december 26 , 2009 , gf was deemed a variable-interest entity , and we were deemed to be gf 's primary beneficiary . accordingly , we consolidated gf under applicable accounting rules . as a result of certain gf governance changes , we deconsolidated gf and accounted for our gf ownership under the equity method of accounting as of december 27 , 2009. following the deconsolidation , gf became our related party . in the first quarter of 2011 , as a result of a contribution to gf by an affiliate of mubadala tech and certain gf governance changes noted above , our ownership in gf was diluted , and we concluded that we no longer had the ability to exercise significant influence over gf . accordingly , we changed our accounting for our investment in gf from the equity method to the cost method of accounting and recognized a dilution gain in investee of approximately $ 492 million . in the fourth quarter of 2011 , we identified indicators of impairment in gf that were deemed other than temporary . we performed a valuation analysis and recorded a non-cash impairment charge of $ 209 million . story_separator_special_tag in connection with our continued strategic transformation , effective july 1 , 2014 , we realigned our organizational structure . as a result of this organizational change , we have the following two reportable segments : the computing and graphics segment , which primarily includes desktop and notebook processors and chipsets , discrete gpus and professional graphics ; and the enterprise , embedded and semi-custom segment , which primarily includes server and embedded processors , semi-custom soc products , engineering services and royalties . in addition to these reportable segments , we have an all other category , which is not a reportable segment . this category primarily includes certain expenses and credits that are not allocated to any of the reportable segments because management does 38 not consider these expenses and credits in evaluating the performance of the reportable segments . also included in this category are amortization of acquired intangible assets , employee stock-based compensation expense , restructuring and other special charges , net , technology node transition charge , workforce rebalancing severance charges , goodwill impairment charge , significant or unusual lower of cost or market inventory adjustments and a net gain from licenses and settlement agreements regarding patent-related matters . we also reported the results of former businesses in the all other category because the operating results were not material . we intend the discussion of our financial condition and results of operations that follows to provide information that will assist you in understanding our financial statements , the changes in certain key items in those financial statements from year to year , the primary factors that resulted in those changes and how certain accounting principles , policies and estimates affect our financial statements . we use a 52 or 53 week fiscal year ending on the last saturday in december . the years ended december 26 , 2015 , december 27 , 2014 and december 28 , 2013 each included 52 weeks . references in this report to 2015 , 2014 and 2013 refer to the fiscal year unless explicitly stated otherwise . the following table provides a summary of net revenue and operating income ( loss ) by segment and income ( loss ) before income taxes for 2015 , 2014 and 2013 . the results prior to july 1 , 2014 have been recast to reflect our new reportable segments . replace_table_token_4_th computing and graphics computing and graphics net revenue of $ 1.8 billion in 2015 decreased by 42 % compared to $ 3.1 billion in 2014 as a result of a 44 % decrease in unit shipments , partially offset by a 3 % increase in average selling price . unit shipments of all our computing and graphics products decreased . the decrease in unit shipments of all categories of products was due to lower demand caused by challenging global macro economic conditions , especially in the greater china region , in addition to increased competitive pressures and reduced demand from our oem customers in advance of the microsoft windows® 10 operating system . the increase in average selling price was primarily attributable to an increase in average selling price of our notebook gpu products and aib products due to a favorable shift in our product mix , partially offset by a decrease in average selling price of our notebook microprocessor products and chipset products . computing and graphics net revenue of $ 3.1 billion in 2014 decreased by 16 % compared to $ 3.7 billion in 2013 as a result of a 27 % decrease in unit shipments , partially offset by a 15 % increase in average selling price . the decrease in unit shipments was primarily attributable to lower unit shipments of our microprocessor products for desktop and notebook pcs and chipsets due to challenging consumer pc market conditions and our chipsets being integrated into our apu products . the increase in average selling price was primarily attributable to an increase in average selling price of our microprocessor products due to improved product mix of our microprocessor products for desktop and notebook pcs . computing and graphics operating loss was $ 502 million in 2015 compared to $ 76 million in 2014 . the decline in operating results was primarily due to the decrease in net revenue referenced above , partially offset by a $ 696 million decrease in cost of sales , a $ 120 million decrease in research and development expenses and an $ 84 million decrease in marketing , general and administrative expenses . cost of sales decreased primarily due to lower unit shipments in 2015 compared to 2014 , partially offset by an inventory write-down of $ 52 million as a result of lower anticipated demand for primarily older-generation apu products . 39 operating loss in 2014 included a $ 19 million benefit from technology licensing revenue . research and development expenses and marketing , general and administrative expenses decreased for the reasons set forth under “ expenses , ” below . computing and graphics operating loss was $ 76 million in 2014 compared to an operating loss of $ 101 million in 2013. the improvement in operating results was primarily due to a $ 323 million decrease in cost of sales , a $ 201 million decrease in research and development expenses and an $ 89 million decrease in marketing , general and administrative expenses , partially offset by the decrease in net revenue referenced above . cost of sales decreased primarily due to lower unit shipments in 2014 compared to 2013. operating loss in 2014 included a $ 19 million benefit from technology licensing revenue . in addition , operating loss in 2013 included a $ 57 million benefit from sales of inventory that had been previously reserved in the third quarter of 2012 , as compared to a similar $ 8 million benefit in 2014. research and development expenses and marketing , general and administrative expenses decreased for the reasons set forth

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net cash provided by financing activities was $ 59 million in 2015 , primarily due to net proceeds from borrowings pursuant to our secured revolving line of credit of $ 100 million , of which $ 42 million was used to repay the remaining aggregate principal amount of our 6.00 % notes during the second quarter of 2015. in addition , during 2015 , we received $ 5 million from the exercise of employee stock options . net cash provided by financing activities was $ 46 million in 2014 , primarily due to net proceeds from borrowings pursuant to our 6.75 % notes of $ 589 million , our 7.00 % notes of $ 491 million and our secured revolving line of credit of $ 75 million , partially offset by $ 518 million in payments to repurchase a portion of our 6.00 % notes , $ 522 million in payments to repurchase our 8.125 % notes , $ 48 million in payments to repurchase a portion of our 7.75 % notes , $ 24 million in payments to repurchase a portion of our 7.50 % notes and $ 3 million in payments for capital lease obligations . during 2014 , we also received $ 4 million from the exercise of employee stock options .

`` our participation under this projected five-year grant is awarded incrementally on an annual basis with the first year commencing september 15 , 2017. cumulative funding for this sub-award in the amount of $ 2,403 has been appropriated by the u.s. congress through the fourth contractual year ending in september 2021. during 2021 , we anticipate that the final option year ending on september 14 , 2022 will be awarded to yield10 , resulting in aggregate total sub-award funding of $ 2,957 , provided the u.s. congress continues to appropriate funds for the program , we are able to make progress towards meeting grant objectives and we remain in compliance with other terms and conditions of the sub-award . as of december 31 , 2020 , proceeds of $ 531 remain to be earned from the msu sub-award amounts awarded to date . this includes amounts for reimbursement to our subcontractors , as well as reimbursement for our employees ' time , benefits and other expenses related to future performance . program title funding agency total government funds total revenue recognized through december 31 , 2020 remaining amount to be recognized as of december 31 , 2020 contract/grant expiration subcontract from michigan state university project funded by doe entitled `` a systems approach to increasing carbon flux to seed oil `` department of energy $ 2,403 $ 1,872 $ 531 september 15 , 2021 funding from national research council canada through its industrial research assistance program ( nrc-irap ) entitled `` innovation assistance program `` national research council canada 67 67 — june 24 , 2020 funding from national research council canada through its industrial research assistance program ( nrc-irap ) entitled `` innovation assistance program `` national research council canada 86 86 — december 19 , 2020 total $ 2,556 $ 2,025 $ 531 critical accounting estimates and judgments our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , costs and expenses , and related disclosures . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates . we believe that our significant accounting policies , which are described in note 2 to our consolidated financial statements , involve a degree of judgment and complexity . accordingly , we believe that the specific accounting policies and significant judgments described below are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations . grant revenue government research grants currently represent our sole source of revenue . we recognize government grants as revenue because the grants are central to the company 's ongoing crop science program . revenue is earned as research expenses related to the grants are incurred . revenue earned on government grants , but not yet invoiced as of the balance sheet date , is recorded as unbilled receivables in the accompanying consolidated balance sheets for the years ended december 31 , 2020 and december 31 , 2019. funds received from government grants in advance of work being performed are recorded as deferred revenue until earned . 46 performance-based compensation accrual our employee compensation program includes a potential for bonus payments based on company and individual performance against annual goals that are established early in the fiscal year by management and the company 's board of directors . bonus payments are generally paid at the end of february following the most recently completed fiscal year . the compensation committee of our board of directors is responsible for reviewing annual performance against goals and approving bonus payments for the company 's executive officers . annual cash bonuses are accrued evenly throughout the fiscal year unless management and or the compensation committee determine that bonus compensation payments are unlikely to be paid at the existing rate . in that event , we make a cumulative year-to-date adjustment to our bonus accrual and adjust quarterly accruals for the remainder of the year in order to achieve a bonus compensation accrual at year-end that matches expected bonus payments . our quarterly performance-based compensation expense and accrual balances may vary significantly during the year as performance judgments change and we revise our estimates . stock-based compensation the accounting standards for stock-based compensation require that all stock-based awards be recognized as an expense in the consolidated financial statements and that such expense be measured based on the fair value of the award . determining the appropriate fair value model and calculating the fair value of stock-based payment awards requires the use of highly subjective assumptions , including the expected life of the stock-based payment awards and stock price volatility . we use the black-scholes option-pricing model to value our service-based option grants and to determine the related compensation expense . generally , we recognize the fair value of stock awards evenly over their vesting periods provided the individual receiving the award meets continuing service conditions . the assumptions used in calculating the fair value of stock-based awards represent management 's best estimates , but the estimates involve inherent uncertainties and the application of management judgment . see note 10 to the consolidated financial statements for further discussion on the key assumptions used to determine the fair values of option grants pursuant to the black-scholes option pricing model . income taxes due to the company 's history of annual income tax losses , it has never incurred significant income tax expenses . the company has , however , recorded significant deferred income tax assets for net operating loss carry forwards and research tax credits that are available to offset future income taxes . deferred income taxes are measured by applying currently enacted tax rates to the differences between financial statement and income tax reporting . story_separator_special_tag our forecasts related to research and development expense are subject to change due to the potential impact of the covid-19 pandemic , or as new collaborative and other business opportunities arise that alter our plans . 48 general and administrative expenses general and administrative expenses were $ 5,047 and $ 4,554 for the fiscal years ended december 31 , 2020 and december 31 , 2019 , respectively . the increase of $ 493 , or 11 % , was primarily due to increased employee compensation and benefits , professional fees and higher insurance premiums . employee compensation and benefits increased by $ 198 , from $ 1,826 during the year ended december 31 , 2019 to $ 2,024 during the year ended december 31 , 2020 , and was primarily a result of recording employee bonuses for 2020. stock compensation expense increased by $ 58 during the year ended december 31 , 2020 , as a result of stock option awards issued to employees during the year . professional fees increased by $ 239 , due to work performed by our outside legal and accounting firms in connection with securities registrations and corporate governance activities . during the year ended december 31 , 2020 , insurance expense increased by $ 81 as a result of higher director and officer ( `` d & o `` ) liability insurance premiums . higher d & o premiums are being assessed nationwide by insurance underwriters due to consecutive years of increased class action lawsuits and settlement claims . based on our current planning and budgeting , we anticipate that general and administrative expense will increase over the next twelve months as we add regulatory support and senior operations and business development resources to our company in connection with the future launch of our camelina products . our forecasts related to general and administrative expense are subject to change due to the potential impact of the covid-19 pandemic , or as new collaborative and other business opportunities arise that alter our plans . other income ( expense ) , net replace_table_token_3_th loss on issuance of securities on november 19 , 2019 , we closed on concurrent securities offerings that included a total of 2,875,000 warrants that received liability classification and were determined to have a black-scholes fair value of $ 24,518 on their date of issuance . the gross proceeds of the 2019 offerings were first allocated to the warrants . in accordance with applicable accounting guidance , the warrants were recorded at their full fair value and the difference between the fair value and the proceeds of $ 13,018 was recorded to other income ( expense ) . see note 9 - capital stock and warrants , in our consolidated financial statements . offering costs the combined proceeds of the november 2019 offerings were allocated solely to the liability classified warrants . all of the offering costs of $ 1,254 were therefore assigned to the warrants and expensed immediately to other income ( expense ) . change in fair value of warrants the fair value of the liability classified warrants issued in the november 2019 concurrent offerings were subject to mark-to-market adjustment on subsequent balance sheet dates . we remeasured the fair value of the warrant liability at december 31 , 2019 , recording a gain from the change in fair value of $ 9,541. on january 15 , 2020 , we remeasured the fair value of the warrant liability again in connection with the company 's 1-for-40 reverse stock split , recording a loss from the change in fair value of $ 957. the reverse stock split increased the number of shares of common stock available for issuance resulting in reclassification of the warrants from a liability to equity . 49 loan forgiveness income during april 2020 , we received $ 333 in loan proceeds through the paycheck protection program flexibility act ( `` ppp `` ) , established pursuant to the cares act . under the cares act and the ppp , a borrower may apply for and be granted forgiveness for all or a part of its ppp loan . the amount of loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors , including the amount of loan proceeds used by the borrower during the twenty-four-week period after the loan origination for certain purposes including payroll costs , rent payments on certain leases , and certain qualified utility payments . we utilized the entire ppp loan amount for qualifying expenses and applied for loan forgiveness , receiving a favorable determination in november 2020 for the full amount of the loan . as a result , we recorded the $ 333 as loan forgiveness income within other income ( expense ) in our consolidated statement of operations for the year ended december 31 , 2020. interest income ( expense ) , net other income ( expense ) for the years ended december 31 , 2020 and december 31 , 2019 was derived primarily from investment income earned from the company 's cash equivalents and short-term investments . story_separator_special_tag the result of the company 's net loss of $ 12,956 , lease payments and modifications to reduce lease liabilities of $ 2,244 , partially offset by non-cash expenses , including the company 's loss on issuance of securities of $ 13,018 representing the difference between the fair value of the liability classified warrants issued in the company 's november 2019 securities offering and the proceeds received from the offering . net cash used for operating activities during the year ended december 31 , 2019 also included an offsetting non-cash gain of $ 9,541 as a result of remeasuring the fair value of the warrants on december 31 , 2019 and other non-cash expenses recorded during 2019 , including stock-based compensation , depreciation , 401 ( k ) stock matching contributions and non-cash lease expense resulting from our amortization of our leased right-of-use assets

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liquidity and capital resources we require cash to fund our working capital needs , to purchase capital assets , to pay our lease obligations and other operating costs . the primary sources of our liquidity have historically included equity financings , government research grants and income earned on cash equivalents and short-term investments . since our inception , we have incurred significant expenses related to our research , development and commercialization efforts . with the exception of 2012 , we have recorded annual losses since the company 's initial founding , including our fiscal year ended december 31 , 2020. as of december 31 , 2020 , we had an accumulated deficit of $ 375,100. our total unrestricted cash , cash equivalents and short-term investments as of december 31 , 2020 , totaled $ 9,702 as compared to $ 11,117 at december 31 , 2019. as of december 31 , 2020 , we had no outstanding debt . our cash , cash equivalents and short-term investments at december 31 , 2020 , were held for working capital purposes . as of december 31 , 2020 , we had restricted cash of $ 264 , which consisted of $ 229 held in connection with the lease agreement for our woburn , massachusetts facility and $ 35 held in connection with our corporate credit card program . investments are made in accordance with our corporate investment policy , as approved by our board of directors . the primary objective of this policy is to preserve principal , and consequently , investments are limited to high quality corporate debt , u.s. treasury bills and notes , money market funds , bank debt obligations , municipal debt obligations and asset-backed securities . the policy establishes maturity limits , concentration limits , and liquidity requirements . as of december 31 , 2020 , we were in compliance with this policy . subsequent to year-end , on february 3 , 2021 , we raised $ 11,996 , net of estimated offering costs of $ 744 , through the public sale of 1,040,000 shares of common stock at an issuance price of $ 12.25. these shares were offered by us pursuant to a registration statement on form s-3 ( file no .

our portfolio consists of resorts marketed under a number of different all-inclusive brands . hyatt ziva , panama jack and dreams are all-ages brands . sanctuary , hyatt zilara , the royal and secrets are adults-only brands . we have also entered into an exclusive agreement with panama jack that provides us with the right to develop and own , and or manage all-inclusive resorts under the panama jack brand in antigua , aruba , the bahamas , barbados , costa rica , the dominican republic , jamaica , mexico , panama , st. lucia and , subject to the lifting of various u.s. sanctions , cuba . we have rebranded two of our resorts under the panama jack brand , which both opened under the new brand in december 2017. we believe that these brands enable us to differentiate our resorts and attract a loyal guest base . we have a strategic relationship with hyatt , a global lodging company with widely recognized brands , pursuant to which we jointly developed the standards for the operation of the hyatt all-inclusive resort brands . we currently are the only hyatt-approved operator of the hyatt all-inclusive resort brands and we have rebranded five of our resorts under the hyatt all-inclusive resort brands since 2013. refer to “ item 1. business ” for a description of our contractual agreements with hyatt . in addition to creating potential future opportunities to expand our business , we believe that our strategic relationship with hyatt will further establish us as a leader in the all-inclusive resort business by providing our hyatt all-inclusive resort brand resorts access to hyatt 's distribution channels and guest base that includes leisure travelers . we believe that our strategic relationship with hyatt and the increasing awareness of our all-inclusive resort brands among potential guests will further enable us to increase the number of bookings made through lower cost sales channels , such as direct bookings through hyatt , with respect to our hyatt all-inclusive resort brand resorts , and our company and resort websites . for the year ended december 31 , 2017 , 30.6 % of the bookings at our hyatt all-inclusive resort brand resorts came from direct , group and world of hyatt ( previously hyatt gold passport ® ) sources . direct and group bookings from all of our resorts totaled 19.4 % . 46 results of operations years ended december 31 , 2017 and 2016 the following table summarizes our results of operations on a consolidated basis for the years ended december 31 , 2017 and 2016 : replace_table_token_5_th the following tables set forth information with respect to our occupancy , net package adr , net package revpar , net package revenue , net non-package revenue , management fee revenue , total net revenue and adjusted ebitda ( as defined below ) for the years ended december 31 , 2017 and 2016 . for a description of these operating metrics and non-u.s. gaap measures and a reconciliation of net package revenue , net non-package revenue , management fee revenue and total net revenue to total revenue as computed under u.s. gaap , see “ key indicators of financial and operating performance , ” below . for discussions of adjusted ebitda and reconciliation to the most comparable u.s. gaap financial measures , see “ key indicators of financial and operating performance ” and “ non-u.s. gaap financial measures , ” below . total portfolio replace_table_token_6_th 47 total revenue and total net revenue our total revenue for the year ended december 31 , 2017 increased $ 38.1 million , or 7.3 % , compared to the year ended december 31 , 2016 . our total net revenue ( which represents total revenue less compulsory tips paid to employees ) for the year ended december 31 , 2017 increased $ 37.2 million , or 7.3 % , compared to the year ended december 31 , 2016 . this increase was driven by an increase in net package revenue of $ 29.4 million , or 6.7 % , and an increase in net non-package revenue of $ 7.6 million , or 10.9 % . the increase in net package revenue was the result of an increase in net package adr of $ 16.40 , or 6.8 % , and an increase in average occupancy from 81.2 % to 81.4 % , the equivalent of an increase of $ 13.96 , or 7.1 % , in net package revpar . the following table shows a reconciliation of net package revenue , net non-package revenue , and management fee revenue to total revenue for the years ended december 31 , 2017 and 2016 : replace_table_token_7_th direct expenses the following table shows a reconciliation of our direct expenses to net direct expenses for the years ended december 31 , 2017 and 2016 ( $ in thousands ) : replace_table_token_8_th our direct expenses include resort expenses , such as food and beverage , salaries and wages , utilities and other ongoing operational expenses . our net direct expenses ( which represents total direct expenses less compulsory tips paid to employees ) for the year ended december 31 , 2017 were $ 296.7 million , or 54.3 % , of total net revenue and $ 274.7 million , or 54.0 % , of total net revenue for the year ended december 31 , 2016 . 48 net direct expenses for the year ended december 31 , 2017 increased $ 22.0 million , or 8.0 % , compared to the year ended december 31 , 2016 . direct operating expenses fluctuate based on various factors , including changes in occupancy , labor costs , utilities , repair and maintenance costs and license and property taxes . management fees and franchise fees , which are computed as a percentage of revenue , increased as a result of higher revenues . story_separator_special_tag as a result , we believe these measures provide more consistent metrics for comparing the performance of our operating resorts . we calculate comparable adjusted ebitda , comparable total net revenue , comparable net package revenue and comparable net non-package revenue as the total amount of each respective measure less amounts attributable to non-comparable resorts , by which we mean resorts that were not owned or in operation during some or all of the relevant reporting period . for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , we had no non-comparable resorts as all of our resorts were owned and in operation for each period . for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , our non-comparable resorts were : hyatt ziva cancún , which closed on april 30 , 2014 for renovation and reopened on november 15 , 2015 ; and hyatt ziva los cabos , which closed on september 14 , 2014 following hurricane odile and reopened on september 15 , 2015. segment results years ended december 31 , 2017 and 2016 we evaluate our business segment operating performance using segment net revenue and segment adjusted ebitda . the following tables summarize segment net revenue and segment adjusted ebitda for the years ended december 31 , 2017 and 2016 : replace_table_token_18_th replace_table_token_19_th for a reconciliation of segment net revenue and segment adjusted ebitda to gross revenue and net ( loss ) income , respectively , each as computed under u.s. gaap , see note 17 to our consolidated financial statements . 58 yucatán peninsula the following tables set forth information with respect to our occupancy , net package adr , net package revpar , net package revenue , net non-package revenue , total net revenue and adjusted ebitda for our yucatán peninsula segment for the years ended december 31 , 2017 and 2016 for the total segment portfolio . replace_table_token_20_th segment total net revenue . our total net revenue for the year ended december 31 , 2017 increased $ 20.1 million , or 8.1 % , compared to the year ended december 31 , 2016 . this increase was primarily due to strong performance of hyatt ziva cancun , which accounted for a $ 19.6 million increase in total net revenue compared to the year ended december 31 , 2016 due to its increase in both net package adr and occupancy compared to prior year . segment adjusted ebitda . our adjusted ebitda for the year ended december 31 , 2017 increased $ 4.8 million , or 4.4 % , compared to the year ended december 31 , 2016 . this increase was primarily the result of the performance of hyatt ziva cancun , which accounted for a $ 15.7 million increase in adjusted ebitda compared to the year ended december 31 , 2016 . this was partially offset by panama jack resorts cancun and panama jack resorts playa del carmen , which together accounted for a decrease of $ 9.5 million in adjusted ebitda compared to the year ended december 31 , 2016 . these resorts had an increase in operational expenses to advance the renovations and conversion of these resorts to the panama jack brand . the renovations were completed and the hotels were opened under the panama jack brand in december 2017. pacific coast the following tables set forth information with respect to our occupancy , net package adr , net package revpar , net package revenue , net non-package revenue , total net revenue and adjusted ebitda for our pacific coast segment for the years ended december 31 , 2017 and 2016 for the total segment portfolio . replace_table_token_21_th segment total net revenue . our total net revenue for the year ended december 31 , 2017 increased $ 12.2 million , or 16.2 % , compared to the year ended december 31 , 2016 . this increase was driven by an increase in net package adr and occupancy by both hotels in this segment . segment adjusted ebitda . our adjusted ebitda for the year ended december 31 , 2017 increased $ 8.4 million , or 32.5 % , compared to the year ended december 31 , 2016 . this increase was due to increased adjusted ebitda by both hotels in this segment . 59 caribbean basin the following table sets forth information with respect to our occupancy , net package adr , net package revpar , net package revenue , net non-package revenue , total net revenue and adjusted ebitda for our caribbean basin segment for the years ended december 31 , 2017 and 2016 for the total segment portfolio . replace_table_token_22_th segment total net revenue . our total net revenue for the year ended december 31 , 2017 increased $ 4.8 million , or 2.6 % , compared to the year ended december 31 , 2016 . this increase was due to the performance of hyatt ziva and hyatt zilara rose hall , which accounted for a $ 6.1 million increase in total net revenue compared to the year ended december 31 , 2016 . this was offset by a decrease of $ 1.3 million for the year ended december 31 , 2017 for the remaining resorts in the dominican republic compared to the year ended december 31 , 2016 . segment adjusted ebitda . our adjusted ebitda for the year ended december 31 , 2017 increased $ 3.0 million , or 6.0 % , compared to the year ended december 31 , 2016 . this increase was primarily due to the performance of hyatt ziva and hyatt zilara rose hall , which accounted for a $ 3.4 million increase in adjusted ebitda compared to the year ended december 31 , 2016 . this was partially offset by a decrease of $ 0.4 million for the year ended december 31 , 2017 for the remaining resorts in the dominican republic compared to the year

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loss on extinguishment of debt the refinancings of our senior secured credit facility and the repayment of our senior notes due 2020 were accounted for as a partial modification and partial extinguishment of debt , which resulted in a lo ss on extinguishment of debt for the year ended december 31 , 2017 of $ 25.1 million . income tax provision the income tax provision for the year ended december 31 , 2017 was $ 9.1 million , an increase of $ 4.8 million compared to the year ended december 31 , 2016 , during which period we reported income tax expense of $ 4.2 million . the increased income tax provision was driven primarily by a $ 10.4 million increased tax expense associated with foreign exchange rate fluctuations , a $ 9.0 million increase on the valuation allowance and a $ 2.6 million increased tax expense on the measurement of the u.s. deferred tax assets pursuant to the u.s. tax rate change for tax years beginning after december 31 , 2017. the tax expense increase partially offset a $ 4.0 million decrease of tax expense on decreased pre-tax book income , a $ 1.4 million decreased tax expense associated with other book tax differences and a tax benefit of $ 4.6 million from the rate-favorable jurisdictions . the tax expense was further offset by a $ 7.8 million tax benefit on the reversal of the 2016 tax expense for one of our dominican republic entities pursuant to the advanced pricing agreement signed with dominican republic tax authorities in december 2017. this agreement is retroactive to 2016. adjusted ebitda our adjusted ebitda for the year ended december 31 , 2017 increased $ 16.2 million , or 10.5 % , compared to the year ended december 31 , 2016 . for discussions of adjusted ebitda and reconciliation to the most comparable u.s. gaap financial measures , see “ key indicators of financial and operating performance ” and “ non-u.s. gaap financial measures , ” below .

we record compensation expense based on the fair value of the award at the reporting date . the awards to consultants and other third-parties are then revalued , or the total compensation is recalculated based on the then current fair value , at each subsequent reporting date . this results in a change to the amount previously recorded in respect of the equity award grant , and additional expense or a reversal of expense may be recorded in subsequent periods based on changes in the assumptions used to calculate fair value , such as changes in market price , until the measurement date is reached and the compensation expense is finalized . in addition , certain restricted stock issued to employees vest upon the achievement of certain milestones ; therefore , the total expense is uncertain until the milestone is probable . our clinical trials will be lengthy and expensive . even if these trials show that our drug candidates are effective in treating certain indications , there is no guarantee that we will be able to record commercial sales of any of our drug candidates in the near future . in addition , we expect losses to continue as we continue to fund in-licensing and development of new drug candidates . as we continue our development efforts , we may enter into additional third-party collaborative agreements and may incur additional expenses , such as licensing fees and milestone payments . in addition , we may need to establish the commercial infrastructure required to manufacture , market and sell our drug candidates following approval , if any , by the fda , which would result in us incurring additional expenses . as a result , our quarterly results may fluctuate and a quarter-by-quarter comparison of our operating results may not be a meaningful indication of our future performance . 39 results of operations years ended december 31 , 2016 , 2015 and 2014 replace_table_token_6_th years ended december 31 , 2016 and 2015 license revenue . license revenue was $ 152,381 for each of the years ended december 31 , 2016 and 2015. license revenue is related to the amortization of an upfront payment of $ 2.0 million associated with our license agreement with ildong . the upfront payment from ildong will be recognized as license revenue on a straight-line basis through december 2025 , which represents the estimated period over which the company will have certain ongoing responsibilities under the sublicense agreement . noncash compensation expense ( research and development ) . noncash compensation expense ( research and development ) related to equity incentive grants totaled $ 2,742,354 for the year ended december 31 , 2016 , as compared to $ 4,261,406 during the comparable period in 2015. the decrease in noncash compensation expense was primarily related to milestone-based vesting of restricted stock grants to non-executive personnel during the year ended december 31 , 2015 , and a decrease in the measurement date fair value of certain consultant restricted stock during the year ended december 31 , 2016 . other research and development expenses . other research and development expenses increased by $ 23,044,003 from $ 43,445,817 for the year ended december 31 , 2015 to $ 66,489,820 for the year ended december 31 , 2016. the increase in other research and development expenses was due primarily to a $ 1.0 million licensing fee for the jubilant sub-license agreement , as well as the ongoing clinical development programs and related manufacturing costs for tg-1101 and tgr-1202 during the year ended december 31 , 2016. we expect our other research and development costs to increase modestly during 2017 as enrollment of additional patients in our phase 3 clinical trials increases and we prepare for a commercial launch . noncash compensation expense ( general and administrative ) . noncash compensation expense ( general and administrative ) related to equity incentive grants decreased by $ 6,668,041 from $ 11,435,686 for the year ended december 31 , 2015 to $ 4,767,645 during the year ended december 31 , 2016. the decrease in noncash compensation expense was primarily related to greater measurement date fair values of certain consultant restricted stock during the year ended december 31 , 2015 . 40 other general and administrative expenses . other general and administrative expenses increased by $ 932,202 from $ 4,189,488 for the year ended december 31 , 2015 to $ 5,121,690 for the year ended december 31 , 2016. the increase was due primarily to the straight-line rent expense of our new office space , as well as increased personnel and other general and administrative costs . we expect our other general and administrative expenses to increase modestly during 2017. other expense ( income ) , net . other income increased by $ 484,864 from $ 231,370 for the year ended december 31 , 2015 to $ 716,234 for the year ended december 31 , 2016. the increase is mainly due to the receipt of a new york city biotechnology tax credit of approximately $ 0.3 million and an increase in interest income for the year ended december 31 , 2016. years ended december 31 , 2015 and 2014 license revenue . license revenue was $ 152,381 for each of the years ended december 31 , 2015 and 2014. license revenue is related to the amortization of an upfront payment of $ 2.0 million associated with our license agreement with ildong . the upfront payment from ildong will be recognized as license revenue on a straight-line basis through december 2025 , which represents the estimated period over which the company will have certain ongoing responsibilities under the sublicense agreement . noncash stock expense associated with in-licensing agreements . story_separator_special_tag the hierarchy ranks the quality and reliability of inputs , or assumptions , used in the determination of fair value and requires financial assets and liabilities carried at fair value to be classified and disclosed in one of three categories . we elected the fair value option for valuing the 5 % notes . we elected the fair value option in order to reflect in our financial statements the assumptions that market participants use in evaluating these financial instruments . recently issued accounting standards in january 2017 , the financial accounting standards board ( `` fasb `` ) issued accounting standards update ( “ asu ” ) no . 2017-04 , “ simplifying the test for goodwill impairment ” ( “ asu 2017-04 ” ) . asu 2017-04 removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test . as a result , under asu 2017-04 , an entity should perform its annual , or interim , goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit 's fair value ; however , the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit . in addition , asu 2017-04 : ● clarifies the requirements for excluding and allocating foreign currency translation adjustments to reporting units in connection with an entity 's testing of reporting units for goodwill impairment . ● clarifies that an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss , if applicable . ● makes minor changes to the overview and background sections of certain accounting standards codification ( “ asc ” or “ codification ” ) subtopics and topics as part of the board 's initiative to unify and improve those sections throughout the codification . asu 2017-04 is effective prospectively for annual and interim periods beginning on or after december 15 , 2019 , and early adoption is permitted on testing dates after january 1 , 2017. we are currently evaluating the impact the adoption of asu 2017-04 will have on our consolidated financial statements . 45 in november 2016 , the fasb issued asu 2016-18 , “ restricted cash – a consensus of the fasb emerging issues task force ” ( “ asu 2016-18 ” ) . asu 2016-18 amends asc 230 to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows . key requirements of the asu are as follows : ● an entity should include in its cash and cash-equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents . the asu does not define the terms “ restricted cash ” and “ restricted cash equivalents ” but states that an entity should continue to provide appropriate disclosures about its accounting policies pertaining to restricted cash in accordance with other gaap . the asu also states that any change in accounting policy will need to be assessed under asc 250 . ● a reconciliation between the statement of financial position and the statement of cash flows must be disclosed when the statement of financial position includes more than one line item for cash , cash equivalents , restricted cash , and restricted cash equivalents . ● changes in restricted cash and restricted cash equivalents that result from transfers between cash , cash equivalents , and restricted cash and restricted cash equivalents should not be presented as cash flow activities in the statement of cash flows . ● an entity with a material balance of amounts generally described as restricted cash and restricted cash equivalents must disclose information about the nature of the restrictions . asu 2016-18 is effective for annual and interim periods beginning after december 15 , 2017 , and early adoption is permitted for all entities . we are currently evaluating the impact the adoption of asu 2016-18 will have on our consolidated financial statements . in august 2016 , the fasb issued asu no . 2016-15 , “ classification of certain cash receipts and cash payments ” ( “ asu 2016-15 ” ) . asu 2016-15 amends the guidance in asc 230 on the classification of certain cash receipts and payments in the statement of cash flows . the primary purpose of asu 2016-15 is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic . the amendments in asu 2016-15 add or clarify guidance on eight cash flow issues : ● debt prepayment or debt extinguishment costs . ● settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing . ● contingent consideration payments made after a business combination . ● proceeds from the settlement of insurance claims . ● proceeds from the settlement of corporate-owned life insurance policies , including bank-owned life insurance policies . ● distributions received from equity method investees . ● beneficial interests in securitization transactions . ● separately identifiable cash flows and application of the predominance principle . asu 2016-15 is effective for annual and interim periods beginning after december 15 , 2017 , and early adoption is permitted for all entities . entities must apply the guidance retrospectively to all periods presented but may apply it prospectively from the earliest date practicable if retrospective application would be impracticable . the provisions of this standard are not expected to significantly impact the company . in may 2016 , the fasb issued asu no . 2016-11 , “ rescission of sec guidance because of accounting standards update 2014-09 and 2014-16 pursuant to staff announcements at the march 3 ,

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liquidity and capital resources our primary sources of cash have been from the sale of equity securities , the upfront payment from our sublicense agreement with ildong , and warrant and option exercises . we have not yet commercialized any of our drug candidates and can not be sure if we will ever be able to do so . even if we commercialize one or more of our drug candidates , we may not become profitable . our ability to achieve profitability depends on a number of factors , including our ability to obtain regulatory approval for our drug candidates , successfully complete any post-approval regulatory obligations and successfully commercialize our drug candidates alone or in partnership . we may continue to incur substantial operating losses even if we begin to generate revenues from our drug candidates . on march 9 , 2017 , we announced the pricing of an underwritten public offering of 5,128,206 shares of our common stock ( plus a 30-day option to purchase up to an additional 769,230 shares of common stock , which has been exercised ) at a price of $ 9.75 per share , with expected gross proceeds to tg therapeutics of $ 57.5 million , less underwriting discounts and commissions . total net proceeds from this offering , including the overallotment , are expected to be approximately $ 54 million , net of underwriting discounts and estimated offering expenses of approximately $ 3.5 million . the shares were sold under a shelf registration statement on form s-3 ( file no . 333-201339 ) that was previously filed and declared effective by the sec in january 2015. the offering closed on march 14 , 2017. as of december 31 , 2016 , we had $ 45.0 million in cash and cash equivalents , investment securities , and interest receivable .

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

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

for those transactions , revenue was deferred until the product was resold by the distributor and we determined that the final sales price to the distributor was fixed or determinable . for certain of our smaller distributors , we did not have similar ship and debit arrangements and the distributors were billed at a fixed upfront price . for those transactions , revenue was recognized upon delivery to the distributor based upon the distributor 's individual shipping terms , less an allowance for estimated returns , as the company determined that the revenue recognition criteria were met . in light of the fact that the distributor program had been declining as a portion of the overall business for several years , in fiscal year 2016 the company performed a review of all distributor arrangements in an effort to streamline our distribution program and reduce overhead costs . based upon this review , the company terminated its ship and debit arrangements with distributors during the fourth quarter of fiscal year 2016. subsequent to the termination of the ship and debit arrangements , the company began recognizing revenue for all distributors upon delivery to the distributor based upon the distributor 's individual shipping terms , less an allowance for estimated returns , as the company 's final sales price to the distributor was fixed and determinable and the company determined that all four criteria for revenue recognition were met . although the company terminated its ship and debit arrangements with all distributors along with certain ancillary agreements related to the ship and debit arrangements , the company continues to grant varying levels of stock rotation and price protection rights based on individual distributor agreements . to the extent these rights are implicated in any transaction with a distributor , we continue to evaluate their effect on when the revenue recognition criteria have been met . ◾ inventories are recorded at the lower of cost or net realizable value , following the adoption of asu 2015-11 ( as discussed below ) , with cost being determined on a first-in , first-out basis . we write down inventories to net realizable value based on forecasted demand while taking into account product release schedules and product life cycles , which may drive management judgment . we also review and write down inventory , as appropriate , based on the age and condition of the inventory . actual demand and market conditions may be different from those projected by management , which could have a material effect on our operating results and financial position . see note 2 — summary of significant accounting policies of the notes to consolidated financial statements contained in item 8 . ◾ we evaluate the recoverability of property , plant , and equipment and intangible assets by testing for impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets ' carrying amounts . an impairment loss is recognized in the event the carrying value of these assets exceeds the fair value of the applicable assets . impairment evaluations involve management estimates of asset useful lives and future cash flows . actual useful lives and cash flows could be different from those estimated page 26 of 80 by management , which could have a material effect on our operating results and financial position . see note 6 — intangibles , net and goodwill of the notes to consolidated financial statements contained in item 8 . ◾ the company evaluates goodwill and other intangible assets . goodwill is recorded at the time of an acquisition and is calculated as the difference between the total consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired . the company tests goodwill and other intangible assets for impairment on an annual basis or more frequently if the company believes indicators of impairment exist . impairment evaluations involve management 's assessment of qualitative factors to determine whether it is more likely than not that goodwill and other intangible assets are impaired . if management concludes from its assessment of qualitative factors that it is more likely than not that impairment exists , then a quantitative impairment test will be performed involving management estimates of asset useful lives and future cash flows . significant management judgment is required in the forecasts of future operating results that are used in these evaluations . if our actual results , or the plans and estimates used in future impairment analyses , are lower than the original estimates used to assess the recoverability of these assets , we could incur additional impairment charges in a future period . the company has recorded no goodwill impairments in fiscal years 2017 , 2016 , and 2015. there were no material intangible asset impairments in fiscal years 2017 , 2016 , and 2015 . ◾ we are subject to the possibility of loss contingencies for various legal matters . see note 12 — legal matters of the notes to consolidated financial statements contained in item 8 . we regularly evaluate current information available to us to determine whether any accruals should be made based on the status of the case , the results of the discovery process and other factors . if we ultimately determine that an accrual should be made for a legal matter , this accrual could have a material effect on our operating results and financial position and the ultimate outcome may be materially different than our estimate . recently issued accounting pronouncements in may 2014 , the financial accounting standards board ( “fasb” ) issued accounting standards update ( “asu” ) no . 2014-09 , revenue from contracts with customers ( asc topic 606 ) . the purpose of this asu is to converge revenue recognition requirements per gaap and international financial reporting standards ( ifrs ) . story_separator_special_tag the decrease in gross margin for fiscal year 2015 was primarily due to the increase in inventory write-downs compared to fiscal year 2014 , which had a 1.5 % negative impact on fiscal year 2015 margin . additionally , fiscal year 2015 gross margin was negatively affected by approximately 1 % due to the fair value adjustments made to inventory as a result of the acquisition . the company 's number of employees increased to 1,104 as of march 28 , 2015. the company achieved net income of $ 55.2 million in fiscal year 2015 , which included an income tax provision in the amount of $ 36.4 million . results of operations the following table summarizes the results of our operations for each of the past three fiscal years as a percentage of net sales . all percentage amounts were calculated using the underlying data , in thousands : replace_table_token_5_th page 31 of 80 net sales we report sales in two product categories : portable audio products and non-portable audio and other products . our sales by product line are as follows ( in thousands ) : replace_table_token_6_th net sales for fiscal year 2017 increased 32 percent , to $ 1.5 billion from $ 1.2 billion in fiscal year 2016. the increase in net sales reflects a $ 384.7 million increase in portable audio product sales and a $ 15.1 million decrease in non-portable audio and other product sales . the portable audio products group experienced an increase in net sales attributable to significant increases in the sales of smart codecs and boosted amplifiers for fiscal year 2017. non-portable audio and other product line sales of $ 165.1 million represented an 8 percent decrease from fiscal year 2016 sales of $ 180.2 million , which was primarily attributable to a decrease in sales of dac and surround codec products for the period . net sales for fiscal year 2016 increased 28 percent , to $ 1.2 billion from $ 916.6 million in fiscal year 2015. the increase in net sales reflected a $ 248.8 million increase in portable audio product sales and a $ 3.9 million increase in non-portable audio and other product sales . the portable audio products group experienced an increase in net sales attributable to significant increases in the sales of smart codecs and boosted amplifiers for fiscal year 2016 , which includes a full year revenue effect of the wolfson acquisition . non-portable audio and other product line sales of $ 180.2 million represented a 2 percent increase from fiscal year 2015 sales of $ 176.3 million , which was primarily attributable to an increase in adc and power meter products for the period . in addition , during fiscal year 2016 , the company realized an additional $ 5.4 million of net sales , primarily related to non-portable audio , due to the conversion to a point-of-purchase model for our larger distributors . sales to foreign customers , principally located in asia , including sales to u.s.-based customers that manufacture products at plants overseas , were approximately $ 1.5 billion in fiscal year 2017 , $ 1.1 billion in fiscal year 2016 , and $ 869.9 million in fiscal year 2015. sales to foreign customers located in asia , excluding japan , were 95 percent in net sales in fiscal year 2017 , 89 percent in net sales in fiscal year 2016 and 92 percent of net sales in fiscal year 2015. sales to foreign customers in japan and europe represented 2 percent of net sales in fiscal year 2017 , 4 percent of net sales in fiscal year 2016 and 3 percent of net sales in fiscal year 2015. our sales are denominated primarily in u.s. dollars . during fiscal year 2015 , we acquired foreign currency hedging contracts related to the acquisition . the contracts expired in fiscal year 2015. no foreign currency hedging contracts were entered into in fiscal year 2017 or 2016. gross margin overall gross margin of 49 percent for fiscal year 2017 reflects an increase from fiscal year 2016 gross margin of 47 percent . the increase was primarily attributable to supply chain efficiencies in the current fiscal year versus the prior year . changes in excess and obsolete inventory charges , including scrapped inventory , and sales of product written down in prior periods did not have a material impact on margin in fiscal year 2017. overall gross margin of 47 percent for fiscal year 2016 reflected an increase from fiscal year 2015 gross margin of 46 percent . the increase was primarily attributable to the absence of the fair market adjustments related to the acquisition discussed below , in the 2016 fiscal year versus fiscal year 2015. this contributed an approximate 1 % favorable impact to gross margin in fiscal year 2016. changes in excess and obsolete inventory charges , including scrapped inventory , and sales of product written down in prior periods did not have a material impact on margin in fiscal year 2016. page 32 of 80 research and development expenses fiscal year 2017 research and development expenses of $ 303.7 million reflect an increase of $ 34.5 million , or 13 percent , from fiscal year 2016. the increase was primarily attributable to a 16 percent increase in research and development headcount and the associated salary and employee-related expenses . the company also experienced higher facilities-related costs in the fiscal year 2017 versus fiscal year 2016 , partially offset by the adjustment to the contingent consideration liability discussed in note 4 , the uk 's research and development expenditure credit ( rdec ) , which went into effect beginning in fiscal year 2017 , and a sales tax refund in the third quarter of fiscal year 2017. fiscal year 2016 research and development expenses of $ 269.2 million reflected an increase of $ 71.3 million , or 36 percent , from fiscal year 2015. the increase was primarily attributable to a 20 percent

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liquidity and capital resources in fiscal year 2017 , our net cash provided by operating activities was $ 369.8 million . the positive cash flow from operations was predominantly due to the cash components of our net income , offset by a $ 24.9 million page 34 of 80 increase in working capital , driven primarily by an increase in accounts receivable and inventories , partially offset by a decrease in payables for the year . in fiscal year 2016 , our net cash provided by operating activities was $ 149.0 million . the positive cash flow from operations was predominantly due to the cash components of our net income , offset by a $ 108.7 million increase in working capital , driven primarily by an increase in inventories and a decrease in accounts payable for the year . in fiscal year 2015 , our net cash provided by operating activities was $ 163.5 million . the positive cash flow from operations was predominantly due to the cash components of our net income , as well as a $ 17.3 million decrease in working capital , primarily due to a decrease in inventory and increase in accounts payable , offset by an increase in accounts receivable for the period . in fiscal year 2017 , the company used approximately $ 69.9 million in cash related to investing activities principally related to $ 18.6 million in net purchases of marketable securities , and capital expenditures and technology investments of $ 51.3 million . in fiscal year 2016 , the company received approximately $ 20.2 million in cash provided by investing activities , principally due to the net maturities and sales of marketable securities of $ 103.1 million , partially offset by $ 46.1 million in capital expenditures and technology investments , and acquisitions of $ 36.8 million . in fiscal year 2015 , approximately $ 324.4 million was used in investing activities , primarily due to the $ 444.1 million , net of cash obtained , used in conjunction with the wolfson acquisition . an additional use of cash for the period was the $ 36.7 million in capital expenditures and technology investments .

in addition , adjusted book value per share increased $ 10 in 2012 from share repurchases and $ 3 from foreign currency translation . effective january 1 , 2013 , sweden reduced its corporate tax rate from 26.3 % to 22.0 % , and luxembourg increased its corporate tax rate from 28.8 % to 29.2 % . this resulted in a reduction in sirius group 's net deferred tax liabilities in sweden and an increase in sirius group 's net deferred tax assets in luxembourg at december 31 , 2012. in addition , during the quarter sirius group had a net release of valuation allowances on deferred tax assets in luxembourg and white mountains established a valuation allowance on deferred tax assets of a group of u.s. companies reported in the other operations segment . in total , these changes resulted in an increase to adjusted book value per share of $ 13 in the fourth quarter of 2012 . 46 overview-year ended december 31 , 2011 versus year ended december 31 , 2010 white mountains ended 2011 with an adjusted book value per share of $ 542 , an increase of 23 % , including dividends , from december 31 , 2010. white mountains reported adjusted comprehensive income of $ 745 million in 2011 compared to adjusted comprehensive income of $ 141 million in 2010. the increase in adjusted book value per share in 2011 was driven by an $ 89 increase from the gain from the esurance sale , net of transaction related expenses . onebeacon 's book value per share increased 3 % during 2011 , including dividends . onebeacon 's gaap combined ratio was 92 % for 2011 compared to 96 % for 2010. the decrease was primarily driven by improved current accident year results , partially offset by higher catastrophe losses . sirius group 's gaap combined ratio was 100 % for 2011 compared to 94 % for 2010. both years were impacted by significant catastrophe losses as 2011 included 24 points of catastrophe losses compared to 23 points in 2010. total net written premiums decreased 3 % to $ 1,978 million in 2011 from $ 2,034 million in 2010. excluding the $ 180 million of net written premiums in 2010 related to onebeacon 's personal lines business , net written premiums were up 7 % in 2011 , due to higher net written premiums at both onebeacon and sirius group . onebeacon 's net written premiums increased 8 % to $ 1,063 million in 2011 , primarily due to new business and improved retention in several lines , particularly within the accident , government risk , energy and technology businesses . sirius group 's net written premiums increased 6 % to $ 916 million in 2011 , primarily due to increases in the accident and health and trade credit lines of business and foreign currency translation . white mountains ' gaap investment return was 2.9 % in 2011. the fixed income portfolio return ( in local currencies ) of 3.1 % was lower than the barclay 's intermediate aggregate bond index return of 6.0 % , as the fixed income portfolio trailed the longer-duration benchmark as rates declined . the equity portfolio return was 1.4 % compared to the s & p 500 index return of 2.1 % . in addition , adjusted book value per share increased $ 17 in 2011 from the release of a valuation allowance against deferred tax assets in two luxembourg subsidiaries and $ 5 from share repurchases . also , adjusted book value per share decreased $ 6 in 2011 from a gaap other-than-temporary impairment write-down on the investment in symetra common shares . white mountains concluded that the accounting impairment on its investment in symetra common shares existed due to the prolonged low interest rate environment in which life insurance companies operate and not from reasons specific to symetra itself . as a result , white mountains does not believe that the accounting impairment equates to an impairment in symetra 's long-term intrinsic business value . see critical accounting estimates - white mountains ' investment in symetra common shares on page 100 for a more detailed discussion . foreign currency translation did not have a significant impact on adjusted book value per share in 2011. adjusted book value per share the following table presents white mountains ' adjusted book value per share , a non-gaap financial measure , for the years ended december 31 , 2012 , 2011 and 2010 and reconciles this non-gaap measure to the most comparable gaap measure ( see non-gaap financial measures on page 73 ) : replace_table_token_18_th 47 review of consolidated results a summary of white mountains ' consolidated financial results for the years ended december 31 , 2012 , 2011 and 2010 follows : replace_table_token_19_th ( 1 ) on december 31 , 2011 , tuckerman fund i was dissolved and all of the net assets of the fund , which consisted of the llc units of hamer and bri-mar , two small manufacturing companies , were distributed . as of october 1 , 2012 , hamer and bri-mar are no longer consolidated and are accounted for as investments in unconsolidated affiliates . ( 2 ) adjusted comprehensive income is a non-gaap measure . for a reconciliation to the most comparable gaap measure ( see non-gaap measures on page 73 ) . 48 consolidated results—year ended december 31 , 2012 versus year ended december 31 , 2011 white mountains ' total revenues increased 12 % to $ 2,436 million in 2012 compared to $ 2,173 million in 2011 , primarily due to higher earned insurance and reinsurance premiums , foreign currency translation gains , higher net realized and unrealized investment gains and an improvement of the mark-to-market performance of the symetra warrants , partially offset by lower net investment income . story_separator_special_tag limiting risk of loss through reinsurance arrangements serves to mitigate the impact of large losses ; however , the cost of this protection in an individual period may exceed the benefit . onebeacon 's net combined ratio for 2012 was lower than its gross combined ratio by 1 point , primarily due to the significant amount of reinsurance cessions related to hurricane sandy , which were partially off-set by the impact of the cost of facultative reinsurance and property reinsurance , and also the cost of catastrophe reinsurance and marine reinsurance . onebeacon 's net combined ratio for 2011 was higher than its gross combined ratio by 4 points , primarily due to the impact of the cost of facultative reinsurance and property reinsurance , and also the cost of catastrophe reinsurance and marine reinsurance . onebeacon results—year ended december 31 , 2011 versus year ended december 31 , 2010 onebeacon ended 2011 with a book value per share of $ 11.56 , an increase of 3 % , including dividends ( quarterly dividends of $ 0.21 per share and a special dividend of $ 1.00 per share paid in june 2011 ) from december 31 , 2010. onebeacon 's gaap investment return was 3.0 % for 2011. onebeacon 's results for 2011 were adversely impacted by a decline in the value of investment assets in onebeacon 's pension plan , the loss resulting from a debt tender on the 2003 obh senior notes , and the loss on the autoone sale . 52 onebeacon 's gaap combined ratio for 2011 decreased to 92 % from 96 % for 2010 , primarily due to better current accident year results , partially offset by higher catastrophe losses . onebeacon experienced a number of large losses in its property and inland marine business during 2010. the gaap combined ratio for 2011 included 4 points of catastrophe losses compared to 2 points in 2010. the gaap combined ratio included 3 points of favorable loss reserve development for both years . onebeacon 's net written premiums decreased 8 % in 2011 to $ 1,063 million from $ 1,168 million in 2010. excluding $ 171 million of net written premiums in 2010 related to onebeacon 's personal lines business , which was sold in july of 2010 , onebeacon 's net written premiums increased 8 % in 2011 , primarily due to new business and improved retention in several lines , particularly within the collector cars and boats , accident , government risk , energy and technology businesses . onebeacon 's other revenues in 2011 included a $ 12 million loss related to the repurchase of a portion of the 2003 obh senior notes . onebeacon 's other revenues in 2010 included a $ 9 million net gain on the sale of onebeacon 's personal lines business , partially offset by an $ 11 million loss related to the repurchase of a portion of the 2003 obh senior notes . onebeacon 's policy acquisition expenses decreased 12 % to $ 221 million and other underwriting expenses decreased 17 % to $ 162 million in 2011. excluding the personal lines business that onebeacon sold in 2010 , onebeacon 's policy acquisition expenses increased 4 % and other underwriting expenses were essentially flat in 2011. interest expense decreased 31 % to $ 21 million in 2011 , reflective of lower outstanding debt . reinsurance protection . onebeacon 's net combined ratio for 2011 was higher than its gross combined ratio by 4 points , primarily due to the impact of the cost of facultative reinsurance and property reinsurance , and also the cost of catastrophe reinsurance and marine reinsurance . onebeacon 's net combined ratio for 2010 was higher than its gross combined ratio by 4 points , primarily due to the impact of the cost of catastrophe reinsurance and facultative reinsurance . sirius group financial results and gaap combined ratios for sirius group for the years ended december 31 , 2012 , 2011 and 2010 follows : replace_table_token_22_th 53 sirius group results—year ended december 31 , 2012 versus year ended december 31 , 2011 sirius group 's gaap combined ratio was 90 % for 2012 compared to 100 % for 2011. the decrease was primarily due to lower catastrophe losses , as the 2012 combined ratio included 13 points ( $ 117 million ) of catastrophe losses net of reinsurance and reinstatement premiums , primarily due to $ 98 million of losses from hurricane sandy , compared to 24 points ( $ 218 million ) in 2011 , primarily due to the japan earthquake and tsunami , the new zealand earthquakes and the floods in thailand . additionally , the 2012 combined ratio included 3 points of agricultural losses principally as a result of the drought in the midwestern united states . favorable loss reserve development was 4 points for 2012. the major reductions in loss reserve estimates were recognized in casualty runoff ( $ 32 million ) , property ( $ 28 million ) , marine/energy ( $ 12 million ) , trade credit ( $ 7 million ) and aviation/space ( $ 5 million ) lines , partially offset by a $ 46 million increase in asbestos and environmental loss reserves and a $ 4 million increase in accident and health . favorable loss reserve development was 5 points for 2011 and was primarily attributable to $ 41 million of favorable development on property lines , partially offset by asbestos and environmental increases of $ 12 million . sirius group 's gross written premiums increased 4 % ( 6 % in local currencies ) to $ 1,179 million in 2012 from $ 1,128 million for 2011 , while net written premiums increased 3 % ( 5 % in local currencies ) to $ 948 million for 2012 from $ 916 million in 2011. these increases were primarily from the property and accident and health lines of business , partially offset by decreases in the

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cash outflows millions due in one year or less due in two to three years due in four to five years due after five years total wm life re reinsurance contracts $ 3 $ 7 $ 471 $ — $ 481 white mountains purchases derivative instruments , including futures and over-the-counter option contracts on interest rates , major equity indices , and foreign currencies , to mitigate the risks associated with changes in the fair value of the reinsured variable annuity guarantees . at december 31 , 2012 , the fair value of these derivative instruments was $ 98 million . in addition , wm life re held approximately $ 394 million of cash and fixed maturity investments at december 31 , 2012 posted as collateral to its reinsurance counterparties . share repurchases in 2006 , white mountains ' board of directors authorized the company to repurchase up to 1,000,000 of its common shares , from time to time , subject to market conditions . in 2010 and 2012 , white mountains ' board of directors authorized the company to repurchase an additional 600,000 and 1,000,000 , respectively , of its common shares , for a total authorization of 2.6 million shares . shares may be repurchased on the open market or through privately negotiated transactions . the repurchase authorizations do not have a stated expiration date . at december 31 , 2012 , white mountains may repurchase an additional 685,496 shares under these board authorizations . in addition , from time to time white mountains has also repurchased its common shares through tender offers that were separately approved by its board of directors .

, where there would no longer be a significant public market for our common stock ) . however because the contractual formula used to determine the cash settlement value of the embedded put requires use of certain assumptions , the cash settlement value of the embedded put can differ from the fair value of the unexercised embedded call option at the time the embedded put option is exercised . specifically , the put rights would be triggered upon the happening of a “ fundamental transaction ” ( as defined below ) that also is ( 1 ) an all cash transaction ; ( 2 ) a “ rule 13e-3 transaction ” under the exchange act ( where the company would be taken private ) ; or ( 3 ) a transaction involving a person or entity not traded on a national securities exchange . “ fundamental transactions ” include ( i ) a merger or consolidation of the company with or into another person or entity ; ( ii ) a sale , lease , license , transfer or other disposition of all or substantially all of the company 's assets ; ( iii ) any purchase offer , tender offer or exchange offer in which holders of company common stock are permitted to sell , tender or exchange their shares for other securities , cash or property , which offer has been accepted by the holders of 50 % or more of the company 's outstanding common stock ; ( iv ) a reclassification , reorganization or recapitalization of the common stock pursuant to which the common stock is effectively converted into or exchanged for other securities , cash or property ; or ( v ) a stock purchase or other business combination with another person or entity is effected pursuant to which such other person or entity acquires more than 50 % of the outstanding shares of common stock . pursuant to the warrants , the put rights enable the warrant holders to receive cash in the amount of the black-scholes-merton value obtained from the “ ov ” function on bloomberg , l.p. ( “ bloomberg ” ) determined as of the day of consummation of the applicable fundamental transaction for pricing purposes and reflecting ( a ) a risk-free interest rate corresponding to the u.s. treasury rate for a period equal to the time between the date of the public announcement of the applicable fundamental transaction and the warrant expiration date , ( b ) an expected volatility equal to the greater of 100 % and the 100 day volatility obtained from the hvt function on bloomberg as of the trading day immediately following the public announcement of the applicable fundamental transaction , ( c ) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash , if any , plus the value of any non-cash consideration , if any , being offered in such fundamental transaction and ( d ) a remaining option time equal to the time between the date of the public announcement of the applicable fundamental transaction and the warrant expiration date . the company recomputes the fair value of the warrants at the end of each quarterly reporting period . such value computation includes subjective input assumptions that are consistently applied each period . if the company were to alter its assumptions or the numbers input based on such assumptions , the resulting fair value could be materially different . the warrants expired during 2014 . 30 the company utilized the following assumptions to estimate the fair value of the may 10 , 2009 , may 18 , 2009 and may 21 , 2009 warrants : replace_table_token_7_th the significant assumptions using the monte carlo simulation approach for valuation of the warrants are : ( i ) risk-free interest rate . the risk-free interest rates for the warrants are based on u.s treasury constant maturities for periods commensurate with the remaining expected holding periods of the warrants . ( ii ) expected holding period . the expected holding period represents the period of time that the warrants are expected to be outstanding until they are exercised . the company utilizes the remaining contractual term of the warrants at each valuation date as the expected holding period . ( iii ) expected volatility . expected stock volatility is based on daily observations of the company 's historical stock values for a period commensurate with the remaining expected holding period on the last day of the period for which the computation is made . ( iv ) expected dividend yield . expected dividend yield is based on the company 's anticipated dividend payments over the remaining expected holding period . as the company has never issued dividends , the expected dividend yield is $ -0- and this assumption will be continued in future calculations unless the company changes its dividend policy . ( v ) expected probability of a fundamental transaction . the possibility of the occurrence of a fundamental transaction triggering a put right is extremely remote . as discussed above , a put right would only arise if a fundamental transaction 1 ) is an all cash transaction ; ( 2 ) results in the company going private ; or ( 3 ) is a transaction involving a person or entity not traded on a national securities exchange . story_separator_special_tag there can be no assurances that , if needed , we will raise adequate funds from these or other sources , which may have a material adverse effect on our ability to develop our products . also , we have the ability to curtail discretionary spending , including some research and development activities , if required to conserve cash . replace_table_token_8_th certain relationships and related transactions refer to part iii , item 13 - “ certain relationships and related transactions , and director independence . ” new accounting pronouncements refer to “ note 2 ( i ) – recent accounting standards and pronouncements ” under notes to consolidated financial statements . disclosure about off-balance sheet arrangements none . 36 critical accounting policies financial reporting release no . 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements . our significant accounting policies are described in the notes to consolidated financial statements . the significant accounting policies that we believe are most critical to aid in fully understanding our reported financial results are the following : revenue revenue from the sale of ampligen® under cost recovery clinical treatment protocols approved by the fda is recognized when the treatment is provided to the patient . revenues from the sale of product are recognized when the product is delivered , as title is then transferred to the customer . we have no other obligation associated with our products once shipment has been accepted by the customer inventories we use the lower of first-in , first-out ( “ fifo ” ) cost or market method of accounting for inventory . patents and trademarks patents and trademarks are stated at cost ( primarily legal fees ) and are amortized using the straight-line method over the estimated useful life of 17 years . we review our patents and trademark rights periodically to determine whether they have continuing value . such review includes an analysis of the patent and trademark 's ultimate revenue and profitability potential . in addition , management 's review addresses whether each patent continues to fit into our strategic business plans . long-lived assets the company assesses long-lived assets for impairment when events or changes in circumstances indicate that the carrying value of the assets or the asset grouping may not be recoverable . factors that the company considers in deciding when to perform an impairment review include significant under-performance of a business or product line in relation to expectations , significant negative industry or economic trends , and significant changes or planned changes in its use of the assets . the company measures the recoverability of assets that it will continue to use in its operations by comparing the carrying value of the asset grouping to our estimate of the related total future undiscounted net cash flows . if an asset grouping 's carrying value is not recoverable through the related undiscounted cash flows , the asset grouping is considered to be impaired . the company measures the impairment by comparing the difference between the asset grouping 's carrying value and its fair value . long-lived assets are considered a non-financial asset and are recorded at fair value only if an impairment charge is recognized . impairments are determined for groups of assets related to the lowest level of identifiable independent cash flows . the company makes subjective judgments in determining the independent cash flows that can be related to specific asset groupings . in addition , as the company reviews its manufacturing process and other manufacturing planning decisions , the company must make subjective judgments regarding the remaining useful lives of assets . when the company determines that the useful lives of assets are shorter than the company had originally estimated , it accelerates the rate of depreciation over the assets ' new , shorter useful lives . stock-based compensation under fasb asc 718-compensation-stock compensation ( “ asc 718 ” ) share-based compensation cost is measured at the grant date , based on the estimated fair value of the award , and is recognized as expense over the requisite service period . we adopted the provisions of asc-718 , using a modified prospective application . under this method , compensation cost is recognized for all share-based payments granted , modified or settled after the date of adoption , as well as for any unvested awards that were granted prior to the date of adoption . the fair value of each option award is estimated on the date of grant using a black-scholes-merton pricing option valuation model . expected volatility is based on the historical volatility of the price of our common stock . the risk-free interest rate is based on u.s. treasury issues with a term equal to the expected life of the option . we use historical data to estimate expected dividend yield , expected life , which represents the period of time the options are expected to be outstanding until they are exercised , and forfeiture rates . redeemable warrants 37 we utilize the guidance contained in asc 480 ( formerly sfas 150 ) in the determination of whether to record warrants and options as equity and or liability . if the guidance of asc 480 is deemed inconclusive , we continue our analysis utilizing asc 815 ( formerly eitf 00-19 ) . our method of recording the related value attempts to be consistent with the standards as defined by the financial accounting standards board utilizing the concept of “ fair value ” from asc 820-10-55-1 that states that any fair value measurement requires that the reporting entity to determine the valuation technique ( s ) appropriate for the measurement , considering the availability of data with which to develop inputs that represent the assumptions that market participants would use in pricing the asset or liability and the level in the fair value hierarchy within which the inputs fall . we recomputed the value of the redeemable warrants

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liquidity and capital resources cash used in operating activities for the year ended december 31 , 2014 was approximately $ 13,918,000 compared to approximately $ 16,830,000 for the same period in 2013 , a decrease of $ 2,912,000 or 17 % . excluding the proceeds from the sale of new jersey net operating loss carry-forwards , cash used in operating activities for the year ended december 31 , 2014 decreased by approximately $ 2,472,000 or 14 % over the comparable period in 2013. the primary reason for this decrease in 2014 was due to the january 2013 payout of 2012 employee and strategic consultant bonuses for approximately $ 2,196,000 reflected in accrued expenses and a decrease in accounts payable due to the timing of payments of approximately $ 1,486,000 as of december 31 , 2014 and 2013 , respectively . this was offset by the write off of inventory valued at $ 453,000 and the impairment of other than temporary marketable securities of $ 800,000 during the year ended december 31 , 2013. as of december 31 , 2014 , we had approximately $ 16,108,000 in cash , cash equivalents and marketable securities inclusive of approximately $ 13,952,000 in marketable securities , or a decrease of approximately $ 2,086,000 from december 31 , 2013. if we are unable to commercialize and sell ampligen® or alferon® ldo and or recommence material sales of alferon n injection® , our operations , financial position and liquidity may be adversely impacted , and additional financing may be required . however , there is no assurance that such financing will be available . in its february 1 , 2013 crl , the fda communicated that we should conduct at least one additional clinical trial , complete various nonclinical studies and perform a number of data analyses . until we undertake the end-of-review conference ( s ) with the fda , we are unable to reasonably estimate the nature , costs , necessary efforts to obtain fda clearance or anticipated completion dates of any additional clinical study or studies . please see “ part ii ; item 1a . risk factors ; “ we may require additional financing which may not be available .

since the pandemic has begun , the company donated $ 1.0 million through the open stewardship foundation to support small restaurants in the communities we serve . the company also donated $ 10,000 in contribution from its board of directors and employees to two local non-profit organizations to support families who are most severely impacted by the pandemic . 65 critical accounting policies and estimates our accounting and reporting policies conform to accounting principles generally accepted in the united states of america ( “ gaap ” ) and conform to general practices within the industry in which we operate . to prepare financial statements in conformity with gaap , management makes estimates , assumptions and judgments based on available information . these estimates , assumptions and judgments affect the amounts reported in the financial statements and accompanying notes . these estimates , assumptions and judgments are based on information available as of the date of the financial statements and , as this information changes , actual results could differ from the estimates , assumptions and judgments reflected in the financial statement . in particular , management has identified several accounting policies that , due to the estimates , assumptions and judgments inherent in those policies , are critical in understanding our financial statements . the following is a discussion of the critical accounting policies and significant estimates that require us to make complex and subjective judgments . additional information about these policies can be found in the “ notes to consolidated financial statements , note 1. summary of significant accounting policies . ” allowance for loan losses the allowance for loan losses ( “ all ” ) is a valuation allowance for probable incurred credit losses . loan losses are charged against the all when management believes the uncollectibility of a loan balance is confirmed . subsequent recoveries , if any , are credited to the all . management estimates the all balance required using past loan loss experience , the nature and volume of the portfolio , information about specific borrower situations and estimated collateral values , economic conditions , and other factors . allocations of the all may be made for specific loans , but the entire allowance is available for any loan that , in management 's judgment , should be charged off . the all is maintained at a level that management believes is appropriate to provide for known and inherent incurred loan losses as of the date of the consolidated balance sheet and we have established methodologies for the determination of its adequacy . the methodologies are set forth in a formal policy and take into consideration the need for an overall general valuation allowance as well as specific allowances that are determined on an individual loan basis . the evaluation is inherently subjective , as it requires estimates that are susceptible to significant revision as more information becomes available . while management uses available information to recognize losses on loans , changes in economic or other conditions may necessitate revision of the estimate in future periods . results of operations comparison of results of operations for the years ended december 31 , 2020 and 2019 net income we reported net income for the year ended december 31 , 2020 of $ 13.1 million , compared to net income of $ 16.8 million for the year ended december 31 , 2019. the decrease was primarily due to a $ 4.9 million increase in provision for loan losses , offset by a $ 1.1 million increase in net interest income . replace_table_token_3_th 66 net interest income the management of interest income and expense is fundamental to our financial performance . net interest income , the difference between interest income and interest expense , is the largest component of the company 's total revenue . management closely monitors both total net interest income and the net interest margin ( net interest income divided by average earning assets ) . we seek to maximize net interest income without exposing the company to an excessive level of interest rate risk through our asset and liability policies . interest rate risk is managed by monitoring the pricing , maturity and repricing options of all classes of interest-bearing assets and liabilities . our net interest margin is also adversely impacted by the reversal of interest on nonaccrual loans and the reinvestment of loan payoffs into lower yielding investment securities and other short-term investments . the following table presents , for the periods indicated , information about : ( i ) weighted average balances , the total dollar amount of interest income from interest-earning assets and the resultant average yields ; ( ii ) average balances , the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates ; ( iii ) net interest income ; ( iv ) the interest rate spread ; and ( v ) the net interest margin . replace_table_token_4_th 67 increases and decreases in interest income and interest expense result from changes in average balances ( volume ) of interest-earning assets and interest-bearing liabilities , as well as changes in average interest rates . the following tables set forth the effects of changing rates and volumes on our net interest income during the period shown . information is provided with respect to ( i ) effects on interest income attributable to changes in volume ( change in volume multiplied by prior rate ) and ( ii ) effects on interest income attributable to changes in rate ( changes in rate multiplied by prior volume ) . change applicable to both volume and rate have been allocated to volume and rate ratably . replace_table_token_5_th net interest income for the year ended december 31 , 2020 was $ 45.4 million compared to $ 44.3 million for the year ended december 31 , 2019 , an increase of $ 1.1 million , or 2.5 % . story_separator_special_tag during the fourth quarter of 2019 , the federal reserve 's cumulative market rate decreased 75 basis points through three rate cuts in each of august , september , and october 2019. the increase in the average yield on loan was primarily due to a greater volume of new loan origination with higher yield during the first 7 months in 2019 than new loan origination during the last 5 months of 2019. the company originated new loans of $ 231.0 million for the first 7 months in 2019 and $ 162.2 million for the last 5 months of 2019. total interest income was $ 58.8 million in 2019 , compared to $ 50.1 million in 2018 , an increase of $ 8.7 million , or 17.4 % . this increase was primarily due to an increase in interest earned on our loan portfolio . interest and fees on loans was $ 55.7 million in 2019 , compared to $ 48.1 million in 2018 , an increase of $ 7.6 million , or 15.8 % . this increase in interest income on loans was primarily due to a 12.0 % increase in the average balance of loans outstanding and a 20 basis point improvement in the average yield on loans . interest income on total investments was $ 3.1 million in 2019 , compared to $ 2.0 million in 2018. interest income on the securities portfolio increased $ 368,000 , or 37.4 % , to $ 1.4 million in 2019 , compared to $ 985.000 in 2018. the increase in interest income on the securities portfolio was primarily due to a 24.9 % increase in the average balance of securities available for sale held by the company and a 22 basis point increase in the average yield on the securities portfolio . interest income on federal funds sold and other investments increased $ 731,000 , or 75.0 % , to $ 1.7 million in 2019 from $ 975,000 in 2018 , due to a 103.3 % increase in the average balance of federal funds sold held by the company , but offset by a 41 basis point decrease in the average yield on the federal funds sold and other investments . a cra qualified mutual fund was reclassified to other investment following the adoption of asu 2016-01 effective january 2018 . 74 total interest expense was $ 14.5 million in 2019 , compared to $ 9.1 million in 2018 , an increase of $ 5.4 million , or 59.2 % . the increase was primarily due to increases in interest expense on deposits . interest expense on deposits was $ 14.5 million in 2019 , compared to $ 9.0 million in 2018 , an increase of $ 5.5 million , or 61.8 % . this increase was primarily due to a 20.5 % increase in the average balance of interest-bearing deposits , coupled with a 54 basis point increase in the average interest rate paid . net interest margins for the years ended december 31 , 2019 and 2018 were 4.19 % and 4.49 % , respectively . provision for loan losses the provision for loan losses was $ 1.10 million for the year ended december 31 , 2019 , compared to $ 1.27 million for the year ended december 31 , 2018. the decrease in the provision for loan losses was primarily due to a decrease to a specific reserve for a sba commercial loan , upon the confirmation of the sba government guarantee , and a decrease in reserve for a commercial loan that was fully charged off , and such decrease was partially offset by an increase in reserve from an increase in our loan portfolio . our gross loans were $ 990.1 million at 2019 , compared to $ 875.1 million at 2018 , an increase of $ 115.1 million , or 13.2 % . the allowance for loan losses as a percentage of loans held for investment was 1.02 % at december 31 , 2019 and 1.10 % at december 31 , 2018. noninterest income noninterest income for the year ended december 31 , 2019 was $ 11.4 million , an increase of $ 2.1 million , or 22.5 % , compared to $ 9.3 million for the year ended december 31 , 2018. the following table sets forth the various components of our noninterest income for the years ended december 31 , 2019 and 2018 : replace_table_token_11_th total gain on sale of loans was $ 5.9 million in the year ended december 31 , 2019 , compared to $ 4.9 million for the same period of 2018 , an increase of $ 1.0 million or 21.0 % . gain on sale of sba loans totaled $ 5.8 million in the year ended december 31 , 2019 , compared to $ 4.8 million for the same period of 2018. we sold $ 85.0 million of sba loans with an average premium of 8.43 % in the year ended december 31 , 2019 , compared to the sale of $ 85.7 million of sba loans with an average premium of 7.19 % in the same period of 2018. we originated $ 110.5 million of sba loans in 2019 , compared to $ 99.4 million in 2018. gain on sale of other loans for both periods were immaterial . loan servicing income , net of amortization , increased by $ 108,000 to $ 1.2 million in 2019 , compared to $ 1.1 million in 2018. the increase in loan servicing income was due to a $ 150,000 increase in servicing fees , partially offset by a $ 43,000 increase in servicing asset amortization expense . our total sba loan servicing portfolio was $ 347.8 million as of december 31 , 2019 , compared to $ 328.5 million as of december 31 , 2018. the increase in the servicing portfolio reflects the sales of sba loans in 2019 . 75 other income and fees for 2019 were $ 2.6

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liquidity liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers , while at the same time meeting our operating , capital and strategic cash flow needs , all at a reasonable cost . we continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements . we manage our liquidity position to meet the daily cash flow needs of customers , while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders . our liquidity position is supported by the management of liquid assets and access to alternative sources of funds . our liquid assets include cash , interest-bearing deposits in correspondent banks , federal funds sold , and fair value of unpledged investment securities . other available sources of liquidity include wholesale deposits , and additional borrowings from correspondent banks , fhlb advances , and the federal reserve discount window . our short-term and long-term liquidity requirements are primarily met through cash flow from operations , redeployment of prepaying and maturing balances in our loan and investment portfolios , and increases in customer deposits . other alternative sources of funds will supplement these primary sources to the extent necessary to meet additional liquidity requirements on either a short-term or long-term basis .

the transport of ammonia ; the dependence of the nitrogen fertilizer business on a few third-party suppliers , including providers of transportation services and equipment ; new regulations concerning the transportation of hazardous chemicals , risks of terrorism and the security of chemical manufacturing facilities ; the risk of security breaches ; the petroleum business ' and the nitrogen fertilizer business ' dependence on significant customers ; the potential loss of the nitrogen fertilizer business ' transportation cost advantage over its competitors ; the potential inability to successfully implement our business strategies , including the completion of significant capital programs ; our ability to continue to license the technology used in the petroleum business and nitrogen fertilizer business operations ; our petroleum business ' ability to purchase rins on a timely and cost effective basis ; our petroleum business ' continued ability to secure environmental and other governmental permits necessary for the operation of its business ; existing and proposed environmental laws and regulations , including those relating to climate change , alternative energy or fuel sources , and existing and future regulations related to the end-use and application of fertilizers ; refinery and nitrogen fertilizer facilities ' operating hazards and interruptions , including unscheduled maintenance or downtime , and the availability of adequate insurance coverage ; instability and volatility in the capital and credit markets ; and potential exposure to underfunded pension obligations of affiliates as a member of the controlled group of mr. icahn . all forward-looking statements contained in this report only speak as of the date of this report . we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that occur after the date of this report , or to reflect the occurrence of unanticipated events , except to the extent required by law . 58 overview and executive summary we are a diversified holding company primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing industries through our holdings in the refining partnership and the nitrogen fertilizer partnership . the refining partnership is an independent petroleum refiner and marketer of high value transportation fuels . the nitrogen fertilizer partnership produces nitrogen fertilizers in the form of uan and ammonia . we own the general partner and approximately 66 % and 34 % , respectively , of the outstanding common units representing limited partner interests in each of the refining partnership and the nitrogen fertilizer partnership . we operate under two business segments : petroleum and nitrogen fertilizer . for the fiscal years ended december 31 , 2017 , 2016 and 2015 , we generated consolidated net sales of $ 6.0 billion , $ 4.8 billion and $ 5.4 billion , respectively , and operating income of $ 177.8 million , $ 90.9 million and $ 421.6 million , respectively . the petroleum business generated net sales of $ 5.7 billion , $ 4.4 billion and $ 5.2 billion , and the nitrogen fertilizer business generated net sales of $ 330.8 million , $ 356.3 million and $ 289.2 million , in each case , for the years ended december 31 , 2017 , 2016 and 2015 , respectively . the petroleum business generated operating income of $ 203.8 million , $ 77.8 million and $ 361.7 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . the nitrogen fertilizer business generated operating ( loss ) income of $ ( 9.2 ) million , $ 26.8 million and $ 68.7 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . refer to part i , item 1 , business , of this report for a detailed discussion of our business and the petroleum and nitrogen fertilizer segments . east dubuque merger on april 1 , 2016 , the nitrogen fertilizer partnership completed the east dubuque merger as contemplated by the merger agreement , whereby the nitrogen fertilizer partnership acquired cvr nitrogen and cvr nitrogen gp . pursuant to the east dubuque merger , the nitrogen fertilizer partnership acquired the east dubuque facility . the primary reasons for the east dubuque merger were to expand the nitrogen fertilizer partnership 's geographical footprint , diversify its raw material feedstocks , widen its customer reach and increase its potential for cash-flow generation . in accordance with accounting principles generally accepted in the united states of america ( `` gaap `` ) and in accordance with the financial accounting standards board 's accounting standards codification topic 805 - business combinations , the nitrogen fertilizer partnership accounted for the east dubuque merger as an acquisition of a business with the nitrogen fertilizer partnership as the acquirer . immediately following the closing of the east dubuque merger and as of december 31 , 2017 , public security holders held approximately 66 % of total nitrogen fertilizer partnership common units , and crllc held approximately 34 % of total nitrogen fertilizer partnership common units in addition to owning 100 % of the nitrogen fertilizer partnership 's general partner . refer to part ii , item 8 , note 3 ( `` acquisition `` ) of this report for further discussion of the east dubuque merger . refining partnership initial public offering on january 23 , 2013 , the refining partnership completed the refining partnership ipo . the refining partnership sold 24,000,000 common units at a price of $ 25.00 per unit . of the common units issued , 4,000,000 units were purchased by an affiliate of icahn enterprises l.p. ( `` iep `` ) . additionally , on january 30 , 2013 , the underwriters closed their option to purchase an additional 3,600,000 common units at a price of $ 25.00 per unit . the common units , which are listed on the nyse , began trading on january 17 , 2013 under the symbol `` cvrr . story_separator_special_tag the east dubuque facility primarily sells its product to customers located within 200 miles of the facility . in most instances , customers take delivery of nitrogen products at the plant and arrange and pay to transport them to their final destinations by truck . the east dubuque facility has direct access to a barge dock on the mississippi river as well as a nearby rail spur serviced by the canadian national railway company . the nitrogen fertilizer business upgrades substantially all of its ammonia production at the coffeyville fertilizer facility into uan and will continue to do so for as long as it makes economic sense . for the years ended december 31 , 2017 , 2016 and 2015 , the nitrogen fertilizer business upgraded approximately 88 % , 93 % and 96 % , respectively , of its ammonia production into uan , a product that presently generates greater profit than ammonia . the east dubuque facility has the flexibility to significantly vary its product mix . this enables the nitrogen fertilizer business to upgrade its ammonia production into varying amounts of uan , nitric acid and liquid and granulated urea each season , depending on market demand , pricing and storage availability . product sales at the east dubuque facility are heavily weighted toward sales of ammonia and uan . for both the year ended december 31 , 2017 and post-acquisition period ended december 31 , 2016 , approximately 44 % , of the east dubuque facility ammonia production tons were upgraded to other products . the high fixed cost of the coffeyville fertilizer facility 's direct operating expense structure also directly affects its profitability . using a pet coke gasification process , the coffeyville fertilizer facility results in a significantly higher percentage of fixed costs than a natural gas-based fertilizer plant , such as the east dubuque facility . in addition , while less than the coffeyville fertilizer facility , the east dubuque facility has a significant amount of fixed costs . major fixed operating expenses include a large portion of electrical energy , employee labor , and maintenance , including contract labor , and outside services . the nitrogen fertilizer business ' largest raw material expense used in the production of ammonia at its coffeyville fertilizer facility is pet coke , which it purchases from the petroleum business and third parties . for the years ended december 31 , 2017 , 2016 and 2015 , the nitrogen fertilizer business incurred approximately $ 8.1 million , $ 7.8 million and $ 11.9 million , respectively , for pet coke , which equaled an average cost per ton of $ 17 , $ 15 and $ 25 , respectively . the nitrogen fertilizer business ' largest raw material expense used in the production of ammonia at its east dubuque facility is natural gas , which it purchases from third parties . the east dubuque facility 's natural gas process results in a higher percentage of variable costs as compared to the coffeyville fertilizer facility . for the year ended december 31 , 2017 , and 2016 the east dubuque facility incurred approximately $ 26.3 million and $ 13.3 million for feedstock natural gas , which equaled an average cost of $ 3.26 and $ 2.87 per mmbtu . consistent , safe and reliable operations at the nitrogen fertilizer plants are critical to its financial performance and results of operations . in addition , consistent , safe and reliable operations at the linde air separation unit , which supplies oxygen , nitrogen and compressed dry air to the coffeyville facility , is critical to the nitrogen fertilizer business financial performance and results of operations . unplanned downtime at either of the facilities or at the linde air separation unit may result in lost margin opportunity , increased maintenance expense and a temporary increase in working capital investment and related inventory position . the financial impact of planned downtime , such as major turnaround maintenance , is mitigated through a diligent planning process that takes into account margin environment , the availability of resources to perform the needed maintenance , feedstock logistics and other factors . historically , the coffeyville fertilizer facility has undergone a full facility turnaround approximately every two to three years . the coffeyville fertilizer facility underwent a full facility turnaround in the third quarter of 2015 and the gasifier , ammonia and uan units were down for between 17 to 20 days each at a cost of approximately $ 7.0 million , exclusive of the impacts due to the lost production during the downtime . the coffeyville facility is planning to undergo the next scheduled full facility turnaround in the second quarter of 2018 , which is expected to last approximately 15 days at an estimated cost of $ 7.0 million , exclusive of the impact of the lost production during the downtime . 63 historically , the east dubuque facility has also undergone a full facility turnaround approximately every two to three years . the east dubuque facility underwent a full facility turnaround in the second quarter of 2016 and the ammonia and uan units were down for approximately 28 days at a cost of approximately $ 6.6 million , exclusive of the impacts due to the lost production during the downtime . the nitrogen fertilizer business determined that there were more pressing preventative maintenance issues at the east dubuque facility , so it completed a scheduled turnaround at the east dubuque facility in the third quarter of 2017 and the ammonia and uan units were down for approximately 14 days at a cost of approximately $ 2.6 million , exclusive of the impacts of the lost production during the downtime . subsequent to the fourth quarter of 2017 , the east dubuque facility experienced an additional outage caused by a boiler feed water leak resulting in 12 days of downtime , and the associated repair costs were not material . agreements with the

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cash flows used in investing activities net cash used in investing activities for the year ended december 31 , 2017 was $ 195.0 million compared to $ 201.4 million for the year ended december 31 , 2016 . the decrease of $ 6.4 million of cash used in investing activities was primarily due to the net cash paid by the nitrogen fertilizer business in 2016 for the acquisition of cvr nitrogen ( $ 63.8 million ) and lower capital expenditures in 2017 compared to 2016 ( $ 14.1 million ) , offset by an increase in cash investments in affiliates in 2017 compared to 2016 ( $ 70.9 million ) primarily associated with the petroleum business ' investment in the midway joint venture . net cash used in investing activities for the year ended december 31 , 2016 was $ 201.4 million compared to $ 150.6 million for the year ended december 31 , 2015. the increase of $ 50.8 million of cash used in investing activities was primarily due to the net cash paid for the acquisition of cvr nitrogen ( $ 63.8 million ) , security purchases ( $ 18.6 million ) , investment in vpp ( $ 5.6 million ) and a decrease in proceeds from available-for-sale securities ( $ 48.7 million ) , partially offset by a decrease in capital expenditures during 2016 ( $ 86.0 million ) . cash flows used in financing activities net cash used in financing activities for the year ended december 31 , 2017 was $ 225.9 million compared to $ 95.4 million for the year ended december 31 , 2016. the net cash used in financing activities for the year ended december 31 , 2017 was primarily attributable to dividend payments of $ 173.7 million to our common stockholders and distributions of $ 47.3 million and $ 1.5 million to the refining partnership 's and nitrogen fertilizer partnership 's common unitholders , respectively .

we have consistently produced attractive long-term investment returns in our traditional private equity funds , generating a 39 % gross irr and a 25 % net irr on a compound annual basis from inception through december 31 , 2014 . for further detail related to fund performance metrics across all of our businesses , see “ —the historical investment performance of our funds . ” holding company structure the diagram below depicts our current organizational structure : note : the organizational structure chart above depicts a simplified version of the apollo structure . it does not include all legal entities in the structure . ownership percentages are as of the date of the filing of this annual report on form 10-k. ( 1 ) the strategic investors hold 26.79 % of the class a shares outstanding and 11.53 % of the economic interests in the apollo operating group . the class a shares held by investors other than the strategic investors represent 35.59 % of the total voting power of our shares entitled to vote and 31.51 % of the economic interests in the apollo operating group . class a shares held by the strategic investors do not have voting rights . however , such class a shares will become entitled to vote upon transfers by a strategic investor in accordance with the agreements entered into in connection with the investments made by the strategic investors . ( 2 ) our managing partners own brh holdings gp , ltd. , which in turn holds our only outstanding class b share . the class b share represents 64.41 % of the total voting power of our shares entitled to vote but no economic interest in apollo global management , llc . our managing partners ' economic interests are instead represented by their indirect beneficial ownership , through holdings , of 50.48 % of the limited partner interests in the apollo operating group . ( 3 ) through brh holdings , l.p. , our managing partners indirectly beneficially own through estate planning vehicles , limited partner interests in holdings . ( 4 ) holdings owns 56.99 % of the limited partner interests in each apollo operating group entity ( `` aog units `` ) . the aog units held by holdings are exchangeable for class a shares . our managing partners , through their interests in brh and holdings , beneficially own 50.48 % of the aog units . our contributing partners , through their ownership interests in holdings , beneficially own 6.51 % of the aog units . - 69 - ( 5 ) brh holdings gp , ltd. is the sole member of agm management , llc , our manager . the management of apollo global management , llc is vested in our manager as provided in our operating agreement . ( 6 ) represents 43.01 % of the limited partner interests in each apollo operating group entity , held through intermediate holding companies . apollo global management , llc , also indirectly owns 100 % of the general partner interests in each apollo operating group entity . each of the apollo operating group partnerships holds interests in different businesses or entities organized in different jurisdictions . our structure is designed to accomplish a number of objectives , the most important of which are as follows : we are a holding company that is qualified as a partnership for u.s. federal income tax purposes . our intermediate holding companies enable us to maintain our partnership status and to meet the qualifying income exception . we have historically used multiple management companies to segregate operations for business , financial and other reasons . going forward , we may increase or decrease the number of our management companies or partnerships within the apollo operating group based on our views regarding the appropriate balance between ( a ) administrative convenience and ( b ) continued business , financial , tax and other optimization . business environment as a global investment manager , we are affected by numerous factors , including the condition of financial markets and the economy . price fluctuations within equity , credit , commodity , foreign exchange markets , as well as interest rates , which may be volatile and mixed across geographies , can significantly impact the valuation of our funds ' portfolio companies and related income we may recognize . in terms of equity markets , in the u.s. , the s & p 500 index rose 4.4 % in the fourth quarter of 2014 , bringing the full year appreciation to 11.4 % . outside the u.s. , global equity markets depreciated in the fourth quarter of 2014 . the msci all country world ex usa index was down 4.2 % in the fourth quarter of 2014 , bringing the full year depreciation to 6.3 % . importantly , we believe that the generally positive momentum in the u.s. equity markets is conducive for continued equity capital markets activity , including ipos and secondary offerings of the portfolio companies within our funds . conditions in the credit markets also have a significant impact on our business . credit indices declined in the fourth quarter of 2014 , with the bofaml hy master ii index down 1.1 % and the s & p/lsta leveraged loan index down 0.5 % . for the full year , however , the bofaml hy master ii index was up 2.5 % and the s & p/lsta leveraged loan index was up 1.6 % . benchmark interest rates continued the year 's bearish descent in the fourth quarter . the u.s. 10-year treasury yield finished the quarter down 35 basis points and the year down more than 85 basis points from its starting point to 2.2 % . commodities generally saw price declines for the full year after a particularly weak fourth quarter that was driven by depreciation in oil . story_separator_special_tag the following table presents total aum and fee-generating aum amounts for our real estate segment by strategy : replace_table_token_12_th - 75 - the following tables summarize changes in total aum for each of apollo 's three segments for years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_13_th ( 1 ) as of december 31 , 2014 , 2013 and 2012 , includes $ 0.8 billion , $ 1.1 billion , and $ 2.3 billion of commitments , respectively , that have yet to be deployed to an apollo fund within apollo 's three segments . ( 2 ) for the year ended december 31 , 2014 , includes $ 2.5 billion of aum from co-investment vehicles that was raised in prior periods . ( 3 ) represents changes in used and available leverage , and includes the changes in nav on aum managed by athene asset management that is not sub-advised by apollo . ( 4 ) represents release of unfunded commitments primarily related to fund iii in our private equity segment and two legacy cpi real estate funds in our real estate segment that were past their investment periods . - 76 - private equity during the year ended december 31 , 2014 , total aum in our private equity segment decreased by $ 8.9 billion , or 17.8 % . this decrease was a result of distributions of $ 11.4 billion primarily attributable to fund vii and apollo investment fund vi , l.p. ( `` fund vi `` ) of $ 6.4 billion and $ 3.7 billion , respectively . in addition there were transfers out of $ 1.2 billion . these decreases were offset by $ 0.6 billion of income that was primarily attributable to unrealized gains in fund vii of $ 1.6 billion offset by unrealized losses in fund vi and co-investment vehicles , of $ 0.6 billion and $ 0.6 billion , respectively , and an increase in subscriptions of $ 3.0 billion primarily attributable to co-investment vehicles that were raised in prior periods . during the year ended december 31 , 2013 , the aum in our private equity segment increased by $ 12.1 billion , or 31.9 % . this increase was a result of subscriptions of $ 17.5 billion in fund viii and $ 10.7 billion of income from improved unrealized gains , including $ 5.9 billion from fund vii and $ 4.3 billion from fund vi . offsetting this increase was $ 15.6 billion of distributions , including $ 8.7 billion from fund vii and $ 5.8 billion from fund vi , and $ 2.5 billion of decreased leverage . during the year ended december 31 , 2012 , the total aum in our private equity segment increased by $ 2.4 billion , or 6.9 % . this increase was primarily a result of income of $ 8.1 billion attributable to improved unrealized gains in our private equity funds , including $ 4.5 billion from fund vii and $ 3.1 billion from fund vi . in addition , contributing to this increase was an additional $ 0.7 billion in subscriptions from aion and anrp . offsetting this increase was $ 6.5 billion in distributions , including $ 3.7 billion from fund vii and $ 2.1 billion from fund vi . credit during the year ended december 31 , 2014 , total aum in our credit segment increased by $ 7.6 billion , or 7.5 % . this increase was a result of subscriptions of $ 6.1 billion , $ 3.5 billion of leverage , $ 1.7 billion of income and $ 0.2 billion in net segment transfers . included in subscriptions was $ 2.5 billion in cof iii , $ 0.5 billion in fci ii , $ 0.4 billion in apollo structured credit recovery master fund iii , l.p. ( `` acrf iii `` ) and $ 0.4 billion from apollo investment europe iii , l.p. ( “ aie iii ” ) . these increases were offset by $ 3.5 billion of distributions including $ 1.1 billion and $ 0.4 billion from apollo european principal finance fund , l.p. ( `` epf i `` ) and apollo credit opportunity fund i , l.p. ( `` cof i `` ) , respectively and $ 0.6 billion in redemptions . during the year ended december 31 , 2013 , aum in our credit segment increased by $ 36.5 billion , or 56.6 % . this increase consisted of $ 43.8 billion in acquisitions related to the acquisition of aviva usa by athene holding , $ 4.1 billion in unrealized gains , subscriptions of $ 3.4 billion , including $ 0.9 billion in fci ii and $ 0.6 billion in cof iii . this increase in aum was partially offset by a decrease in leverage of $ 6.3 billion , including $ 1.0 billion in the u.s. performing credit strategy from net clo vehicle wind-downs , $ 1.3 billion in apollo credit opportunity fund ii , l.p. ( `` cof ii `` ) , and $ 0.8 billion in amtg , and $ 5.5 billion in distributions , including $ 1.9 billion from cof i , $ 0.6 billion from epf i and $ 1.1 billion from cof ii . during the year ended december 31 , 2012 , total aum in our credit segment increased by $ 32.5 billion , or 102.1 % . this increase was primarily attributable to $ 18.5 billion in acquisitions related to stone tower capital llc and its related management companies ( `` stone tower `` ) , $ 5.1 billion in other inflows related to athene and $ 5.3 billion in increased leverage , including $ 3.4 billion from amtg . the increase was also a result of $ 5.5 billion of additional subscriptions , including $ 3.0 billion by epf ii , $ 0.6 billion by apollo centre street partnership , l.p. ( “ acsp ” ) and $ 0.4 billion by amtg

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liquidity and capital resources historical although we have managed our historical liquidity needs by looking at deconsolidated cash flows , our historical consolidated statements of cash flows reflects the cash flows of apollo , as well as those of the consolidated apollo funds . the primary cash flow activities of apollo are : generating cash flow from operations ; making investments in apollo funds ; meeting financing needs through credit agreements ; and distributing cash flow to equity holders and non-controlling interests . primary cash flow activities of the consolidated apollo funds and vies are : raising capital from their investors , which have been reflected historically as non-controlling interests of the consolidated subsidiaries in our financial statements ; using capital to make investments ; generating cash flow from operations through distributions , interest and the realization of investments ; distributing cash flow to investors ; and issuing debt to finance investments ( clos ) . while primarily met by cash flows generated through fee income and carried interest income received , working capital needs have also been met ( to a limited extent ) through borrowings as follows : replace_table_token_37_th ( 1 ) includes impact of any amortization of note discount and interest rate hedge . ( 2 ) on july 3 , 2014 , apollo management international llp ( “ ami ” ) , a subsidiary of the company , entered into a 13.4 million five year credit agreement ( the “ 2014 ami term facility ” ) . proceeds from the borrowing were used to fund the company 's investment in a clo . ( 3 ) on december 9 , 2014 , ami entered into a 15.5 million five year credit agreement ( the `` 2014 ami term facility ii '' ) . proceeds from the borrowing were used to fund the company 's investment in a clo . additionally the 2013 amh credit facilities provide for a $ 500 million revolving credit facility , which was undrawn as of december 31 , 2014 . see note 14 of our consolidated financial statements for information regarding the company 's debt arrangements .

however , sales associated with products for elective procedures appear to be influenced by the somewhat lower level of such procedures performed in the late summer . certain of the breg ® bracing products experience greater demand in the fall and winter corresponding with high school and college football schedules and winter sports . in addition , we do not believe our operations will be significantly affected by inflation . however , in the ordinary course of business , we are exposed to the impact of changes in interest rates and foreign currency fluctuations . our objective is to limit the impact of such movements on earnings and cash flows . in order to achieve this objective , we seek to balance non-dollar denominated income and expenditures . during the year , we have used derivative instruments to hedge foreign currency fluctuation exposures . see item 7a—“quantitative and qualitative disclosures about market risk.” 38 critical accounting policies and estimates our discussion of operating results is based upon the consolidated financial statements and accompanying notes to the consolidated financial statements prepared in conformity with us gaap . the preparation of these statements necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period . these estimates and assumptions form the basis for the carrying values of assets and liabilities . on an ongoing basis , we evaluate these estimates , including those related to contractual allowances , doubtful accounts , inventories , potential intangible assets and goodwill impairment , income taxes , and share-based compensation . we base our estimates on historical experience and various other assumptions . actual results may differ from these estimates . we have reviewed our critical accounting policies with the audit committee of the board of directors . revenue recognition revenue is generally recognized as income in the period in which title passes and the products are delivered . revenues exclude any value added or other local taxes , intercompany sales and trade discounts . shipping and handling costs are included in cost of sales . royalty revenues are recognized when the royalty is earned . for stimulation and certain bracing products that are prescribed by a physician , we recognize revenue when the product is placed on or implanted in and accepted by the patient . for domestic spinal implant and hct/p products , revenues are recognized when the product has been utilized and a confirming purchase order has been received from the hospital . for sales to commercial customers , including hospitals and distributors , revenues are recognized at the time of shipment unless contractual agreements specify that title passes on delivery . revenues for inventory delivered on consignment are recognized as the product is used by the consignee . in 2008 , we entered into an agreement with the musculoskeletal transplant foundation ( “mtf” ) to develop and commercialize trinity ® evolution ™ , a stem cell-based regenerative biologic matrix . with the development process completed in 2009 , we and mtf operate under the terms of a separate commercialization agreement . under the terms of this 10-year agreement , mtf sources the tissue , processes it to create the regenerative matrix , packages and delivers it to the customer in accordance with orders received from us . we have exclusive global marketing rights for trinity ® evolution ™ and receive a marketing fee from mtf based on total sales . this marketing fee is recorded on a net basis within net sales . on january 9 , 2012 we entered into an agreement with mtf to both co-develop and commercialize a new technology for use in bone grafting applications and to expand mtf 's trinity evolution processing capacity . mtf and orthofix also extended the initial term of their existing agreement for an additional five years . we derive a significant amount of revenues in the u.s. from third-party payors , including commercial insurance carriers , health maintenance organizations , preferred provider organizations and governmental payors such as medicare . amounts paid by these third-party payors are generally based on fixed or allowable reimbursement rates . these revenues are recorded at the expected or pre-authorized reimbursement rates , net of any contractual allowances or adjustments . certain billings are subject to review by the third-party payors and may be subject to adjustment . allowance for doubtful accounts and contractual allowances the process for estimating the ultimate collection of accounts receivable involves significant assumptions and judgments . historical collection and payor reimbursement experience is an integral part of the estimation process related to reserves for doubtful accounts and the establishment of contractual allowances . accounts receivable are analyzed on a quarterly basis to assess the adequacy of both reserves for doubtful accounts and contractual allowances . revisions in allowances for doubtful accounts estimates are recorded as an adjustment to bad debt expense within sales and marketing expenses . revisions to contractual allowances are recorded as an adjustment to net sales . in the judgment of management , adequate allowances have been provided for doubtful accounts and contractual allowances . our estimates are periodically tested against actual collection experience . inventory allowances we write down our inventory for inventory excess and obsolescence by an amount equal to the difference between the cost of the inventory and the estimated net realizable value based upon assumptions about future demand and market conditions . inventory is analyzed to assess the adequacy of inventory excess and obsolescence provisions . reserves for excess and obsolescence provisions are recorded as adjustments to cost of goods sold . if conditions or assumptions used in determining the market value change , additional inventory adjustments in the future may be necessary . story_separator_special_tag this global business unit uses both direct and distributor sales representatives to sell orthopedics products to hospitals , doctors and other healthcare providers , globally . sports medicine sports medicine designs , manufactures and distributes a portfolio of non-invasive products that allow physicians and clinicians to treat a variety of sports medicine related conditions in order to minimize pain and restore mobility to their patients . sports medicine distributes products through a network of domestic and international distributors , sales representatives and affiliates to hospitals , doctors and other healthcare providers , primarily in the u.s. corporate corporate activities are comprised of the operating expenses of orthofix international n.v. and its u.s. holding company subsidiary , orthofix holdings , inc. , along with activities not necessarily identifiable with the three gbus . 43 segment and market sector revenue the following tables display net sales by business segment and net sales by market sector . we maintain our books and records and account for net sales , costs of sales and expenses by business segment . we provide net sales by market sector for information purposes only . business segments by gbu : replace_table_token_7_th our market sectors are spine that includes implants , biologics , and also stimulation products , orthopedics , and sports medicine . market sectors : replace_table_token_8_th ( 1 ) divested products sales for 2011 include $ 5.8 million related to the vascular business which was divested in march 2010. divested products sales for 2010 and 2009 include $ 8.3 million and $ 18.7 million , respectively , related to the vascular business which was divested in march 2010. this revenue represents amounts recognized in 2010 and 2009 prior to the march 2010 sale date as well as revenue generated in 2010 and 2011 from the transition services supply agreement that commenced upon the sale of the business . in addition , divested products sales for 2010 and 2009 also include $ 5 million and $ 11.8 million , respectively , related to the anesthesia product line . the company exited its anesthesia product line after the expiration of its distribution agreement in the united kingdom during the second quarter of 2010 . 2011 compared to 2010 net sales increased 3 % to $ 579 million in 2011 compared to $ 564.4 million in 2010. the impact of foreign currency increased sales by $ 6.5 million in 2011 when compared to 2010 . 44 sales net sales in our spine market sector decreased to $ 304.2 million in 2011 compared to $ 306.4 million for 2010 , a decrease of 1 % . the decrease in spine 's net sales was primarily the result of a 7 % decrease in sales of our spine stimulation products in 2011 when compared to the 2010 , due to lower industry-wide surgical procedures and organizational changes to our sales force . this sales decrease was partially offset by a 23 % increase in sales of our biologics products and an increase in our implant products of 3 % when compared to 2010. the improvement in hardware products included improved sales in our thorocolumbar devices in 2011 compared to 2010 due to increased sales of our firebird™ platform products including phoenix mis and deformity correction . net sales in our orthopedics market sector increased to $ 165.9 million in 2011 compared to $ 149.2 million for 2010 , an increase of 11 % . orthopedics 's constant currency net sales increased by 7 % , or $ 10.5 million during 2011 as compared to 2010. this increase was led by fixation products and the increased use of trinity ® evolution™ in orthopedic applications but was offset by the reduction in stimulation products used in long-bone applications . sales of our fixation products and biologics products increased 21 % and 23 % , respectively , during 2011 when compared to 2010. net sales in our sports medicine market sector increased to $ 103 million in 2011 compared to $ 95.5 million for the same period in the prior year , an increase of 8 % . we had increased billing capacity and revenues of $ 4.7 million resulting from the acquisition of a billing capability in february 2011. net sales of our divested products decreased in 2011 from $ 13.3 million to $ 5.8 million . this revenue represents amounts recognized in 2010 and in 2011 from the vascular business which we divested in march 2010 and the transition services supply agreement that commenced upon the sale of the business . in addition , sales for the year ended december 31 , 2010 also include $ 5 million related to the anesthesia product line . we exited the anesthesia product line after the expiration of our distribution agreement in the united kingdom during the second quarter of 2010. gross profit —our gross profit increased 2 % to $ 439.8 million for 2011 compared to $ 432.7 million for 2010. gross profit as a percent of net sales in 2011 was 76.0 % compared to 76.7 % in 2010. this decrease was primarily a result of increased pricing pressures in the u.s. spinal implants and sports medicine markets , an unfavorable product and geographical sales mix and a negative impact of the change in foreign currency rates . sales and marketing expense —sales and marketing expense , which includes commissions , certain royalties and the bad debt provision , generally increases and decreases in relation to sales . sales and marketing expense increased $ 2.7 million , or 1 % , to $ 233.6 million in 2011 compared to $ 230.9 million in 2010. as a percent of sales , sales and marketing expense was 40.3 % and 40.9 % for 2011 and 2010 , respectively . in 2011 the reduction in sales and marketing expense as percent of sales was the result of various consolidation and operational efficiency initiatives we have executed on over the past several quarters . general and administrative expense

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liquidity and capital resources cash and cash equivalents at december 31 , 2011 were $ 80.3 million , of which $ 47.1 million is subject to certain restrictions under the senior secured credit agreement described below . this compares to cash and cash equivalents of $ 36.5 million at december 31 , 2010 , of which $ 22.9 million was subject to certain restrictions under the senior secured credit agreement described below . net cash provided by operating activities was $ 64.8 million in 2011 compared to $ 42.5 million in 2010 , an increase of $ 22.3 million . net cash provided by operating activities is comprised of net income , non-cash items ( including depreciation and amortization , provision for doubtful accounts , inventory obsolescence , share-based compensation , deferred taxes , and the net gain on sale of vascular operations ) and changes in working capital . net income decreased $ 45.3 million to a net loss of $ 1.1 million in 2011 compared to net income of $ 44.2 million in 2010. non-cash items for 2011 increased $ 19 million to $ 49.7 million compared to $ 30.7 million in 2010 primarily as a result of the net gain on the sale of vascular operations of $ 12 million and an increase in the tax benefit on non-qualified stock options of $ 2.2 million . working capital accounts provided $ 16.1 million of cash in 2011 as compared to consuming $ 32.4 million in 2010. working capital impacts in the 2011 period can be attributed to charges related to u.s. government resolutions of $ 88.5 million partially offset by the change in escrow receivable of $ 30.5 million . overall performance indicators for our two primary working capital accounts , accounts receivable and inventory reflect days sales in receivables of 89 days at december 31 , 2011 compared to 86 days at december 31 , 2010 and inventory turns of 1.5 times at december 31 , 2011 and 2010. net cash used in investing activities was $ 31 million in 2011 compared to $ 2.1 million in 2010. during the first quarter of 2010 , we sold our vascular operations with cash proceeds , net of litigation settlement costs , for $ 24.2

the 2016 losses were primarily due to an impairment loss of $ 92,396,000 on our ipr & d , $ 13,400,000 from ongoing operations , $ 1,177,000 impairment on our mortgage note , offset by a $ 29,394,000 deferred tax benefit associated with the impairment charge incurred on our ipr & d asset . our operating loss for the year ended december 31 , 2017 was $ 8,262,000 , compared to an operating loss of $ 105,819,000 in 2016. the operating loss for 2016 included the impairment charge of $ 92,369,000 on our ipr & d asset noted above . other income was $ 769,000 for the year ended december 31 , 2017 , which is primarily due to a $ 907,000 gain on the fair value of derivative liabilities . under accounting principles generally accepted in the united states , we record other income or expense for the change in fair value of our outstanding warrants that are accounted for as liabilities during each reporting period . if the value of the warrants decreases during a period , which occurred during the year ended december 31 , 2017 , we record other income . the fair value of our outstanding warrants is inversely related to the fair value of the underlying common stock ; as such , a decrease in the fair value of our common stock during a given period generally results in other income while an increase in the fair value of our common stock generally results in other expense . this other income or expense is non-cash . we believe investors should focus on our operating loss rather than net income or loss for the periods presented . research and development expense research and development expense consists primarily of compensation-related costs for our 8 employees dedicated to research and development activities and for our scientific advisory board members , as well as lab supplies , lab services , and facilities and equipment costs . we expect research and development expenses to increase in future periods as we expand our pre-clinical development activities . also included in research and development expense for the year ended december 31 , 2016 is an impairment charge related to our in-process research and development ( ipr & d ) intangible asset in the amount of $ 92,369,000. total research and development expenses were $ 5,822,000 for the year ended december 31 , 2017 , compared with $ 101,679,000 for the year ended december 31 , 2016. this decrease of $ 95,857,000 is primarily the result of recognizing an impairment loss on ipr & d of $ 92,396,000 in 2016. excluding the impact of the ipr & d impairment charge , research and development expenses decreased $ 3,461,000 from $ 9,283,000 for the year ended december 31 , 2016. we continue to expect research and development expenses to increase in 2018 as a result of hcv phase 2 programs and preparation for influenza phase 1 start up . general and administrative expense general and administrative expense includes compensation-related costs for our employees dedicated to general and administrative activities , legal fees , audit and tax fees , consultants and professional services , and general corporate expenses . general and administrative expenses were $ 2,440,000 for the year ended december 31 , 2017 , compared with $ 4,140,000 for the year ended december 31 , 2016. this decrease of $ 1,700,000 was primarily due to an insurance reimbursement of prior legal costs , a non-cash reversal of stock compensation expense related to unvested options for the former general counsel and interim cfo that left the company during 2017 , a decrease in compensation costs due to staffing turnover , and a general decrease in legal costs . interest income/expense interest income ( expense ) was ( $ 7,000 ) for the year ended december 31 , 2017 , compared to $ 126,000 for the year ended december 31 , 2016. the interest expense in 2017 is a result of the convertible promissory notes we entered into in november 2017. the 2016 income amounts primarily represent interest earned on the mortgage note we acquired in june 2015. as further explained in note 4 to the consolidated financial statements , we have sold this note in february 2018 . 37 other income/expense other income , net , was $ 769,000 for the year ended december 31 , 2017 compared with $ 1,551,000 for the year ended december 31 , 2016. other income , net for the year ended december 31 , 2017 primarily consisted of a gain recognized from a decrease in the fair value of our derivative liabilities as our stock price decreased . other income for the year ended december 31 , 2016 also included a gain of $ 2,603,000 due to a decrease in the fair value of our derivative liabilities , offset by an impairment loss of $ 1,177,000 related to our mortgage note receivable . income taxes for the year ended december 31 , 2017 , we recorded an income tax benefit of $ 6,880,000 , primarily as a result of reduction of our deferred tax liability which was caused by recent tax law changes lowering the corporate tax rate to 21 % . for the year ended december 31 , 2016 , we recorded an income tax benefit of $ 29,394,000 resulting from reduction of our deferred tax liability primarily stemming from the impairment loss recorded for the company 's in-process research and development . for the years ended december 31 , 2016 and december 31 , 2015 research and development expense research and development expense consists primarily of compensation-related costs for our employees dedicated to research and development activities and for our scientific advisory board members , as well as lab supplies , lab services , and facilities and equipment costs . story_separator_special_tag 41 in november 2016 , due to industry reports forecasting patient volume decreasing and the average price of treatment trending downward , as well as due to increased competition in the hepatitis c market , and partially the result of further data defining the scientific and commercial potential of company hcv compounds , we further lowered our forecasts of future cash flows , which caused a reduction in value of our hepatitis c assets . this resulted in an impairment charge recorded to our ipr & d asset in the amount of $ 92.4 million in 2016. during 2017 , our impairment test concluded no impairment of our ipr & d asset was required . however , as we continue work on this program , we may be required to record additional impairment charges in the future depending on the outcome of our research activities and changes in the market for our hepatitis c assets . we also recorded $ 65.2 million of goodwill in the rfs pharma acquisition that is subject to impairment testing . this goodwill primarily represents the amount initially recorded as a deferred tax liability in the rfs pharma acquisition , which was required as the goodwill recorded for book purposes is not tax deductible based on the structure of the acquisition . future impairment tests of goodwill will also require substantial judgment and estimates . we completed our annual goodwill impairment tests as of november 30 , 2017 , 2016 , and 2015 , and determined that there was no impairment of goodwill in any period . income taxes as noted above , we initially recorded a deferred tax liability of $ 65.2 million related to the rfs pharma acquisition . in 2015 , we recognized an impairment loss on our in-process research and development asset , resulting in a reduction of our deferred tax liability of approximately $ 15.3 million . in 2016 , we recognized another impairment loss on our in-process research and development of $ 92.4 million , which reduced our deferred tax liability to approximately $ 20.5 million . for 2017 , our deferred tax liability declined by $ 6.8 million due to the impact of recent changes in the tax laws which , among other things , lowered the corporate tax rate to 21 % . the remeasurement of our deferred tax liability generated an income tax benefit of $ 6.6 million . in addition to lowering the corporate tax rate for years beginning january 1 , 2018 , the new tax laws allow for net operating loss carryforwards to be carried forward indefinitely for losses incurred beginning in 2018 , subject to a limitation on the amount that can be used to offset income generated in a given year . prior to 2017 , we have not considered the deferred tax liability as a source of future income in our determination of the need for a valuation allowance against our deferred tax assets due to the fact that this deferred tax liability relates to our indefinite-lived ipr & d asset , and the timing of reversal of this deferred tax liability can not currently be determined due to uncertainty regarding the ultimate outcome of our research activities associated with the intellectual property acquired in the rfs pharma transaction . given the change in tax laws , we considered whether the reversal of taxable temporary differences related to the indefinite lived intangible assets may be used as a source of future taxable income in assessing the realizability of deferred tax assets than upon reversal would give rise to nols that do not expire , which resulted in an additional tax benefit of approximately $ 293,000 in 2017. in 2018 , we will likely record a tax benefit to reflect the indefinite carryforward period for future net operating losses that would allow such net operating losses to be used to offset any income recorded upon reversal of the deferred tax liability ; however , we are still evaluating the impact on our future financial statements . to the extent our estimates regarding the outcome of those activities changes in future periods , our determination regarding the valuation allowance may also change . contractual obligations the following table summarizes our significant contractual obligations at december 31 , 2017 ( in thousands ) : replace_table_token_3_th the minimum lease payments above do not include common area maintenance ( cam ) charges , which are contractual obligations under some of the company 's operating leases , but are not fixed and can fluctuate from year to year . 42 licenses and collaborations in addition to the above contractual commitments , we also have potential future payments due under various licenses and collaborations as follows : emory university : the company has an exclusive license from emory university for use of certain inventions and technology related to inhibitors of hepatitis c virus that were jointly developed by emory and company employees . the license agreement is dated march 7 , 2013 wherein emory agrees to add to the licensed patents and licensed technology emory 's rights to any patent , patent application , invention , or technology application that is based on technology disclosed within three ( 3 ) years of march 7 , 2013. the agreement includes payments due to emory ranging from $ 40,000 to $ 500,000 based on successful achievement of certain drug development milestones . additionally , the company may have royalty payments at 3.5 % of net sales due to emory with a minimum in year one of $ 25,000 and increase to $ 400,000 in year five upon product commercialization . recent accounting pronouncements in february 2016 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2016-02 , leases ( topic 842 ) . asu 2016-02 impacts any entity that enters into a lease with some specified scope exceptions . this new standard establishes a right-of-use (

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liquidity and capital resources for the year ended december 31 , 2017 , net cash used in operating activities was $ 6,903,000 , compared to net cash used in operating activities of $ 14,655,000 for 2016. the decrease in cash used in operating activities from 2017 to 2016 was attributable to reduced spending in research and development activities following the completion of the hcv phase 1 clinical trials . in 2017 , net cash used in investing activities consisted of $ 40,000 in capital expenditures for lab equipment . for 2016 , our net cash provided by investing activities netted to $ 3,000 , which consisted of receipts related to our mortgage note offset by capital expenditures primarily for lab equipment for our r & d facilities . for the year ended december 31 , 2017 , net cash provided by financing activities was $ 4,080,000 , compared to net cash provided by financing activities of $ 9,016,000 for 2016. net cash generated by financing activities in 2017 was the result of issuing convertible notes payable and additional issuances of common stock . during 2016 , net cash from financing activities was generated solely from the issuance of common stock . for the year ended december 31 , 2016 , net cash used in operating activities was $ 14,655,000 , compared to net cash used in operating activities of $ 10,317,000 for 2015. the increase in cash used in operating activities in 2016 as compared to 2015 was attributable to our increase in research and development activities , including phase i testing of our lead non-nucleoside inhibitor .

these expenses consist primarily of salaries and related expenses , stock-based compensation , the purchase of equipment , laboratory and manufacturing supplies , facility costs , costs for preclinical and clinical research , development of quality control systems , quality assurance programs and manufacturing processes . we charge all research and development expenses to operating expenses as incurred . clinical development timelines , likelihood of success and total costs vary widely . we do not currently track our internal research and development costs or our personnel and related costs on an individual drug candidate basis . we use our research and development resources , including employees and our drug discovery technology , across multiple drug development programs . as a result , we can not state precisely the costs incurred for each of our research and development programs or our clinical and preclinical drug candidates . from inception through december 31 , 2016 , we have recorded total research and development expenses , including share-based compensation , of $ 143.6 million . our total research and development expenses for the year ended december 31 , 2016 was $ 42.5 million , compared to $ 31.3 million the year ended december 31 , 2015 , and $ 14.3 million for the year ended december 31 , 2014. share-based compensation accounted for $ 2.1 million for the year ended december 31 , 2016 , $ 2.2 million for the year ended december 31 , 2015 and $ 1.3 million for the year ended december 31 , 2014. research and development expenses as a percentage of total operating expenses was 81 % for the year ended december 31 , 2016 , 83 % for the year ended december 31 , 2015 , and 66 % for the year ended december 31 , 2014. the percentages , excluding stock-based compensation , was 86 % for the year ended december 31 , 2016 , 88 % for the year ended december 31 , 2015 and 88 % for the year ended december 31 , 2014. as planned , our clinical development costs increased as we advanced our lead product candidate as an anti-cancer therapy for treating last-line metastatic colorectal cancer ( mcrc ) , under a regulatory pathway through global phase iii clinical trials under ema and fda jurisdictions . the company 's maa submission in europe could potentially position the company to generate related revenues in 2017 if it receives ema marketing approval and the company successfully completes the commercialization plan for its lead product candidate . the clinical research and development costs may decrease going forward with the completion of the phase i/ii s. aureus bacteremia study and as we enter the maintenance phase of the fda pivotal phase iii mcrc trial . although , expenses could increase due to potential marketing approval of our lead product candidate in europe and related commercialization costs , as well as , the potential of pursuing advanced clinical studies in various indications . based on the results of our preclinical studies , we anticipate that we will select drug candidates and research projects for further development on an ongoing basis in response to their preclinical and clinical success and commercial potential . for research and development candidates in early stages of development , it is premature to estimate when material net cash inflows from these projects might occur . general and administrative expenses general and administrative expense consists primarily of salaries and related expenses for personnel in administrative , finance , business development and human resource functions , as well as the legal costs of pursuing patent protection of our intellectual property and patent filing and maintenance expenses , share–based compensation , and professional fees for legal services . our total general and administration expenses was 10.3 million for the year ended december 31 , 2016 , $ 6.2 million for the year ended december 31 , 2015 and $ 7.4 million for the year ended december 31 , 2014. share-based compensation accounted for $ 3.5 million for the year ended december 31 , 2016 , $ 2.2 million for the year ended december 31 , 2015 and $ 5.7 million for the year ended december 31 , 2014 . 42 critical accounting policies our management 's discussion and analysis of financial condition and results of operations is based on our financial statements , which have been prepared in conformity with generally accepted accounting principles in the united states ( us gaap ) . the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and expenses incurred during the reported periods . we base estimates on our historical experience , known trends and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in the notes to our financial statements appearing in this annual report on form 10-k , we believe that the following accounting policies are the most critical to understanding and evaluating our reported financial results . stock-based compensation stock-based awards are measured at fair value at each grant date . we recognize stock-based compensation expenses ratably over the requisite service period of the option award . determination of the fair value of stock-based compensation grants the determination of the fair value of stock-based compensation arrangements is affected by a number of variables , including estimates of the expected stock price volatility , risk-free interest rate and the expected life of the award . we value stock options using the black-scholes option-pricing model , which was developed for use in estimating the fair value of traded options that are fully transferable and have no vesting restrictions . story_separator_special_tag black-scholes option-pricing model and other option valuation models require the input of highly subjective assumptions , including the expected stock price volatility . if we made different assumptions , our stock-based compensation expenses , net loss , and net loss per common share could be significantly different . prior to our initial public offering in april 2015 , we issued common stock for cash consideration to investors . we believe that such transactions represent the best evidence of fair value of our common stock . therefore , we used the sales price of our common stock prior to our initial public offering ( ipo ) in april 2015 as the fair value of our common stock . after our ipo , we determine that the fair value of common stock is equal to the closing price of the company 's common stock as reported by nasdaq on the option grant date . the following summarizes the assumptions used for estimating the fair value of stock options granted during the periods indicated : replace_table_token_4_th we have assumed no dividend yield because we do not expect to pay dividends in the foreseeable future , which is consistent with our past practice . the risk-free interest rate assumption is based on observed interest rates for u.s. treasury securities with maturities consistent with the expected life of our stock options . the expected life represents the period of time the stock options are expected to be outstanding and is based on the simplified method when the stock option includes “ plain vanilla ” terms . under the simplified method , the expected life of an option is presumed to be the midpoint between the vesting date and the end of the agreement term . we used the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options . for stock options that did not include “ plain vanilla ” terms , we used the contractual life of the stock option as the expected life . such stock options consisted primarily of options issued to our board of directors that were immediately vested at issuance . expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected life of the stock options . as part of the requirements of asc 718 , the company is required to estimate potential forfeitures of stock grants and adjust compensation cost recorded accordingly . we based our estimate of pre-vesting forfeitures , or forfeiture rate , on historical forfeiture rates . we apply the estimated forfeiture rate to the total estimated fair value of the awards , as derived from the black-scholes model , to compute the share-based compensation expenses , net of pre-vesting forfeitures , to be recognized in our consolidated statements of operations . 43 results of operations revenue we did not record any revenue during the years ended december 31 , 2016 , 2015 and 2014. expenses research and development research and development costs are summarized as follows ( in thousands ) : replace_table_token_5_th we do not currently track our internal research and development costs or our personnel and related costs on an individual drug candidate basis . we use our research and development resources , including employees and our drug discovery technology , across multiple drug development programs . as a result , we can not state precisely the costs incurred for each of our research and development programs or our clinical and preclinical drug candidates . research and development expenses increased by 36 % to $ 42.5 million for year ended december 31 , 2016 compared to $ 31.3 million for the year ended december 31 , 2015. the increase in research and development expenses for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 was due to a $ 5.2 million increase of clinical trial activities and sponsored research expense , related to an expansion of clinical sites globally . in addition , there was a continued increase in laboratory and manufacturing supplies expense due to the increase of manufacturing processing development activities , research activities , quality control activities and the validation of equipment in the new manufacturing facility . the increase is also due to higher salaries and related expenses in 2016 due to the growing size of our workforce from 70 to 96. we also incurred increased allocated facility expense due to the facility expense incurred in the new manufacturing facility . stock–based compensation increased due to the issuance of stock options to new employees . the increase in research and development expenses for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 was due to a $ 10.7 million increase of clinical trial activities and sponsored research expense , which results primarily from the clinical trial started in europe and the us . the increase is also due to higher salaries and related expenses in 2015 due to the growing size of our workforce from 49 to 70 and a $ 330 thousand bonus payment to an executive officer in the second quarter of 2015. laboratory and manufacturing supplies also increased due to the increase of manufacturing processing development activities , research activities and quality control activities . stock–based compensation increased due the issuance of stock options to new employees . 44 general and administrative general and administrative costs are summarized as follows ( in thousands ) : replace_table_token_6_th general and administrative expenses increased 66 % to $ 10.3 million for the year ended december 31 , 2016 compared to $ 6.2 million for the year ended december 31 , 2015. the increase was principally due to a $ 0.6 million salary increase from the growth of our workforce and a $ 135 thousand bonus payment to an executive officer in march 2016. share-based compensation also increased by $ 1.3

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liquidity and capital resources our cash requirements could change materially as a result of the progress of our research and development and clinical programs , licensing activities , acquisitions , divestitures or other corporate developments . since our inception on march 22 , 2005 through december 31 , 2016 , we have funded our operations principally through the private placement of equity securities and our initial public offering , which have provided aggregate cash proceeds of approximately $ 223.9 million . at december 31 , 2016 , we had cash and cash equivalents of $ 34.3 million as compared to cash and cash equivalents of $ 91.1 million at december 31 , 2015. the following table summarizes our sources and uses of cash ( in thousands ) : replace_table_token_8_th during the years ended december 31 , 2016 , 2015 and 2014 , our operating activities used net cash of $ 46.0 million , $ 33.3 million and $ 11.7 million , respectively . the use of net cash in each of these periods primarily resulted from our net losses . the increase in net loss from operations for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 and 2014 was mainly due to the increase in clinical trial and manufacturing activities , as well as , the growing size of our workforce . during the years ended december 31 , 2016 , 2015 and 2014 , our investing activities used net cash of $ 13.9 million , $ 10.4 million , and $ 1.4 million , respectively .

on march 18 , 2014 , the company reincorporated in delaware under the name cocrystal pharma , inc. effective november 25 , 2014 , cocrystal pharma , inc. and affiliated entities completed a series of merger transactions as a result of which cocrystal pharma , inc. merged with rfs pharma , llc , a georgia limited liability company ( “ rfs pharma ” ) . we refer to the surviving entity of this merger as “ cocrystal ” or the “ company . ” 33 our primary business going forward is to develop novel medicines for use in the treatment of human viral diseases . cocrystal has been developing novel technologies and approaches to create first-in-class and best-in-class antiviral drug candidates since its initial funding in 2008. our focus is to pursue the development and commercialization of broad-spectrum antiviral drug candidates that will transform the treatment and prophylaxis of viral diseases in humans . by concentrating our research and development efforts on viral replication inhibitors , we plan to leverage our infrastructure and expertise in these areas . results of operations for the years ended december 31 , 2016 and december 31 , 2015 as stated above , we are focused on research and development of novel medicines for use in the treatment of human viral diseases . accordingly , we had no revenue for the years ended december 31 , 2016 or 2015 , except for $ 78,000 in grant revenues for 2015. for the year ended december 31 , 2016 , we had a net loss of $ 74,874,000 compared to a net loss of $ 50,122,000 for 2015. this net loss for the year was due primarily to an impairment loss of $ 92,396,000 on our ipr & d , $ 13,400,000 from ongoing operations , $ 1,177,000 impairment on our mortgage note , and a ( $ 29,394,000 ) deferred tax benefit associated with the impairment charges incurred . our operating loss for the year ended december 31 , 2016 was $ 105,819,000 , compared to an operating loss of $ 53,948,000 in 2015. other income was $ 1,551,000 for the year ended december 31 , 2016 , which is primarily due to a $ 2,603,000 gain on the fair value of derivative liabilities , offset by a loss of $ 1,177,000 related to impairment of our mortgage note receivable . under accounting principles generally accepted in the united states , we record other income or expense for the change in fair value of our outstanding warrants that are accounted for as liabilities during each reporting period . if the value of the warrants decreases during a period , which occurred during the year ended december 31 , 2016 , we record other income . the fair value of our outstanding warrants is inversely related to the fair value of the underlying common stock ; as such , a decrease in the fair value of our common stock during a given period generally results in other income while an increase in the fair value of our common stock generally results in other expense . this other income or expense is non-cash . we believe investors should focus on our operating loss rather than net income or loss for the periods presented . research and development expense research and development expense consists primarily of compensation-related costs for our 16 employees dedicated to research and development activities and for our scientific advisory board members , as well as lab supplies , lab services , and facilities and equipment costs . we expect research and development expenses to increase in future periods as we expand our pre-clinical development activities . also included in research and development expense for the years ended december 31 , 2016 and 2015 are impairment charges related to our in-process research and development ( ipr & d ) intangible asset . total research and development expenses were $ 101,679,000 for the year ended december 31 , 2016 , compared with $ 47,261,000 for the year ended december 31 , 2015. this increase of $ 54,418,000 is primarily the result of recognizing an impairment loss on ipr & d of $ 92,396,000 in 2016 as compared to an impairment loss of $ 38,665,000 in 2015. excluding the impact of the ipr & d impairment charges in each period , research and development expenses were $ 9,283,000 for the year ended december 31 , 2016 , which is an increase of $ 687,000 from $ 8,596,000 for the year ended december 31 , 2015. we continue to expect research and development expenses to increase in 2017 as a result of ongoing phase 1 programs and phase 2 start up . general and administrative expense general and administrative expense includes compensation-related costs for our employees dedicated to general and administrative activities , legal fees , audit and tax fees , consultants and professional services , and general corporate expenses . general and administrative expenses were $ 4,140,000 for the year ended december 31 , 2016 , compared with $ 6,765,000 for the year ended december 31 , 2015. this decrease of $ 2,625,000 is primarily the result of lower stock option expense due to the resignation of the ceo and cmo during the year . 34 future general and administrative expenses are expected to continue at the current levels , although we expect legal expenses relating to the sec and the sec investigation to be covered by insurance . story_separator_special_tag these impairment tests require significant judgment regarding the status of the research activities , the potential for future revenues to be derived from any products that may result from those activities , and other factors . 38 the company conducted its annual impairment tests related to the in-process research and development asset as of november 30 , 2015. the initial valuation recorded in november 2014 at the time of the rfs pharma acquisition represented the fair value of the acquired hepatitis c program acquired from rfs pharma . we performed our impairment test and estimated fair value of each unit of account based on the income approach ( also known as the discounted cash flow ( “ dcf ” ) method , which utilizes the present value of future cash flows to estimate fair value . ) the future cash flows for our hepatitis c assets were projected based upon our estimates of future revenues , operating income and other factors ( such as working capital and capital expenditures ) . we took into account market conditions for hepatitis c therapies , anticipated new competitive therapies and anticipated market price declines as we modeled future cash flows . late in 2015 , the company received reports from ongoing pre-clinical studies that indicated higher than acceptable toxicity related to its hepatitis c lead molecule , cc-1845 . work is ongoing to further isolate the source ( s ) of the higher than acceptable toxicity by separating the two diasteromers that form cc-1845 . we have determined one of these diasteromers has higher than desired toxicity . work on the second diasteromer is still in process . these events result in longer than anticipated development times for our lead molecule , a lower probability of technical and regulatory success and longer development times for back-up molecules within hepatitis c. as a result , we have lowered our forecasts of future cash flows , which caused a reduction in value of our hepatitis c assets and which led to the impairment charge recorded in the amount of $ 38.7 million in 2015 related to our ipr & d asset . as we continue work on this program , we may be required to record additional impairment charges depending on the outcome of our research activities . in november 2016 , the company performed annual tests of impairment on our ipr & d asset and to determine the fair value . due to industry reports forecasting patient volume decreasing and the average price of treatment trending downward , as well as due to increased competition in the hepatitis c market , and partially the result of further data defining the scientific and commercial potential of company hcv compounds , we have lowered our forecasts of future cash flows , which caused a reduction in value of our hepatitis c assets . this resulted in an impairment charge recorded to our ipr & d asset in the amount of $ 92.4 million in 2016. we also recorded $ 65.2 million of goodwill in the rfs pharma acquisition that is subject to impairment testing . this goodwill primarily represents the amount recorded as a deferred tax liability in the rfs pharma acquisition , which was required as the goodwill recorded for book purposes is not tax deductible based on the structure of the acquisition . future impairment tests of goodwill will also require substantial judgment and estimates . we completed our annual goodwill impairment tests as of november 30 , 2016 and 2015 , and determined that there was no impairment . income taxes given the uncertainty regarding future realization of our deferred tax assets , which primarily result from our net operating losses and research and development credit carryforwards , we have placed a full valuation allowance on our deferred tax assets . however , as noted above , we initially recorded a deferred tax liability of $ 65.2 million related to the rfs pharma acquisition . due to the impairment loss we recognized on our in-process research and development in 2015 , we reduced the deferred tax liability for the tax effect on that impairment loss of approximately $ 15.3 million . in 2016 , we recognized another impairment loss on our in-process research and development of $ 92.4 million . as a result , our deferred tax liability at december 31 , 2016 was reduced to $ 20.5 million . we have not considered this deferred tax liability as a source of future income in our determination of the need for a valuation allowance against our deferred tax assets due to the fact that this deferred tax liability relates to our indefinite-lived ipr & d asset , and the timing of reversal of this deferred tax liability can not currently be determined due to uncertainty regarding the ultimate outcome of our research activities associated with the intellectual property acquired in the rfs pharma transaction . to the extent our estimates regarding the outcome of those activities changes in future periods , our determination regarding the valuation allowance may also change . contractual obligations the following table summarizes our significant contractual obligations at december 31 , 2016 ( in thousands ) : replace_table_token_3_th the minimum lease payments above do not include common area maintenance ( cam ) charges , which are contractual obligations under some of the company 's operating leases , but are not fixed and can fluctuate from year to year . licenses and collaborations in addition to the above contractual commitments , we also have potential future payments due under various licenses and collaborations as follows : emory university : cocrystal pharma has an exclusive license from emory university for use of certain inventions and technology related to inhibitors of hepatitis c virus that were jointly developed by emory and cocrystal pharma employees . the license agreement is dated march 7 , 2013 wherein emory agrees to add to the licensed patents and licensed technology emory 's rights to any patent

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liquidity and capital resources for the year ended december 31 , 2016 , net cash used in operating activities was $ 14,655,000 , compared to net cash used in operating activities of $ 10,317,000 for 2015. the increase in cash used in operating activities from 2016 to 2015 was attributable to our increase in research and development activities , including phase i testing of our lead non-nucleoside inhibitor . in 2016 , net cash provided by investing activities of $ 3,000 consisted of receipts related to our mortgage note offset by capital expenditures primarily for lab equipment for our r & d facilities , as compared to cash used by investing activities of $ 262,000 when our capital expenditures exceeded amounts received for our mortgage note . for the year ended december 31 , 2016 , net cash provided by financing activities was $ 9,016,000 , compared to cash provided by financing activities of $ 15,885,000 for 2015. in both years , net cash generated by financing activities was primarily generated from the issuance of common stock . for the year ended december 31 , 2015 , net cash used in operating activities was $ 10,317,000 , compared to net cash used in operating activities of $ 6,012,000 for 2014. the increase in cash used in operating activities from 2014 to 2015 was attributable to our increase in research and development activities , including an increase in personnel , and increased general and administrative expenses associated with being a public company and with the two mergers we entered into during 2014. in 2015 , net cash used in investing activities of $ 262,000 consisted of capital expenditures primarily for improvements to our corporate offices in tucker , georgia .

9 part iii item 10. directors , executive officers , and corporate governance th e information required by item 10 as to directors , nominees for directors , reports under section 16 of the securities exchange act of 1934 , the registrant 's audit committee and an audit committee financial expert is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities exchange act of 1934 and is incorporated herein by reference . executive officers of registrant are as follows : name age position with registrant brian r. jones 57 president , treasurer and director lee w. boyer 60 secretary and director the occupations of such executive officers during the last five years and other principal affiliations are : name occupations brian r. jones president since april 25 , 2013 , treasurer and director since december 1 , 2006 ; managing member of brian r. jones cpa , llc . lee w. boyer secretary since 2017 and director since 2016. attorney with stockwell , sievert , viccellio , clements & shaddock , l.l.p . ; president , second university homesites , inc. ; manager , jones-boyer , llc ; manager , boyer properties , llc ; director , mallard bay , corp. directors , principal occupation or experience , and related business name and activity follows : name age experience and qualifications director since lee w. boyer 60 secretary of ckx lands , inc. ; attorney with stockwell , sievert , viccellio , clements & shaddock , l.l.p . ; president , second university homesites , inc. ; manager , jones-boyer , llc ; manager , boyer properties , llc ; director , mallard bay , corp. mr. boyer 's experience in land management and oil and gas leasing activities makes him qualified to serve as a director . 2016 max h. hart ( 1 ) ( 2 ) 59 principal , haas-hirsch interests . mr. hart 's experience in land management , oil and gas leasing activities , forestry , farming and rights of way makes him qualified to serve as a director . 2016 brian r. jones 57 president and chairman of the board of ckx lands , inc. since 2013 and treasurer of ckx lands , inc. since 2006 ; managing member of brian r. jones cpa , llc . mr. jones ' experience in public accounting , sec compliance and land management makes him qualified to serve as a director . 2007 10 director schedule ( continued ) : name age experience and qualifications director since eugene t. minvielle , iv ( 1 ) 44 chief financial officer and treasurer of marlin energy , llc . mr. minvielle 's experience in oil and gas and financial reporting makes him qualified to serve as a director . 2017 mary watkins savoy ( 1 ) ( 2 ) ( 3 ) 78 private investments ; director of mallard bay corp. mrs. savoy 's experience in land management and oil and gas leasing activities makes her qualified to serve as a director . 1998 charles d. viccellio 84 attorney ( retired ) , stockwell , sievert , viccellio , clements & shaddock , l.l.p . mr. viccellio 's extensive legal experience in land management and oil and gas activities makes him qualified to serve as a director . 1996 mary leach werner ( 2 ) ( 3 ) 50 vice president and director of north american land co. , inc. ; vice president and director of sweet lake land & oil co. , inc. mrs. werner 's experience in land management and oil and gas activities makes her qualified to serve as a director . 2004 michael b. white ( 3 ) 61 oil and gas ventures , farmland and timberland investments , sole manager of ottley properties , llc . mr. white 's experience in oil and gas , farmland and timberland makes him qualified to serve as a director . 2013 member of the ( 1 ) audit committee , ( 2 ) compensation committee , ( 3 ) nominating committee . stockwell , sievert , viccellio , clements & shaddock , l.l.p . is a law firm . second university homesites , inc. jones-boyer , llc , and boyer properties , llc are residential property management companies . mallard bay corp. , haas-hirsch interests , north american land co. , inc. , and sweet lake land & oil co. , inc. are all land management companies . marlin energy , llc is an upstream oil and gas company . ottley properties , llc is an investment holding company . brian r. jones cpa , llc is a cpa firm . mrs. savoy is mr. boyer 's aunt . there are no other family relationships between any of our directors and executive officers , or any arrangement or understanding between any of our executive officers and any other person pursuant to which any executive officer was appointed to his office . the board of directors has determined that director nominees boyer , hart , savoy , werner , and white are “ independent directors ” as defined under the rules of the nyse mkt . the company has adopted a code of ethics that applies to officers , directors and employees . a copy of the code of ethics will be provided by writing the president at p.o . box 1864 , lake charles , louisiana 70602 or obtained through the company 's website , www.ckxlands.com . item 11. executive compensation the information required by item 11 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . 11 item 12. security ownership of certain beneficial owners and management and related stockholder matters the information required by item 12 is included in the registrant 's definitive proxy statement to be filed pursuant to story_separator_special_tag 9 part iii item 10. directors , executive officers , and corporate governance th e information required by item 10 as to directors , nominees for directors , reports under section 16 of the securities exchange act of 1934 , the registrant 's audit committee and an audit committee financial expert is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities exchange act of 1934 and is incorporated herein by reference . executive officers of registrant are as follows : name age position with registrant brian r. jones 57 president , treasurer and director lee w. boyer 60 secretary and director the occupations of such executive officers during the last five years and other principal affiliations are : name occupations brian r. jones president since april 25 , 2013 , treasurer and director since december 1 , 2006 ; managing member of brian r. jones cpa , llc . lee w. boyer secretary since 2017 and director since 2016. attorney with stockwell , sievert , viccellio , clements & shaddock , l.l.p . ; president , second university homesites , inc. ; manager , jones-boyer , llc ; manager , boyer properties , llc ; director , mallard bay , corp. directors , principal occupation or experience , and related business name and activity follows : name age experience and qualifications director since lee w. boyer 60 secretary of ckx lands , inc. ; attorney with stockwell , sievert , viccellio , clements & shaddock , l.l.p . ; president , second university homesites , inc. ; manager , jones-boyer , llc ; manager , boyer properties , llc ; director , mallard bay , corp. mr. boyer 's experience in land management and oil and gas leasing activities makes him qualified to serve as a director . 2016 max h. hart ( 1 ) ( 2 ) 59 principal , haas-hirsch interests . mr. hart 's experience in land management , oil and gas leasing activities , forestry , farming and rights of way makes him qualified to serve as a director . 2016 brian r. jones 57 president and chairman of the board of ckx lands , inc. since 2013 and treasurer of ckx lands , inc. since 2006 ; managing member of brian r. jones cpa , llc . mr. jones ' experience in public accounting , sec compliance and land management makes him qualified to serve as a director . 2007 10 director schedule ( continued ) : name age experience and qualifications director since eugene t. minvielle , iv ( 1 ) 44 chief financial officer and treasurer of marlin energy , llc . mr. minvielle 's experience in oil and gas and financial reporting makes him qualified to serve as a director . 2017 mary watkins savoy ( 1 ) ( 2 ) ( 3 ) 78 private investments ; director of mallard bay corp. mrs. savoy 's experience in land management and oil and gas leasing activities makes her qualified to serve as a director . 1998 charles d. viccellio 84 attorney ( retired ) , stockwell , sievert , viccellio , clements & shaddock , l.l.p . mr. viccellio 's extensive legal experience in land management and oil and gas activities makes him qualified to serve as a director . 1996 mary leach werner ( 2 ) ( 3 ) 50 vice president and director of north american land co. , inc. ; vice president and director of sweet lake land & oil co. , inc. mrs. werner 's experience in land management and oil and gas activities makes her qualified to serve as a director . 2004 michael b. white ( 3 ) 61 oil and gas ventures , farmland and timberland investments , sole manager of ottley properties , llc . mr. white 's experience in oil and gas , farmland and timberland makes him qualified to serve as a director . 2013 member of the ( 1 ) audit committee , ( 2 ) compensation committee , ( 3 ) nominating committee . stockwell , sievert , viccellio , clements & shaddock , l.l.p . is a law firm . second university homesites , inc. jones-boyer , llc , and boyer properties , llc are residential property management companies . mallard bay corp. , haas-hirsch interests , north american land co. , inc. , and sweet lake land & oil co. , inc. are all land management companies . marlin energy , llc is an upstream oil and gas company . ottley properties , llc is an investment holding company . brian r. jones cpa , llc is a cpa firm . mrs. savoy is mr. boyer 's aunt . there are no other family relationships between any of our directors and executive officers , or any arrangement or understanding between any of our executive officers and any other person pursuant to which any executive officer was appointed to his office . the board of directors has determined that director nominees boyer , hart , savoy , werner , and white are “ independent directors ” as defined under the rules of the nyse mkt . the company has adopted a code of ethics that applies to officers , directors and employees . a copy of the code of ethics will be provided by writing the president at p.o . box 1864 , lake charles , louisiana 70602 or obtained through the company 's website , www.ckxlands.com . item 11. executive compensation the information required by item 11 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . 11 item 12. security ownership of certain beneficial owners and management and related stockholder matters the information required by item 12 is included in the registrant 's definitive proxy statement to be filed pursuant to

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additional sources of liquidity include the company 's available bank line of credit for $ 1,000,000. the company has no outstanding balance nor does it plan to draw on this line of credit . the company does not include this line of credit availability when assessing the adequacy of liquidity or capital resources for projected operations or possible land purchases . critical accounting policies the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . actual results could differ from those estimates . the most significant accounting estimates inherent in the preparation of our financial statements include the following items : our accounts receivable consists of incomes received after year end for royalties produced prior to year-end . when there are royalties that have not been received at the time of the preparation of the financial statements for months in the prior year , we estimate the amount to be received based on the last month 's royalties that were received from that particular company . we do not maintain an allowance for doubtful accounts because other than the accrual for earned but not received royalties , we have no accounts receivable .

28 we derive a significant portion of revenues internationally , and 34 % and 36 % of total consolidated revenues were derived from clients outside the u.s. during fiscal 2018 and 2017 , respectively . a significant portion of our revenues are derived from the sale of products and services within the banking ( including consumer credit ) industry , and 86 % and 74 % of our revenues were derived from within this industry during fiscal 2018 and 2017 , respectively . in addition , we derive a significant share of revenues from transactional or unit-based software license fees , transactional fees derived under credit scoring , data processing , data management and saas subscription services arrangements , and annual software maintenance fees . arrangements with transactional or unit-based pricing accounted for 74 % and 70 % of our revenues during fiscal 2018 and 2017 , respectively . revenue fluctuations in our business are primarily driven by changes in the transactional volume and license fees . operating income for fiscal 2018 was $ 206.4 million , an increase of 16 % from $ 177.2 million in fiscal 2017 . operating margin was 20 % and 19 % for fiscal 2018 and 2017 , respectively . net income increased 11 % to $ 142.4 million in fiscal 2018 from $ 128.3 million in fiscal 2017 primarily due to an increase in operating income , partially offset by the income tax expense related to enactment of the tax cuts and jobs act . diluted earnings per share for fiscal 2018 was $ 4.57 , an increase of 15 % from $ 3.98 in fiscal 2017 . bookings management regards the volume of bookings achieved as an important indicator of future revenues , but they are not comparable to nor a substitute for an analysis of our revenues . bookings represent contracts signed in the current reporting period that generate current and future revenue streams . we estimate bookings as of the end of the period in which a contract is signed and initial booking estimates are not updated in future periods for changes between estimated and actual results . our calculations have varying degrees of certainty depending on the revenue type and individual contract terms . they are subject to a number of risks and uncertainties concerning timing and contingencies affecting product delivery and performance , and estimates consider contract terms , knowledge of the marketplace and experience with our customers , among other factors . actual revenue and the timing thereof could differ materially from our initial estimates . although many of our contracts contain non-cancelable terms , most of our bookings are transactional or service related that depend upon estimates such as volume of transactions , number of active accounts , or number of hours incurred . since these estimates can not be considered fixed or firm , we do not believe it is appropriate to characterize bookings as backlog . the following paragraphs discuss the key assumptions used to calculate bookings and the susceptibility of these assumptions to variability for each revenue type . transactional and maintenance bookings we calculate transactional bookings as the total estimated volume of transactions or number of accounts under contract , multiplied by the contractual rate . transactional contracts generally span multiple years and require estimates of future transaction volumes or number of active accounts . we develop estimates from discussions with our customers and examinations of historical data from similar products and customer arrangements . differences between estimated bookings and actual results occur due to variability in the volume of transactions or number of active accounts estimated . this variability is primarily caused by the economic trends in our customers ' industries ; individual performance of our customers relative to their competitors ; and regulatory and other factors that affect the business environment in which our customers operate . we calculate maintenance bookings directly from the terms stated in the contract . professional services bookings we calculate professional services bookings as the estimated number of hours to complete a project multiplied by the rate per hour . we estimate the number of hours based on our understanding of the project scope , conversations with customer personnel and our experience in estimating professional services projects . estimated bookings may differ from actual results primarily due to differences in the actual number of hours incurred . license bookings licenses are sold on a perpetual or term basis and bookings generally equal the fixed amount stated in the contract . 29 bookings trend analysis replace_table_token_3_th ( 1 ) bookings yield represents the percentage of revenue recognized from bookings for the periods indicated . ( 2 ) weighted-average term of bookings measures the average term over which bookings are expected to be recognized as revenue . ( a ) nm - measure is not meaningful as our estimate of bookings is as of the end of the period in which a contract is signed , and we do not update our initial booking estimates in future periods for changes between estimated and actual results . transactional and maintenance bookings were 46 % and 41 % of total bookings for the years ended september 30 , 2018 and 2017 , respectively . professional services bookings were 43 % and 43 % of total bookings for the years ended september 30 , 2018 and 2017 , respectively . license bookings were 11 % and 16 % of total bookings for the years ended september 30 , 2018 and 2017 , respectively . results of operations we are organized into the following three reportable segments : applications , scores and decision management software . although we sell solutions and services into a large number of end user product and industry markets , our reportable business segments reflect the primary method in which management organizes and evaluates internal financial information to make operating decisions and assess performance . story_separator_special_tag segment operating margin for decision management software decreased to a negative 29 % from a negative 10 % mainly due to a decrease in sales of our higher-margin software products , as well as our continued investment in cloud infrastructure operations and new products . the fiscal 2017 over 2016 increase in operating income of $ 7.6 million was attributable to a $ 50.8 million increase in segment revenues , a $ 5.6 million decrease in unallocated corporate expenses and a $ 1.3 million decrease in amortization expense , partially offset by a $ 39.9 million increase in segment operating expenses , a $ 5.7 million increase in share-based compensation expense and a $ 4.5 million increase in restructuring and acquisition-related expenses . 37 at the segment level , the $ 16.5 million increase in segment operating income was the result of a $ 26.8 million increase in our scores segment operating income and a $ 5.6 million decrease in unallocated corporate expenses , partially offset by an $ 8.8 million decrease in our applications segment operating income and a $ 7.1 million increase in our decision management software segment operating loss . the $ 8.8 million decrease in applications segment operating income was attributable to a $ 29.3 million increase in segment operating expenses , partially offset by a $ 20.5 million increase in segment revenue . segment operating income as a percentage of segment revenue for applications decreased to 29 % from 32 % primarily due to a decrease in sales of our higher-margin software products and an increase in professional services delivery cost . the $ 26.8 million increase in scores segment operating income was attributable to a $ 25.3 million increase in segment revenue and a $ 1.5 million decrease in segment operating expenses . segment operating income as a percentage of segment revenue for scores increased to 80 % from 77 % mainly due to an increase in sales of our higher-margin score products . the $ 7.1 million increase in decision management software segment operating loss was attributable to a $ 12.1 million increase in segment operating expenses , partially offset by a $ 5.0 million increase in segment revenue . segment operating margin for decision management software decreased to a negative 10 % from a negative 3 % mainly due to a decrease in sales of our higher-margin software products , our continued investment in sales distribution , and expanded investment in cloud infrastructure operations . capital resources and liquidity outlook as of september 30 , 2018 , we had $ 90.0 million in cash and cash equivalents , which included $ 75.9 million held off-shore by our foreign subsidiaries . we believe these balances , as well as available borrowings from our $ 400 million revolving line of credit and anticipated cash flows from operating activities , will be sufficient to fund our working and other capital requirements as well as the $ 28.0 million principal payment due in july 2019 on our senior notes issued in july 2010. under our current financing arrangements , we have no other significant debt obligations maturing over the next twelve months . additionally , though we do not anticipate the need to repatriate any undistributed earnings from our foreign subsidiaries for the foreseeable future , we may take advantage of opportunities where we are able to repatriate these earnings to the u.s. without material incremental tax provision . in the normal course of business , we evaluate the merits of acquiring technology or businesses , or establishing strategic relationships with or investing in these businesses . we may elect to use available cash and cash equivalents to fund such activities in the future . in the event additional needs for cash arise , or if we refinance our existing debt , we may raise additional funds from a combination of sources , including the potential issuance of debt or equity securities . additional financing might not be available on terms favorable to us , or at all . if adequate funds were not available or were not available on acceptable terms , our ability to take advantage of unanticipated opportunities or respond to competitive pressures could be limited . summary of cash flows replace_table_token_15_th story_separator_special_tag style= `` line-height:120 % ; font-size:10pt ; `` > 39 senior notes on may 7 , 2008 , we issued $ 275 million of senior notes in a private placement to a group of institutional investors , the outstanding aggregate principal amount of which was paid in full at maturity on may 7 , 2018. on july 14 , 2010 , we issued $ 245 million of senior notes in a private placement to a group of institutional investors ( the “ 2010 senior notes ” ) . the 2010 senior notes were issued in four series with maturities ranging from 6 to 10 years . the outstanding 2010 senior notes ' weighted average interest rate is 5.6 % and the weighted average maturity is 9.8 years . the 2010 senior notes require interest payments semi-annually and contain certain restrictive covenants , including the maintenance of a maximum consolidated net debt to consolidated ebitda ratio of 3.00 and a minimum fixed charge coverage ratio of 2.50. on may 8 , 2018 , we issued $ 400 million of senior notes in a private offering to qualified institutional investors ( the “ 2018 senior notes ” , and with the 2010 senior notes , the “ senior notes ” ) . the 2018 senior notes require interest payments semi-annually at a rate of 5.25 % per annum and will mature on may 15 , 2026. the purchase agreement for the 2010 senior notes and the indenture for the 2018 senior notes contain certain covenants typical of unsecured obligations . as of september 30 , 2018 , the carrying value of the senior notes was $ 513.0 million and we were in compliance with all financial covenants under the purchase agreement and

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cash flows from operating activities our primary method for funding operations and growth has been through cash flows generated from operating activities . net cash provided by operating activities totaled $ 223.1 million in fiscal 2018 compared to $ 225.6 million in fiscal 2017. the $ 2.5 million decrease was mainly attributable to a $ 43.8 million decrease that resulted from timing of receipts and payments in our ordinary course of business , partially offset by a $ 26.9 million increase in non-cash items , including a $ 31.8 million increase in non-cash deferred income taxes and $ 10 million non-operating gain related to the divestiture of a cost-method investment ; as well a $ 14.2 increase in net income . 38 net cash provided by operating activities totaled $ 225.6 million in fiscal 2017 compared to $ 210.3 million in fiscal 2016. the $ 15.3 million increase was mainly attributable to a $ 20.0 million decrease in our deferred income tax provision and an $ 18.8 million increase in net income , partially offset by a $ 24.2 million excess tax benefit related to share-based payments that was recorded as an increase to additional paid-in capital in the prior year but was recorded as a reduction of income tax expense in the current year as a result of our early adoption of asu 2016-09 effective october 1 , 2016. cash flows from investing activities net cash used in investing activities totaled $ 14.1 million in fiscal 2018 compared to $ 20.6 million in fiscal 2017. the $ 6.5 million decrease was primarily attributable to a $ 20.0 million increase in proceeds from the sale of cost method investment , partially offset by an $ 11.5 million increase in net cash used for purchases of property and equipment as well as a $ 2.8 million increase in purchases , net of proceeds from sale , of marketable securities .

arr should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items . arr is not a forecast and the active contracts at the end of a reporting period used in calculating arr may or may not be extended or renewed by our customers . the following chart summarizes our annualized recurring revenue , or arr ( in millions ) : arr for a given period is the annualized revenue derived from subscription contracts with a defined contract value . this excludes contracts that are not recurring , are one-time in nature , or where the contract value fluctuates based on defined metrics . arr is currently one of our key performance metrics to assess the health and trajectory of our recurring business . arr does not have any standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies . arr should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items . arr is not a forecast and the active contracts at the end of a reporting period used in calculating arr may or may not be extended or renewed by our customers . 36 includes : ◦ trade management services business , excluding one-time service requests . ◦ u.s. and nordic annual listing fees , ir and esg products , including subscription contracts for ir insight , boardvantage and onereport , and ir advisory services . ◦ proprietary market data and index data subscriptions as well as subscription contracts for evestment , solovis , dwa tools and services , nasdaq fund network and quandl . also includes guaranteed minimum on futures contracts within the index business . ◦ active market technology support and saas subscription contracts . the following chart summarizes our saas revenues for the years ended december 31 , 2018 , 2019 and 2020 ( in millions ) : financial summary the following table summarizes our financial performance for the year ended december 31 , 2020 when compared to the same period in 2019 and for the year ended december 31 , 2019 when compared with the same period in 2018. for a detailed discussion of our results of operations , see “ segment operating results ” below . replace_table_token_3_th in countries with currencies other than the u.s. dollar , revenues and expenses are translated using monthly average exchange rates . impacts on our revenues less transaction-based expenses and operating income associated with fluctuations in foreign currency are discussed in more detail under “ item 7a . quantitative and qualitative disclosures about market risk . ” 37 segment operating results the following table shows our revenues by segment , transaction-based expenses for our market services segment and total revenues less transaction-based expenses : replace_table_token_4_th ( 1 ) for the year ended december 31 , 2019 and 2018 , other revenues include the revenues from the bwise enterprise governance , risk and compliance software platform , which was sold in march 2019 , and for the year ended december 31 , 2018 , other revenues also include revenues from the public relations solutions and digital media services businesses which were sold in april 2018. prior to the sale dates , these revenues were included in our ir & esg services business within our corporate platforms segment . 38 the following charts show our market services , corporate platforms , investment intelligence , and market technology segments as a percentage of our total revenues less transaction-based expenses of $ 2,903 million in 2020 , $ 2,535 million in 2019 , and $ 2,526 million in 2018 : 39 market services the following table shows total revenues , transaction-based expenses , and total revenues less transaction-based expenses from our market services segment : replace_table_token_5_th ( 1 ) includes section 31 fees of $ 69 million in 2020 , $ 43 mil lion in 2019 , and $ 39 million in 2018. section 31 fees are recorded as equity derivative trading and clearing revenues with a corresponding amount recorded in transaction-based expenses . ( 2 ) includes section 31 fees of $ 586 m illion in 2020 , $ 337 m illion in 2019 , and $ 343 million in 2018. section 31 fees are recorded as cash equity trading revenues with a corresponding amount recorded in transaction-based expenses . equity derivative trading and clearing revenues equity derivative trading and clearing revenues and equity derivative trading and clearing revenues less transaction-based expenses increased in 2020 compared with 2019. the increase in equity derivative trading and clearing revenues was primarily due to higher u.s. industry trading volumes , a higher u.s. gross capt ure rate , and higher section 31 pass-through fee revenue , partial ly offset by lower overall u.s. matched market share executed on nasdaq 's exchanges . the increase in equity derivative trading and clearing revenues less transaction-based expenses was primarily due to higher u.s. industry trading volumes , partially offset by a lower u.s. net capture rate and lower overall u.s. matched market share executed on nasdaq 's exchanges . section 31 fees are recorded as equity derivative trading and clearing revenues with a corresponding amount recorded as transaction-based expenses . in the u.s. , we are assessed these fees from the sec and pass them through to our customers in the form of incremental fees . pass-through fees can increase or decrease due to rate changes by the sec , our percentage of the overall industry volumes processed on our systems , and differences in actual dollar value of shares traded . since the amount recorded in revenues is equal to the amount recorded as transaction-based expenses , there is no impact on our revenues less transaction-based expenses . story_separator_special_tag 46 the following table shows reconciliations between u.s. gaap net income attributable to nasdaq and diluted earnings per share and non-gaap net income attributable to nasdaq and diluted earnings per share : replace_table_token_13_th liquidity and capital resources historically , we have funded our operating activities and met our commitments through cash generated by operations , augmented by the periodic issuance of our common stock and debt . currently , our cost and availability of funding remain healthy . in response to the uncertainties posed by covid-19 and related economic impacts , we took actions to strengthen our liquidity and cash position and to reduce our refinancing risk . in march 2020 , we observed that conditions in the market for tier 2 commercial paper issuers were deteriorating , impacting both costs and actionable duration of commercial paper issues . to mitigate funding uncertainties and as a precautionary measure to maximize our liquidity and increase our available cash on hand , nasdaq borrowed $ 799 million under the revolving credit commitment of the 2017 credit facility . see “ early extinguishment of 2017 credit facility , ” of note 9 , “ debt obligations , ” to the consolidated financial statements for further discussion of the 2017 credit facility . in april 2020 , we issued the 2050 notes and used the net proceeds from the 2050 notes to repay a portion of amounts previously borrowed under the 2017 credit facility . for further discussion of the 2050 notes , see “ 3.25 % senior unsecured notes due 2050 , ” of note 9 , “ debt obligations , ” to the consolidated financial statements . in june 2020 , the remaining outstanding amount under the 2017 credit facility was repaid using cash on hand . in june 2020 , we also repaid all outstanding borrowings under our commercial paper program . 47 other financing transactions in february 2020 , we issued the 2030 notes . we primarily used the net proceeds from the 2030 notes to redeem the 2021 notes and for other general corporate purposes . see “ 0.875 % senior unsecured notes due 2030 , ” and “ early extinguishment of 3.875 % senior unsecured notes due 2021 , ” of note 9 , “ debt obligations , ” to the consolidated financial statements for further discussion . in december 2020 , we issued the 2022 notes , 2031 notes and 2040 notes . the net proceeds were used to partially finance the acquisition of verafin . for further discussion of these notes , see “ senior unsecured notes due 2022 , 2031 and 2040 , ” of note 9 , “ debt obligations , ” to the consolidated financial statements . for further discussion of the acquisition of verafin , see “ acquisition of verafin , ” of note 4 , “ acquisitions and divestiture , ” to the consolidated financial statements . in december 2020 , we also terminated the 2017 credit facility and entered into the 2020 credit facility . see “ credit facilities , ” of note 9 , “ debt obligations , ” to the consolidated financial statements for further discussion . as of december 31 , 2020 , our sources and uses of cash were not materially impacted by covid-19 and we have not identified any material liquidity deficiencies as a result of the covid-19 pandemic . we will continue to closely monitor and manage our liquidity and capital resources . in addition , we continue to prudently assess our capital deployment strategy through balancing acquisitions , internal investments , debt repayments , and shareholder return activity including share repurchases and dividends . other liquidity and capital considerations in the near term , we expect that our operations and the availability under our revolving credit facility and commercial paper program will provide sufficient cash to fund our operating expenses , capital expenditures , debt repayments , any share repurchases , and any dividends . in january 2021 , we increased the size of our commercial paper program from $ 1 billion to $ 1.25 billion . in february 2021 , we issued $ 475 million of commercial paper to partially fund the acquisition of verafin . for further discussion of the acquisition of verafin , see “ acquisition of verafin , ” of note 4 , “ acquisitions and divestiture , ” to the consolidated financial statements . as part of the purchase price consideration of a prior acquisition , nasdaq has contingent future obligations to issue 992,247 shares of nasdaq common stock annually through 2027. see “ non-cash contingent consideration , ” of note 18 , “ commitments , contingencies and guarantees , ” to the consolidated financial statements for further discussion . the value of various assets and liabilities , including cash and cash equivalents , receivables , accounts payable and accrued expenses , the current portion of long-term debt , and commercial paper , can fluctuate from month to month . working capital ( calculated as current assets less current liabilities ) was $ 2,736 million as of december 31 , 2020 , compared with $ 63 million as of december 31 , 2019 , an increase of $ 2,673 million . current asset balance changes increased working capital by $ 3,370 million , with increases in cash and cash equivalents , primarily due to net proceeds of $ 1.9 billion from issuances of long-term debt in the fourth quarter of 2020 for the acquisition of verafin , default funds and margin deposits , receivables , net , and restricted cash and cash equivalents , partially offset by decreases in financial investments and other current assets . current liability balance changes decreased working capital by $ 697 million , due to increases in default funds and margin deposits , section 31 fees payable to the sec , accrued personnel costs , accounts payable and accrued expenses , and deferred revenue , partially offset by decreases in short-term debt and

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net cash used in investing activities net cash used in investing activities for 2020 primarily related to $ 188 million of purchases of property and equipment and $ 157 million of cash used for acquisitions , net of cash and cash equivalents acquired , partially offset by $ 119 million of proceeds from the net sales of securities . net cash used in investing activities for 2019 primarily relates to $ 206 million of cash used for acquisitions , net of cash and cash equivalents acquired , $ 127 million of purchases of property and equipment , and $ 36 million of net purchases of securities , partially offset by receipt of cash of $ 132 million related to our 2019 divestiture . net cash used in ( provided by ) financing activities net cash provided by financing activities for 2020 primarily related to $ 3,811 million of proceeds from issuances of long-term debt and the utilization of our credit commitment , partially offset by $ 1,472 million in repayments of borrowings under our credit commitment and debt obligations , $ 391 million of net repayments of commercial paper , $ 320 million of dividend payments to our shareholders , and $ 222 million in repurchases of common stock . net cash used in financing activities for 2019 primarily relates to $ 1,215 million in repayments of debt obligations , $ 305 million of dividend payments to our shareholders , and $ 200 million in repurchases of common stock , partially offset by $ 680 million from proceeds related to long-term debt issuances and $ 116 million in net borrowings of commercial paper . see note 4 , “ acquisitions and divestiture , ” to the consolidated financial statements for further discussion of our acquisitions and divestiture . see note 9 , “ debt obligations , ” to the consolidated financial statements for further discussion of our debt obligations . 51 see “ share repurchase program , ” and “ cash dividends on common stock , ” of note 12 , “ nasdaq stockholders ' equity , ” to the consolidated financial statements for further discussion of our share repurchase program and cash dividends paid on our common stock .

we operate across a broad spectrum of defense programs and deliver our solutions and services via two operating segments : ( i ) mercury commercial electronics ; and ( ii ) mercury defense systems . in the fourth quarter of fiscal 2014 , we initiated a plan to divest our mercury intelligence systems ( `` mis `` ) operating segment . consequently , its operating results are included in discontinued operations for all periods presented . on january 23 , 2015 , we completed the sale of the mis operating segment ( see note c to the consolidated financial statements ) . as of june 30 , 2015 , we had 629 employees . our revenue , income from continuing operations and adjusted ebitda for fiscal 2015 were $ 234.8 million , $ 14.4 million , and $ 44.4 million , respectively . see the non-gaap financial measures section for a reconciliation of our income ( loss ) from continuing operations to adjusted ebitda . our operations are organized in the following two reportable segments : ( i ) mercury commercial electronics ( `` mce `` ) and ( ii ) mercury defense systems ( `` mds `` ) . mercury commercial electronics , or mce , provides more affordable , innovative , commercially designed and developed , specialized processing subsystems for critical defense and intelligence applications . we deliver innovative solutions , rapid time-to-value and service and support to our prime defense contractor customers . our technologies and capabilities include embedded processing modules and subsystems , radio frequency ( `` rf `` ) and microwave multi-function assemblies as well as subsystems , and rf and microwave components . mce utilizes leading edge , high performance computing technologies architected by leveraging open standards and open architectures to address highly data-intensive applications that include signal , sensor and image processing ; all of this while addressing the packaging challenges , often referred to as “ swap ” ( size , weight , and power ) that are common in military applications . in addition , mce designs and builds rf and microwave components and subsystems to meet the needs of the electronic warfare ( `` ew `` ) , signal intelligence ( `` sigint `` ) and other high bandwidth communications requirements and applications . in fiscal 2015 , mce accounted for 88 % of our total net revenues . mercury defense systems , or mds , provides significant capabilities relating to pre-integrated , open , more affordable ew , electronic attack ( `` ea `` ) and electronic counter measure ( `` ecm `` ) subsystems , and sigint and electro-optical/infrared ( `` eo/ir `` ) processing technologies , and radar environment test and simulation systems . mds deploys these solutions on behalf of defense prime contractors and the department of defense ( `` dod `` ) , leveraging commercially available technologies and solutions ( or “ building blocks ” ) from our mce business and other commercial suppliers . mds leverages this technology to develop integrated sensor processing subsystems , often including classified application-specific software and intellectual property ( `` ip `` ) for the c4isr ( command , control , communications , computers , intelligence , surveillance and reconnaissance ) , ew , and ecm markets . mds brings significant domain expertise to customers , drawing on over 25 years of experience in ew , sigint , and radar environment test and simulation . in fiscal 2015 , mds accounted for 12 % of our total net revenues . since we are an oem supplier to our commercial markets and conduct much of our business with our defense customers via commercial items , requests by customers are a primary driver of revenue fluctuations from quarter to quarter . customers specify delivery date requirements that coincide with their need for our products . because these customers may use our products in connection with a variety of defense programs or other projects of different sizes and durations , a customer 's orders for one quarter generally do not indicate a trend for future orders by that customer . additionally , order patterns do not necessarily correlate amongst customers and , therefore , we generally can not identify sequential quarterly trends , even within our operating segments . b usiness d evelopments : f iscal 2015 during fiscal 2015 , we successfully completed the final phase of integration activities relating to our previous acquisitions . the acquisition integration plan included the consolidation of manufacturing facilities , centralization of administrative and manufacturing functions using common information systems and processes , and realignment of research and development 30 resources . restructuring and other charges in fiscal 2015 amounted to $ 3.2 million and affected both the mce and mds reportable segments . we currently do not anticipate any future restructuring activities . during fiscal 2015 , we completed the sale of our former mis operating segment . since the fourth quarter of fiscal 2014 , mis has been reported as a discontinued operation for all periods presented . f iscal 2014 during fiscal 2014 , we moved into our new manufacturing facility in hudson , new hampshire that will provide a platform for continued growth in our rf and microwave product lines . during the year , we consolidated four facilities into the new plant and installed integrated business systems that will allow us to scale our rf and microwave capabilities both organically and through merger and acquisition activities . in fiscal 2014 , we announced a restructuring plan ( `` 2014 plan `` ) that was implemented as part of the final phase of integration activities relating to our recent acquisitions . the integration plan includes the consolidation of manufacturing facilities , centralization of administrative and manufacturing functions using common information systems and processes and rebalancing of research and development investments . the restructuring plan included the elimination of 70 positions largely in engineering , manufacturing and administrative functions . story_separator_special_tag o ther i ncome , n et other income increased $ 1.0 million to $ 1.5 million during fiscal 2014 compared to $ 0.5 million in fiscal 2013. the increase was a result of foreign currency exchange gains during fiscal 2014 compared to losses during fiscal 2013 primarily driven by changes in the japanese yen versus the u.s. dollar . other income included $ 1.2 million in amortization of the gain on the sale 36 leaseback of our corporate headquarters located in chelmsford , massachusetts during fiscal 2014 and 2013. interest income and interest expense for fiscal years 2014 and 2013 were de minimis . i ncome t axes we recorded an income tax benefit of $ 1.8 million in fiscal 2014 compared to an income tax benefit of $ 10.5 million in fiscal 2013. the effective tax rates for fiscal 2014 and fiscal 2013 were 31.1 % and 43.2 % , respectively . our effective tax rate for fiscal 2014 differed from the federal statutory rate primarily due to non-deductible equity compensation , partially offset by benefits related to research and development tax credits , domestic manufacturing deductions and foreign tax credits . the difference in the effective tax rates is mainly driven by fiscal 2014 including only six-months of federal research and development tax credits compared to 18 months in fiscal 2013 due to the timing of the tax credit extension and lower non-deductible stock compensation in fiscal 2013. d iscontinued o perations we incurred a loss from discontinued operations of $ 7.4 million in fiscal 2014 compared to income from discontinued operations of $ 0.5 million in fiscal 2013. the loss from discontinued operations in fiscal 2014 includes a $ 6.7 million impairment of goodwill in our mis operating segment . s egment o perating r esults adjusted ebitda for mce increased $ 15.7 million to $ 18.5 million during fiscal 2014 , as compared to $ 2.8 million during fiscal 2013. the increase in adjusted ebitda was primarily driven by higher revenues of $ 23.2 million primarily from an increase in revenues from our higher margin digital signal processing products . adjusted ebitda for mds decreased by $ 1.4 million during fiscal 2014 to $ 5.7 million , as compared to $ 7.1 million in fiscal 2013. the decrease is primarily driven by lower revenues from the drfm jammer and gorgon stare programs . see note p to our consolidated financial statements for more information regarding our operating segments as well as the company 's reconciliations of income ( loss ) from continuing operations to its adjusted ebitda . liquidity and capital resources during fiscal 2015 , our primary source of liquidity came from existing cash and cash generated from operations . our near-term fixed commitments for cash expenditures consist primarily of payments under operating leases and inventory purchase commitments with our contract manufacturers . we do not currently have any material commitments for capital expenditures . based on our current plans and business conditions , we believe that existing cash , cash equivalents , available line of credit , cash generated from operations , and financing capabilities will be sufficient to satisfy our anticipated cash requirements for at least the next twelve months . shelf registration statement on august 15 , 2014 , we filed a shelf registration statement on form s-3 with the sec . the shelf registration statement , which has been declared effective by the sec , registered up to $ 500 million of debt securities , preferred stock , common stock , warrants and units . we intend to use the proceeds from a financing using the shelf registration statement for general corporate purposes , which may include the following : the acquisition of other companies or businesses ; the repayment and refinancing of debt ; capital expenditures ; working capital ; and other purposes as described in the prospectus supplement . senior unsecured credit facility on october 12 , 2012 , we entered into a credit agreement ( the “ credit agreement ” ) with a syndicate of commercial banks , with keybank national association acting as the administrative agent . the credit agreement provides for a $ 200.0 million senior unsecured revolving line of credit ( the “ revolver ” ) . we can borrow up to $ 200.0 million based on our consolidated ebitda for the prior trailing four quarters and subject to compliance with the financial covenants discussed below . the revolver is available 37 for working capital , acquisitions , and general corporate purposes of the company and its subsidiaries . the revolver is available for borrowing during a five year period , with interest payable periodically during such period as provided in the credit agreement and principal due at the maturity of the revolver . the credit agreement has an accordion feature permitting us to request from the lenders an increase in the aggregate amount of the credit facility in the form of an incremental revolver or term loan in an amount not to exceed $ 50.0 million . any such increase would require only the consent of the lenders increasing their respective commitments under the credit facility . the interest rates applicable to borrowings under the credit agreement involve various rate options that are available to us . the rates are calculated using a combination of conventional base rate measures plus a margin over those rates . the base rates consist of libor rates or prime rates . the actual rates will depend on the level of these underlying rates plus a margin based on our leverage at the time of borrowing . borrowings under the credit agreement are senior unsecured loans . each of our domestic subsidiaries is a guarantor under the credit agreement . the credit agreement provides for conventional affirmative and negative covenants , including a maximum leverage ratio of 3.50x and a minimum interest coverage ratio of 3.0x . each of the two ratios referred to above is calculated based

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cash flows replace_table_token_9_th our cash and cash equivalents increased by $ 30.3 million during fiscal 2015 primarily as a result of $ 32.2 million in cash generated by operating activities , partially offset by $ 6.0 million in purchases of property and equipment . operating activities during fiscal 2015 , we generated $ 32.2 million in cash from operating activities , an increase of $ 18.0 million when compared to $ 14.2 million in cash generated from operating activities in fiscal 2014. the increase in cash generated by operating activities was primarily a result of $ 21.8 million of higher comparable net income , $ 18.4 million increase in accounts receivable collections , and $ 4.5 million generated from lower deferred income taxes . the increase in cash generated from operating activities was partially offset by a $ 11.8 million increase in cash used for prepaid expenses and other current assets , $ 6.2 million in higher inventory purchases , and a $ 4.4 million decrease in non-cash activity from the impairment of goodwill associated with our mis discontinued operations . our ability to generate cash from operations in future periods will depend in large part on profitability , the rate and timing of collections of accounts receivable , our inventory turns and our ability to manage other areas of working capital .

credit facility we entered into a $ 50 million credit agreement with a commercial bank in march 2007. the loan is a revolving facility the proceeds of which may be used for our working capital , capital expenditures , and general corporate purposes . the facility terminates on june 30 , 2013. advances are made pursuant to a borrowing base . advances are secured by a perfected first priority security interest in our accounts receivable and inventory . the interest rate floats at certain margins over libor or base rate based upon the leverage ratio from time to time . there is an unused commitment fee . the ratio of total funded debt to ebitda may not be less than 3:1. we had no borrowings under this credit facility at december 31 , 2012 , 2011 , or 2010. we intend to fund future capital requirements for our businesses from cash flow generated by us as well as from existing cash , cash investments , and , if the need should arise , borrowings under our credit facility . we do not believe there will be a need to issue any securities to fund such capital requirements . department of energy grant we entered into a contract with a customer to design , construct , and operate a commercial-scale plant to produce intermediate anode powder as a component of high-performance graphite anode materials for lithium-ion batteries . in connection with this contract , we applied for a financial assistance award under the electric drive vehicle battery and component manufacturing initiative administered by the department of energy national energy technology laboratory on behalf of the office of energy efficiency and renewable energy . an award was granted to us in the amount of $ 12,600,000 , which we accepted on july 27 , 2010. the funds were to be used to modify existing idle assets and to acquire and construct new assets to be used for the production of specialized materials for lithium-ion batteries for electric cars and other applications . we receive grant monies on a cost share basis as we incur construction-related expenditures . the amounts received under this arrangement are recorded as deferred revenue and are amortized into earnings over the anticipated life of the customer relationship . such amortization began once construction was completed and the plant was placed into service . this occurred in the third quarter of 2011. through december 31 , 2011 , we collected 97 % of this award . the grant was closed in 2012 and no additional amounts were received in 2012. dividends in 2012 , we declared a special cash dividend aggregating $ 1.20 per share on our common stock , with a record date and payment date previously discussed . the special cash dividend amounted to $ 49,978,000. we also paid regular cash dividends aggregating $ 0.40 per share on our common stock , with record dates and payment dates as set forth above . the regular cash dividends amounted to $ 16,560,000 , for total dividends paid by us in 2012 of $ 66,538,000. in 2011 , we declared a special cash dividend aggregating $ 0.10 per share on our common stock , with a record date and payment date as previously discussed . the special cash dividend amounted to $ 3,998,000. we also declared regular cash dividends aggregating $ 0.30 per share on our common stock , with record dates and payment dates as set forth above . the regular cash dividends amounted to $ 12,256,000 , for total dividends paid by us in 2011 of $ 16,254,000. in 2010 , we declared special cash dividends aggregating $ 0.80 per share on our common stock , with record dates and payment dates as previously discussed . the special cash dividends amounted to $ 31,053,000. capital management as a result of our initial equity offering , our subsequent positive operating results , the exercise of warrants , and the issuance of shares in our at-the-market offering , we accumulated excess working capital . some of this excess working capital was paid out in 2010 , 2011 , and 2012 as a special cash dividend and in 2011 and 2012 as regular cash dividends . regular cash dividends will also be paid in 2013 as previously discussed . we intend to retain the remaining cash to fund infrastructure and capacity expansion at our batesville plant . third parties have not placed significant restrictions on our working capital management decisions . 35 a significant portion of these funds were held in cash or cash equivalents at multiple financial institutions . in 2012 and 2011 , we also had investments in certain preferred stock , trust preferred securities , and other equity instruments . we classify these investments as current assets in the accompanying consolidated balance sheets and designate them as being “ available-for-sale ” . accordingly , they are recorded at fair value , with the unrealized gains and losses , net of taxes , reported as a component of stockholders ' equity . the fair value of these preferred stock , trust preferred securities , and other equity instruments , including accrued dividends and interest , totaled $ 86,618,000 and $ 56,294,000 at december 31 , 2012 and 2011 , respectively . we also maintained a position in auction rate securities at december 31 , 2012. we have selectively made investments in certain auction rate securities that we believed offered sufficient yield along with sufficient liquidity . to date , all the auction rate securities in which we have invested have maintained a mechanism for liquidity , meaning that the respective auctions have not failed , the issuers have called the instruments , or a secondary market exists for liquidation of the securities . we have classified these instruments as current assets in the accompanying consolidated balance sheet and carried them at their estimated fair market value . story_separator_special_tag cost of goods sold and distribution for 2012 for our chemicals segment totaled $ 111,789,000 as compared to cost of goods sold and distribution for 2011 of $ 125,552,000 , an 11 % reduction . this reduction in cost of goods sold and distribution was primarily due to reduced sales volumes of certain chemical products including the bleach activator and the proprietary herbicide . further reductions in cost of good sold and distribution resulted from adjustments in our inventory carrying value as determined utilizing the lifo method of inventory accounting . on a percentage basis , the 11 % reduction in costs of goods sold and distribution in 2012 as compared to 2011 was greater than the 5 % reduction in chemical segment revenues due to increased per unit sales prices of certain chemical products as compensation for lower quantities of material purchased and inflationary price adjustments . cost of goods sold and distribution for 2012 for our biofuel segment were $ 182,787,000 as compared to cost of good sold and distribution for 2011 of $ 122,578,000. on a percentage basis , cost of goods sold and distribution increased 49 % versus an increase in revenues of 35 % . market conditions were less favorable for biodiesel in 2012 as compared to 2011 partly as a result of the expiration of the $ 1.00 blenders ' credit at december 31 , 2011. when in effect , this credit was recorded as a reduction in cost of goods sold and distribution expense in our consolidated statement of operations . after its expiration , no related reduction to cost of goods sold and distribution expense was recorded . the existence of this credit was a significant factor in the profitability of biodiesel production . further reducing 2012 biofuel gross margin relative to its gross margin in 2011 was a reduction in 2012 of the amount we were awarded under the usda section 9005 – advanced biofuel producers program . in 2011 we were awarded approximately $ 1,900,000 and in 2012 we were awarded $ 753,000 under this program . this award is recorded as a reduction in our cost of goods sold and distribution expense in the period funding is received . 40 biodiesel profitability was particularly low in the fourth quarter of 2012 , as the 2012 biodiesel consumption mandate established by the government was largely met early in the quarter . on january 3 , 2013 , the blenders ' credit was retroactively reinstated for 2012 and extended through december 31 , 2013. this action resulted in our biodiesel blending activities from january 1 , 2012 to december 31 , 2012 qualifying for this credit . the retroactive credit for 2012 totals $ 2,535,000 and will be recognized as a reduction in cost of goods sold in the first quarter of 2013. operating expenses operating expenses increased 10 % from $ 10,140,000 in 2011 to $ 11,161,000 in 2012. this increase was primarily the result of increased legal expenditures associated with ongoing and completed litigation and expenditures incurred for the registration of product for sale in the european union . additionally , in 2011 we realized a reduction in certain operating expenditures and such reduction did not repeat in 2012. provision for income taxes the effective tax rates for the years ended december 31 , 2012 and 2011 reflect our expected tax rate on reported operating earnings before income taxes . at december 31 , 2011 we did not believe that we had a more likely than not probability of realizing a portion of our deferred tax assets . as such , we recorded a valuation allowance of $ 25,000 at december 31 , 2011. no such valuation allowance was recorded at december 31 , 2012. on december 31 , 2011 , a tax credit for small agri-biodiesel producers with production capacity not in excess of 60 million gallons expired . this credit had totaled $ 0.10 per gallon for the first 15 million gallons of agri-biodiesel sold . on january 3 , 2013 , the small agri-biodiesel producers credit was retroactively reinstated for 2012 and extended through december 31 , 2013. this action resulted in futurefuel 's biodiesel production activities from january 1 , 2012 to december 31 , 2012 qualifying for this credit . the retroactive income tax credit for 2012 totaled $ 1,500,000 and will be recognized as a component of the provision for income taxes in the first quarter of 2013. income taxes we had no liability for uncertain tax positions at december 31 , 2012. see note 14 to our consolidated financial statements included elsewhere herein . fiscal year ended december 31 , 2011 compared to fiscal year ended december 31 , 2010 revenues revenues for the year ended december 31 , 2011 were $ 309,885,000 as compared to revenues for the year ended december 31 , 2010 of $ 219,183,000 , an increase of 41 % . revenues from biofuels increased 246 % and accounted for 46 % of total revenues in 2011 as compared to 18 % in 2010. revenues from chemicals decreased 6 % and accounted for 54 % of total revenues in 2011 as compared to 82 % in 2010. within the chemicals segment , revenues for 2011 changed as follows as compared to 2010 : ( i ) revenues from the bleach activator decreased 12 % ; ( ii ) revenues from the proprietary herbicide and intermediates increased 7 % ; ( iii ) revenues from cpos decreased 24 % ; ( iv ) revenues from dipb increased 8 % ; and ( v ) revenues from other products decreased 4 % . revenues from the bleach activator and the proprietary herbicide and intermediates were the most significant components of our chemicals segment revenue base in 2011 and 2010 , accounting for 35 % of total revenues for the year ended december 31 , 2011 as compared to 54 % for the year ended december 31 , 2010. these products

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liquidity and capital resources our net cash provided by ( used in ) operating activities , investing activities , and financing activities for the years ended december 31 , 2012 , 2011 , and 2010 are set forth in the following table . ( dollars in thousands ) replace_table_token_11_th operating activities cash provided by operating activities increased from $ 50,429,000 in 2011 to $ 64,888,000 in 2012 , a net increase of $ 14,459,000. this increase was primarily attributable to : ( i ) the timing of collections of accounts receivable , including those due from related parties ; and ( ii ) changes in our inventory levels . in 2011 , accounts receivable , including accounts receivable due from related parties , decreased cash provided by operating activities by $ 512,000. in 2012 , accounts receivable , including accounts receivable due from related parties , increased cash provided by operating activity by $ 12,895,000. this increase was primarily due to the timing and amount of receipts of customer payments . additionally , a decrease in our inventory balance increased cash provided by operating activities by $ 15,447,000 in 2012. in 2011 , changes in our inventory balance reduced cash provided by operating activities by $ 20,067,000. partially offsetting these increases in cash provided by operating activities were decreases attributable to : ( i ) accounts payable , including accounts payable to related parties ; ( ii ) income taxes payable ; and ( iii ) deferred revenue . in 2011 , accounts payable , including accounts payable to related parties , increased cash provided by operating activities by $ 6,592,000. in 2012 , accounts payable , including accounts payable to related parties , decreased cash provided by operating activities by $ 5,212,000. this change was primarily attributable to differences in the timing and amount of payments to suppliers .

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

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

the company recognized a contingent consideration liability at its fair value of $ 338,000. the contingent consideration arrangement requires the company to pay additional cash consideration to mde 's former stakeholders four years after the closing of the acquisition if certain revenue targets are met . the fair value of the contingent consideration was estimated using a discounted cash flow model . the acquisition agreement limits the total payment to a maximum of $ 12.5 million , to be determined based on actual future results . on october 31 , 2014 , beacon acquired the fiduciary account relationships of suffolk county national bank , a subsidiary of suffolk bancorp , in suffolk county , new york . on may 30 , 2014 , the company completed its acquisition of team capital bank ( `` team capital `` ) , which after purchase accounting adjustments added $ 964.0 million to total assets , $ 631.2 million to loans , and $ 769.9 million to deposits . total consideration paid for team capital was $ 115.1 million : $ 31.6 million in cash and 4.9 million shares of common stock valued at $ 83.5 million on the acquisition date . team capital was merged with and into the company 's subsidiary , the provident bank as of the close of business on the date of acquisition . the merger added twelve branches to the provident bank branch network , with five branches in pennsylvania and seven in new jersey . critical accounting policies the company considers certain accounting policies to be critically important to the fair presentation of its financial condition and results of operations . these policies require management to make complex judgments on matters which by their nature have elements of uncertainty . the sensitivity of the company 's consolidated financial statements to these critical accounting policies , and the assumptions and estimates applied , could have a significant impact on its financial condition and results of operations . these assumptions , estimates and judgments made by management can be influenced by a number of factors , including the general economic environment . the company has identified the following as critical accounting policies : adequacy of the allowance for loan losses goodwill valuation and analysis for impairment valuation of securities available for sale and impairment analysis valuation of deferred tax assets the calculation of the allowance for loan losses is a critical accounting policy of the company . the allowance for loan losses is a valuation account that reflects management 's evaluation of the probable losses in the loan portfolio . the company maintains the allowance for loan losses through provisions for loan losses that are charged to income . charge-offs against the allowance for loan losses are taken on loans where management determines that the collection of loan principal is unlikely . recoveries made on loans that have been charged-off are credited to the allowance for loan losses . the company 's evaluation of the adequacy of the allowance for loan losses includes a review of all loans on which the collectibility of principal may not be reasonably assured . for residential mortgage and consumer loans , this is determined primarily by delinquency and collateral values . for commercial real estate and commercial loans , an extensive review of financial performance , payment history and collateral values is conducted on a quarterly basis . as part of the evaluation of the adequacy of the allowance for loan losses , each quarter management prepares an analysis that categorizes the entire loan portfolio by certain risk characteristics such as loan type ( residential mortgage , commercial mortgage , construction , commercial , etc . ) and loan risk rating . when assigning a risk rating to a loan , management utilizes a nine point internal risk rating system . loans deemed to be “ acceptable quality ” are rated 1 through 4 , with a rating of 1 established for loans with minimal risk . loans deemed to be of “ questionable quality ” are rated 5 ( watch ) or 6 ( special mention ) . loans with adverse classifications ( substandard , doubtful or loss ) are rated 7 , 8 or 9 , respectively . commercial mortgage , commercial and construction loans are rated individually and each lending officer is responsible for risk rating loans in their portfolio . these risk ratings are then reviewed by the department manager and or the chief lending officer and the credit administration department . the risk ratings are also confirmed through periodic loan review examinations , which are currently performed by an independent third party , and periodically by the credit committee in the credit renewal or approval . in addition , the bank requires an annual review be performed for commercial and commercial real estate loans above certain dollar thresholds , depending on loan type , to help determine the appropriate risk rating . 42 management estimates the amount of loan losses for groups of loans by applying quantitative loss factors to loan segments at the risk rating level , and applying qualitative adjustments to each loan segment at the portfolio level . quantitative loss factors give consideration to historical loss experience by loan type based upon an appropriate look back period and adjusted for a loss emergence period . quantitative loss factors are evaluated at least annually . qualitative adjustments give consideration to other qualitative or environmental factors such as trends and levels of delinquencies , impaired loans , charge-offs , recoveries and loan volumes , as well as national and local economic trends and conditions . qualitative adjustments reflect risks in the loan portfolio not captured by the quantitative loss factors and , as such , are evaluated from a risk level perspective relative to the risk levels present over the look back period . qualitative adjustments are evaluated at least quarterly . story_separator_special_tag million of residential properties , $ 5.1 million of commercial real estate and $ 274,000 of marine vessels at december 31 , 2015 . non-performing assets totaled $ 55.1 million , or 0.62 % of total assets at december 31 , 2015 , compared to $ 59.0 million , or 0.69 % of total assets , at december 31 , 2014 . if the non-accrual loans had performed in accordance with their original terms , interest income would have increased by $ 1.2 million during the year ended december 31 , 2015 . the amount of cash basis interest income that was recognized on impaired loans during the years ended december 31 , 2015 and 2014 was not material . total deposits increased $ 131.5 million , or 2.3 % , during the year ended december 31 , 2015 to $ 5.92 billion from $ 5.79 billion at december 31 , 2014 . core deposits , which consist of savings and demand deposit accounts , increased $ 217.4 million , or 4.4 % , to $ 5.18 billion at december 31 , 2015 , while time deposits decreased $ 86.0 million to $ 739.7 million at december 31 , 2015. within the core deposit category , non-interest bearing demand deposits and interest bearing demand deposits increased 47 $ 139.9 million and $ 115.5 million , respectively , to $ 1.19 billion and $ 1.54 billion , respectively , at december 31 , 2015 . core deposits represented 87.5 % of total deposits at december 31 , 2015 , compared to 85.7 % at december 31 , 2014 . borrowed funds increased $ 197.8 million , or 13.1 % , during the year ended december 31 , 2015 , to $ 1.71 billion . borrowed funds represented 19.2 % of total assets at december 31 , 2015 , an increase from 17.7 % at december 31 , 2014 . total stockholders ' equity increased $ 52.0 million , or 4.5 % , to $ 1.20 billion at december 31 , 2015 , from $ 1.14 billion at december 31 , 2014 . this increase resulted from net income of $ 83.7 million , the allocation of shares to stock-based compensation plans of $ 9.4 million , exercised stock options of $ 3.2 million , and the reissuance of shares for the dividend reinvestment program of $ 1.4 million , partially offset by cash dividends paid to stockholders of $ 41.3 million , other comprehensive loss of $ 2.6 million and common stock repurchases of $ 2.0 million . common stock repurchases for the year ended december 31 , 2015 totaled 108,589 shares at an average cost of $ 18.32 per share . at december 31 , 2015 , 3.3 million shares remained eligible for repurchase under the current authorization . comparison of operating results for the years ended december 31 , 2015 and december 31 , 2014 general . net income for the year ended december 31 , 2015 was $ 83.7 million , compared to $ 73.6 million for the year ended december 31 , 2014 . basic and diluted earnings per share were $ 1.33 for the year ended december 31 , 2015 , compared to basic and diluted earnings per share of $ 1.22 for 2014 . net income for the year ended december 31 , 2015 was favorably impacted by year-over-year growth in both average loans outstanding and average non-interest bearing deposits , growth in non-interest income and improved asset quality . these factors helped offset the unfavorable impact of compression in the net interest margin . net interest income . net interest income increased $ 11.0 million to $ 249.9 million for 2015 , from $ 238.9 million for 2014 . the average interest rate spread declined 11 basis point to 3.07 % for 2015 , from 3.18 % for 2014 . the net interest margin decreased 10 basis point to 3.20 % for 2015 , compared to 3.30 % for 2014 . for the year ended december 31 , 2015 , net interest income was favorably impacted by the growth in average loans outstanding and average non-interest bearing demand deposits , mitigating the effects of compression in the net interest margin . interest income increased $ 12.4 million , or 4.4 % , to $ 291.8 million for 2015 , compared to $ 279.4 million for 2014 . the increase in interest income was attributable to an increase in average earning asset balances , partially offset by a decrease in the yield on average interest-earning assets . average interest-earning assets increased $ 577.4 million , or 8.0 % , to $ 7.82 billion for 2015 , compared to $ 7.24 billion for 2014 . the average outstanding loan balances increased $ 615.8 million , or 11.0 % , to $ 6.22 billion for 2015 from $ 5.60 billion for 2014 , the average balance of securities available for sale decreased $ 102.2 million , or 9.0 % , to $ 1.03 billion for 2015 , compared to $ 1.13 billion for 2014 , and the average balance of investment securities held to maturity increased $ 53.3 million , or 12.7 % , to $ 473.4 million for 2015 , compared to $ 420.2 million for 2014 . the yield on interest-earning assets decreased 13 basis points to 3.73 % for 2015 , from 3.86 % for 2014 , with a reduction in the weighted average yield on total loans and investment securities , partially offset by an increase in the weighted average yield on the federal home loan bank stock . interest expense increased $ 1.4 million , or 3.5 % , to $ 41.9 million for 2015 , from $ 40.5 million for 2014 . the increase in interest expense was attributable to an increase in average borrowings , which funded a portion of the growth in average interest-earning assets , partially offset by a shift in the funding composition to lower-costing core deposits

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liquidity and capital resources liquidity refers to the company 's ability to generate adequate amounts of cash to meet financial obligations to its depositors , to fund loans and securities purchases , deposit outflows and operating expenses . sources of funds include scheduled amortization of loans , loan prepayments , scheduled maturities of investments , cash flows from mortgage-backed securities and the ability to borrow funds from the fhlb of new york and approved broker dealers . cash flows from loan payments and maturing investment securities are a fairly predictable source of funds . changes in interest rates , local economic conditions and the competitive marketplace can influence loan prepayments , prepayments on mortgage-backed securities and deposit flows . for each of the years ended december 31 , 2015 and 2014 , loan repayments totaled $ 2.28 billion and $ 1.65 billion , respectively . one- to four-family residential loans , consumer loans , commercial real estate loans , multi-family loans and commercial and small business loans are the primary investments of the company . purchasing securities for the investment portfolio is a secondary use of funds and the investment portfolio is structured to complement and facilitate the company 's lending activities and ensure adequate liquidity .

accordingly , our management believes that these measures are useful for comparing general operating performance from period to period . other companies may define these measures differently and , as a result , our measures of ebitda and adjusted ebitda may not be directly comparable to the measures of other companies . although we use ebitda and adjusted ebitda as financial measures to assess the performance of our business , the use of these measures is limited because they do not include certain material costs , such as interest and taxes , necessary to operate our business . ebitda and adjusted ebitda should be considered in addition to , and not as a substitute for , net income in accordance with gaap as a measure of performance . our presentation of ebitda and adjusted ebitda should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items . our use of ebitda and adjusted ebitda is limited as an analytical tool , and you should not consider these measures in isolation or as substitutes for analysis of our results as reported under gaap . please see “ —non-gaap measures ” for reconciliations of ebitda and adjusted ebitda to net income , which is the gaap financial measure that our management believes to be most directly comparable . 33 year ended december 31 , 2019 compared to year ended december 31 , 2018 homes sales . our home sales revenues , home closings , average sales price ( asp ) , average community count , average monthly absorption rate and closing community count by reportable segment for the years ended december 31 , 2019 and 2018 were as follows ( revenues in thousands ) : replace_table_token_6_th replace_table_token_7_th replace_table_token_8_th home sales revenues for the year ended december 31 , 2019 were $ 1,838.2 million , an increase of $ 333.8 million , or 22.2 % , from $ 1,504.4 million for the year ended december 31 , 2018 . the increase in home sales revenues is primarily due to an 18.1 % increase in homes closed and an increase in the average sales price per home during the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 . we closed 7,690 homes during 2019 , as compared to 6,512 homes closed during 2018 . this increase in home closings was largely due to the increase in the number of active communities in 2019 . the average sales price per home closed during the year ended december 31 , 2019 was $ 239,032 , an increase of $ 8,012 , or 3.5 % , from the average sales price per home of $ 231,020 for the year ended december 31 , 2018 . this increase in the average sales price per home was primarily due to changes in product mix , higher price points in certain new markets and a favorable pricing environment . the increase in homes closed was largely due to our geographic expansion in the west reportable segment and deepening our presence within certain markets in the southeast reportable segment during the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. we continued to diversify our operations outside of our central reportable segment during 2019 . we increased our home sales revenues in our reportable segments other than our central reportable segment by $ 232.5 million during the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 , representing a 22.7 % increase in the number of homes closed in these reportable segments during 2019 as compared to 2018 . our active selling communities at december 31 , 2019 34 increased to 106 from 88 at december 31 , 2018 . seventeen of the eighteen active selling communities added during 2019 were outside of our central reportable segment , contributing to the further geographic diversification of our business . home sales revenues in our west reportable segment increased by $ 120.1 million , or 79.5 % , primarily due to an increase in community count associated with our continued geographic expansion into our california and nevada markets . home sales revenues in our southeast reportable segment increased by $ 76.7 million , or 28.3 % , during the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 , primarily due to a 20.2 % increase in the number of homes closed in this reportable segment and partially due to increased community count stemming from the acquisition of wynn homes in 2018. all reportable segments added communities by expanding into new markets or deepening existing markets during the year ended december 31 , 2019. cost of sales and gross margin ( home sales revenues less cost of sales ) . cost of sales increased for the year ended december 31 , 2019 to $ 1,401.7 million , an increase of $ 277.2 million , or 24.7 % , from $ 1,124.5 million for the year ended december 31 , 2018 . this increase is primarily due to an 18.1 % increase in homes closed , higher lot costs recognized and , to a lesser extent , increased capitalized interest costs for homes closed during 2019 as compared to 2018 . gross margin for the year ended december 31 , 2019 was $ 436.5 million , an increase of $ 56.6 million , or 14.9 % , from $ 379.9 million for the year ended december 31 , 2018 . gross margin as a percentage of home sales revenues was 23.7 % for the year ended december 31 , 2019 and 25.3 % for the year ended december 31 , 2018 . story_separator_special_tag ( 2 ) cancellation rate for a period is the total number of purchase contracts cancelled during the period divided by the total new ( gross ) orders for the purchase of homes during the period . ( 3 ) ending backlog consists of homes at the end of the period that are under a purchase contract that has been signed by homebuyers who have met our preliminary financing criteria but have not yet closed and wholesale contracts for which the required deposit has been made . ending backlog is valued at the contract amount . ( 4 ) as of december 31 , 2019 , we have 481 units related to bulk sales agreements associated with our wholesale business , of which 117 units and values are not included in the table above . ( 5 ) as of december 31 , 2018 , we have 163 units related to bulk sales agreements associated with our wholesale business , of which 92 units and values are not included in the table above . ( 6 ) as of december 31 , 2017 , we have 149 units related to bulk sales agreements associated with our wholesale business , of which 106 units and values are not included in the table above . land acquisition policies and development see discussion included in “ business—land acquisition policies and development . ” homes in inventory see discussion included in “ business—homes in inventory . ” raw materials see discussion included in “ business—raw materials and labor . ” 40 seasonality in all of our reportable segments , we have historically experienced similar variability in our results of operations and in capital requirements from quarter to quarter due to the seasonal nature of the homebuilding industry . we generally close more homes in our second , third and fourth quarters . thus , our revenue may fluctuate on a quarterly basis and we may have higher capital requirements in our second , third and fourth quarters in order to maintain our inventory levels . our revenue and capital requirements are generally similar across our second , third and fourth quarters . as a result of seasonal activity , our quarterly results of operations and financial position at the end of a particular quarter , especially the first quarter , are not necessarily representative of the results we expect at year end . we expect this seasonal pattern to continue in the long term . liquidity and capital resources overview as of december 31 , 2019 , we had $ 38.3 million of cash and cash equivalents . cash flows for each of our active communities depend on the status of the development cycle and can differ substantially from reported earnings . early stages of development or expansion require significant cash outlays for land acquisitions , land development , plats , vertical development , construction of information centers , general landscaping and other amenities . because these costs are a component of our inventory and are not recognized in our statement of operations until a home closes , we incur significant cash outflows prior to recognition of home sales revenues . in the later stages of an active community , cash inflows may exceed home sales revenues reported for financial statement purposes , as the costs associated with home and land construction were previously incurred . our principal uses of capital are operating expenses , land and lot purchases , lot development , home construction , interest costs on our indebtedness and the payment of various liabilities . in addition , we may purchase land , lots , homes under construction or other assets as part of an acquisition . we generally rely on our ability to finance our operations by generating operating cash flows , borrowing under the credit agreement or the issuance and sale of shares of our common stock . as needed , we will consider accessing the debt and equity capital markets as part of our ongoing financing strategy . we also rely on our ability to obtain performance , payment and completion surety bonds as well as letters of credit to finance our projects . we have an effective shelf registration statement on form s-3 ( registration no . 333-227012 ) that was filed on august 24 , 2018 with the securities and exchange commission , registering the offering and sale of an indeterminate amount of debt securities , guarantees of debt securities , preferred stock , common stock , warrants , depositary shares , purchase contracts and units that include any of these securities . under the shelf registration statement , we have the ability to access the debt and equity capital markets as needed as part of our ongoing financing strategy . we believe that we will be able to fund our current and foreseeable liquidity needs for at least the next twelve months with our cash on hand , cash generated from operations , and cash expected to be available from the credit agreement or through accessing debt or equity capital , as needed . revolving credit facility on may 6 , 2019 , we entered into the credit agreement with several financial institutions and wells fargo bank , national association , as administrative agent . the credit agreement has substantially similar terms and provisions to our third amended and restated credit agreement entered into in may 2018 with several financial institutions and wells fargo bank , national association , as administrative agent ( the “ 2018 credit agreement ” ) , but , among other things , provides for a revolving credit facility of $ 550.0 million , which could be increased at our request by up to $ 100.0 million if the lenders make additional commitments , subject to the terms and conditions of the credit agreement ( which was requested in december 2019 ) . on december 6 , 2019 , we entered into a lender addition and acknowledgement agreement and first amendment

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loss on extinguishment of debt . loss on extinguishment of debt was $ 0.2 million for the year ended december 31 , 2019 due to debt issuance costs previously capitalized that were associated with that certain fourth amended and restated credit agreement , dated as of may 6 , 2019 ( as amended , the “ credit agreement ” ) . loss on extinguishment of debt was $ 3.6 million for the year ended december 31 , 2018 due to debt issuance costs previously capitalized that were associated with our third amended and restated credit agreement , dated as of may 2018 ( the “ 2018 credit agreement ” ) . operating income , net income before income taxes , and net income . operating income for the year ended december 31 , 2019 was $ 227.5 million , an increase of $ 27.4 million , or 13.7 % , from $ 200.1 million for the year ended december 31 , 2018 . net income before income taxes for the year ended december 31 , 2019 was $ 231.8 million , an increase of $ 32.7 million , or 16.4 % , from $ 199.1 million for the year ended december 31 , 2018 .

on may 18 , 2011 david cupp loaned the company $ 100 with no stated interest rate , payment terms and is due on demand . additionally , payments were made on behalf of the company in satisfaction of liabilities , totaling $ 27,541 . the total amount due to mr. cupp , $ 27,641 , was forgiven in 2014 and recognized as a contribution to capital . no amount was due to mr. cupp as of december 31 , 2015 or 2014. f-12 north america frac sand , inc. ( fka xterra building systems , inc. ) notes to audited financial statements as of the year ending december 31 , 2015 , mr. david alexander accrued and unpaid consulting fees of $ 14,000 ( $ 9,000 – 2014 ) . amounts due to related parties at december 31 , 2015 and december 31 , 2014 totaled $ 90,582 and $ 12,590 , respectively . other the officers and directors of the company are involved in other business activities and may , in the future , become involved in other business opportunities that become available . they may face a conflict in selecting between the company and other business interests . the company has not formulated a policy for the resolution of such conflicts . the company does not own or lease property or lease office space . the company has been provided office space by a member of the board of directors at no cost . the above amounts are not necessarily indicative of the amounts that would have been incurred had comparable transactions been entered into with independent parties . note 7. commitments and contingencies from time to time the company may be a party to litigation matters involving claims against the company . management believes that there are no current matters that would have a material effect on the company 's financial position or results of operations . note 8. subsequent events on march 21 , 2016 , the company announced the resignation of mr. david cupp as director of the company . on march 21 , 2016 , the company changed its principal address to unit 9b , 218 105 th street east , saskatoon , saskatchewan , s7i 0j9 . on march 28 , 2016 , the company issued 1,250,000 of shares of common stock pursuant to the conversion of 5 series b preferred shares . the completion of the reverse merger with north america frac sand ( ca ) ltd. and the shares held in escrow will be released subject to the completion of the audited financial statements of north america frac sand ( ca ) ltd and completion of the requisite filing . management has evaluated subsequent events through the date the financial statements were issued . based on our evaluation no events have occurred requiring adjustment or disclosure . f-13 story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under `` risk factors `` and elsewhere in this report . the management 's discussion , analysis of financial condition , and results of operations should be read in conjunction with our financial statements and notes thereto contained elsewhere in this prospectus . 10 our business overview north america frac sand , inc. is a florida corporation ( the `` company `` ) . during the year ended december 31 , 2015 , the company entered into an agreement to acquire north america frac sand ( ca ) ltd ( `` nafs-ca `` ) . , an alberta corporation . we completed the due diligence on february 29 , 2016 and have agreed to close formally upon completion of the audit of nafs-ca . the company was providing consulting services to independent aquatic farming operators and other market participants located in the midwest of the united states . historically , we conducted initial marketing and sales activities to take advantage of opportunities related to time , location and quality of aquatic farming operations . we have conducted our operations primarily in indiana . on april 25 , 2014 the company entered into a share purchase agreement to acquire the issued and outstanding shares of innovate building systems , inc. , ( `` innovate `` ) a manufacturer of modular buildings located in edmonton alberta , canada . in accordance with the agreement , the company changed its name from new found shrimp , inc. to innovate building systems , inc. in the course of the due diligence , the innovate ( the alberta company ) was unable to supply audited financial statements . for this and other reasons , the company decided not to proceed with the acquisition . on september 9 , 2014 , the company changed its name from innovate building systems inc. to xterra building systems inc. on july 10 , 2015 , the company entered into a share purchase agreement to acquire the issued and outstanding shares of north america frac sand ( ca ) ltd. ( `` nafs-ca `` ) . where the company would issue 37,800,000 shares of common stock in the company in exchange for the issued and outstanding shares of nafs-ca . in accordance with the agreement , the company changed its name from xterra building systems , inc. to north america frac sand , inc. the final release of the shares held in escrow is subject to the completion the audit of nafs-ca and the requisite filings . critical accounting policies we prepare our financial statements in conformity with gaap , which requires management to make certain estimates and assumptions and apply judgments . we base our estimates and judgments on historical experience , current trends and other factors that management believes to be important at the time the financial statements are prepared and actual story_separator_special_tag on may 18 , 2011 david cupp loaned the company $ 100 with no stated interest rate , payment terms and is due on demand . additionally , payments were made on behalf of the company in satisfaction of liabilities , totaling $ 27,541 . the total amount due to mr. cupp , $ 27,641 , was forgiven in 2014 and recognized as a contribution to capital . no amount was due to mr. cupp as of december 31 , 2015 or 2014. f-12 north america frac sand , inc. ( fka xterra building systems , inc. ) notes to audited financial statements as of the year ending december 31 , 2015 , mr. david alexander accrued and unpaid consulting fees of $ 14,000 ( $ 9,000 – 2014 ) . amounts due to related parties at december 31 , 2015 and december 31 , 2014 totaled $ 90,582 and $ 12,590 , respectively . other the officers and directors of the company are involved in other business activities and may , in the future , become involved in other business opportunities that become available . they may face a conflict in selecting between the company and other business interests . the company has not formulated a policy for the resolution of such conflicts . the company does not own or lease property or lease office space . the company has been provided office space by a member of the board of directors at no cost . the above amounts are not necessarily indicative of the amounts that would have been incurred had comparable transactions been entered into with independent parties . note 7. commitments and contingencies from time to time the company may be a party to litigation matters involving claims against the company . management believes that there are no current matters that would have a material effect on the company 's financial position or results of operations . note 8. subsequent events on march 21 , 2016 , the company announced the resignation of mr. david cupp as director of the company . on march 21 , 2016 , the company changed its principal address to unit 9b , 218 105 th street east , saskatoon , saskatchewan , s7i 0j9 . on march 28 , 2016 , the company issued 1,250,000 of shares of common stock pursuant to the conversion of 5 series b preferred shares . the completion of the reverse merger with north america frac sand ( ca ) ltd. and the shares held in escrow will be released subject to the completion of the audited financial statements of north america frac sand ( ca ) ltd and completion of the requisite filing . management has evaluated subsequent events through the date the financial statements were issued . based on our evaluation no events have occurred requiring adjustment or disclosure . f-13 story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under `` risk factors `` and elsewhere in this report . the management 's discussion , analysis of financial condition , and results of operations should be read in conjunction with our financial statements and notes thereto contained elsewhere in this prospectus . 10 our business overview north america frac sand , inc. is a florida corporation ( the `` company `` ) . during the year ended december 31 , 2015 , the company entered into an agreement to acquire north america frac sand ( ca ) ltd ( `` nafs-ca `` ) . , an alberta corporation . we completed the due diligence on february 29 , 2016 and have agreed to close formally upon completion of the audit of nafs-ca . the company was providing consulting services to independent aquatic farming operators and other market participants located in the midwest of the united states . historically , we conducted initial marketing and sales activities to take advantage of opportunities related to time , location and quality of aquatic farming operations . we have conducted our operations primarily in indiana . on april 25 , 2014 the company entered into a share purchase agreement to acquire the issued and outstanding shares of innovate building systems , inc. , ( `` innovate `` ) a manufacturer of modular buildings located in edmonton alberta , canada . in accordance with the agreement , the company changed its name from new found shrimp , inc. to innovate building systems , inc. in the course of the due diligence , the innovate ( the alberta company ) was unable to supply audited financial statements . for this and other reasons , the company decided not to proceed with the acquisition . on september 9 , 2014 , the company changed its name from innovate building systems inc. to xterra building systems inc. on july 10 , 2015 , the company entered into a share purchase agreement to acquire the issued and outstanding shares of north america frac sand ( ca ) ltd. ( `` nafs-ca `` ) . where the company would issue 37,800,000 shares of common stock in the company in exchange for the issued and outstanding shares of nafs-ca . in accordance with the agreement , the company changed its name from xterra building systems , inc. to north america frac sand , inc. the final release of the shares held in escrow is subject to the completion the audit of nafs-ca and the requisite filings . critical accounting policies we prepare our financial statements in conformity with gaap , which requires management to make certain estimates and assumptions and apply judgments . we base our estimates and judgments on historical experience , current trends and other factors that management believes to be important at the time the financial statements are prepared and actual

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liquidity the accompanying financial statements have been prepared assuming that the company will continue as a going concern which contemplates , among other things , the realization of assets and satisfaction of liabilities in the ordinary course of business . the company sustained a loss for the years ended december 31 , 2015 and 2014 of $ 65,416 and $ 13,780,487 , respectively . the company has an accumulated deficit of $ 34,508,101. because of the absence of positive cash flows from operations , the company will require additional funding for continuing the development and marketing . these factors raise substantial doubt about the company 's ability to continue as a going concern . the accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty . we are presently not able to meet our obligations as they come due . at december 31 , 2015 we had working capital deficit of $ 91,884. our working capital deficit is due to the results of operations . net cash used in operating activities for the years ended december 31 , 2015 and 2014 was $ 63,992 and $ 1,202 , respectively . net cash provided by financing activities for the years ended december 31 , 2015 and 2014 was $ 63,992 and $ 490 , respectively . we anticipate that our future liquidity requirements will arise from the need to fund our growth from operations , pay current obligations and future capital expenditures . the primary sources of funding for such requirements are expected to be cash generated from operations and raising additional funds from the private sources and or debt financing .

we expect our product 31 development , sales and marketing , and general and administrative expenses as a percentage of revenues to decrease over time as we grow our revenues , and we anticipate that we will gain economies of scale by increasing our customer base without direct incremental development costs and by utilizing more of the capacity of our data centers . since inception , we have invested heavily in our professional services organization to help ensure that customers successfully deploy and adopt our applications . additionally , we continue to expand our professional services partner ecosystem to further support our customers . we believe our investment in professional services , as well as partners building consulting practices around workday , will drive additional customer subscriptions and continued growth in revenues . in addition , over time we expect professional services revenues and the cost of professional services as a percentage of total revenues to decline as we increasingly rely on our partners to deploy workday applications and as the number of our existing customers continues to grow . fiscal year end our fiscal year ends on january 31. references to fiscal 2014 , for example , refer to the year ended january 31 , 2014. components of results of operations revenues we primarily derive our revenues from subscription services fees and professional services fees . subscription services revenues primarily consist of fees that give our customers access to our cloud applications , which include routine customer support at no additional cost . professional services fees include deployment services , optimization services , and training . subscription services revenues accounted for over 75 % of our total revenues during fiscal 2014 and represented over 90 % of our total unearned revenue as of january 31 , 2014. subscription services revenues are driven primarily by the number of customers , the number of workers at each customer , the number of applications subscribed to by each customer , the price of our applications , and to a lesser extent , renewal rates . to date , revenues from renewals have not been a substantial component of revenues . the mix of the applications to which a customer subscribes can affect our financial performance due to price differentials in our applications . compared to our other offerings , our hcm application has been available for a longer period of time , is more established in the marketplace and has benefited from continued enhancements of the functionality over a longer period of time , all of which help us to improve our pricing for that application . however , new products or services offerings by competitors in the future could impact the mix and pricing of our offerings . subscription services fees are recognized ratably as revenues over the contract term beginning on the date the application is made available to the customer , which is generally within one week of contract signing . our subscription contracts typically have a term of three years and are non-cancelable . we generally invoice our customers in advance , in annual installments . amounts that have been invoiced are initially recorded as unearned revenue . amounts that have not been invoiced represent backlog and are not reflected in our consolidated financial statements . our consulting engagements are typically billed on a time and materials basis , and revenues are typically recognized as the services are performed . we offer a number of training options intended to support our customers in configuring , using and administering our services . in some cases , we supplement our consulting teams by subcontracting resources from our service partners and deploying them on customer engagements . as workday 's professional services organization and the workday-related consulting practices of our partner firms 32 continue to develop , we expect the partners to increasingly contract directly with our subscription customers . as a result of this trend , and the increase of our subscription services revenues , we expect professional services revenues as a percentage of total revenues to decline over time . approximately 2 % of our total revenues for year ended january 31 , 2014 were derived from multiple-deliverable arrangements that were accounted for as a single unit of accounting , because some of our professional services offerings did not have standalone value when the related contracts were executed . in these situations , all revenue is recognized ratably over the term of the subscription contract . additionally , in these situations , we defer the direct costs of the related professional services contract and those direct costs are amortized over the same period as the professional services revenues are recognized . as of january 31 , 2014 , less than 10 % of our total unearned revenue balance represented multiple-deliverable arrangements accounted for as a single unit of accounting . for contracts executed subsequent to february 1 , 2012 , there was standalone value for all deliverables . costs and expenses costs of subscription services revenues . costs of subscription services revenues consist primarily of employee-related expenses related to hosting our applications and providing support , the costs of data center capacity , and depreciation of owned and leased computer equipment and software . costs of professional services revenues . costs of professional services revenues consist primarily of employee-related expenses associated with these services , the cost of subcontractors and travel costs . the percentage of total revenues derived from professional services was 24 % in fiscal 2014. the cost of providing professional services is significantly higher as a percentage of the related revenues than for our subscriptions . product development . product development expenses consist primarily of employee-related expenses . we continue to focus our product development efforts on adding new features and applications , increasing the functionality and enhancing the ease of use of our cloud applications . sales and marketing . story_separator_special_tag when calculating free cash flows , we subtract the gross value of all equipment , even when acquired under capital leases , so we can evaluate our progress on free cash flows independent of our capital financing decisions . management believes information regarding free cash flows provides investors and others with an important perspective on the cash available to make strategic acquisitions and investments , to fund ongoing operations and to fund other capital expenditures . limitations on the use of non-gaap financial measures a limitation of our non-gaap financial measures of core operating expenses and free cash flows is that they do not have uniform definitions . our definitions will likely differ from the definitions used by other companies , including peer companies , and therefore comparability may be limited . thus , our non-gaap measures of core operating expenses and free cash flows should be considered in addition to , not as a substitute for , or in isolation from , measures prepared in accordance with gaap . additionally , in the case of share-based compensation , if we did not pay out a portion of compensation in the form of share-based compensation and related employer payroll taxes , the cash salary expense included in costs of revenues and operating expenses would be higher , which would affect our cash position . further , the non-gaap measure of core operating 40 expenses has certain limitations because it does not reflect all items of income and expense that affect our operations and are reflected in the gaap measure of total operating expenses . we compensate for these limitations by reconciling core operating expenses to the most comparable gaap financial measure and reviewing these measures in conjunction with gaap financial information . management encourages investors and others to review our financial information in its entirety , not to rely on any single financial measure and to view our non-gaap financial measures in conjunction with the most comparable gaap financial measures . see “results of operations—operating expenses” for a reconciliation of the non-gaap financial measure of core operating expenses to the most comparable gaap measure , “total operating expenses , ” for fiscal 2014 , 2013 and 2012. see “liquidity and capital resources” for a reconciliation of free cash flows to the most comparable gaap measure , “net cash provided by ( used in ) operating activities , ” for fiscal 2014 , 2013 and 2012. backlog we generally sign multiple-year subscription contracts for our applications . the timing of our invoices to the customer is a negotiated term and varies among our subscription contracts . for multiple-year agreements , it is common to invoice an initial amount at contract signing followed by subsequent annual invoices . at any point in the contract term , there can be amounts that we have not yet been contractually able to invoice . until such time as these amounts are invoiced , they are not recorded in revenues , unearned revenue or elsewhere in our consolidated financial statements . to the extent future invoicing is considered certain , we consider the contract to be non-cancelable backlog . future invoicing is considered certain when we have a fully executed non-cancelable contract , and invoicing is not dependent on a future event such as customer funding or the delivery of a product . the amount of subscription contract backlog was $ 636.1 million as of january 31 , 2014. we expect that the amount of backlog relative to the total value of our contracts will change from year to year for several reasons , including the amount of cash collected early in the contract term , the specific timing and duration of large customer subscription agreements , varying invoicing cycles of subscription agreements , the specific timing of customer renewals , changes in customer financial circumstances and foreign currency fluctuations . backlog may also vary based on changes in the average non-cancelable term of our subscription agreements . accordingly , we believe that fluctuations in backlog are not a reliable indicator of future revenues and we do not utilize backlog as a key management metric internally . contractual obligations the following table summarizes our consolidated principal contractual cash obligations , as of january 31 , 2014 : replace_table_token_13_th ( 1 ) represents aggregate principal amount of the notes , without the effect of associated discounts . 41 ( 2 ) represents estimated aggregate interest obligations for our outstanding notes that are payable in cash . ( 3 ) includes principal and imputed interest . ( 4 ) for the 95-year lease we entered in january 2013 , the cash obligations exclude the potential annual rental increases based on the increases to the consumer price index ( cpi ) . ( see more information under “commitments” below ) . we expect to make higher rent payments over the lease term due to increases in the cpi . commitments our principal commitments primarily consist of obligations under leases for office space and co-location facilities for data center capacity and our development and test data center , and computer equipment . for fiscal 2015 , we anticipate leasing additional office space near our headquarters and in various other locations around the world to support our growth . in january 2014 , workday acquired a 95-year lease for a 6.9 acre parcel of land adjacent to our existing pleasanton , california leased facilities . the lease affords us the opportunity to develop office space for employees in pleasanton , california . we paid $ 10.0 million to acquire the lease and $ 1.5 million in prepaid rent through december 31 , 2020. if construction does not commence by june 30 , 2015 , we will be required to make additional payments to the lessor , ranging from $ 0.2 million to $ 1.0 million based on the length of the delay . purchase orders are not included in the table above . our purchase orders represent authorizations to purchase rather

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liquidity and capital resources as of january 31 , 2014 , our principal sources of liquidity were cash , cash equivalents and marketable securities totaling $ 1.9 billion , which were held for working capital purposes . our cash equivalents and marketable securities are comprised primarily of u.s. agency obligations , u.s. treasury securities , money market funds , commercial paper , and u.s. corporate securities . we have financed our operations primarily through sales of equity securities , customer payments , and issuance of debt . in july 2013 , we issued notes which provided us with net proceeds of $ 584.3 million . in january 2014 , we sold 6.9 million shares of our class a common stock in a follow-on offering which provided us with net proceeds of $ 592.2 million . our future capital requirements will depend on many factors , including our customer growth rate , subscription renewal activity , the timing and extent of development efforts , the expansion of sales and marketing activities , the introduction of new and enhanced services offerings , and the continuing market acceptance of our services . we may in the future enter into arrangements to acquire or invest in complementary businesses , services and technologies , and intellectual property rights . we may choose to seek additional equity or debt financing . our cash flows for fiscal 2014 , 2013 and 2012 were as follows : replace_table_token_11_th in evaluating our performance internally , we focus on long-term , sustainable growth in free cash flows . we define free cash flows , a non-gaap financial measure , as net cash provided by ( used in ) operating activities minus purchases of property and equipment , property and equipment acquired under capital leases and purchase of other intangible assets . see “non-gaap financial measures” for additional information . our free cash flows for fiscal 2014 , 2013 and 2012 were as follows : replace_table_token_12_th operating activities management uses cash provided by ( used in ) operating activities as a key financial matric .

we do not have any foreign operations and our business is not seasonal . our operations are not dependent on a single tenant or a few tenants and no single tenant accounted for more than 10 % of our total 2018 revenue . during the twelve months ended december 31 , 2018 , we owned and managed properties within five markets : ( 1 ) philadelphia central business district ( “ philadelphia cbd ” ) , ( 2 ) pennsylvania suburbs , ( 3 ) austin , texas , ( 4 ) metropolitan washington , d.c. , and ( 5 ) other . the philadelphia cbd segment includes properties located in the city of philadelphia in pennsylvania . the pennsylvania suburbs segment includes properties in chester , delaware and montgomery counties in the philadelphia suburbs . the austin , texas segment includes properties in the city of austin , texas . the metropolitan washington , d.c. segment includes properties in northern virginia , washington , d.c. and southern maryland . the other segment includes properties in camden county in new jersey and properties in new castle county in delaware . in addition to the five markets , our corporate group is responsible for cash and investment management , development of certain real estate properties during the construction period , and certain other general support functions . we generate cash and revenue from leases of space at our properties and , to a lesser extent , from the management of properties owned by third parties and from investments in the real estate ventures . factors that we evaluate when leasing space include rental rates , costs of tenant improvements , tenant creditworthiness , current and expected operating costs , the length of the lease term , vacancy levels and demand for office and industrial space . we also generate cash through sales of assets , including assets that we do not view as part of our core properties , either because of location or expected growth potential , and assets that are commanding premium prices from third party investors . the following highlights our financial results for the year ended december 31 , 2018 : net income available to common shareholders increased by $ 20.7 million to $ 136.0 million for the year ended december 31 , 2018 , as compared to the corresponding period in 2017. funds from operations available to common share and unit holders ( “ ffo ” ) , a non-gaap financial measure , increased to $ 247.7 million or $ 1.37 per diluted share for the year ended december 31 , 2018 , from $ 229.2 million or $ 1.29 per diluted share for the year ended december 31 , 2017 ( see additional disclosure in the “ funds from operations ( ffo ) ” section below ) . 46 same store net operating income , a non-gaap financial measure , decreased 2.2 % for the year ended december 31 , 2018 , as compared to the corresponding period in 2017 ( see additional disclosure on same store net operating income in “ results of operations ” section below ) . core occupancy increased from 92.9 % at december 31 , 2017 , to 93.3 % at december 31 , 2018. we increased our quarterly dividend from $ 0.18 to $ 0.19 per share for a 5.6 % annualized increase . we used liquidity generated from additional net sales activity to opportunistically repurchase over 1.7 million common shares at a weighted-average price of $ 12.64 per share which is well below our current net asset value . factors that may influence future results of operations global market and economic conditions in the u.s. , market and economic conditions have been improving , characterized by more availability to credit , increasing interest rates and modest growth . while recent economic data reflects modest growth , the cost and availability of credit may be adversely affected by illiquid credit markets and wider credit spreads . volatility in the u.s. and international markets and economies may adversely affect our liquidity and financial condition , and the liquidity and financial condition of our tenants . any adverse market conditions may limit our ability , as well as the ability of our tenants , to timely refinance maturing liabilities and access capital markets to meet liquidity needs . real estate asset valuation general economic conditions and the resulting impact on market conditions or a downturn in tenants ' businesses may adversely affect the value of our assets . challenging economic conditions in the u.s. , declining demand for leased office , retail , or mixed-use properties and or a decrease in market rental rates and or market values of real estate assets in our submarkets could have a negative impact on the value of our properties . if we were required under gaap to write down the carrying value of any of our properties due to impairment , or if as a result of an early lease termination we were required to remove or dispose of material amounts of tenant improvements that are not reusable to another tenant , our financial condition and results of operations could be negatively affected . leasing activity and rental rates the amount of net rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space , newly developed or redeveloped properties and space available from unscheduled lease terminations . the amount of rental income we generate also depends on our ability to maintain or increase rental rates in our submarkets . negative trends in one or more of these factors could adversely affect our rental income in future periods . equity method investment valuation our equity method investments , consisting of our investments in unconsolidated real estate ventures , may be adversely affected by changes in the real estate markets in which they operate . story_separator_special_tag , an office property acquired during the fourth quarter of 2017 the increase of $ 41.8 million in total revenue was offset by an $ 8.3 million decrease due to the disposition of 30 properties during 2017 and 2018 ( the “ 2017 and 2018 dispositions ” ) . straight-line rents decreased by $ 15.4 million from free rent converting to cash rent from 2017 to 2018 , of which $ 11.3 million related to recently completed/acquired properties , primarily the fmc tower , which is located in the philadelphia cbd segment and $ 5.9 million in the same store property portfolio , primarily the philadelphia cbd segment . these decreases were offset by a $ 1.8 million increase from development/redevelopment properties , primarily related to the bulletin building , which was acquired during the fourth quarter of 2017. tenant reimbursements from the total portfolio increased $ 10.0 million from 2017 to 2018 , due to an increase of $ 6.7 million from recently completed/acquired properties due to the expiration of free rent periods for tenants within the fmc tower and the acquisition of the dra austin venture properties , an increase of $ 3.7 million in the same store property portfolio , primarily due to increased operating costs at our philadelphia cbd segment and austin , texas segment , and a $ 1.8 million increase from development/redevelopment properties , relating to the bulletin building , which was acquired during the fourth quarter of 2017. these increases were partially offset by a decrease of $ 2.2 million from the 2017 and 2018 dispositions . termination fees decreased $ 0.6 million from 2017 to 2018 , due to the timing and volume of early tenant move-outs during 2018 when compared to 2017. third party management fees , labor reimbursement and leasing income decreased $ 5.8 million from 2017 to 2018 , due primarily to decreases in third party management and development fees . the decreases include $ 5.2 million of construction management fees related to the subaru headquarters development , which was substantially complete as of december 31 , 2017 , $ 2.9 million of third party management fees relates to the sale of the properties within the austin venture and $ 0.5 million related to the fourth quarter of 2018 sale of three office properties and the third quarter of 2017 sale of one office property held by our bdn – ai venture . these decreases were offset by a $ 2.8 million increase in construction management fees , primarily relating to the map venture . other income at our total portfolio increased by $ 1.9 million from 2017 to 2018 , which was primarily related to restaurant income from walnut street café at the fmc tower , which was placed into service at the end of the second quarter of 2017. property operating expenses property operating expenses across our total portfolio increased $ 3.9 million from 2017 to 2018 , of which $ 7.2 million relates to recently completed/acquired properties , primarily from the fmc tower , which was fully placed into service during the second quarter of 2017 , as well as the twelve properties acquired from the dra austin venture during the fourth quarter of 2018. an additional increase of $ 0.6 million is due to marketing costs relating to business development efforts and costs associated with parking operations , both within our philadelphia cbd segment . development/redevelopment properties increased $ 2.1 million , primarily because of the bulletin building , which was acquired during the fourth quarter of 2017 and immediately placed into redevelopment . the same store portfolio increased $ 2.1 million , primarily related to our philadelphia cbd segment . these increases were partially offset by a $ 4.9 million decrease related to the 2017 and 2018 dispositions , a $ 1.9 million decrease due to the write-off of a prior period straight line rent receivable related to an early termination , $ 0.7 million in salary expense reductions relating from the sale of properties from unconsolidated real estate ventures that we manage and a $ 0.5 million reduction in development salary due to increased capitalization at our development/redevelopment projects . real estate taxes real estate taxes across our total portfolio increased by $ 6.1 million from 2017 to 2018 , of which $ 5.1 million relates to increased real estate tax assessments at the same store property portfolio , primarily in the philadelphia cbd segment , $ 2.1 million related to recently completed/acquired properties and $ 0.5 million related to development/redevelopment properties . these increases were partially offset by decreases of $ 1.6 million from the 2017 and 2018 dispositions . 52 depreciation and amortization depreciation and amortization expense decreased by $ 5.1 million from 2017 to 2018 , of which $ 8.8 million relates to an increase in depreciation expense from recently completed/acquired properties , primarily due to the acquisition of our partner 's 50 % ownership interest in the twelve remaining properties within our dra austin venture during the fourth quarter of 2018 , the office component of fmc tower being fully placed into service during the second quarter of 2017 as well as four tower bridge , which was acquired in january 2018. this increase was offset by a $ 6.3 million decrease relating to the 2017 and 2018 dispositions , a $ 5.9 million decrease to fully amortized intangible assets at the same store property portfolio , which is directly attributable to a reduction in intangible asset amortization related to the broadmoor portfolio , located in our austin , texas segment which was acquired during the second quarter of 2015 , a $ 0.9 decrease from development/redevelopment properties and a $ 0.8 million decrease related to assets in our other segment that were fully depreciated during the third quarter of 2017. general and administrative expenses general and administrative expenses across our total portfolio decreased by $ 0.7 million from 2017 to 2018 , due to a $ 1.6 million

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cash flows the following discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be a comprehensive discussion of the changes in our cash flows for the years presented . as of december 31 , 2018 and 2017 , we maintained cash and cash equivalents and restricted cash of $ 23.2 million and $ 203.4 million , respectively . the following are the changes in cash flow from our activities for the years ended december 31 , 2018 , 2017 and 2016 ( in thousands ) : replace_table_token_20_th our principal source of cash flows is from the operation of our properties . our properties provide a relatively consistent stream of cash flows that provide us with the resources to fund operating expenses , debt service and quarterly dividends . the net increase of $ 44.8 million in cash from operating activities during 2018 compared to 2017 is primarily due to free rent periods ending in our philadelphia cbd segment . the net decrease of $ 294.3 million in cash from investing activities during 2018 compared to 2017 primarily relates to property portfolio repositioning efforts , which occurred during the fourth quarter of 2018. quantitatively , the decrease resulted from the following : $ 175.1 million decrease from the 2018 issuances of a $ 130.7 million note to the dra austin venture used to repay mortgage debt , at closing , related to

we call this type of solution a catalog solution and we are placing a greater emphasis on developing and marketing these solutions . in order to grow our revenue from its current level , we depend upon increased revenue from our new products including existing new product platforms and platforms currently in development . we expect our business growth to be driven by silicon solutions and our solutions revenue growth needs to be strong enough to enable us to sustain profitability while we continue to invest in the development , sales and marketing of our new solution platforms and psbs . the gross margin associated with our solutions is generally lower than the gross margin of our fpga products , due primarily to the price sensitive nature of the higher volume mobile consumer opportunities that we are pursuing with our solutions . during 2015 , we generated total revenue of $ 19.0 million which represents a 32 % decrease from 2014 . our new product revenue was $ 12.0 million which represents a 38 % decrease from 2014 while our mature product revenue was $ 6.9 million which represents a 19 % decrease from 2014 . we shipped our new products into four of our targeted mobile market segments : smartphones , wearables , mobile enterprise , and tablets . overall , we reported a net loss of $ 17.8 million for 2015 compared to a net loss of $ 13.1 million for 2014. we have experienced net losses in the past years and expect such losses to continue through at least the year ending january 1 , 2017 as we continue to develop new products , applications and technologies . whether we can achieve cash flow 26 levels sufficient to support our operations can not be accurately predicted . unless such cash flow levels are achieved in addition to the proceeds that we expect to receive from our recent sale of our equity securities , which is expected to close on or about march 21 , 2016 , we may need to borrow additional funds or sell debt or equity securities , or some combination thereof , to provide funding for our operations , such additional funding may not be available on commercially reasonable terms , or at all . critical accounting policies and estimates the methods , estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements . the sec has defined critical accounting policies as those that are most important to the portrayal of our financial condition and results of operations and require us to make our most difficult and subjective judgments , often as a result of the need to make estimates of matters that are inherently uncertain . based on this definition , our critical policies include revenue recognition including sales returns and allowances , valuation of inventories including identification of excess quantities and product obsolescence , allowance for doubtful accounts , valuation of investments , valuation of long-lived assets , measurement of stock-based compensation , accounting for income taxes , and estimating accrued liabilities . we believe that we apply judgments and estimates in a consistent manner and that such consistent application results in consolidated financial statements and accompanying notes that fairly represent all periods presented . however , any factual errors or errors in these judgments and estimates may have a material impact on our financial statements . revenue recognition we supply standard products which must be programmed before they can be used in an application . our products may be programmed by us , distributors , end-customers or third parties . we recognize revenue as products are shipped if evidence of an arrangement exists , delivery has occurred , the sales price is fixed or determinable , collection of the resulting receivable is reasonably assured and product returns are reasonably estimable . revenue is recognized upon shipment of programmed and unprogrammed parts to both oem customers and distributors , provided that legal title and risk of ownership have transferred . parts held by distributors may be returned for quality reasons only under our standard warranty policy . see note 2 to the consolidated financial statements for our standard warranty policy . we have not had a history of significant product returns . valuation of inventories inventories are stated at the lower of standard cost or net realizable value . standard cost approximates actual cost on a first-in , first-out basis . we routinely evaluate quantities and values of our inventories in light of current market conditions and market trends and record reserves for quantities in excess of demand and product obsolescence . the evaluation may take into consideration historic usage , expected demand , anticipated sales price , the stage in the product life cycle of our customers ' products , new product development schedules , the effect new products might have on the sale of existing products , product obsolescence , customer design activity , customer concentrations , product merchantability and other factors . market conditions are subject to change . actual consumption of inventories could differ from forecasted demand and this difference could have a material impact on our gross margin and inventory balances based on additional provisions for excess or obsolete inventories or a benefit from inventories previously written down . we also regularly review the cost of inventories against estimated market value and record a lower of cost or market reserve for inventories that have a cost in excess of estimated market value , which could have a material impact on our gross margin and inventory balances based on additional write-downs to net realizable value or a benefit from inventories previously written down . our semiconductor products have historically had an unusually long product life cycle and obsolescence has not been a significant factor in the valuation of inventories . story_separator_special_tag the $ 3.8 million increase in r & d expenses in 2014 as compared to 2013 is attributable primarily to a $ 1.7 million increase in compensation expense due to increased headcount , $ 835,000 increase in the cost of outside services due to an increase in third-party chip design costs , $ 429,000 increase in purchased intellectual property , and $ 386,000 increase in stock based compensation costs . these increases were partially offset by a reduction of $ 131,000 in engineering equipment and supplies expense . selling , general and administrative expense . our selling , general and administrative expenses consist primarily of personnel and related overhead costs for sales , marketing , finance , administration , human resources and legal . selling , general and administrative , or sg & a , expense was $ 11.7 million and $ 12.0 million in 2014 and 2013 , respectively , which represented 41.9 % and 46.0 % of revenue for those periods . the $ 339,000 decrease in sg & a expenses in 2014 as compared to 2013 is attributable primarily to the decrease in executive bonus payments . restructuring costs . in an effort to consolidate and streamline its engineering organization , the company incurred restructuring costs of $ 181,000 in 2013 to pay for employee severance benefits . interest expense and interest income and other expense , net the table below sets forth the changes in interest expense and interest income and other expense , net for 2014 as compared to 2013 ( in thousands , except percentage data ) : replace_table_token_14_th the increase in interest expense is due primarily to the increase of our capital software lease obligation to $ 357,000 in 2014 from $ 310,000 in 2013 . the change in interest income and other expense , net was due primarily to a decrease of foreign exchange losses in 2014 as compared to 2013 . provision for income taxes . the table below sets forth the changes in provision for ( benefit from ) income taxes for 2014 as compared to 2013 ( in thousands , except percentage data ) : replace_table_token_15_th the income tax expense for 2014 and 2013 respectively , was primarily for our foreign operations which are cost-plus entities . included within the provision for income taxes for 2013 was a charge in the amount of $ 273,000 relating to our investment in towerjazz . this expense was previously recorded as a component of other comprehensive income and reclassified to the provision for income taxes upon the sale of our investment in towerjazz . as of the end of 2014 , our ability to utilize our u.s. deferred tax assets in future periods was uncertain and , accordingly , we recorded a full valuation allowance against the related u.s. tax asset . we will continue to assess the realizability of deferred tax assets in future periods . 33 liquidity and capital resources we have financed our operations and capital investments through sales of common stock , capital and operating leases , a bank line of credit and cash flow from operations . as of january 3 , 2016 , our principal sources of liquidity consisted of our cash and cash equivalents of $ 19.1 million and available credit under our revolving line of credit with silicon valley bank of $ 4.0 million , which expires in september 25 , 2017. additionally , we have an accumulated deficit of approximately $ 221 million and experienced net losses in the past years and expect such losses to continue through at least the year ending january 1 , 2017 as we continue to develop new products , applications and technologies . on march 16 , 2016 , we announced the pricing of the company 's firm underwritten public offering of an aggregate of 10.0 million newly issued shares of common stock at a price of $ 1.00 per share , $ 0.001 par value . we expect to receive gross proceeds of approximately $ 10.0 million , before deducting underwriting discounts and other estimated offering expenses . the net proceeds from the offering are expected to be approximately $ 8.9 million after deduction of underwriting discounts and assuming no exercise of the underwriters ' over-allotment option . the underwriters have also been granted a 30-day option to purchase up to 1.5 million shares of common stock to cover over-allotments , if any . we expect to use the net proceeds from the offering for working capital and other general corporate purposes . we may also use a portion of the net proceeds to acquire and or license technologies and acquire and or invest in businesses when the opportunity arises . see note 18 to the consolidated financial statements for the details . the shares are being offered by us pursuant to a shelf registration statement previously filed with the sec , which was declared effective by the sec on august 30 , 2013 , and as supplemented by a prospectus supplement dated march 17 , 2016 filed with the sec pursuant to rule 424 ( b ) under the securities act of 1933 , as amended . see notes 14 and 18 to the consolidated financial statements for details . over the longer term , the company anticipates that the generation of sales from its new product offerings , existing cash and cash equivalents , together with financial resources from its revolving line of credit with silicon valley bank and its ability to raise additional capital in the public capital markets will be sufficient to satisfy its operations and capital expenditures . however , the company can not provide any assurance that it will be able to raise additional capital , if required , or that such capital will be available on terms acceptable to the company . the inability of the company to generate sufficient sales from its new product offerings and or raise additional capital if needed could have a material adverse effect

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net cash from operating activities in 2015 , net cash used in operating activities was $ 11.8 million , and resulted primarily from a net loss of $ 17.8 million offset by $ 3.7 million in non-cash charges . these non-cash charges included write-downs of inventories in the amount of $ 229,000 to reflect excess quantities , depreciation and amortization of our long-lived assets of $ 1.4 million and stock-based compensation of $ 1.9 million . in addition , changes in working capital accounts provided cash of $ 2.0 million as a result of an increase in accounts payable of $ 260,000 , decrease in gross inventory of $ 1.8 million and , decrease of other assets of $ 300,000 , partially offset by a decrease of accrued liabilities of $ 94,000 and an increase in accounts receivable of $ 49,000 . inventory decrease was primarily due to sale of existing arcticlink iii and polarpro products inventory purchased in prior year . in 2014 , net cash used in operating activities was $ 10.8 million , and resulted primarily from a net loss of $ 13.1 million offset by $ 3.8 million in non-cash charges . these non-cash charges included write-downs of inventories in the amount of $ 119,000 to reflect excess quantities , depreciation and amortization of our long-lived assets of $ 1.5 million and stock-based compensation of $ 2.2 million .

veeva commercial cloud customers are those customers that have at least one of the following products : veeva crm , veeva clm , veeva crm approved email , veeva crm engage , veeva align , veeva crm events management , veeva nitro , veeva andi , veeva opendata , veeva oncology link , or veeva network customer master . note that net new customers from crossix and physicians world are included in veeva commercial cloud . veeva vault customers are those customers that have at least one vault product . many of our veeva vault applications are used by smaller , earlier stage pre-commercial companies , some of which may not reach the commercialization stage . thus , the potential number of veeva vault customers is significantly higher than the potential number of veeva commercial cloud customers . on november 1 , 2019 , we completed our acquisition of crossix , a provider of privacy-safe patient data and analytics . crossix brings veeva additional depth in patient data and data analytics , and we are integrating crossix with our veeva crm and opendata products . further , on november 7 , 2019 , we completed our acquisition of physicians world , a provider of speakers bureau services for healthcare professionals . acquiring physicians world makes it easier for our customers to get industry leading cloud software and services from a single vendor . while we expect these acquisitions to support the continued growth of our commercial cloud solutions , we may encounter difficulties integrating these businesses and we may not retain existing crossix and physicians world customers and key crossix and physicians world employees to the extent we expect , which could adversely affect our business . for further details on our recently acquired businesses , please refer to note 2 to the notes of our consolidated financial statements . 39 veeva systems inc. | form 10-k the world health organization has declared the outbreak of covid-19 , which began in december 2019 , to be a pandemic , and the u.s. federal government has declared it a national emergency . the extent of the impact of covid-19 on our operational and financial performance will depend on certain developments , including the duration and spread of the outbreak , impact on our customers and our sales cycles , impact on our customer , employee or industry events , and effect on our vendors and partners , all of which are uncertain and can not be predicted . for example , in response to the covid-19 outbreak , we have shifted certain of our customer events to virtual-only experiences , and we may be forced to or may deem it advisable to similarly alter , postpone , or cancel entirely additional customer , employee , or industry events in the future . we have also imposed employee travel restrictions and instructed employees in most locations to work from home . many of our customers have implemented similar measures , which may limit our ability to sell or provide professional services to them . customers may also delay or cancel purchasing decisions or projects in light of uncertainties to their businesses arising from the covid-19 outbreak . at this point , the extent to which the covid-19 outbreak may impact our financial condition or results of operations is uncertain . due to our subscription-based business model , the effect of the covid-19 outbreak , and any impact to our sales efforts , may not be fully reflected in our results of operations until future periods , if at all . for a further description of our business and products , see “ business ” above . key factors affecting our performance investment in growth . we have invested and intend to continue to invest aggressively in expanding the breadth and depth of our product portfolio , including through acquisitions . we expect to continue to invest in research and development to expand existing solutions and build new solutions ; in sales and marketing to promote our solutions to new and existing customers and in existing and expanded geographies and industries ; in professional services to ensure the success of our customers ' implementations of our solutions ; and in other operational and administrative functions to support our expected growth . we expect that our headcount will increase as a result of these investments . we also expect our total operating expenses will continue to increase over time , which could have a negative impact on our operating margin . adoption of our solutions by existing and new customers . most of our customers initially deploy our solutions to a limited number of end users within a division or geography and may only initially deploy a limited set of our available solutions . our future growth is dependent upon our existing customers ' continued success and their renewals of subscriptions to our solutions , expanded deployment of our solutions within their organizations , and their purchase of subscriptions to additional solutions . our growth is also dependent on the adoption of our solutions by new customers . subscription services revenue retention rate . a key factor to our success is the renewal and expansion of our existing subscription agreements with our customers . we calculate our annual subscription services revenue retention rate for a particular fiscal year by dividing ( i ) annualized subscription revenue as of the last day of that fiscal year from those customers that were also customers as of the last day of the prior fiscal year by ( ii ) the annualized subscription revenue from all customers as of the last day of the prior fiscal year . story_separator_special_tag in addition , we had an 53 % increase in the headcount of our subscription services team , which includes headcount from crossix added in the fiscal quarter ended january 31 , 2020. the increase in headcount drove a $ 3.0 million increase in employee compensation-related costs ( includes an increase of $ 1.1 million in stock-based compensation ) . the increase in employee compensation-related costs is primarily driven by the increase in headcount during the period . there was an additional $ 4.6 million in data acquisition costs related to the acquired business of crossix . we expect cost of subscription services revenues to increase in absolute dollars in the near term due to increased usage of our subscription services . cost of professional services and other revenues increased $ 38.8 million , primarily due to a 49 % increase in headcount of our professional services team , which drove a $ 30.9 million increase in employee compensation-related costs ( includes an increase of $ 6.9 million in stock-based compensation ) . the increase in employee compensation-related costs is primarily driven by the increase in headcount during the period , including headcount from our recently acquired businesses added in the quarter ended january 31 , 2020. we expect cost of professional services and other revenues to increase in absolute dollars and as a percentage of revenue in the near term as we add personnel to our global professional services organization . veeva systems inc. | form 10-k 45 gross margin for fiscal years ended january 31 , 2020 and 2019 was 73 % and 72 % , respectively . the increase compared to the prior period is largely due to the continued growth of veeva vault and our newer multichannel crm applications that complement veeva crm , all of which have higher subscription services gross margins than our core veeva crm application . we expect gross margin to decrease in the fiscal year ending january 31 , 2021 due to the dilutive impact to gross margin from our recently acquired businesses , which we expect to be partially offset by growth of our vault products , which have a higher gross margin profile relative to our core crm product . operating expenses and operating margin operating expenses include research and development , sales and marketing , and general and administrative expenses . as we continue to invest in our growth through hiring , and as we realize the full impact of the additional headcount and operating expenses associated with crossix and physicians world , we expect operating expenses to increase in absolute dollars and may slightly increase as a percentage of revenue in the near term . we also expect stock-based compensation expense to increase in absolute dollars and as a percentage of revenue through the fiscal year ending january 31 , 2021 due to increased headcount and retention equity awards granted to certain employees associated with the acquisitions in november 2019. research and development replace_table_token_10_th fiscal 2020 compared to fiscal 2019. research and development expenses increased $ 51.1 million , primarily due to a 29 % increase in headcount during the period , which drove an increase of $ 39.7 million in employee compensation-related costs ( includes an increase of $ 14.9 million in stock-based compensation ) . the increase in employee compensation-related costs is primarily driven by the increase in headcount during the period , including added headcount from crossix . additionally , there was an increase of $ 3.2 million in costs for increased computer equipment costs in our research and development organization . we expect research and development expenses to increase in absolute dollars and may increase as a percentage of revenue in the near term , primarily due to higher headcount , including increased headcount associated with our recently acquired businesses , as we continue to invest in our solutions and develop new technologies and as we experience the full impact of additional research and development headcount and expenses associated with our recently acquired businesses . sales and marketing replace_table_token_11_th 46 veeva systems inc. | form 10-k fiscal 2020 compared to fiscal 2019. sales and marketing expenses increased $ 41.5 million , primarily due to an increase of $ 31.0 million in employee compensation-related costs ( includes an increase of $ 9.2 million in stock-based compensation ) , which was driven by an 29 % increase in headcount . the increase in employee compensation-related costs is primarily driven by the increase in headcount during the period , including added headcount from our recently acquired businesses . in addition , there was an increase of $ 2.1 million of amortization of purchased intangibles associated with our recently acquired businesses . we expect sales and marketing expenses to continue to grow in absolute dollars in the near term , primarily due to employee-related expenses as we increase our headcount , to support our sales and marketing efforts associated with our newer solutions and our continued expansion of our sales capacity across all our solutions , and as we experience the full impact of additional sales and marketing headcount and expenses associated with our recently acquired businesses . general and administrative replace_table_token_12_th fiscal 2020 compared to fiscal 2019 . general and administrative expenses increased $ 27.9 million , primarily due to an increase of $ 12.0 million in employee compensation-related costs ( includes an increase of $ 7.4 million in stock-based compensation ) , which was driven by an 35 % increase in headcount , and an increase of $ 7.0 million in legal fees related to litigation activity during the period . the increase in employee compensation-related costs is primarily driven by the increase in headcount during the period , including added headcount from our recently acquired businesses . there was an additional $ 1.5 million in costs for increased computer equipment costs and $ 1.3 million in one-time acquisition-related transaction costs for our recently acquired businesses . we expect general and administrative expenses to continue

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net cash provided by operating activities was $ 437.4 million for the fiscal year ended january 31 , 2020 . our cash provided by operating activities during the fiscal year ended january 31 , 2020 primarily reflected our net income of $ 301.1 million , adjustments for non-cash items of $ 154.4 million , which was offset by a net decrease in our operating assets and liabilities of $ 18.2 million . non-cash charges included $ 115.9 million of stock-based compensation expense , $ 19.9 million of depreciation and amortization expense , and $ 3.3 million of accretion of discounts on short-term investments . the net changes in operating assets and liabilities included an increase of $ 97.8 million in deferred revenue resulting primarily from increased orders from new and existing customers , which was offset by a decrease of $ 55.5 million in accounts receivable related to increased collections during the period . fiscal 2019 compared to fiscal 2018. net cash provided by operating activities was $ 310.8 million for the fiscal year ended january 31 , 2019 . our cash provided by operating activities during the fiscal year ended january 31 , 2019 primarily reflected our net income of $ 229.8 million , adjustments for non-cash items of $ 98.4 million , which was offset by a net decrease in our operating assets and liabilities of $ 17.4 million . non-cash charges included $ 76.4 million of stock-based compensation expense , $ 14.1 million of depreciation and amortization expense , and $ 2.4 million of amortization of premiums on short-term investments . the net changes in operating assets and liabilities included an increase of $ 89.4 million in deferred revenue resulting primarily from increased orders from new and existing customers , which was offset by a decrease of $ 79.0 million in accounts receivable related to the seasonal nature of our billings and the timing of collections . cash flows from investing activities the cash flows from investing activities primarily relate to cash used for the purchase of marketable securities , net of maturities .

the decrease in total operating revenues and average daily production year over year was driven by our divestitures in 2017. in 2017 , we participated in the drilling of 124 gross ( 33.7 net ) wells , none of which were dry holes . our financial results depend upon many factors , but are largely driven by the volume of our oil and natural gas production and the price that we receive for that production . our production volumes will decline as reserves are produced unless we expend capital in successful development and exploration activities or acquire properties with existing production . the amount we realize for our 52 production depends predominantly upon commodity prices and our related commodity price hedging activities , which are affected by changes in market demand and supply , as impacted by overall economic activity , weather , pipeline capacity constraints , inventory storage levels , basis differentials and other factors . accordingly , finding and developing oil and natural gas reserves at economical costs is critical to our long-term success . in 2017 , we incurred capital expenditures for drilling and completions of approximately $ 309.6 million . we expect to spend approximately $ 280 million to $ 320 million on drilling and completion capital expenditures during 2018. in addition , we expect to spend approximately $ 30 million to $ 40 million on infrastructure , seismic and other in 2018. our 2018 drilling and completion budget currently contemplates running an average of three operated rigs in the delaware basin during the year , and is subject to change . after the pending acquisition of the west quito draw properties closes , discussed below under `` recent developments , `` our 2018 capital budget will be revised . we expect to fund our budgeted 2018 capital expenditures with cash on hand , cash flows from operations , proceeds from debt and equity issuances and borrowings under our senior credit agreement . we strive to maintain financial flexibility and may access capital markets as necessary to maintain adequate borrowing capacity under our senior credit agreement , facilitate drilling on our large undeveloped acreage position and permit us to selectively expand our acreage position and infrastructure projects . in the event our cash flows are materially less than anticipated and other sources of capital we historically have utilized are not available on acceptable terms , we may reduce our capital spending , however significant or prolonged reductions in capital spending will adversely impact our production and may negatively affect our future cash flows . oil and natural gas prices are inherently volatile and declined dramatically during the latter half of 2014. in response to this , in 2015 and 2016 we significantly curtailed our capital spending , reduced operating costs , concluded discounted debt exchanges , and incurred substantial asset impairments , primarily as a result of the full cost ceiling test calculation . despite these efforts , low commodity prices persisted and we decided to reorganize under chapter 11 on september 9 , 2016 , as discussed in greater detail below . we utilize the full cost method of accounting for our oil and natural gas exploration and development activities . under full cost accounting , we are required by sec regulations to perform a ceiling test each quarter . the ceiling test calculation dictates that we use the unweighted arithmetic average price of crude oil and natural gas as of the first day of each month for the 12-month period ending at the balance sheet date . using the crude oil price for february 2018 of $ 65.80 per bbl , and holding it constant for one month to create a trailing 12-month period of average prices that is more reflective of recent price trends , our ceiling test limitation would not have generated an impairment at december 31 , 2017 holding all other inputs and factors constant . sustained lower commodity prices would have a material impact upon our full cost ceiling test calculation . in addition to commodity prices , our production rates , levels of proved reserves , future development costs , transfers of unevaluated properties to our full cost pool , capital spending and other factors will determine our actual ceiling test calculation and impairment analyses in future periods . recent developments pending acquisition of west quito draw properties on february 6 , 2018 , one of our wholly owned subsidiaries entered into a purchase and sale agreement ( the shell psa ) with swepi lp ( shell ) , an affiliate of shell oil company , pursuant to which we agreed to purchase an aggregate 10,524 net acres and related assets in the southern delaware basin located in ward county , texas ( the west quito draw properties ) for a total purchase price of $ 200.0 million . the effective date of the proposed acquisition is february 1 , 2018 , and we expect the closing to occur early april 2018 . 53 the purchase price is subject to adjustments for ( i ) operating expenses , capital expenditures and revenues between the effective date and the closing date , ( ii ) title and environmental defects , and ( iii ) other purchase price adjustments customary in oil and gas purchase and sale agreements . pursuant to the terms of the shell psa , we paid a deposit into escrow totaling $ 20.0 million , which amount will be applied to the purchase price if the transaction closes . the completion of the acquisition of the west quito draw properties is subject to customary closing conditions . either party may terminate the shell psa if certain closing conditions have not been satisfied , or if the transaction has not closed on or before april 20 , 2018. if one or more of the closing conditions are not satisfied , or if the transaction is otherwise terminated , the acquisition may not be completed . story_separator_special_tag 57 divestiture of east texas eagle ford assets on january 24 , 2017 , certain of our subsidiaries entered into an agreement with a subsidiary of hawkwood energy , llc ( hawkwood ) for the sale of all of our oil and natural gas properties and related assets located in the eagle ford formation of east texas ( the el halcón assets ) for a total adjusted sales price of $ 491.1 million ( the el halcón divestiture ) . the effective date of the el halcón divestiture was january 1 , 2017 , and the transaction closed on march 9 , 2017. we used the net proceeds from the sale to repay amounts outstanding under our senior credit agreement and for general corporate purposes . the el halcón assets included approximately 80,500 net acres prospective for the eagle ford formation in east texas . as of december 31 , 2016 , estimated proved reserves from the el halcón assets were approximately 35.1 mmboe , or 24 % of our estimated year-end 2016 proved reserves . the el halcón assets generated net production of approximately 7,600 boe/d ( 80 % oil ) for the year ended december 31 , 2016. we use the full cost method of accounting for our investment in oil and natural gas properties . under this method of accounting , sales of oil and gas properties 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 proved reserves . if the el halcón divestiture was accounted for as an adjustment of capitalized costs with no gain or loss recognized , the adjustment would have significantly altered the relationship between capitalized costs and proved reserves . accordingly , we recognized a gain on the sale in connection with this transaction of $ 235.7 million during the year ended december 31 , 2017. the carrying value of the properties sold was determined by allocating total capitalized costs within the full cost pool between properties sold and properties retained based on their relative fair values . the gain was recorded in `` gain ( loss ) on sale of oil and natural gas properties , `` on the consolidated statements of operations . private placement of automatically convertible preferred stock on january 24 , 2017 , we entered into a stock purchase agreement with certain accredited investors to sell , in a private placement exempt from the registration requirements of the securities act pursuant to section 4 ( a ) ( 2 ) , approximately 5,518 shares of 8 % automatically convertible preferred stock , par value $ 0.0001 per share ( the preferred stock ) , each share of which was convertible into 10,000 shares of common stock . also on january 24 , 2017 , we received an executed written consent in lieu of a stockholders ' meeting authorizing and approving the conversion of the preferred stock into common stock . on february 27 , 2017 , we issued the preferred stock at $ 72,500 per share . gross proceeds were approximately $ 400.1 million , or $ 7.25 per share of common stock . we incurred approximately $ 11.9 million in expenses associated with this offering , including placement agent fees . we used the net proceeds from the sale of the preferred stock to partially fund the pecos county acquisition , which is discussed further below . on march 16 , 2017 , we mailed a definitive information statement to stockholders of record notifying them that a majority of our stockholders approved the issuance of common stock , par value $ 0.0001 per share , and upon the automatic conversion of the preferred stock , we issued 55.2 million shares of common stock on april 6 , 2017. no cash dividends were paid on the preferred stock since conversion occurred prior to june 1 , 2017. we determined that the conversion feature in the preferred stock represented a beneficial conversion feature of $ 48.0 million . this portion of the proceeds received from the issuance of the preferred stock was allocated to `` additional paid-in capital , `` creating a discount on the preferred stock . the $ 48.0 million discount was fully amortized during the year ended december 31 , 2017 and is reflected in `` non-cash preferred dividend `` in the consolidated statements of operations . the preferred dividend was charged against additional paid-in capital since no retained earnings were available . 58 in accordance with the stock purchase agreement , we agreed to file a registration statement to register the resale of the shares of common stock issued upon conversion of the preferred stock and to pay penalties in the event such registration was not effective by june 27 , 2017. we filed such registration statement on march 3 , 2017 and it was declared effective by the sec on april 7 , 2017. acquisition of hackberry draw assets ( pecos and reeves counties , texas ) on january 18 , 2017 , we entered into an agreement with samson exploration , llc ( samson ) , pursuant to which we acquired a total of 20,901 net acres and related assets in the hackberry draw area of the delaware basin , located in pecos and reeves counties , texas ( collectively , the pecos county assets ) , for a total purchase price of $ 699.2 million ( the pecos county acquisition ) . the effective date of the pecos county acquisition was november 1 , 2016 , and we closed the transaction on february 28 , 2017. based on information provided by samson , we estimate that net production from the pecos county assets at the acquisition date was approximately 2,200 boe/d ( 72 % oil , 15 % ngls , 13 % natural gas ) . as of the acquisition date , we estimate that the pecos county assets included a 75 % average

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cash flow historically , our primary sources of cash were from operating and financing activities . in 2017 , cash generated by operating activities , as well as proceeds from the sale of the williston assets , the non-operated williston assets and the el halcón assets , were used to fund our acquisition initiatives , primarily in the hackberry draw and monument draw areas of the delaware basin and our drilling and completion program . see `` results of operations '' for a review of the impact of prices and volumes on sales . net increase ( decrease ) in cash is summarized as follows ( in thousands ) : replace_table_token_13_th operating activities . net cash provided by operating activities for the year ended december 31 , 2017 was $ 114.6 million . net cash provided by operating activities for the period of september 10 , 2016 through december 31 , 2016 and the period of january 1 , 2016 through september 9 , 2016 were $ 103.1 million and $ 175.3 million , respectively . net cash provided by operating activities was $ 467.0 million for the years ended december 31 , 2015. key drivers of net operating cash flows are commodity prices , production volumes , operating costs , and in 2016 and 2015 , realized settlements on our derivative contracts . the $ 114.6 million of operating cash flows for the year ended december 31 , 2017 were lower than the prior year primarily due to a decrease in realized settlements . realized settlements on derivative contracts decreased $ 312.7 million over the prior year period . our oil and natural gas revenues also decreased approximately $ 42.2 million over the prior year period due to a decrease in our average daily production . average realized prices ( excluding the effects of hedging arrangements ) were $ 37.58 per boe , $ 35.87 per boe and $ 28.53 per boe for the year ended december 31 , 2017 , for the period september 10 , 2016 through december 31 , 2016 and the period of january 1 , 2016 through september 9 , 2016 , respectively .

envestnet | wms 's overlay portfolio management console helps wealth managers efficiently build customized client portfolios that consider both proprietary and open-architecture investment solutions . we believe that our business model results in a high degree of recurring and predictable financial results . revenues overview we earn revenues primarily under two pricing models . first , a majority of our revenues is derived from fees charged as a percentage of the assets that are managed or administered on our technology platform by financial advisors . these revenues are recorded under revenues from assets under management ( “aum” ) or administration ( “aua” ) or collectively ( “aum/a” ) . our asset-based fees vary based on the types of investment solutions and services that financial advisors utilize . asset-based fees accounted for approximately 83 % , 81 % and 81 % of our total revenues for the years ended december 31 , 2013 , 2012 and 2011 , respectively . in future periods , the percentage of our total revenues attributable to asset-based fees is expected to vary based on fluctuations in securities markets , whether we enter into significant license agreements , the mix of aum or aua , and other factors . as of december 31 , 2013 , approximately $ 180 billion of investment assets subject to asset-based fees were managed or administered utilizing our technology platform by approximately 23,000 financial advisors through approximately 740,000 investor accounts . 29 we also generate revenues from recurring , contractual licensing fees for providing access to our technology platform . these revenues are recorded under revenues from licensing and professional services . licensing fees are generally fixed in nature for the contract term and are based on the level of investment solutions and services provided , rather than on the amount of client assets on our technology platform . licensing fees accounted for 15 % , 15 % and 16 % of our total revenues for the years ended december 31 , 2013 , 2012 and 2011 , respectively . fees received in connection with professional services accounted for the remainder of our total revenues . as of december 31 , 2013 , approximately $ 360 billion of investment assets for which we receive licensing fees for utilizing our technology platform were serviced by approximately 7,800 financial advisors through approximately 1,508,000 investor accounts . the following table provides information regarding the amount of assets utilizing our platform technology , investor accounts and financial advisors in the periods indicated . replace_table_token_5_th revenues from assets under management or administration we generally charge our customers fees based on a higher percentage of the market value of aum than the fees we charge on the market value of aua , because we provide fiduciary oversight and or act as the investment advisor in connection with assets we categorize as aum . the level of fees varies based on the nature of the investment solutions and services we provide , as well as the specific investment manager , fund and or custodian chosen by the financial advisor . a portion of our revenues from assets under management or administration include costs paid by us to third parties for sub-advisory , clearing , custody and brokerage services . these expenses are recorded under cost of revenues . we do not have fiduciary responsibility in connection with aua and , therefore , generally charge lower fees on these assets . our fees for aua vary based on the nature of the investment solutions and services we provide . for over 85 % of our revenues from assets under management or administration , we bill customers at the beginning of each quarter based on the market value of customer assets on our platform as of the end of the prior quarter . for example , revenues from assets under management or administration recognized during the fourth quarter of 2013 were primarily based on the market value of assets as of september 30 , 2013. our revenues from assets under management or administration are generally recognized ratably throughout the quarter based on the number of days in the quarter . our revenues from assets under management or administration are affected by the amount of new assets that are added to existing and new client accounts , which we refer to as gross sales . gross sales , from time to time also include conversions of client assets to our technology platform . the amount of assets that are withdrawn from client accounts are referred to as redemptions . we refer to the difference between gross sales and redemptions as net flows . positive net flows indicate that the market value of assets added to client accounts exceeds the market value of assets that have been withdrawn from client accounts . our revenues from assets under management or administration are also affected by changes in the market values of securities held in client accounts due to fluctuations in the securities markets . certain types of securities have historically experienced greater 30 market price fluctuations , such as equity securities , than other securities , such as fixed income securities , though in any given period the type of securities that experience the greatest fluctuations may vary . the following table provides information regarding the degree to which gross sales , redemptions , net flows and changes in the market values of assets contributed to changes in aum or aua in the periods indicated . replace_table_token_6_th during 2013 , we added $ 24.5 billion of conversions included in the above aum/a gross sales figures , and an additional $ 33.6 billion of conversions in licensing . replace_table_token_7_th during 2012 , we added $ 10.4 billion of conversions included in the above aum/a gross sales figures , and an additional $ 13.2 billion of conversions in licensing . story_separator_special_tag the company also derives professional service fees from providing contractual customized platform software development and implementation services , which are recognized under a proportional performance model utilizing an output-based approach . the company 's contracts generally have fixed prices , and generally specify or quantify interim deliverables . our revenue recognition is also affected by our judgment in determining whether collectability is reasonably assured . with regard to allowances for uncollectible receivables , we consider customer-specific information related to delinquent accounts and past loss experience , as well as current economic conditions in establishing the amount of the allowance . purchase accounting during the fourth quarter of 2011 , we completed the acquisition of fundquest for consideration totaling $ 27,796. in the second quarter of 2012 , we completed the acquisitions of prima and tamarac for consideration totaling $ 13,925 and $ 48,427 , respectively . in the third quarter of 2013 , the company completed the acquisition of wms for total consideration of $ 24,730. for more information on the acquisitions see note 3 to the notes to consolidated financial statements . assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires knowledge of current market values , and the values of assets in use , and often requires the application of judgment regarding estimates and assumptions . while the ultimate responsibility resides with management , for material acquisitions , we retain the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities , including intangible assets . acquired intangible assets , excluding goodwill , are valued using a discounted cash flow methodology based on future cash flows specific to the type of intangible asset purchased . this methodology incorporates various estimates and assumptions , the most significant being projected revenue growth rates , margins , and forecasted cash flows based on the discount rate and terminal growth rate . management projects revenue growth rates , margins and cash flows based on the historical operating results of the acquired entity adjusted for synergies anticipated to be achieved through integration , expected future performance , operational strategies , and the general macroeconomic environment . we review finite-lived intangible assets for triggering events such as significant changes in operations , customers or future revenue that might indicate the need to impair the assets acquired or change the useful lives of the assets acquired . there was no impairment or change in useful lives recognized on other intangible assets in 2013 , 2012 or 2011. assumed liabilities are valued based on estimates of anticipated expenditures to be incurred to satisfy the assumed obligations , including contractual liabilities assumed , which require the exercise of professional judgment . assumed contracts may have favorable or unfavorable terms that must be valued as of the acquisition date . such valuation is subject to management judgment regarding the evaluation and interpretation of contract terms in relation to other economic circumstances , such as the market rates for office space leases . if we assume a performance obligation to customers as of the acquisition date , a deferred revenue obligation is recognized . judgment is required to evaluate whether a future performance obligation exists and to assign a value to the performance obligation . estimation of working capital settlement amounts , if not resolved prior to the first reporting period after an acquisition , but before the end of the purchase measurement period , requires exercise of management judgment . we measure these amounts at the acquisition date fair value , if their fair value can be determined during the measurement period . if these estimated working capital settlement amounts are not resolved prior to the first reporting period after acquisition , we recognize the asset or liability if it can be reasonably estimated . subsequent adjustments to these provisional working capital settlement amounts are evaluated by management to determine the proper accounting treatment under relevant authoritative guidance . assumed acquired tax liabilities for uncertain tax positions are dependent on assessing the past practices of the acquisition target based on our review of actual tax filings and information obtained through due diligence procedures . evaluation of the validity of tax positions taken by the acquisition target are subject to management judgment . transaction costs associated with business combinations are expensed as they are incurred . 35 internally developed software costs relating to internally developed software that are incurred in the preliminary stages of development are expensed as incurred . management determines when projects have met the criteria of the application development stage . this typically occurs when the conceptual formulation and evaluation of software functionality are finalized . once work on a software application has passed the preliminary stages , internal and external costs , if direct and incremental , are capitalized until the software application is substantially complete and ready for its intended use . these costs include expenditures related to software design , technical specifications , coding , installation of hardware and parallel testing . we cease capitalizing these costs upon completion of all substantial testing of the software application . we also capitalize costs related to specific upgrades and enhancements of our internally developed software when we conclude that it is probable that the expenditures will result in additional functionality . our maintenance and training costs are expensed as incurred . internally developed software is amortized on a straight-line basis over its estimated useful life . we evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets . there were no impairments to internally developed software during the years ended december 31 , 2013 , 2012 and 2011. non-cash stock-based compensation expense non-cash stock-based compensation expense for stock option and restricted stock grants is estimated at the grant date based on each grant 's fair value , calculated

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liquidity and capital resources as of december 31 , 2013 , we had total cash and cash equivalents of $ 49,942 , compared to $ 29,983 as of december 31 , 2012. we plan to use existing cash as of december 31 , 2013 and cash generated in the ongoing operations of our business to fund our current operations and capital expenditures in 2014 . 45 cash flows the following table presents information regarding our cash flows and cash and cash equivalents for the periods indicated : replace_table_token_17_th operating activities net cash provided by operating activities in 2013 increased by $ 309 compared to 2012 , primarily due to an increase in net income of $ 3,195 in 2013 compared to the prior year period , an increase in depreciation and amortization of $ 2,929 , an increase in stock-based compensation of $ 4,396 , offset by an increase of $ 2,629 in deferred income taxes , an increase of $ 2,030 in excess tax benefits from stock-based compensation and an overall net decrease in the change in operating assets and liabilities of $ 5,498. net cash provided by operating activities in 2012 increased by $ 3,799 compared to 2011 , primarily due to a decrease in net earnings of $ 7,140

r & d expenses decreased to $ 33.6 million in fiscal 2013 from $ 34.5 million in 2012 due to the global consolidation of the project management office , which reduced costs while streamlining reporting processes globally . selling , general and administrative ( “ sg & a ” ) expenses include selling costs directly attributed to the ids and wps segments , as well as administrative expenses including finance , information technology , human resources and legal . sg & a expenses increased to $ 452.2 million in fiscal 2014 compared to $ 427.9 million in fiscal 2013 . the increase was primarily due to incremental sg & a associated with the pdc business of approximately $ 22 million . in addition , the company expanded its sales force in multiple geographies within the ids segment in fiscal 2014 and increased spending in both on-line advertising as well as traditional print advertising within the wps segment . sg & a expense increased to $ 427.9 million in fiscal 2013 compared to $ 392.7 million in fiscal 2012 . the increase was primarily due to the addition of pdc , which also contributed to an incremental $ 6.0 million of amortization of intangible assets . the total increase in sg & a was partially offset by a reduction in variable incentive compensation from fiscal 2012 to fiscal 2013 . 17 in fiscal 2014 , the company announced a restructuring plan to consolidate facilities in north america , europe and asia . the company implemented this restructuring plan to enhance customer service , improve efficiency of operations and reduce operating expenses , with expected annual pre-tax operational savings of approximately $ 10 million . the cash expenditures for these restructuring activities were funded with cash generated from operations . facility consolidation activities will extend into fiscal 2015 as the company slowed certain consolidation activities to ensure the highest levels of quality and delivery throughout the transition , and will result in approximately $ 15 million of additional restructuring charges . in fiscal 2013 , the company announced a restructuring action to reduce its global workforce by approximately 5-7 % in order to address its cost structure . in connection with these restructuring actions , the company incurred restructuring charges of $ 15.0 million in fiscal 2014 . these charges consisted of $ 9.3 million of employee separation costs , $ 4.4 million of facility closure related costs , $ 1.0 million of contract termination costs , and $ 0.3 million of non-cash asset write-offs . the charges for employee separation costs consisted of severance pay , outplacement services , medical and other benefits . non-cash asset write-offs consist mainly of indefinite-lived tradenames written off in conjunction with brand consolidations . of the $ 15.0 million recognized in fiscal 2014 , $ 9.0 million was incurred within the ids segment and $ 6.0 million was incurred within the wps segment . restructuring charges were $ 26.0 million in fiscal 2013 and consisted of employee separation costs , fixed asset write-offs , and other facility closure costs associated with the restructuring plan announced in february 2013 to reorganize into global product-based business platforms and reduce our global cost structure . of the $ 26.0 million recognized in fiscal 2013 , $ 15.8 million was incurred within the ids segment and $ 10.2 million was incurred within the wps segment . restructuring charges were $ 6.1 million in fiscal 2012 and consisted of costs incurred to consolidate facilities within both the ids and wps segments primarily in the americas . the remaining charges related to severance costs associated with a prior year restructuring program . of the $ 6.1 million recognized in fiscal 2012 , $ 4.3 million was incurred within the ids segment and $ 1.8 million was incurred within the wps segment . the company performed its annual goodwill impairment assessment on may 1 , 2014 , and subsequently concluded that the peopleid reporting unit was impaired . in conjunction with the goodwill impairment analysis , management concluded that other finite and indefinite-lived intangible assets within the reporting unit were impaired . refer to the item 7 - business segment operating results as well as note 3 `` goodwill and other intangible assets `` of item 8 for further discussion regarding the impairment charges . impairment charges in continuing operations were $ 148.6 million in fiscal 2014 , which consisted of $ 100.4 million in goodwill and $ 48.2 million in intangible assets primarily associated with the peopleid reporting unit . as a result of the company 's annual goodwill impairment assessment performed in fiscal 2013 , the company concluded that the wps americas and ids apac reporting units were impaired . in conjunction with the goodwill impairment analysis , management also concluded tradenames and certain fixed assets within the reporting units were impaired . impairment charges in continuing operations were $ 204.4 million in fiscal 2013 and consisted of the following : $ 172.3 million in goodwill in the wps americas reporting unit $ 18.2 million in goodwill in the ids apac reporting unit $ 10.6 million in tradenames in the wps segment $ 3.3 million in fixed assets in the ids apac reporting unit operating loss was $ 41.2 million in fiscal 2014 . excluding the impairment charges of $ 148.6 million and restructuring charges of $ 15.0 million , the company generated operating income from continuing operations of $ 122.4 million in fiscal 2014 . the fiscal 2013 operating loss was $ 82.6 million . excluding the impairment charges of $ 204.4 million and restructuring charges of $ 26.0 million , the company generated operating income of $ 147.9 million in fiscal 2013 . the decrease was mainly due to the decline in segment profit of the wps business , which is discussed in further detail within the business segment operating results section . operating loss was $ 82.6 million in fiscal 2013. excluding impairment charges of $ 204.4 story_separator_special_tag in performing the fiscal 2014 annual goodwill impairment assessment , the company completed a sensitivity analysis on the material assumptions used in the discounted cash flow models for each of its reporting units . the fair value was substantially in excess of carrying value for the entire wps segment , however , the company is providing a detailed sensitivity analysis of the wps europe and wps apac reporting units given that the wps strategy remains a key risk in the current fiscal year . the wps americas reporting unit was impaired in the prior year and therefore has an insignificant goodwill balance remaining , as such , a sensitivity analysis was not completed . the fair value of the wps europe and wps apac reporting units were substantially in excess of carrying value at the annual goodwill assessment date of may 1 , 2014 , with goodwill balances of $ 60.3 million and $ 32.8 million , respectively . the company considers a reporting unit 's fair value to be substantially in excess of its carrying value at 20 % or greater . the company prepares a discounted cash flow model and market multiples model to conclude upon fair value as part of its annual goodwill impairment test . in order to arrive at the assumptions for the discounted cash flow analysis completed as part of the annual goodwill impairment test , the company considered multiple factors , including ( a ) macroeconomic conditions , ( b ) industry and market factors such as competition and changes in the market for the reporting unit 's products , ( c ) overall financial performance such as cash flows , actual and planned revenue and profitability , and ( d ) changes in strategy for the reporting unit . the assumption with the most impact on our determination of fair value of both reporting units is profitability . a reduction in the annual profitability assumption by 100 basis points results in a decrease in the amount of fair value in excess of carrying value of 11 % and 9 % for wps europe and wps apac , respectively , but would still result in fair value substantially in excess of carrying value for both reporting units . fiscal 2013 vs. 2012 net sales decreased by 3.7 % from fiscal 2012 to 2013 , which consisted of an organic decline of 7.0 % , currency impact of a negative 0.7 % , and growth from acquisitions of 4.0 % . the company acquired runelandhs and pervaco in europe in may 2012. organic sales in the wps segment declined 7.0 % within all geographies from fiscal 2012 to 2013 , and have declined for the preceding seven quarters . wps apac sales are generated entirely in australia , and have declined for the last four quarters mainly due to the weakness in the australian economy . in the americas and europe , organic sales declined by 5 % and 6 % , respectively . beginning in fiscal 2012 , we experienced a deterioration of this business due to a reduction in direct catalog mailings , increased e-commerce competition , and pricing adjustments . the company continued to modify its strategy to grow this business , which included : investments in e-commerce capabilities , pricing structure changes and expansion of product offerings . segment profit decreased in fiscal 2013 to $ 95.2 million from $ 117.2 million , a decline of $ 22.0 million or 18.8 % . this was primarily due to volume and price declines as a result of increased competition and reduced catalog advertising . in addition , the company redirected some of its investment from the traditional catalog model to e-business , the benefits of which were anticipated to be realized in future fiscal years . since the global economic recession of 2009 , organic growth within the wps americas reporting unit has been difficult to achieve , especially within mature economies such as the u.s. and canada where business-to-business transactions over the internet are more advanced than many of the european and australian markets . with the acceleration of the internet in the business-to- 23 business market , competition and pricing pressure have intensified . as a result , organic sales declined by approximately 7.0 % and segment profit declined by nearly 20 % during fiscal 2013 as compared to fiscal 2012. the company modified its strategy within the wps platform in fiscal 2013 , which included investments in enhanced e-commerce capabilities , expanded product offerings , enhanced industry-specific expertise , and adjustments to pricing strategies . although management believed the strategy modifications would improve organic sales and profitability of the wps platform in future years , there is risk associated with any strategy . as such , the company 's fiscal 2013 annual goodwill impairment analysis ( `` step one `` ) reflected the risk in the strategy and the decline in fiscal 2013 sales and profitability , which occurred during a period of time in which the company was redirecting its investment from the traditional catalog model to e-business . in addition , the rate of decline became more pronounced during the second half of fiscal 2013 and fell short of internal forecasts , resulting in the conclusion that wps americas failed step one , as the resulting fair value was less than the carrying value of the reporting unit . upon completion of the impairment assessment , the company recognized a goodwill impairment charge of $ 172.3 million during fiscal 2013. in conjunction with the goodwill impairment test of the wps americas reporting unit , indefinite-lived tradenames associated with the reporting unit were revalued and analyzed for impairment . as a result , indefinite-lived tradenames in the amount of $ 10.6 million primarily associated with the wps americas reporting unit were impaired during fiscal 2013. liquidity & capital resources cash and cash equivalents were $ 81.8 million at july 31 , 2014 , a decline of $

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net cash used in financing activities was $ 115.4 million during fiscal 2014 , compared to $ 33.1 million during the prior year . in fiscal 2014 , the company used cash to pay dividends of $ 40.5 million , purchased common shares for $ 30.6 million , and made a principal payment of $ 61.3 million on its private placement debt . this was offset primarily by cash proceeds of $ 12.1 million from the issuance of common stock related to stock option exercises during the year . in fiscal 2013 , the company used cash of $ 39.2 million to pay dividends and made a principal payment of $ 61.3 million on its private placement debt . this was offset by cash proceeds of $ 20.3 million from the issuance of common stock related to stock option exercises , and by the borrowing activity from the company 's credit revolver and multi-currency line of credit in china , which provided $ 50.6 million in cash in fiscal 2013. net cash provided by operating activities was $ 143.5 million during fiscal 2013 compared to $ 144.7 million in fiscal 2012 . although there was minimal change in total from fiscal 2012 to 2013 , the cash flow from pre-tax income declined approximately $ 30 million , primarily due to the decline in sales and profits in our wps segment . this was offset by the improvement in working 24 capital of approximately $ 30 million .

the pinnacle acquisition ; and other risks described in our reports filed from time to time with the securities and exchange commission ( the `` sec `` ) . we caution readers not to place undue reliance on any forward-looking statements included in this report , which speak only as of the date of this report . we undertake no responsibility to update these statements , except as required by law . the discussion that follows should be read together with the consolidated financial statements and related notes contained in this report . results for fiscal 2020 are not necessarily indicative of results that may be attained in the future . executive overview conagra brands , inc. ( the `` company `` , `` conagra brands `` , `` we `` , `` us `` , or `` our `` ) , headquartered in chicago , is one of north america 's leading branded food companies . guided by an entrepreneurial spirit , the company combines a rich heritage of making great food with a sharpened focus on innovation . the company 's portfolio is evolving to satisfy people 's changing food preferences . its iconic brands such as birds eye ® , marie callender 's ® , banquet ® , healthy choice ® , slim jim ® , reddi-wip ® , and 22 vlasic ® , as well as emerging brands , including angie 's ® boomchickapop ® , duke 's ® , earth balance ® , gardein ® , and frontera ® , offer choices for every occasion . fiscal 2019 pinnacle acquisition on october 26 , 2018 , we completed our acquisition of pinnacle foods inc ( `` pinnacle `` ) , a branded packaged foods company specializing in shelf-stable and frozen foods . the total amount of consideration paid in connection with the acquisition was approximately $ 8.03 billion , consisting of cash and shares of our stock , as described in more detail in the section entitled `` acquisitions `` below . in connection with the pinnacle acquisition , we issued approximately $ 8.33 billion of long-term debt and received cash proceeds of $ 575.0 million ( $ 555.7 million net of related fees ) from the issuance of common stock in an underwritten public offering . we used such proceeds for the payment of the cash portion of the merger consideration ( as defined below ) , the repayment of pinnacle debt acquired , the refinancing of certain conagra brands debt , and the payment of related fees and expenses . the integration of pinnacle is continuing and on-track . we expect to achieve cost synergies of $ 305 million per year when the integration is concluded . in the first quarter of fiscal 2020 , we reorganized our reporting segments to incorporate the pinnacle operations into our legacy reporting segments in order to better reflect how the business is now being managed . prior periods have been reclassified to conform to the revised segment presentation . fiscal 2020 results fiscal 2020 performance compared to fiscal 2019 reflected an increase in net sales , including the impact of recent acquisitions , with organic ( excludes the impacts of foreign exchange , divested businesses and acquisitions , including the pinnacle acquisition ( until the anniversary date of the acquisitions ) , as well as the impact of the 53 rd week of our fiscal year ) increases in all of our operating segments with the exception of our foodservice segment , in each case compared to fiscal 2019. organic net sales for our retail segments ( inclusive of grocery & snacks , refrigerated & frozen , and international ) were positively impacted by the increase in at-home food consumption as a result of the covid-19 pandemic , with sales declines in our foodservice segment due to lower traffic in away-from-home food outlets . overall gross margin increased with the addition of pinnacle 's gross profit , organic net sales growth , supply chain realized productivity , cost synergies , and the inclusion of the 53rd week of our fiscal year . these benefits were partially offset by higher input and transportation costs , lost profits due to divested businesses , pandemic-related costs , and the impact of foreign exchange rates . overall segment operating profit increased in all of our operating segments with the exception of our foodservice segment . corporate expenses decreased due to items impacting comparability , as discussed below . we experienced a slight decrease in equity method investment earnings , a decrease in income tax expense , and an increase in interest expense , in each case compared to fiscal 2019. diluted earnings per share in fiscal 2020 were $ 1.72. diluted earnings per share in fiscal 2019 were $ 1.52 , including earnings of $ 1.53 per diluted share from continuing operations and a loss of $ 0.01 per diluted share from discontinued operations . diluted earnings per share were affected by higher net income , partially offset by an increase in the number of shares as well as several significant items affecting the comparability of year-over-year results of continuing operations ( see `` items impacting comparability `` below ) . items impacting comparability items of note impacting comparability of results from continuing operations for fiscal 2020 included the following : charges totaling $ 165.5 million ( $ 127.0 million after-tax ) related to the impairment of intangible assets , 23 charges totaling $ 139.5 million ( $ 106.8 million after-tax ) in connection with our restructuring plans , charges totaling $ 59.0 million ( $ 55.0 million after-tax ) related to the impairment of businesses held for sale , an income tax benefit of $ 51.2 million associated primarily related to the reorganization of various legacy pinnacle legal entities and state tax planning strategies , charges totaling $ 42.9 million ( $ 32.1 million after-tax ) related to pension plan lump-sum settlements and a remeasurement of our hourly and story_separator_special_tag million . this amount reflected net losses of $ 4.5 million incurred during the fiscal year ended may 31 , 2020 , as well as net gains of $ 0.4 million incurred prior to fiscal 2020. based on our forecasts of the timing of recognition of the underlying hedged items , we expect to reclassify to segment operating results net losses of $ 2.1 million in fiscal 2021 and $ 2.0 million in fiscal 2022 and thereafter . 27 fiscal 2020 compared to fiscal 2019 net sales replace_table_token_3_th overall , our net sales were $ 11.05 billion in fiscal 2020 , an increase of 16 % compared to fiscal 2019. grocery & snacks net sales for fiscal 2020 were $ 4.62 billion , an increase of $ 693.5 million , or 18 % , compared to fiscal 2019. volume , excluding the impact of acquisitions and divestitures , increased 10 % in fiscal 2020 compared to the prior-year period . this result reflected an increase across multiple categories , primarily in the fourth quarter of fiscal 2020 , as consumers increased their at-home food consumption in connection with the covid-19 pandemic . price/mix decreased 1 % compared to the prior year due to incremental trade and strategic investments with certain customers and brands . the inclusion of an additional week of results in fiscal 2020 accounted for 2 % of the increase in net sales . the acquisition of pinnacle in the second quarter of fiscal 2019 contributed $ 406.3 million , or 10 % , to grocery & snacks net sales during fiscal 2020 , through the one-year anniversary of the acquisition . fiscal 2020 and 2019 included $ 23.1 million and $ 39.5 million , respectively , of net sales related to our private label peanut butter business , which we exited in the third quarter of fiscal 2020. fiscal 2020 and 2019 included $ 46.1 million and $ 59.6 million , respectively , of net sales related to our dsd snacks business , which was sold in the second quarter of fiscal 2020. fiscal 2019 results included $ 115.9 million of net sales related to our wesson ® oil business , which was sold in the fourth quarter of fiscal 2019. refrigerated & frozen net sales for fiscal 2020 were $ 4.56 billion , an increase of $ 824.2 million , or 22 % , compared to fiscal 2019. results for fiscal 2020 reflected a 5 % increase in volume compared to fiscal 2019 , excluding the impact of acquisitions and divestitures . the increase in sales volumes was a result of consumers increasing their at-home food consumption in the fourth quarter of fiscal 2020 in connection with the covid-19 pandemic and new innovation during the current fiscal year . price/mix increased 1 % compared to fiscal 2019. the inclusion of an additional week of results in fiscal 2020 accounted for 2 % of the increase in net sales . the acquisition of pinnacle contributed $ 567.6 million , or 15 % , to refrigerated & frozen net sales for fiscal 2020 , through the one-year anniversary of the acquisition . fiscal 2020 included $ 23.2 million of net sales related to our lender 's ® bagel business , which was sold in the third quarter of fiscal 2020. fiscal 2019 included $ 24.0 million of net sales related to this business . fiscal 2019 also included $ 56.7 million of net sales related to our italian-based frozen pasta business , gelit , which was sold in the fourth quarter of fiscal 2019. international net sales for fiscal 2020 were $ 925.3 million , an increase of $ 60.9 million , or 7 % , compared to fiscal 2019. results for fiscal 2020 reflected a 4 % increase in volume , excluding the impact of acquisitions and divestitures , a 2 % decrease due to foreign exchange rates , a 2 % increase due to the inclusion of an additional week of results , and a 1 % increase in price/mix , in each case compared to fiscal 2019. the volume increases for fiscal 2020 were driven by elevated demand related to the impacts of the covid-19 pandemic , partially offset by lower volumes in india due to the country-wide closure of manufacturing plants and stores during the fourth quarter . the acquisition of pinnacle contributed $ 46.0 million , or 5 % , to international net sales for fiscal 2020 , through the one-year anniversary of the acquisition . fiscal 2019 included $ 17.1 million of net sales related to our divested wesson ® oil business . fiscal 2019 also included $ 4.1 million of net sales related to our del monte ® processed fruit and vegetable business in canada , which was sold in the first quarter of fiscal 2019. foodservice net sales for fiscal 2020 were $ 952.4 million , a decrease of $ 62.6 million , or 6 % , compared to fiscal 2019. results for fiscal 2020 reflected a 13 % decrease in volume , excluding the impact of acquisitions and divestitures . the decline in volume reflected lower restaurant traffic as a result of the covid-19 pandemic and continued execution of the segment 's value-over-volume strategy . price/mix increased 3 % in fiscal 2020 compared to fiscal 2019 , reflecting inflation-related pricing and the value-over-volume strategy . the decrease in net sales was offset by a 1 % increase attributable to an additional week of results in fiscal 2020. the acquisition of pinnacle contributed $ 57.7 million , or 6 % , for fiscal 2020 , through the one-year anniversary of the acquisition . fiscal 2020 and 2019 included $ 6.6 million and $ 6.2 million , respectively , of net sales related to our lender 's ® bagel business , which was sold in the third quarter of fiscal 2020. fiscal 2020 included $ 4.6 million of net sales related to our private label peanut butter business , which we

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cash flows in fiscal 2020 , we generated $ 316.7 million of cash , which was the net result of $ 1.84 billion generated from operating activities , $ 153.8 million used in investing activities , $ 1.37 billion used in financing activities , and a decrease of $ 1.7 million due to the effects of changes in foreign currency exchange rates . cash generated from operating activities of continuing operations totaled $ 1.84 billion in fiscal 2020 , as compared to $ 1.11 billion generated in fiscal 2019. operating cash flows for fiscal 2020 reflected additional operating results from the acquisition of pinnacle and the impact of increased sales from covid-19 pandemic-related demand . the timing of the increased demand in the fourth quarter also created working capital favorability for fiscal 2020 driven primarily by the combination of decreased inventory levels and increased accounts payable balances resulting from longer supplier payment terms . we expect that a significant portion of this working capital favorability will reverse in fiscal 2021 as demand returns to more historic levels . in the fourth quarter of fiscal 2020 , we also improved working capital due to approximately $ 47 million in tax payments that were deferred until the first quarter of fiscal 2021 as a result of recent tax legislation . despite the deferral of such tax payments , we still had $ 44.2 million of additional tax payments in the current year . the above working capital favorability was further offset by a $ 119.0 million increase in interest payments and the comparative impact of cash proceeds from the settlement of interest rate swaps in fiscal 2019 totaling $ 47.5 million . lastly , we extended payment terms with certain foodservice customers ( ranging from 15-30 days ) as a result of the covid-19 pandemic which partly gave rise to an increase in our accounts receivable at year-end .

anabolic agents , like forteo ( teriparatide ) , are used to increase bone mineral density , or bmd , and to reduce the risk of fracture . we believe abaloparatide has the potential to increase bmd and bone quality to a greater degree , at more sites , at a faster rate , and in more patients , than other approved drugs for the treatment of osteoporosis . we are developing two formulations of abaloparatide : abaloparatide-sc is an injectable subcutaneous formulation of abaloparatide . our phase 3 study of abalopartatide-sc is designed to evaluate whether abaloparatide-sc is superior to placebo for prevention of vertebral fracture . the study is also designed to evaluate whether abaloparatide-sc is superior to open-label teriparatide for greater bmd improvement at major skeletal sites and for a lower occurrence of hypercalcemia , a condition in which the calcium level in a patient 's blood is above normal . on december 21 , 2014 , we announced positive top-line data from the phase 3 clinical trial ( active ) of the investigational drug abaloparatide-sc , or the active trial , evaluating the investigational drug abaloparatide-sc for potential use in the reduction of fractures in postmenopausal osteoporosis . on the primary endpoint , abaloparatide-sc ( n=690 , fracture rate 0.72 % ) achieved a statistically significant 83 % reduction of incident vertebral fractures ( defined as new and worsening vertebral fractures ) as compared 81 to the placebo-treated group ( n=711 , fracture rate 4.36 % ) ( p < 0.0001 ) . the active trial included an open-label teriparatide [ rdna origin ] injection treatment group ( n=717 , fracture rate 0.98 % ) that showed a statistically significant 78 % reduction of incident vertebral fractures as compared to the placebo-treated group ( p < 0.0001 ) . on the secondary endpoints , as compared to placebo , abaloparatide-sc achieved : a statistically significant fracture-rate reduction of 43 % in the adjudicated non-vertebral fracture subset of patients ; a statistically significant reduction of 45 % in the adjudicated clinical fracture group , which includes both vertebral and non-vertebral fractures ; and a statistically significant difference in the time to first incident of nonvertebral fracture in both the adjudicated non-vertebral fracture ( p=0.0489 ) and the clinical fracture subset of patients ( p=0.0112 ) . the open-label teriparatide injection treatment group , as compared to placebo , achieved a fracture-rate reduction of 28 % in the adjudicated non-vertebral fracture subset of patients and a reduction of 29 % in the adjudicated clinical fracture group ; these differences were not statistically significantly different as compared to the placebo group . the fracture-rate reduction observed in the abaloparatide-sc treatment group , as compared to open-label teriparatide , was not statistically significant . in january 2015 , the u.s. food and drug administration , or fda , provided us with comments on the draft statistical analysis plan , or sap , that was used for the analysis of the top-line data from the phase 3 clinical trial . in its correspondence , the fda recommended that the primary endpoint of incident vertebral fracture reduction be performed excluding worsening vertebral fractures and including only new vertebral fractures . using the fda-recommended analysis , on the primary endpoint of reduction of new vertebral fractures ( excluding worsening ) , abaloparatide-sc ( n=690 , fracture rate 0.58 % ) achieved a statistically significant 86 % reduction as compared to the placebo-treated group ( n=711 , fracture rate 4.22 % ) ( p < 0.0001 ) . the open-label teriparatide injection treatment group ( n=717 , fracture rate 0.84 % ) showed a statistically significant 80 % reduction of new vertebral fractures ( excluding worsening ) as compared to the placebo-treated group ( p < 0.0001 ) . the fda also recommended , for the secondary endpoint of non-vertebral fractures , that our definition was generally acceptable provided that sternal ( breast bone ) and patellar ( knee cap ) fractures were excluded . in the original top-line data announced for the secondary endpoint of non-vertebral fracture reduction noted above , we had excluded sternum and patella fractures , and abaloparatide-sc ( n=824 , kaplan-meier estimated , or km , fracture rate 2.7 % ) achieved a statistically significant reduction compared to the placebo-treated group ( n=821 , km fracture rate 4.7 % ) , and the hazard ratio for abaloparatide vs. placebo was 0.57 ( p=0.0489 ) ; the open label teriparatide injection treatment group ( n=818 , km fracture rate 3.3 % ) had a hazard ratio of 0.72 ( p=ns ) compared to the placebo-treated group . the fda also recommended , for the secondary endpoint of bone mineral density , or bmd , that we use an analysis of covariance , or ancova , approach with the last observation carried forward for missing data . the mixed-effect model for repeated measures , or mmrm , method , which was used in the bmd secondary endpoint in the top-line data announced in december 2014 , is to be applied for sensitivity analysis . our phase 3 study includes a 6-month extension period in order to obtain 24-months of fracture data , as requested by the fda . patients from the abaloparatide and placebo groups from our phase 3 clinical trial are eligible to continue in an extension study , in which they are receiving an approved alendronate therapy for osteoporosis management . story_separator_special_tag we estimate the fair value of each option using the black-scholes option pricing model that takes into account the fair value of our common stock , the exercise price , the expected life of the option , the expected volatility of our common stock , expected dividends on our common stock , and the risk-free interest rate over the expected life of the option . due to the limited trading history of our common stock since our june 2014 initial public offering , we use the simplified method described in the sec 's staff accounting bulletin no . 107 , share-based payment , to determine the expected life of the option grants . the estimate of expected volatility is based on a review of the historical volatility of similar publicly held companies in the biotechnology field over a period commensurate with the option 's expected term . we have never declared or paid any cash dividends on our common stock and we do not expect to do so in the foreseeable future . accordingly , we use an expected dividend yield of zero . the risk-free rate is based on the u.s. treasury yield curve in effect at the time of grant valuation for a period commensurate with the option 's expected term . these assumptions are highly subjective and changes in them could significantly impact the value of the option and hence the related compensation expense . we apply an estimated forfeiture rate to current period expense to recognize compensation expense only for those awards expected to vest . we estimate forfeitures based upon historical data , adjusted for known trends , and will adjust the estimate of forfeitures if actual forfeitures differ or are expected to differ from such estimates . subsequent changes in estimated forfeitures are recognized through a cumulative adjustment in the period of change and also will impact the amount of stock-based compensation expense in future periods . 87 stock-based compensation expense recognized for options granted to consultants is also based upon the fair value of the options issued , as determined by the black-scholes option pricing model . however , the unvested portion of such option grants is re-measured at each reporting period , until such time as the option is fully vested . fair value measurements we define fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date . we determine fair value based on the assumptions market participants use when pricing the asset or liability . we also use the fair value hierarchy that prioritizes the information used to develop these assumptions . the fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets ( level 1 ) and the lowest priority to unobservable inputs ( level 3 ) . our financial assets and liabilities are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement . the three levels of the fair value hierarchy , and its applicability to our financial assets , are described below : level 1 —unadjusted quoted prices in active markets that are accessible at the measurement date of identical , unrestricted assets . level 2 —quoted prices for similar assets , or inputs that are observable , either directly or indirectly , for substantially the full term through corroboration with observable market data . level 2 includes investments valued at quoted prices adjusted for legal or contractual restrictions specific to the security . level 3 —pricing inputs are unobservable for the asset , that is , inputs that reflect the reporting entity 's own assumptions about the assumptions market participants would use in pricing the asset . level 3 includes private investments that are supported by little or no market activity . as of december 31 , 2014 , we held financial assets that were measured using level 1 and level 2 inputs . as of december 31 , 2013 , we held financial assets and liabilities that were measured using level 1 , level 2 and level 3 inputs . assets measured using level 1 inputs include money market funds , which are valued using quoted market prices with no valuation adjustments applied . assets measured using level 2 inputs include marketable securities that consist primarily of domestic corporate debt securities ( direct issuance bonds , corporate bonds , etc . ) and are valued using third-party pricing resources , which generally use interest rates and yield curves observable at commonly quoted intervals of similar assets as observable inputs for pricing . prior to our initial public offering , assets and liabilities measured using level 3 inputs included our stock asset , stock liability , other liability and warrant liability . the stock asset represented the prepaid balance and the stock liability represented the accrued balance of the research and development expense related to the stock dividends to be issued to nordic in shares of our series a-6 convertible preferred stock ( or in shares of common stock upon listing our common stock on a national exchange ) which is being recognized ratably over the estimated per patient treatment period under the three work statements executed with nordic , or the nordic work statements . the other liability represented the liability to issue shares of our series a-6 convertible preferred stock for services rendered in connection with the nordic work statements . the liability was calculated based upon the number of shares earned by nordic through the performance of clinical trial services multiplied by the estimated fair value of our series a-6 convertible preferred stock at each reporting date . the fair values of the stock asset , stock liability and other liability were based upon the fair value of our series a-6 convertible preferred stock as determined using the probability-weighted expected return method , or

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cash flows from financing activities net cash provided by financing activities for the year ended december 31 , 2014 was $ 142.6 million , as compared to $ 34.7 million of net cash provided by financing activities for the year ended december 31 , 2013. net cash provided by financing activities during the year ended december 31 , 2014 consisted of $ 50.4 million of net proceeds from our initial public offering , $ 53.4 million of net proceeds from our additional public offering that closed october 7 , 2014 , $ 27.4 million of net proceeds from the issuance of our series b-2 convertible preferred stock in february and march of 2014 , and $ 24.6 million of net proceeds from our new credit facility , partially offset by payments under our original credit facility of $ 13.2 million . net cash provided by financing activities for the year ended december 31 , 2013 consisted of $ 42.9 million of net proceeds from the issuance of our series b convertible preferred stock in april and may of 2013 , partially offset by payments under our credit facility of $ 8.2 million . net cash provided by financing activities for the year ended december 31 , 2012 consists of $ 12.5 million of proceeds from our credit facility and $ 0.3 million of net proceeds from stock option exercises , offset by $ 3.5 million of payments on our credit facility . financings sales of common stock on june 11 , 2014 , we completed our initial public offering whereby we sold 6,500,000 shares of our common stock at a price of $ 8.00 per share . the shares began trading on the nasdaq global market on june 6 , 2014. in connection with the completion of the offering , all outstanding shares of our convertible preferred stock converted into 19,465,132 shares of common stock , and 2,862,654 shares of common stock were issued in satisfaction of accumulated dividends accrued on the preferred stock .

57 according to the bank of international settlements ( `` bis `` ) market review for the first half of 2009 , both the otc and exchange-traded derivative markets experienced contraction in 2009 versus the same period in 2008. according to the bis , as of june 30 , 2009 , the latest period reported , notional amounts outstanding for all otc derivatives was $ 604.6 trillion , down 11.6 % compared to $ 683.8 trillion in june 2008 , while the notional amounts outstanding for all exchange traded derivatives was $ 63.4 trillion on june 30 , 2009 , down 22.6 % from $ 82.0 trillion on june 30 , 2008. these declines compare to compound annual growth rates of 32.2 % and 16.5 % for notional amounts outstanding in otc and exchange-traded derivative markets , respectively , from june 30 , 2003 through june 30 , 2008. all otc product categories were down in notional amounts outstanding year-over-year according to the bis study , with credit default swaps down 37.2 % , commodities down 71.8 % , equity-linked derivatives down 35.0 % , foreign exchange derivatives down 22.6 % and interest rate derivatives down 4.6 % . interest rate derivatives represent the largest product category with $ 437.2 trillion outstanding as of june 30 , 2009. similarly , all exchange-traded derivative categories also realized significant declines in notional amounts outstanding year-over-year . we believe that the declines in notional amounts outstanding can be attributed , in large part , to macroeconomic and industry factors such as the general global economic climate , the deleveraging undertaken by certain market participants and regulatory uncertainty . additionally , industry efforts to net derivative exposure , especially in credit derivatives , has been a significant factor in bringing down notional amounts outstanding . except for energy related products , the same general trend was also evidenced by the reduced transactional volumes or slowing growth rate of certain products traded on futures exchanges . for several years , exchange traded derivatives have exhibited similar growth rates to those of related otc derivative markets . in 2009 , the cme reported a year over year decline in average daily volumes of 20 % with interest rate product volumes down 30 % , equity index products down 20 % , metal products down 4 % and energy products ( including cme clearport ) up 4 % . reflecting the increased activity in energy-related products , ice 's otc energy average daily commissions were up 8 % in 2009 compared to the prior year . we believe that the cme clearport and ice products benefited from a shift in trader focus towards the short-end of the maturity curve . ice 's otc credit ( excluding credit derivative clearing ) revenues were down 22.6 % year over year . in addition , newer products and our expansion into growing markets and new geographical areas have historically contributed to the growth in our brokerage revenues . for example , in 2008 and 2009 we invested in our fixed income product brokerage capabilities as the markets shifted in favor of cash products following the credit crisis . additionally , both our chile and dubai offices , which were opened in 2008 , showed significant growth year-over-year . competitive and regulatory environment another major external market factor affecting our business and results of operations is competition , which may take the form of competitive pressure on the commissions we charge for our brokerage services or competition for brokerage personnel with extensive experience in the specialized markets we serve . competition for the services of productive brokers was intense in 2009. in april of 2008 , almost two dozen of our credit division personnel in new york defected to a competitor , notwithstanding that many of them did so in breach of contractual obligations . this event resulted in increased competition , legal expenses and costs related to restaffing our north american credit operations that continued into 2009. the consolidation and personnel layoffs by dealers , hedge funds and other market participants that began in 2008 and continued into the first half of 2009 also led to increased competition to provide brokerage services to a smaller number of market participants in the near term . during 2009 , there was a continuing effort to establish new regulations for the global otc derivatives markets . we believe that the legislative and regulatory proposals for increased transparency , position limits and collateral or capital requirements have caused uncertainty in these markets as 58 market participants await any final regulations . this increased uncertainty in the markets has led investors and banks to commit less capital to many otc markets . nevertheless , we are optimistic that the regulatory solutions that are likely to emerge , including centralized clearing , increased transparency , automation and electronic execution , will be generally beneficial to the long-term health of the broader financial markets . the proposed legislation in the u.s. would require certain otc derivatives to be executed through a registered exchange or `` swap execution facility . `` we believe that we will be able to qualify as a swap execution facility and we believe that our expertise , technology and scale makes us well-positioned to capture any newly created opportunities in these markets . financial overview our results for the last three years reflect the challenging conditions in the financial markets over that time , including unprecedented conditions in the world economy and the financial markets in which we provide our services . our global and product diversification enabled us to take advantage of areas of market strength over this period , even as certain otc derivative markets were negatively affected by the financial crisis . as more fully discussed below , our results of operations are significantly impacted by the amount of our revenues and the amount of compensation and benefits we provide to our employees . story_separator_special_tag we also use the services of stock exchanges and floor brokers to assist in the execution of transactions . fees paid to floor brokers and execution fees paid to exchanges in these circumstances are included in clearing fees . in addition , clearing fees also include fees incurred in certain equity transactions executed on an agency basis . the decrease in interest expense of $ 3.8 million was primarily due to a decrease in the average borrowings outstanding under our credit agreement , as well as lower prevailing interest rates . in addition , we benefited from lower interest expense on balances maintained with clearing organizations . these decreases were partially offset by the full year impact of the increase in the applicable interest rate on our senior notes in july 2008. other expenses decreased $ 5.3 million in 2009 from 2008 due primarily to the $ 3.1 million write-off of an investment in an unconsolidated affiliate during 2008. in addition , there was a decrease in spending on third party licensing fees , a reduction in certain investment losses , and a decrease in net litigation settlements and awards compared to the same period in the prior year , offset by an increase in restructuring costs related to a joint venture and certain software and systems charges . our effective tax rate was 30.0 % for the year ended december 31 , 2009 as compared to 36.0 % for 2008. the reduction in our effective tax rate was primarily due to the shifting of the geographic mix of our earnings for the year ended december 31 , 2009 in favor of jurisdictions with lower tax rates , resulting in a lower aggregate effective tax rate . additionally , the united kingdom lowered its statutory corporate income tax rate from 30 % to 28 % on april 1 , 2008. year ended december 31 , 2008 compared to the year ended december 31 , 2007 net income net income for the year ended december 31 , 2008 was $ 53.1 million as compared to net income of $ 94.9 million for the year ended december 31 , 2007 , a decrease of approximately $ 41.8 million or 44.0 % . total revenues increased by $ 45.0 million , or 4.6 % , to $ 1,015.5 million for the year ended december 31 , 2008 from $ 970.5 million for 2007. our increased revenues were primarily due to increased equity brokerage revenues and the acquisition of trayport , which was partially offset by 66 declines in credit and financial brokerage revenues . revenues declined in the second half of 2008 due to the defection of two dozen north american credit brokers to a competitor in april 2008 , deleveraging in the dealer and hedge fund community , the transfer of our global u.s. dollar interest rate swap business to a third party in the first quarter of 2008 , the brokerage desk restructuring initiative announced in the third quarter 2008 , losses from unsettled trades directly related to the lehman brothers bankruptcy , and uncertainty around the regulatory and operating environment of certain otc markets in the second half of 2008. our total brokerage personnel headcount was 1,037 employees at december 31 , 2008 , equal to that at december 31 , 2007. our brokerage headcount declined in the fourth quarter due to the front office restructuring launched in the third quarter . total expenses increased by $ 112.7 million , or 13.8 % , to $ 932.5 million for 2008 from $ 819.8 million in 2007. expenses increased in large part due to higher sign-on and retention bonus expenses and a higher salary base due to a greater average employee headcount as compared to the same period in 2007. in addition , we recorded a number of non-recurring items in 2008. these items included a $ 12.9 million charge for severance and other expenses related to a front office restructuring initiative that involved closing certain under-performing brokerage desks and reducing headcount by approximately 55 employees , a $ 6.4 million accrual for broker bonus compensation which were paid in cash rather than , as originally contemplated , in restricted stock units , $ 7.8 million in costs related to the abandonment of our offices at 100 wall street and our move to 55 water street in new york , and expense of $ 1.8 million related to discontinued merger discussions . we also wrote-off a $ 3.1 million investment in an unconsolidated affiliate which was deemed to be permanently impaired . clearing fees increased $ 10.7 million to $ 43.4 million for 2008 from $ 32.7 million in 2007 , due in large part to the growth of matched principal brokerage revenues from our cash equities and cash bond businesses . professional fees increased $ 8.3 million , or 46.4 % , primarily due to legal fees regarding the credit broker departures and the discontinued merger discussions . revenues the following table sets forth the changes in revenues for the year ended december 31 , 2008 as compared to the same period in 2007 ( dollars in thousands , except percentage data ) : replace_table_token_11_th * denotes % of total revenues * * denotes % change in 2008 as compared to 2007 brokerage revenues —we offer our brokerage services in four broad product categories : credit , equity , financial , and commodity . below is a discussion on our brokerage revenues by product category for the year ended december 31 , 2008 . 67 broker productivity ( defined as total brokerage revenues during the period divided by average monthly brokerage personnel headcount for the period ) across all product categories decreased by approximately 2.6 % for 2008 , as compared to 2007. the decrease in credit product brokerage revenues of $ 13.3 million in 2008 as compared with 2007 was due to a number of factors , including the defection of nearly two dozen of our north american credit

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liquidity and capital resources throughout the year ended december 31 , 2009 , we have financed our operations primarily through cash flows from operations . our debt consists of amounts outstanding under our credit agreement with bank of america and certain other lenders , which expires on february 24 , 2011 , and pursuant to our senior notes , which mature on january 30 , 2013. in april 2009 , we amended our credit agreement to reduce the maximum permitted borrowings to $ 175.0 million . in addition , we repaid $ 50 million of the outstanding credit agreement balance during 2009. in january 2008 , we completed a private placement of the senior notes . see note 9 to the consolidated financial statements in part ii-item 8 for further details on the amendment to our credit agreement and our senior notes . cash and cash equivalents consist of cash and highly liquid investments with maturities , when purchased , of three months or less . at december 31 , 2009 , we had $ 342.4 million of cash and cash equivalents compared to $ 342.4 million and $ 240.4 million at december 31 , 2008 and 2007 , respectively . the changes to our cash and cash equivalents balances for these periods are due to our operating , investing and financing activities as discussed below . the following table sets forth our cash flows from operating activities , investing activities and financing activities for the indicated periods .

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 ,

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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 .

we plan to resume production of depocyt ( e ) for sales in europe and the united states in the first quarter of 2013 . 66 the selective recall contributed to a reduction in product sales and royalty revenue of depocyt ( e ) in the second half of 2012. though we do not expect new depocyt ( e ) product to be available to the european market until the second quarter of 2013 , we do not currently expect an out of stock situation in either the united states or europe as a result of the interruption in manufacturing of depocyt ( e ) . we also partner with other companies who desire access to our proprietary depofoam extended release drug delivery technology to conduct research , feasibility and formulation work with their products . on december 5 , 2012 we entered into an exclusive license , development and commercialization agreement and related supply agreement with aratana therapeutics , inc , or aratana . under the agreements , we granted aratana an exclusive royalty-bearing license , including the limited right to grant sublicenses , for the development and commercialization of our bupivacaine liposome injectable suspension product for animal health indications . under the agreement , aratana will develop and seek approval for the use of the product in veterinary surgery to manage postsurgical pain , focusing initially on developing it for cats , dogs and other companion animals . in connection with its entry into the agreement , we received a one-time payment of $ 1.0 million and are eligible to receive up to an additional aggregate $ 42.5 million upon the achievement of development and commercial milestones . once the product has been approved by the food and drug administration for sale in the united states , aratana will pay us a tiered double digit royalty on net sales made in the united states . if the product is approved by foreign regulatory agencies for sale outside of the united states , aratana will pay us a tiered double digit royalty on such net sales . royalty rates will be reduced by a certain percentage upon the entry of a generic competitor for animal health indications into a jurisdiction or if aratana must pay royalties to third parties under certain circumstances . on june 29 , 2012 , we received a notice of termination from novo nordisk as , or novo , of a development and license agreement , dated january 14 , 2011. pursuant to the terms of the agreement , the termination of the agreement is effective 60 days from the date of the notice , or august 28 , 2012. under the agreement , we granted exclusive rights to novo under certain of our patents and know-how to develop , manufacture and commercialize formulations of a novo proprietary drug using our depofoam drug delivery technology . the agreement was terminated due to novo 's decision to discontinue development of the proprietary drug subject to the agreement . as a result , our future collaborative licensing and development revenue may be negatively impacted . on january 3 , 2012 , ekr therapeutics , inc. , or ekr , delivered a notice to us to terminate the licensing , distribution and marketing agreement relating to depodur . pursuant to the terms of the agreement , the termination of the agreement was effective 180 days from the date of the notice , or july 1 , 2012. the associated supply agreement also terminated concurrently with the termination of the licensing , distribution and marketing agreement . both parties agreed to terminate the agreements effective june 8 , 2012. as a result of the termination , we recognized any unamortized deferred revenue relating to the agreement on a straight-line basis through the termination date in june 2012. the nda for depodur was also withdrawn and we do not expect any future depodur sales . since inception , we have incurred significant operating losses . we expect to continue to incur significant expenses as we commercialize exparel and advance the development of product candidates , seek fda approval for our product candidates that successfully complete clinical trials and develop our sales force and marketing capabilities to prepare for their commercial launch . we also expect to incur additional expenses to add operational , financial and management information systems and personnel , including personnel to support our product development efforts and our obligations as a public reporting company . for us to become and remain profitable , we believe that we must succeed in commercializing exparel or other product candidates with significant market potential . 67 recent developments convertible notes on january 23 , 2013 , we completed a private offering of $ 120.0 million in aggregate principal amount of 3.25 % convertible senior notes due 2019 , or notes , and entered into an indenture with wells fargo bank , national association , a national banking association , as trustee , governing the notes . the net proceeds from the offering , including net proceeds from the exercise in full by the initial purchasers of their option to purchase an additional $ 10.0 million in aggregate principal amount of the notes , are approximately $ 115.3 million , after deducting the initial purchasers ' discounts and commissions and the estimated offering expenses payable by us . the notes accrue interest at 3.25 % per year , payable semiannually in arrears on february 1 and august 1 of each year , beginning on august 1 , 2013 and will mature on february 1 , 2019. we used $ 30.1 million of the net proceeds from the offering of the notes to repay in full our $ 27.5 million credit facility with oxford finance llc . story_separator_special_tag since our initial public offering , we utilize our available historic volatility data combined with the publicly traded peer 's historic volatility to determine expected volatility over the expected option term . the peer group was developed based on companies in the pharmaceutical and biotechnology industry in a similar stage of development . expected term —we elected to utilize the `` simplified `` method for `` plain vanilla `` options to estimate the expected term of stock option grants . under this approach , the weighted average expected life is presumed to be the average of the vesting term and the contractual term of the option . risk-free interest rate —the risk-free interest rate assumption was based on zero coupon u.s. department of the treasury instruments that had terms consistent with the expected term of our stock option grants . expected dividend yield —we have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future . 73 results of operations comparison of years ended december 31 , 2012 , 2011 and 2010 revenues the following table provides information regarding our revenues during the periods indicated , including changes as a percentage ( dollar amounts in thousands ) : replace_table_token_4_th total revenues increased $ 23.4 million , or 149 % , in the year ended december 31 , 2012 as compared to 2011. net product sales increased $ 11.3 million , or 164 % , in the year ended december 31 , 2012 as compared to 2011. in april 2012 , we commercially launched exparel resulting in $ 14.6 million of net product sales during 2012. we report product sales net of allowances for sales returns , prompt pay discounts , volume rebates and distribution service fees payable to wholesalers . we ship products directly to the end user based on orders placed to wholesalers or directly to us and have no product held by wholesalers . the increase in exparel product sales was partially offset by a $ 3.3 million decrease in depocyt ( e ) product sales primarily driven by a selective recall of depocyt ( e ) recommended by the european medicines agency for european union member countries where depocyt ( e ) is not considered to be an `` essential medicinal product . `` the increase in collaborative licensing and development revenue of $ 13.3 million , or 262 % , in the year ended december 31 , 2012 as compared to 2011 was primarily driven by the recognition of deferred revenue in connection with the termination of certain licensing agreements , which included increases of ( i ) $ 10.7 million for ekr , ( ii ) $ 1.1 million for novo nordisk and ( iii ) $ 1.5 million for flynn pharma . we recognized any unamortized deferred revenue related to any milestones received under these agreements over the remaining contract periods , which ended in 2012. royalty revenue decreased $ 1.2 million , or 33 % , in the year ended december 31 , 2012 as compared to 2011 due to lower end user sales by our commercial partners due to the selective recall of depocyt ( e ) in europe . total revenues increased $ 1.1 million , or 8 % , in the year ended december 31 , 2011 as compared to 2010. this increase was attributable to a $ 1.9 million increase in collaborative licensing and development revenue primarily due to activities performed under the novo agreement , which was signed in january 2011. during 2011 , we received an up-front one-time payment of $ 1.5 million and a milestone payment of $ 2.0 million from novo , which were both deferred and recognized on a straight line basis over the expected contract period . this increase was partially offset by a $ 0.7 million decrease in net product sales due to the lower number of depodur lots sold to our commercial partners . 74 cost of revenues the following table provides information regarding our cost of revenues during the periods indicated , including changes as a percentage ( dollar amounts in thousands ) : replace_table_token_5_th total cost of revenues increased $ 15.4 million , or 92 % in the year ended december 31 , 2012 as compared to 2011. cost of goods sold increased by $ 16.4 million primarily due to ( i ) the cost of goods for exparel sales which we commercially launched in april 2012 , ( ii ) approximately $ 3.2 million of expense for the voluntary but non-routine shutdown periods of the exparel manufacturing site for repairs and maintenance and deployment of new manufacturing skids for our suite c manufacturing expansion project , ( iii ) $ 1.3 million charge for corrective actions taken on the depocyt ( e ) manufacturing line based on the remediation plan , inventory replacement and reserve costs due to action taken by the european medicines agency and ( iv ) exparel production costs , which were expensed as incurred until march 2012 when the first commercial batch was produced . we have a substantial level of infrastructure cost relating to running two cgmp facilities and any extended or non-routine shutdown results in these costs being charged directly to cost of goods sold . cost of collaborative licensing and development revenue decreased by $ 1.0 million in the year ended december 31 , 2012 as compared to 2011 due to decreased services performed under the novo agreement for which we received a notice of termination in june 2012. total cost of revenues increased $ 4.5 million , or 36 % in the year ended december 31 , 2011 as compared to 2010. the increase was primarily driven by excess capacity relating to running two cgmp facilities that have a substantial level of infrastructure cost , including the exparel production line which went into service during the fourth quarter of 2011 with all operating costs expensed as incurred due to commercial

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liquidity and capital resources since our inception in 2007 , we have devoted most of our cash resources to manufacturing , research and development and selling , general and administrative activities primarily related to the development of exparel . we have financed our operations primarily with the proceeds from the sale of convertible preferred stock and common stock , secured and unsecured notes and borrowings under debt facilities , product sales , collaborative licensing and development revenue and royalty revenue . in april 2012 , we sold 6,900,000 shares of common stock at a price of $ 9.75 per share in a registered public offering , which includes the underwriter 's exercise of the overallotment option . we raised approximately $ 62.9 million in net proceeds after deducting underwriting discounts and offering expenses . 78 we have generated limited revenue , and we are highly dependent on the commercial success of exparel , which we commercially launched in april 2012. we have incurred losses and generated negative cash flows from operations since inception . as of december 31 , 2012 , we had an accumulated deficit of $ 232.5 million , cash and cash equivalents , restricted cash and short-term investments of $ 42.6 million and working capital of $ 46.8 million . the following table summarizes our cash flows from operating , investing and financing activities for the years ended december 31 , 2012 , 2011 , and 2010 ( in thousands ) : replace_table_token_9_th operating activities for the years ended december 31 , 2012 , 2011 and 2010 , our net cash used in operating activities was $ 70.1 million , $ 31.0 million and $ 24.9 million , respectively .

outside of the u.s. , the worldwide rig count at the end of 2013 was up versus the end of 2012 , while activity in certain parts of the world such as west africa , east africa , the middle east and the asia pacific region continued to exhibit some strength . 16 as a result of slow global economic growth from 2009 through 2013 , in conjunction with moderate commodity prices , our clients did not materially increase their activity levels . in spite of this , our revenue increased more than 9 % over 2012 , with operating income increasing over 12 % . results of operations results of operations as a percentage of applicable revenue are as follows ( dollars in thousands ) : replace_table_token_3_th operating results for the year ended december 31 , 2013 compared to the years ended december 31 , 2012 and 2011 we evaluate our operating results by analyzing revenue , operating income and net income margin ( defined as net income divided by total revenue ) . since we have a relatively fixed cost structure , increases in revenue generally translate into higher operating income results as well as net income margin percentages . results for the years ended december 31 , 2013 , 2012 and 2011 are summarized in the following chart : 17 income and margin analysis services revenue services revenue increased to $ 765.4 million for 2013 from $ 693.9 million for 2012 and $ 621.8 million for 2011 . the increase in services revenue from 2012 to 2013 was primarily due to our continued focus on existing fields and fields under development , as opposed to increasingly volatile and downward trends in exploration efforts . the increase in services revenue from 2011 to 2012 was primarily due to our continued focus on worldwide crude-oil related and large natural gas plays for liquefaction projects , especially those related to the development of deepwater fields offshore west and east africa , eastern south america , the eastern mediterranean , and the gulf of mexico . product sales revenue product sales revenue increased to $ 308.1 million for 2013 , from $ 287.2 million for 2012 and $ 285.9 million for 2011 . the increase in revenue from 2012 to 2013 , was driven primarily by the continued successful introduction of new technologies such as our new completion systems for optimizing completions and stimulations of horizontal wells , including our htd-blast tm and kodiak tm enhanced perforating systems , and our permanent reservoir monitoring systems , primarily in the canadian market . the increase in revenue from 2011 to 2012 was due to greater market penetration of our patented and proprietary completion systems . cost of services , excluding depreciation cost of services increased to $ 445.0 million for 2013 from $ 413.1 million for 2012 and $ 395.3 million for 2011 . as a percentage of services revenue , cost of services decreased to 58.1 % in 2013 from 59.5 % in 2012 and 63.6 % in 2011 . the 18 margin improvement is a result of higher sales , including a better mix of projects aimed at more complex reservoirs , over the fixed cost structure . cost of product sales , excluding depreciation cost of product sales increased to $ 218.0 million for 2013 from $ 208.7 million for 2012 and $ 198.1 million for 2011 . as a percentage of product sales revenue , cost of sales decreased to 70.8 % for 2013 compared to 72.7 % for 2012 and up from 69.3 % for 2011 . the decrease in cost of sales as a percentage of product sales revenue was primarily due to the growing demand for our new technologies which led to an overall increase in sales , which improved absorption of our fixed cost structure . the increase in cost of sales as a percentage of product sales revenue in 2012 , as compared to 2011 , was primarily due to the substantial increase in the cost of raw materials , especially specialty steel , in the second half of 2011 which increased our cost of product sales in 2012 as these raw materials were converted to finished goods which were subsequently sold . general and administrative expense general and administrative expenses include corporate management and centralized administrative services that benefit our operations . general and administrative expenses were $ 52.0 million for 2013 , which represents 4.8 % of revenue , a slight increase compared to 4.4 % of revenue in 2012 . general and administrative expenses as a percent of revenue were 4.5 % in 2011 . the increase during 2013 was primarily attributable to increases in compensation costs , including variable compensation . depreciation and amortization expense depreciation and amortization expense of $ 25.5 million increased by $ 2.6 million in 2013 compared to 2012 , after decreasing by $ 0.4 million in 2012 compared to 2011 . the increase during 2013 is a result of growth in our client-directed capex program resulting from continued improvement in industry activity , particularly internationally and in the deepwater environment . other income , net the components of other income , net , were as follows ( in thousands ) : replace_table_token_4_th we incurred property losses during hurricane isaac in 2012. during 2013 , our insurance claim for property losses and business interruption was fully settled for a gain of $ 1.6 million . during 2012 , we incurred legal , accounting and other fees in connection with the realignment of certain of our legal entities into a more cost effective structure and the listing of our shares on the nyse euronext amsterdam . as a result of a supply disruption in 2011 from a key vendor that provided certain high performance specialty steel tubulars used with the company 's perforating systems , we filed a claim under our business interruption insurance policy which was fully settled during 2012 for $ 4.4 million . story_separator_special_tag intangibles with indeterminable lives , which consist primarily of corporate trade names , are not amortized , but are tested for impairment annually or whenever events or changes in circumstances indicate that impairment is possible . we review our long-lived assets , including definite-lived intangible assets , for impairment when events or changes in circumstances indicate that their net book value may not be recovered over their remaining service lives . indicators of possible 25 impairment may include significant declines in activity levels in regions where specific assets or groups of assets are located , extended periods of idle use , declining revenue or cash flow or overall changes in general market conditions . whenever possible impairment is indicated , we compare the carrying value of the assets to the sum of the estimated undiscounted future cash flows expected from use , plus salvage value , less the costs of the subsequent disposition of the assets . if impairment is still indicated , we compare the fair value of the assets to the carrying amount , and recognize an impairment loss for the amount by which the carrying value exceeds the fair value . we did not record any material impairment charges relating to our long-lived assets held for use during the years ended december 31 , 2013 , 2012 and 2011 . we record goodwill as the excess of the purchase price over the fair value of the net assets acquired in acquisitions accounted for under the purchase method of accounting . we test goodwill for impairment annually , or more frequently if circumstances indicate a possible impairment . we evaluated our goodwill for impairment by comparing the fair value of each of our reporting units , which are our reportable segments , to their net carrying value as of the balance sheet date . we estimated the fair value of each reporting unit using a discounted future cash flow analysis . estimated future cash flows were based on the company 's best estimate of future performance . our impairment analysis is quantitative ; however , it includes subjective estimates based on assumptions regarding future growth rates , interest rates and operating expenses . if the carrying value of the reporting unit exceeds the fair value determined , an impairment loss is recorded to the extent that the implied fair value of the goodwill of the reporting unit is less than its carrying value . we did not record impairment charges relating to our goodwill or our indefinite-lived intangible assets during the years ended december 31 , 2013 , 2012 and 2011 . we have never identified nor recorded any impairments relating to the goodwill of our current continuing operations . obsolete inventory we forecast client demand , considering changes in technology which could result in obsolescence . our valuation reserve for obsolete inventory is based on historical regional sales trends , and various other assumptions and judgments including future demand for this inventory . our industry is subject to technological change and new product development that could result in obsolete inventory . our valuation reserve for obsolete inventory at december 31 , 2013 was $ 2.9 million compared to $ 3.3 million at december 31 , 2012 . pensions and other postretirement benefits we maintain a noncontributory defined benefit pension plan for substantially all of our dutch employees hired before 2007. we utilize an actuary to assist in determining the value of the projected benefit obligation . this valuation requires various estimates and assumptions concerning mortality , future pay increases , expected return on plan assets and discount rate used to value our obligations . we recognize net periodic benefit cost based upon these estimates . as required by current accounting standards , we recognize net periodic pension costs associated with this plan in income from current operations and recognize the unfunded status of the plan , if any , as a long-term liability . in addition , we recognize as a component of other comprehensive income , the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic pension cost . see note 10 pensions and other postretirement benefit plans . furthermore , we sponsor several defined contribution plans for the benefit of our employees . we expense these contributions in the period the contribution is made . stock-based compensation we have two stock-based compensation plans , as described in further detail in note 13 to our consolidated financial statements . we evaluate the probability that certain of our stock-based plans will meet targets established within the respective agreements and result in the vesting of such awards . in addition , we derive an estimated forfeiture rate that is used in calculating the expense for these awards . for new awards issued and awards modified , repurchased or canceled , the compensation expense is equal to the fair value of the award at the date of the grant and is recognized in the consolidated statement of operations for those awards earned over the requisite service period of the award . the fair value is determined by calculating the discounted value of the shares over the vesting period and applying an estimated forfeiture rate . off-balance sheet arrangements 26 other than normal operating leases , we do not have any off-balance sheet financing arrangements such as securitization agreements , liquidity trust vehicles , synthetic leases or special purpose entities . as such , we are not materially exposed to any financing , liquidity , market or credit risk that could arise if we had engaged in such financing arrangements . forward-looking statements this form 10-k and the documents incorporated in this form 10-k by reference contain forward-looking statements within the meaning of section 27a of the securities act of 1933 and section 21e of the exchange act . these `` forward-looking statements `` are based on an analysis of currently available competitive , financial and

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cash flows the following table summarizes cash flows for the years ended december 31 , 2013 , 2012 and 2011 ( in thousands ) : 22 replace_table_token_8_th the increase in cash flow from operating activities in 2013 compared to 2012 was primarily due to an increase in net income and a decrease to income tax receivables , while the increase in 2012 compared to 2011 was attributable to increased net income . cash flow used in investing activities increased $ 9.2 million in 2013 over 2012 primarily due to an increase in capital expenditures and an increase in the premiums on life insurance policies and decreased $ 18.0 million in 2012 over 2011 as a result of an acquisition in 2011. cash flow used in financing activities in 2013 increased $ 35.8 million compared to 2012 . cash flow used in financing activities in 2012 decreased $ 43.4 million compared to 2011 . during 2013 , we spent $ 227.2 million to repurchase our common shares and $ 58.6 million to pay dividends , offset by a net increase in our debt balance of $ 33.0 million . during 2012 , we spent $ 175.7 million to repurchase our common shares and $ 52.9 million to pay dividends , offset by a net increase in our debt balance of $ 11.0 million . during 2011 , we spent $ 61.8 million to repurchase our common shares , $ 46.0 million to pay dividends and $ 219.4 million to settle our warrants , offset by a net increase of $ 73.0 million in the balance of our credit facility . during the year ended december 31 , 2013 , we repurchased 1,482,198 shares of our common stock for an aggregate amount of $ 227.2 million , or an average price of $ 153.30 per share .

we defer recognition of profit on projects until there is sufficient information to determine the estimated profit on the project with a reasonable level of certainty and our profit recognition is based on estimates that may change over time . our revenue , gross margin and cash flows can differ significantly from period to period due to a variety of factors , including the projects ' stage of completion , the mix of early and late stage projects , our estimates of contract costs , outstanding contract change orders and claims and the payment terms of our contracts . the timing differences between our cash inflows and outflows require us to maintain adequate levels of working capital . 23 the four primary economic drivers of our business are ( 1 ) the overall health of the economy ; ( 2 ) federal , state and local public funding levels ; ( 3 ) population growth resulting in public and private development ; and ( 4 ) the need to replace or repair aging infrastructure . a stagnant or declining economy will generally result in reduced demand for construction and construction materials in the private sector . this reduced demand increases competition for private sector projects and will ultimately also increase competition in the public sector as companies migrate from bidding on scarce private sector work to projects in the public sector . greater competition can reduce our revenues and or have a downward impact on our gross profit margins . in addition , a stagnant or declining economy tends to produce less tax revenue for public agencies , thereby decreasing a source of funds available for spending on public infrastructure improvements . some funding sources that have been specifically earmarked for infrastructure spending , such as diesel and gasoline taxes , are not as directly affected by a stagnant or declining economy , unless actual consumption is reduced . however , even these can be temporarily at risk as federal , state and local governments take actions to balance their budgets . additionally , high fuel prices and more fuel efficient vehicles can have a dampening effect on consumption , resulting in overall lower tax revenue . conversely , increased levels of public funding as well as an expanding or robust economy will generally increase demand for our services and provide opportunities for revenue growth and margin improvement . critical accounting policies and estimates the financial statements included in “ item 8. financial statements and supplementary data ” have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . our estimates , judgments and assumptions are continually evaluated based on available information and experiences ; however , actual amounts could differ from those estimates . the following are accounting policies and estimates that involve significant management judgment and can have significant effects on the company 's reported results of operations . the audit & compliance committee of our board of directors has reviewed our disclosure of critical accounting policies and estimates . revenue and earnings recognition for construction contracts revenue and earnings on construction contracts , including construction joint ventures , are recognized under the percentage of completion method using the ratio of costs incurred to estimated total costs . revenue in an amount equal to cost incurred is recognized until there is sufficient information to determine the estimated profit on the project with a reasonable level of certainty . the factors considered in this evaluation include the stage of design completion , the stage of construction completion , the status of outstanding subcontracts or buyouts , certainty of quantities of labor and materials , certainty of schedule and the relationship with the owner . revenue from affirmative contract claims is recognized when we have a signed agreement and payment is assured . revenue from unapproved change orders is recognized to the extent the related costs have been incurred , the amount can be reliably estimated and recovery is probable , which is often when the owner has agreed to the change order in writing . provisions are recognized in the consolidated statements of operations for the full amount of estimated losses on uncompleted contracts whenever evidence indicates that the estimated total cost of a contract exceeds its estimated total revenue . all contract costs , including those associated with affirmative claims and unapproved change orders , are recorded as incurred and revisions to estimated total costs are reflected as soon as the obligation to perform exists . contract costs consist of direct costs on contracts , including labor and materials , amounts payable to subcontractors , direct overhead costs and equipment expense ( primarily depreciation , fuel , maintenance and repairs ) . all state and federal government contracts and many of our other contracts provide for termination of the contract at the convenience of the party contracting with us , with provisions to pay us for work performed through the date of termination . the accuracy of our revenue and profit recognition in a given period is dependent on the accuracy of our estimates of the cost to complete each project . cost estimates for all of our significant projects use a detailed “ bottom up ” approach and we believe our experience and process allows us to provide materially reliable estimates . however , there are a number of factors that can contribute to changes in estimates of contract cost and profitability . story_separator_special_tag future revisions to these estimated losses will be recorded in the periods in which the revisions are made . 31 gross profit the following table presents gross profit by business segment for the respective periods : replace_table_token_15_th construction gross profit in 2014 increased $ 12.5 million , or 11.8 % , compared to 2013 . construction gross margin as a percentage of segment revenue for 2014 increased to 10.0 % from 8.5 % in 2013 . improved project efficiency resulting from better utilization of vertically integrated construction materials partially offset the decline in revenue volume . large project construction gross profit in 2014 increased $ 40.8 million , or 56.8 % , compared to 2013 . large project construction gross margin as a percentage of segment revenue for 2014 increased to 13.6 % from 9.2 % in 2013 . the increases were due to increased revenue volume , claims settlements and an increase in the timing of recognition of deferred profit . construction materials gross profit in 2014 increased $ 11.8 million , or 166.6 % , compared to 2013 . construction materials gross margin as a percentage of segment revenue for 2014 increased to 7.2 % from 3.0 % in 2013 . the increases were primarily due to operating cost reductions in both the california and northwest groups enhanced by improved sales volumes and pricing . revenue in an amount equal to cost incurred is recognized until there is sufficient information to determine the estimated profit on the project with a reasonable level of certainty . gross profit can vary significantly in periods where previously deferred profit is recognized on one or more projects or , conversely , if we have outstanding claims that are not resolved or executed , in periods where contract backlog is growing rapidly and or a higher percentage of projects are in their early stages with no associated gross profit recognition . the following table presents revenue from projects that have not yet recognized profit : replace_table_token_16_th when we experience significant changes in our estimates of costs to complete , we undergo a process that includes reviewing the nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as revisions in estimates for the current period . in our review of these changes for the years ended december 31 , 2014 , 2013 and 2012 , we did not identify any material amounts that should have been recorded in a prior period . unresolved contract modifications and claims to recover additional compensation for unanticipated additional costs to which the company believes it is entitled under the terms of the projects ' contracts are pending or have been submitted on certain projects . the projects ' owners or their authorized representatives and or other third parties may be in partial or full agreement with the request or proposed modification , or may have rejected or disagree entirely as to such entitlement . the potential gross profit impact of recoveries for contract modifications and claims may be material in future periods when claims , or a portion of such claims , against customers become probable and estimable or when claims against other third parties are settled . in addition , the company may incur additional costs when pursuing such potential recoveries . 32 selling , general and administrative expenses the following table presents the components of selling , general and administrative expenses for the respective periods : replace_table_token_17_th selling , general and administrative expenses for 2014 increased $ 3.9 million , or 1.9 % , compared to 2013 . selling expenses selling expenses include the costs for materials facility permits , business development , estimating and bidding . selling expenses can vary depending on the volume of projects in process and the number of employees assigned to estimating and bidding activities . as projects are completed or the volume of work slows down , we temporarily redeploy project employees to bid on new projects , moving their salaries and related costs from cost of revenue to selling expenses . selling expenses for 2014 increased $ 5.0 million , or 10.9 % , compared to 2013 . the increases were primarily due to increased bidding activity . general and administrative expenses general and administrative expenses include costs related to our operational offices that are not allocated to direct contract costs and expenses related to our corporate functions . these costs include variable cash and restricted stock performance-based incentives for select management personnel on which our compensation strategy heavily relies . the cash portion of these incentives is expensed when earned while the restricted stock portion is expensed as earned over the vesting period of the restricted stock award ( generally three years ) . other general and administrative expenses include travel and entertainment , outside services , information technology , depreciation , occupancy , training , office supplies , changes in the fair market value of our non-qualified deferred compensation plan liability and other miscellaneous expenses , none of which individually exceeded 10 % of total general and administrative expenses . total general and administrative expenses for 2014 remained relatively flat compared to 2013 . 33 restructuring and impairment ( gains ) charges , net the following table presents the components of restructuring and impairment ( gains ) charges , net during the respective periods ( in thousands ) : replace_table_token_18_th in 2010 , we announced our eip , which included actions to reduce our cost structure , enhance operating efficiencies and strengthen our business to achieve long-term profitable growth . the majority of restructuring charges associated with the eip were recorded in 2010. in 2011 , development activities were curtailed for the majority of our real estate development projects as divestiture efforts increased , and we recorded $ 1.5 million in additional restructuring charges associated with the sale or other disposition of three separate projects located in california . during 2012 , we

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debt and contractual obligations the following table summarizes our significant obligations outstanding as of december 31 , 2014 : replace_table_token_25_th 1 included in the “ 1 - 3 years ” category in the table above is $ 40.0 million related to the first installment of the 2019 notes ( defined in senior notes payable section below ) that we have the intent and ability to refinance using our revolving credit facility or other source of financing . 2 included in the total is $ 0.4 million related to mortgages , the terms of which include a 6.00 % variable interest rate at december 31 , 2014 . also included in this balance is $ 4.8 million interest related to borrowings under our revolving credit facility , the terms of which include a variable interest rate that was 2.76 % at december 31 , 2014 using libor . in addition , included in the total is $ 36.7 million in interest related to borrowings under our senior notes , respectively , the terms of which include a 6.11 % per annum interest rate . the future payments were calculated using rates in effect as of december 31 , 2014 and may differ from actual results . see note 12 of “ notes to the consolidated financial statements. ” 3 these obligations represent the minimum rental commitments and minimum royalty requirements under all noncancellable operating leases . see note 18 of “ notes to the consolidated financial statements. ” 4 these obligations represent firm purchase commitments for equipment and other goods and services not connected with our construction contract backlog which are individually greater than $ 10,000 and have an expected fulfillment date after december 31 , 2014 . 5 the timing of expected payment of deferred compensation is based on estimated dates of retirement . actual dates of retirement could be different and could cause the timing of payments to change . 6 asset retirement obligations represent reclamation and other related costs associated with our owned and leased quarry properties , the majority of which have an estimated settlement date beyond five years ( see note 8 of “ notes to the consolidated financial statements ” ) .

these initiatives are designed to reduce costs associated with direct materials , indirect expenses , distribution and logistics , and advertising and promotional materials , among other things , and encompass a wide range of projects , examples of which include raw material substitution , reduction of packaging materials , consolidating suppliers to leverage volumes and increasing manufacturing efficiency through sku reductions and formulation simplification . the company also continues to prioritize its investments toward its higher margin businesses , specifically oral care , personal care and pet nutrition . 18 ( dollars in millions except per share amounts ) significant items impacting comparability on december 22 , 2017 , the tax cuts and jobs act ( the “ tcja ” or “ u.s . tax reform ” ) was enacted , which , among other things , lowered the u.s. corporate income tax rate to 21 % from 35 % and established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed earnings of foreign subsidiaries . beginning in 2018 , the tcja also requires a minimum tax on certain future earnings generated by foreign subsidiaries while providing for future tax-free repatriation of such earnings through a 100 % dividends-received deduction . the company recorded a provisional charge of $ 275 based on its initial analysis of the tcja using available information and estimates . as a result , applicable u.s. and foreign taxes have been provided on substantially all of the company 's accumulated earnings of foreign subsidiaries previously considered indefinitely reinvested . given the significant complexity of the tcja , anticipated guidance from the u.s. treasury about implementing the tcja and the potential for additional guidance from the sec or the fasb related to the tcja or additional information becoming available , the company 's provisional charge may be adjusted during 2018 and is expected to be finalized no later than the fourth quarter of 2018. other provisions of the tcja that impact future tax years are still being assessed . refer to “ results of operations – income taxes ” below for additional details . in september 2016 , the company 's mexican subsidiary completed the sale to the united states of america of the mexico city site on which its commercial operations , technology center and soap production facility were previously located and received $ 60 as the third and final installment of the sale price . the total sale price ( including the third installment and the previously received first and second installments ) was $ 120 . the company recognized a pretax gain of $ 97 ( $ 63 aftertax gain ) in the third quarter of 2016 , net of costs primarily related to site preparation . in august 2015 , the company completed the sale of its laundry detergent business in the south pacific to henkel ag & co. kgaa for an aggregate purchase price of approximately 310 australian dollars ( $ 221 ) and recorded a pretax gain of $ 187 ( $ 120 aftertax or $ 0.13 per diluted share ) in other ( income ) expense , net . the gain is net of charges related to the right-sizing of the company 's south pacific business , asset write-offs related to the divested laundry detergent business and other costs related to the sale . effective december 31 , 2015 , the company concluded it no longer met the accounting criteria for consolidation of its venezuelan subsidiary ( “ cp venezuela ” ) and began accounting for cp venezuela using the cost method of accounting . as such , effective december 31 , 2015 , the company 's consolidated balance sheet no longer includes the assets and liabilities of cp venezuela . as a result of this change in accounting , the company recorded an aftertax charge of $ 1,058 ( $ 1,084 pretax ) or $ 1.16 per diluted share in 2015. the charge primarily consists of an impairment of the company 's investment in cp venezuela of $ 952 , which includes intercompany receivables from cp venezuela , and $ 111 related to the reclassification of cumulative translation losses . prior periods have not been restated and cp venezuela 's net sales , operating profit and net income are included in the company 's consolidated statements of income through december 31 , 2015. see note 14 , venezuela to the consolidated financial statements for additional details . since january 1 , 2016 , under the cost method of accounting , the company no longer includes the local operating results of cp venezuela in its consolidated financial statements and includes income relating to cp venezuela only to the extent it receives cash for sales of inventory to cp venezuela or for dividends or royalties remitted by cp venezuela , all of which have been immaterial . although cp venezuela 's local operating results are no longer included in the company 's consolidated financial statements for accounting purposes , under current tax rules , the company is required to continue including cp venezuela in its consolidated u.s. federal income tax return . in the first quarter of 2016 , provision for income taxes included a $ 210 u.s. income tax benefit principally related to changes in venezuela 's foreign exchange regime implemented in march 2016. see note 11 , income taxes to the consolidated financial statements for additional details . prior to the change in accounting , cp venezuela 's functional currency was the u.s. dollar since venezuela had been designated hyper-inflationary and , as such , venezuelan currency fluctuations were reported in income . the company remeasured the financial statements of cp venezuela at the end of each month at the rate at which it expected to remit future dividends which , based on the advice of legal counsel , was the sicad rate ( formerly known as the sicad i rate ) . story_separator_special_tag replace_table_token_8_th replace_table_token_9_th interest ( income ) expense , net interest ( income ) expense , net was $ 102 in 2017 compared with $ 99 in 2016 and $ 26 in 2015 . the increase in interest ( income ) expense , net in 2017 as compared to 2016 was primarily due to higher average interest rates on debt . the change in interest ( income ) expense , net from 2015 to 2016 was primarily due to lower interest income on investments held outside the united states , which reflects the impact of the deconsolidation of the company 's venezuelan operations effective december 31 , 2015 , and higher interest expense as a result of higher average interest rates on debt . 25 ( dollars in millions except per share amounts ) income taxes the effective income tax rate in 2017 , 2016 and 2015 was 37.7 % , 30.8 % and 44.0 % , respectively . as reflected in the table below , the non-gaap effective income tax rate was 29.5 % in 2017 and 31.3 % in 2016 and 2015 . the decrease in the non-gaap effective income tax rate in 2017 as compared to 2016 is due primarily to the inclusion of excess tax benefits from stock-based compensation in the provision for income taxes , as discussed in more detail below . replace_table_token_10_th replace_table_token_11_th replace_table_token_12_th _ ( 1 ) the income tax effect on non-gaap items is calculated based upon the tax laws and statutory income tax rates applicable in the tax jurisdiction ( s ) of the underlying non-gaap adjustment . ( 2 ) the impact of non-gaap items on the company 's effective tax rate represents the difference in the effective tax rate calculated with and without the non-gaap adjustment on income before income taxes and provision for income taxes . ( 3 ) see note 14 , venezuela to the consolidated financial statements and “ significant items impacting comparability ” above . 26 ( dollars in millions except per share amounts ) on december 22 , 2017 , the tcja was enacted , which , among other things , lowered the u.s. corporate income tax rate to 21 % from 35 % and established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed earnings of foreign subsidiaries . beginning in 2018 , the tcja also requires a minimum tax on certain future earnings generated by foreign subsidiaries while providing for future tax-free repatriation of such earnings through a 100 % dividends-received deduction . the company 's effective income tax rate in 2017 included a provisional charge of $ 275 related to the tcja using available information and estimates . the provisional charge is comprised of $ 451 related to the one-time deemed repatriation of accumulated earnings of foreign subsidiaries and related withholding taxes and $ 20 related primarily to the remeasurement of net deferred tax assets as a result of the reduction in the corporate income tax rate , which are offset by $ 196 of income taxes which had been previously provided for planned repatriations of undistributed earnings of foreign subsidiaries . as a result , applicable u.s. and foreign taxes have been provided on substantially all of the company 's accumulated earnings of foreign subsidiaries previously considered indefinitely reinvested . given the significant complexity of the tcja , anticipated guidance from the u.s. treasury about implementing the tcja and the potential for additional guidance from the sec or the fasb related to the tcja or additional information becoming available , the company 's provisional charge may be adjusted during 2018 and is expected to be finalized no later than the fourth quarter of 2018. other provisions of the tcja that impact future tax years are still being assessed . the effective income tax rate in 2017 also included $ 47 of stock compensation excess tax benefits in the provision for income taxes as a result of the adoption of asu no . 2016-09 , “ compensation–stock compensation ( topic 718 ) : improvements to employee share-based payment accounting ” effective january 1 , 2017. see note 2 , summary of significant accounting policies - recent accounting pronouncements and note 11 , income taxes to the consolidated financial statements , for additional details . the effective income tax rate in 2016 included a $ 210 u.s. income tax benefit recognized in the first quarter of 2016 principally related to changes in venezuela 's foreign exchange regime implemented in march 2016. although , effective december 31 , 2015 , the operating results of cp venezuela are no longer included in the company 's consolidated financial statements , under current tax rules , the company is required to continue including cp venezuela 's results in its consolidated u.s. federal income tax return . see note 11 , income taxes and note 14 , venezuela to the consolidated financial statements . in order to fully utilize the above mentioned $ 210 tax benefit in 2016 , the company repatriated an incremental $ 1,500 of earnings of foreign subsidiaries it previously considered indefinitely reinvested outside of the u.s. , and accordingly , recorded a tax charge of $ 210 during the first quarter of 2016. the company has taken a tax position in a foreign jurisdiction since 2002 that has been challenged by the local tax authorities . in 2015 , the company became aware of several supreme court rulings in the foreign jurisdiction disallowing certain tax deductions which had the effect of reversing prior decisions . since the company had taken deductions in prior years similar to those now disallowed by the court , the company , as required , reassessed its tax position and increased its unrecognized tax benefits by $ 15 . in 2016 , the supreme court in the foreign jurisdiction decided the matter in the company 's favor for the years 2002 through 2005. also in 2016 , the administrative court in the foreign jurisdiction decided the matter

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net cash provided by operations was $ 3,054 in 2017 , compared to $ 3,141 in 2016 and $ 2,949 in 2015 . net cash provided by operations for 2017 decreased as compared to 2016 primarily due to the timing of income tax payments . the increase in 2016 as compared to 2015 was due to strong operating earnings and the timing of income tax payments , partially offset by the impact of the deconsolidation of the company 's venezuelan operations effective december 31 , 2015 and voluntary contributions to employee postretirement plans . the company defines working capital as the difference between current assets ( excluding cash and cash equivalents and marketable securities , the latter of which is reported in other current assets ) and current liabilities ( excluding short-term debt ) . the company 's working capital as a percentage of net sales increased to ( 2.0 ) % in 2017 as compared to ( 2.2 ) % in 2016 , reflecting the company 's continued tight focus on working capital . building on the company 's successful implementation of the global growth and efficiency program , on october 26 , 2017 , the board approved an expansion of the global growth and efficiency program and an extension of the program through december 31 , 2019 to take advantage of additional opportunities to streamline the company 's operations . implementation of the global growth and efficiency program remains on track . including the most recent expansion , total program charges resulting from the global growth and efficiency program are estimated to be in the range of $ 1,730 to $ 1,885 ( $ 1,280 to $ 1,380 aftertax ) . approximately 80 % of total program charges resulting from the global growth and efficiency program are expected to result in cash expenditures . savings from the global growth and efficiency program , substantially all of which are expected to increase future cash flows , are projected to be in the range of $ 560 to $ 635 pretax ( $ 500 to $ 575 aftertax ) annually , once all projects are approved and implemented .

overview who we are and how we generate income dime community bancshares , inc. , a new york corporation previously known as “ bridge bancorp , inc. , ” is a bank holding company formed in 1989. on a parent-only basis , the holding company has had minimal results of operations . the holding company is dependent on dividends from its wholly-owned subsidiary , dime community bank , which was previously known as “ bnb bank , ” its own earnings , additional capital raised , and borrowings as sources of funds . the information in this report reflects principally the financial condition and results of operations of the bank . the bank 's results of operations are primarily dependent on its net interest income , which is the difference between interest income on loans and investments and interest expense on deposits and borrowings . the bank also generates non-interest income , such as fee income on deposit accounts and merchant credit and debit card processing programs , loan swap fees , investment services , income from its title insurance subsidiary , and net gains on sales of securities and loans . the level of non-interest expenses , such as salaries and benefits , occupancy and equipment costs , other general and administrative expenses , page -23- expenses from the bank 's title insurance subsidiary , and income tax expense , further affects our net income . we believe the merger created the opportunity for the resulting company to leverage complementary and diversified revenue streams and to potentially have superior future earnings and prospects compared to our current earnings and prospects on a stand-alone basis . certain reclassifications have been made to prior year amounts and the related discussion and analysis to conform to the current year presentation . these reclassifications did not have an impact on net income or total stockholders ' equity . year and quarterly highlights ( prior to the completion of the merger on february 1 , 2021 ) ● net income for the 2020 fourth quarter of $ 9.0 million , or $ 0.45 per diluted share , inclusive of merger and stock acceleration expenses related to the merger . ​ ● net income for the full year 2020 was $ 42.0 million , or $ 2.11 per diluted share , compared to $ 51.7 million , or $ 2.59 per diluted share , for the full year 2019. inclusive of : o pre-tax merger expenses of $ 4.5 million , or $ 0.21 per diluted share , in the last six months of 2020. o pre-tax stock acceleration expenses of $ 4.2 million , or $ 0.21 per diluted share , in the 2020 fourth quarter . ​ ● net interest income increased to $ 160.8 million for 2020 , compared to $ 142.2 million in 2019 . ● tax-equivalent net interest margin was 2.99 % for 2020 and 3.31 % in 2019 . ● total assets of $ 6.4 billion at december 31 , 2020 , an increase of $ 1.5 billion , or 30.7 % , over december 31 , 2019 . ● total loans held for investment at december 31 , 2020 of $ 4.6 billion , inclusive of ppp loans totaling $ 844.7 million , an increase of $ 917.1 million , or 24.9 % , over december 31 , 2019 . ● total deposits of $ 5.5 billion at december 31 , 2020 , an increase of $ 1.7 billion , or 43.9 % , compared to december 31 , 2019 . ● provision for credit losses of $ 11.5 million for 2020 , compared to $ 5.7 million in 2019 . ● allowance for credit losses was 0.96 % of loans as of december 31 , 2020 , compared to 0.89 % at december 31 , 2019 . ● cash dividends of $ 19.2 million were paid in 2020 , representing $ 0.96 per share . a cash dividend of $ 4.8 million , or $ 0.24 per share , was declared in january 2021 and paid in february 2021 for the fourth quarter . challenges and opportunities the covid-19 pandemic has caused us to modify our business practices , including employee travel and employee work locations , as many employees are working remotely . various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers , such as waiving late payment and other fees . given the ongoing and dynamic nature of the circumstances , it is difficult to predict the challenges our business will face and the full impact of the covid-19 outbreak on our business . we continue to face challenges associated with ever-increasing banking regulations and the current low interest rate environment . a prolonged inverted or flat yield curve presents a challenge to a bank , like us , that derives most of its revenue from net interest margin . a sustained decrease in market interest rates could adversely affect our earnings . when interest rates decline , borrowers tend to refinance higher-rate , fixed-rate loans at lower rates . in addition , the majority of our loans are at variable interest rates , which would adjust to lower rates . in response to the covid-19 outbreak , the federal reserve has reduced the benchmark federal funds rate to a target range of 0 % to 0.25 % during the 2020 first quarter . we took this opportunity to lower our funding costs and stabilize our net interest margin . page -24- we established five strategic objectives to achieve our vision : ( 1 ) acquire new customers in growth markets ; ( 2 ) build new sales and marketing disciplines ; ( 3 ) deepen customer relationships ; ( 4 ) expand use of automation ; and ( 5 ) improve talent management . story_separator_special_tag such agencies may require us to recognize adjustments to the allowance based on their judgments of the information available to them at the time of their examination . for additional information regarding the allowance for credit losses , see note 4 of the notes to the consolidated financial statements . net income net income for the year ended december 31 , 2020 was $ 42.0 million and $ 2.11 per diluted share as compared to $ 51.7 million and $ 2.59 per diluted share for the same period in 2019. changes in net income for the year ended december 31 , 2020 compared to december 31 , 2019 include : ( i ) an $ 18.6 million , or 13.1 % , increase in net interest income ; ( ii ) a $ 5.8 million , or 101.8 % , increase in the provision for credit losses ; ( iii ) a $ 5.7 million , or 22.4 % , decrease in non-interest page -28- income ; ( iv ) a $ 17.1 million , or 17.8 % , increase in non-interest expense ; and ( v ) a $ 0.4 million , or 2.7 % , decrease in income tax expense . net interest income net interest income , the primary contributor to earnings , represents the difference between income on interest-earning assets and expenses on interest-bearing liabilities . net interest income depends on the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them . the following table presents certain information relating to our average consolidated balance sheets and our consolidated statements of income for the periods indicated and reflects the average yield on assets and average cost of liabilities for those periods on a tax-equivalent basis based on the u.s. federal statutory tax rate . such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities , respectively , for the periods shown . average balances are derived from daily average balances and include non-accrual loans . the yields and costs include fees and costs , which are considered adjustments to yields . interest on non-accrual loans has been included only to the extent reflected in the consolidated statements of income . for purposes of this table , the average balances for investments in debt and equity securities exclude unrealized appreciation/depreciation due to the application of fasb accounting standards codification ( “ asc ” ) 320 , “ investments - debt and equity securities ” . page -29- replace_table_token_6_th ( 1 ) amounts are net of deferred origination costs/ ( fees ) and allowance for credit losses , and include loans held for sale . ( 2 ) presented on a tax-equivalent basis based on the u.s. federal statutory tax rate of 21 % . ( 3 ) net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities . ( 4 ) net interest margin represents net interest income divided by average interest-earning assets . ​ page -30- rate/volume analysis net interest income can be analyzed in terms of the impact of changes in rates and volumes . the following table illustrates the extent to which changes in interest rates and in the volume of average interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated . information is provided in each category with respect to ( i ) changes attributable to changes in volume ( changes in volume multiplied by prior rate ) ; ( ii ) changes attributable to changes in rates ( changes in rates multiplied by prior volume ) ; and ( iii ) the net changes . for purposes of this table , changes that are not due solely to volume or rate changes have been allocated to these categories based on the respective percentage changes in average volume and rate . due to the numerous simultaneous volume and rate changes during the periods analyzed , it is not possible to precisely allocate changes between volume and rates . in addition , average interest-earning assets include non-accrual loans . replace_table_token_7_th ( 1 ) amounts are net of deferred origination costs/ ( fees ) and allowance for credit losses , and include loans held for sale . ( 2 ) presented on a tax-equivalent basis based on the u.s. federal statutory tax rate of 21 % . ​ net interest income increased $ 18.6 million , or 13.1 % , to $ 160.8 million for the year ended december 31 , 2020 compared to $ 142.2 million for the year ended december 31 , 2019. average net interest-earning assets increased $ 637.7 million to $ 2.2 billion for 2020 compared to $ 1.5 billion for 2019. the increase in average net interest-earning assets was primarily driven by loan growth in the commercial and industrial portfolio , and a rise in deposits with banks , partially offset by increases in average deposits and average borrowings , and a decrease in average investment securities . tax-equivalent net interest margin was 2.99 % in 2020 compared to 3.31 % in 2019. the decrease in tax-equivalent net interest margin for 2020 compared to 2019 reflects the lower average yield on our loan portfolio and significantly higher levels of cash earning low average yields , partially offset by lower overall funding costs , due in part to federal funds rate decreases during the third and fourth quarter of 2019 and the first quarter of 2020. in response to the covid-19 outbreak , the federal reserve has reduced the benchmark federal funds rate to a target range of 0 % to 0.25 % during the 2020 first quarter . we took this opportunity to lower our funding costs and stabilize our net interest margin . total interest income increased $ 2.7 million , or 1.5 % , to $ 184.2 million in 2020 compared to $ 181.5

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liquidity our liquidity management objectives are to ensure the sufficiency of funds available to respond to the needs of depositors and borrowers , and to take advantage of unanticipated opportunities for our growth or earnings enhancement . liquidity management addresses our ability to meet financial obligations that arise in the normal course of business . liquidity is primarily needed to meet customer borrowing commitments and deposit withdrawals , either on demand or on contractual maturity , to repay borrowings as they mature , to fund current and planned expenditures and to make new loans and investments as opportunities arise . the holding company 's principal sources of liquidity included cash and cash equivalents of $ 0.3 million as of december 31 , 2020 , and dividend capabilities from the bank . cash available for distribution of dividends to our shareholders is primarily derived from dividends paid by the bank to the company . during 2020 , the bank paid $ 26.5 million in cash dividends to the holding company . prior regulatory approval is required if the total of all dividends declared by the bank in any calendar year exceeds the total of the bank 's net income for that year combined with its retained net income of the preceding two years . as of january 1 , 2021 , the bank had $ 49.8 million of retained net income available for dividends to the holding company . in the event that the holding company subsequently expands its current operations , in addition to dividends from the bank , it will need to rely on its own earnings , additional capital raised and other borrowings to meet liquidity needs . the holding company did not make any capital contributions to the bank during the year ended december 31 , 2020. the bank 's most liquid assets are cash and cash equivalents , securities available for sale and securities held to maturity due within one year . the levels of these assets are dependent on the bank 's operating , financing , lending and investing activities during any given period .

” caution concerning forward-looking statements this annual report on form 10-k , including this md & a section , contains “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995. these forward-looking statements include , among others , statements about our beliefs , plans , objectives , goals , expectations , estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors , many of which are beyond our control . the words “ may , ” “ could , ” “ should , ” “ would , ” “ believe , ” “ anticipate , ” “ estimate , ” “ expect , ” “ intend , ” “ plan , ” “ target , ” “ goal , ” and similar expressions are intended to identify forward-looking statements . all forward-looking statements , by their nature , are subject to risks and uncertainties . our actual future results may differ materially from those set forth in our forward-looking statements . please see the introductory note and item 1a risk factors of this annual report for a discussion of factors that could cause our actual results to differ materially from those in the forward-looking statements . however , other factors besides those listed in item 1a risk factors or discussed in this annual report also could adversely affect our results , and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties . any forward-looking statements made by us or on our behalf speak only as of the date they are made . we do not undertake to update any forward-looking statement , except as required by applicable law . 37 components of our results of operations we manage our business globally within one reportable segment , which is consistent with how our management reviews our business , prioritizes investment and resource allocation decisions and assesses operating performance . revenue our sales primarily relate to sales of our devices . we recognize product revenue upon shipment provided that there is persuasive evidence of an arrangement , there are no uncertainties regarding customer acceptance , the sales price is fixed and determinable , and collection of the resulting receivable is reasonably assured . we do not provide a right of return related to product sales . revenues for service contracts are recognized over the service contract period on a straight-line basis . revenue for rentals of equipment is recognized over the lease term on a straight-line basis . we sell products and services under multiple-element arrangements with separate units of accounting . in these situations , total consideration is allocated to the identified units of accounting based on their relative selling prices and revenue is then recognized for each unit based on its specific characteristics . a deliverable in an arrangement qualifies as a separate unit of accounting if the delivered item has value to the customer on a stand-alone basis . the principal deliverables in our multiple deliverable arrangements that qualify as separate units of accounting consist of ( i ) sales of medical devices and accessories and ( ii ) service contracts . service contracts are considered a performance obligation only if they provide a material right , otherwise they are considered options . other performance obligations , including installation and customer training , are considered inconsequential and are combined with the product as one unit of accounting . selling prices are established using vendor-specific objective evidence ( vsoe ) . if vsoe does not exist , the company uses its best estimate of the selling prices for the deliverables . we operate in a highly-regulated environment and is continually entering into new markets in which regulatory approval is sometimes required prior to the customer being able to use our products . in these cases , where regulatory approval is pending , revenue is deferred until such time as regulatory approval is obtained and customer acceptance becomes certain . deferred revenue consists of payments from customers for long term separately priced service contracts , sales pending regulatory approval and deposits on products . we provide warranties , generally for one year , in conjunction with the sale of our products . these warranties are short term in nature and entitle the customer to repair , replacement , or modification of the defective product subject to the terms of the respective warranty . we record an estimate of future warranty claims at the time we recognize revenue from the sale of the product based upon management 's estimate of the future claims rate . shipping and handling costs are expensed as incurred and are included in cost of sales . cost of sales since 2010 , we have used a third party manufacturer for the production and manufacture of our main products , the srt-100 product line , in accordance with our product specifications . cost of sales consists primarily of direct material , direct labor , overhead , depreciation and amortization . a significant portion of our cost of sales consists of costs paid to our third party manufacturer . gross profit we calculate gross profit as net revenue less cost of sales . our gross profit has been and will continue to be affected by a variety of factors , including average selling price , manufacturing costs , production volumes , product reliability and the implementation over time of cost-reduction strategies . our gross profit may fluctuate from quarter to quarter . 38 selling and marketing we focus on two primary markets - private dermatology practices and radiation oncologists in both private and hospital settings . story_separator_special_tag we currently employ a multi-tier sales strategy in an attempt to optimize geographic coverage and focus on what we perceive to be our key markets . this multi-tier sales model uses a direct salesforce and international dealers and distributors . general and administrative general and administrative expense , or g & a , consists primarily of salaries , employee benefits , bonuses , and related costs for personnel who support our general operations such as executive management , finance , accounting and administrative functions , as well as legal and other professional fees , director and officer insurance and other public company expenses . research and development research and development costs relate to products under development by us and quality and regulatory costs and are expensed as incurred . other income ( expense ) other income ( expense ) primarily consists of interest earned on cash balances and investments less interest payments made pursuant to our secured credit facility with silicon valley bank . our interest expense will fluctuate in future periods to the extent we incur additional , or pay down , indebtedness . income taxes until december 31 , 2015 , we were organized as a limited liability corporation ( llc ) taxed as a pass-through entity and accordingly , we did not recognize a federal or state income tax provision . beginning in 2016 , as a result of our conversion from an llc to a delaware corporation , we began recording a provision for income tax ( benefit ) expense which consists of income taxes in jurisdictions in which we conduct business . we are taxed at the rates applicable within each jurisdiction in which we operate or generate revenue . the composite income tax rate , tax provisions , deferred tax assets and deferred tax liabilities vary according to the jurisdiction in which profits arise . tax laws are complex and subject to different interpretations by management and the respective governmental taxing authorities , and require us to exercise judgment in determining our income tax provision , our deferred tax assets and liabilities and the valuation allowance recorded against our net deferred tax assets . deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized . a valuation allowance is established when it is more likely than not that the future realization of all or some of the deferred tax assets will not be achieved . on december 22 , 2017 , new federal tax reform legislation was enacted in the united states , resulting in significant changes from previous tax law . the new tax law reduced the federal corporate income tax rate to 21 % from 35 % effective january 1 , 2018. our federal income tax expense for periods beginning in 2018 will be based on the new rate . the new tax law also provides for immediate deduction of 100 % of the costs of qualified property that have been incurred and the property placed in service during the period from september 27 , 2017 to december 31 , 2022. this provision will begin to phase down by 20 % per year beginning january 1 , 2023 and will be completely phased out as of january 1 , 2027. inflation inflation has not had a material impact on net sales , revenues or income from continuing operations for our two most recent years as a result of historically low levels of inflation . 39 significant trends and uncertainties impacting our business many third party payors follow coverage decisions and payment amounts determined by the cms , which administers the u.s. medicare program , in setting their coverage and reimbursement policies . effective january 1 , 2016 and 2017 , the total reimbursement for an episode of care remained similar to the reimbursement in prior years . results of operations replace_table_token_2_th year ended december 31 , 2017 compared to the year ended december 31 , 2016 total revenue . total revenue was $ 20,587,827 for the year ended december 31 , 2017 compared to $ 14,811,175 for the year ended december 31 , 2016 , an increase of $ 5,776,652 , or 39.0 % . the growth in revenue was attributable to an increase in the volume of systems sold as well as a higher percentage of sales of the higher priced srt-100 vision product in the current year . total cost of sales . cost of sales was $ 6,787,836 for the year ended december 31 , 2017 compared to $ 4,965,372 for the year ended december 31 , 2016 , an increase of $ 1,822,464 , or 36.7 % . the increase in cost was due to a greater number of systems sold during the year ended december 31 , 2017 compared to the corresponding period in 2016. gross profit . gross profit was $ 13,799,991 for the year ended december 31 , 2017 compared to $ 9,845,803 for the year ended december 31 , 2016 , an increase of $ 3,954,188 or 40.2 % , for the reasons discussed above . our overall gross profit margin was 67.0 % in the year ended december 31 , 2017 compared to 66.5 % in the corresponding period in 2016 , mainly due to increased sales of the higher margin srt-100 vision product . selling and marketing . selling and marketing expense was $ 8,305,315 for the year ended december 31 , 2017 compared to $ 4,915,440 for the year ended december 31 , 2016 , an increase of $ 3,389,875 or 69.0 % . the increase was primarily attributable to an increase in sales personnel as well as increased participation in tradeshows and other marketing expenses . general and administrative . general and administrative expense was $ 3,721,627 for the year ended december 31 , 2017 compared to $ 3,469,332 for the year ended december 31 , 2016 , an increase of $ 252,295

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liquidity and capital resources overview in general terms , liquidity is a measurement of our ability to meet our cash needs . for the years ended december 31 , 2017 and 2016 , a significant source of funding has been from cash flows from financing activities , including our ipo in 2016 , as well as from borrowings under out revolving line of credit . we believe that proceeds from our ipo , our borrowing capacity and our access to capital resources are sufficient to meet our future operating capital and funding requirements . our liquidity position and capital requirements may be impacted by a number of factors , including the following : ■ our ability to generate and increase revenue ; ■ fluctuations in gross margins , operating expenses and net results ; and ■ fluctuations in working capital . our primary short-term capital needs , which are subject to change , include expenditures related to : ● expansion of our sales and marketing activities ; and ● expansion of our research and development activities . we regularly evaluate our cash requirements for current operations , commitments , capital requirements and business development transactions , and we may elect to raise additional funds for these purposes in the future . cash flows the following table provides a summary of our cash flows for the periods indicated : replace_table_token_3_th 41 cash flows from operating activities net cash used in operating activities was $ 3,056,606 for the year ended december 31 , 2017 , consisting of a net loss of $ 3,710,514 and an increase in net operating assets of $ 568,857 , partially offset by non-cash charges of $ 1,222,765. the increase in net operating assets was primarily due to the increase in sales resulting in an increase in accounts receivable and an increase in account payable and accrued expenses . non-cash charges consisted primarily of stock compensation expense and depreciation and amortization .

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 based on an evaluation of all available evidence , both positive and negative , and the relative weight of the evidence . with the exception of the gains resulting from the completed sale of the photovoltaics business in december 2014 , we have determined that at this time it is more likely than not that deferred tax assets attributable to all other items 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 which we do not expect to realize . if there is a change in our ability to realize our deferred tax assets for which a valuation allowance has been established , then our tax valuation allowance may decrease in the period in which we determine that realization is more likely than not . likewise , if we determine that it is not more likely than not that deferred tax assets will be realized , then a valuation allowance may be established for such deferred tax assets and our tax provision may increase in the period in which we make the determination . see note 12 - income and other taxes in the notes to the consolidated financial statements for additional information related to our income taxes . revenue recognition revenue is recognized upon shipment , provided persuasive evidence of a contract exists , the price is fixed , the product meets our customer 's specifications , title and ownership have transferred to the customer , and there is reasonable assurance of collection of the sales proceeds . the majority of our products have shipping terms that are free on board or free carrier alongside ( “ fca ” ) shipping point , which means that we fulfill our delivery obligation when the goods are handed over to the freight carrier at our shipping dock . this means the customer typically bears all costs and risks of loss or damage to the goods from that point . we account for shipping and related transportation costs by recording the charges that are invoiced to customers as revenue , with the corresponding cost recorded as cost of revenue . in those instances where inventory is maintained at a consigned location , revenue is recognized only when our customer pulls product for use and after title and ownership has transferred to the customer . any warranty cost and remaining obligations that are inconsequential or perfunctory are accrued when the corresponding revenue is recognized . distributors . we use a number of distributors around the world and recognize revenue upon shipment of product to these distributors . title and risk of loss pass to the distributors upon shipment , and our distributors are contractually obligated to pay us on standard commercial terms , just like our other direct customers . we do not sell to our distributors on consignment and , except in the event of product discontinuance , do not give distributors a right of return . 46 contract manufacturers . prior to certain customers accepting product that is manufactured at one of our contract manufacturers , these customers require that they first qualify the product and manufacturing processes at our contract manufacturer . the customers ' qualification process determines whether the product manufactured at our contract manufacturer achieves their quality , performance , and reliability standards . after a customer completes the initial qualification process , we receive approval to ship qualified product to that customer . as part of the manufacturing process at our contract manufacturers , the finished product is tested prior to shipment to the customer using the same criteria that our customer uses to test product it receives . revenue is recognized upon shipment of customer-qualified product , provided persuasive evidence of a contract exists , the price is fixed , the product meets our customer 's specifications , title and ownership have transferred to the customer , and there is reasonable assurance of collection of the sales proceeds . * * * the above listing is not intended to be a comprehensive list of all of our accounting policies . in many cases , u.s. gaap specifically dictates the accounting treatment of a particular transaction . there are also areas in which management 's judgment in selecting any available alternative would not produce a materially different result . for a complete discussion of our accounting policies , recently adopted accounting pronouncements , and other required u.s. gaap disclosures , we refer you to the accompanying notes to our consolidated financial statements in this annual report . results of operations the following table sets forth our consolidated statements of operations data expressed as a percentage of revenue : replace_table_token_4_th 47 comparison of financial results for the fiscal years ended september 30 , 2018 and 2017 replace_table_token_5_th revenue for the fiscal year ended september 30 , 2018 , revenue decreased 30.3 % compared to the prior year driven by lower sales volume of our catv components and rfog products primarily to u.s. customers partially offset by increases in revenue from our chip devices and navigation systems product lines . story_separator_special_tag during the fiscal year ended september 30 , 2016 , we recognized a gain associated with the release of the $ 3.4 million deferred gain and reversal of other liabilities of $ 0.4 million that had been recorded as of september 30 , 2015 , resulting in a credit of $ 3.8 million to recognition of previously deferred gain on sale of assets within discontinued operations of the digital products business as the result of the favorable ruling from the sei arbitration . see note 13 - commitments and contingencies in the notes to the consolidated financial statements for additional information . order backlog emcore 's product sales are made pursuant to purchase orders , often with short lead times . these orders are subject to revision or cancellation and often are made without deposits . products typically ship within the same quarter in which a purchase order is received ; therefore , our order backlog at any particular date is not necessarily indicative of actual revenue or the level of orders for any succeeding period and may not be comparable to prior periods . liquidity and capital resources other than the fiscal years ended september 30 , 2018 and 2017 , in recent years we have historically consumed cash from operations and , in most periods , we have incurred operating losses from continuing operations . we have managed our liquidity position through the sale of assets and cost reduction initiatives , as well as , from time to time in prior periods , borrowings from our credit facility ( defined below ) and capital markets transactions . as of september 30 , 2018 , cash and cash equivalents totaled $ 63.1 million and net working capital totaled approximately $ 88.8 million . net working capital , calculated as current assets minus current liabilities , is a financial metric we use which represents available operating liquidity . with respect to measures related to liquidity : 54 credit facility : on november 11 , 2010 , we entered into a credit and security agreement ( “ credit facility ” ) with wells fargo bank , n.a . ( “ wells fargo ” ) . the credit facility , as amended by its seventh amendment on november 10 , 2015 , currently provides us with a revolving credit of up to $ 15.0 million . on november 7 , 2018 we entered into a tenth amendment of the credit facility which extended the maturity date of the facility to november 2021 that can be used for working capital requirements , letters of credit , and other general corporate purposes subject to a limitation of the company having liquidity of at least $ 25,000,000 million after such use . the credit facility is secured by the company 's assets and is subject to a borrowing base formula based on the company 's eligible accounts receivable , inventory , and machinery and equipment accounts . see note 11 - credit facilities in the notes to the consolidated financial statements for additional disclosures . as of november 29 , 2018 , there was no outstanding balance under this credit facility , $ 0.5 million reserved for one outstanding stand-by letter of credit and $ 11.1 million available for borrowing . we believe that our existing balances of cash and cash equivalents , cash flows from operations and amounts expected to be available under our credit facility will provide us with sufficient financial resources to meet our cash requirements for operations , working capital , and capital expenditures for at least the next twelve months . at the discretion of our board of directors and subject to restrictions in our credit facility , we may use our existing balances of cash and cash equivalents to provide liquidity to our shareholders through one or more additional special dividends or the repurchase of additional shares of our outstanding common stock , make investments in our other businesses , pursue other strategic opportunities or a combination thereof . for example , under our credit facility , we are restricted from paying dividends that result in the liquidity of the company being less than $ 25.0 million after paying the dividend if any amounts are outstanding under our credit facility . in addition , should we require more capital than what is generated by our operations , for example to fund significant discretionary activities , such as business acquisitions , we could elect to raise capital in the u.s. through debt or equity issuances . these alternatives could result in higher effective tax rates , increased interest expense , and or dilution of our earnings . we have borrowed funds in the past and continue to believe we have the ability to do so at reasonable interest rates . story_separator_special_tag style= `` line-height:120 % ; text-align : left ; padding-left:48px ; font-size:10pt ; `` > accounts payable : the fluctuation of our accounts payable balances is primarily driven by changes in inventory purchases as well as changes related to the timing of actual payments to vendors . accrued expenses : our largest accrued expense typically relates to compensation . historically , fluctuations of our accrued expense accounts have primarily related to changes in the timing of actual compensation payments , receipt or application of advanced payments , adjustments to our warranty accrual , and accruals related to professional fees . net cash used in investing activities replace_table_token_9_th fiscal 2018 : for the fiscal year ended september 30 , 2018 , our investing activities used $ 6.5 million of cash for capital related expenditures of $ 6.6 million primarily related to investment in our wafer fabrication facility . fiscal 2017 : for the fiscal year ended september 30 , 2017 , our investing activities used $ 9.1 million of cash primarily for capital related expenditures of $ 9.6 million , partially offset by the receipt of proceeds from the disposal of equipment of $ 0.5 million . fiscal 2016 :

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cash flow the consolidated statements of cash flows for the fiscal years ended september 30 , 2018 , 2017 and 2016 reflects cash flows from both the continuing and discontinued operations of the company . net cash provided by ( used in ) operating activities replace_table_token_8_th fiscal 2018 : for the fiscal year ended september 30 , 2018 , our operating activities provided cash of $ 1.5 million primarily due to changes in our operating assets and liabilities ( or working capital components , which includes non-current inventory ) of $ 8.2 million , depreciation and amortization expense of $ 5.6 million , stock-based compensation expense of $ 3.6 million , provision for doubtful accounts of $ 0.6 million , warranty provision of $ 0.4 million and loss on disposal of equipment of $ 34,000 partially offset by our net loss of $ 17.5 million . the change in our operating assets and liabilities was primarily the result of a decrease in accounts receivable of $ 2.4 million and inventory of $ 5.1 million and an increase in accounts payable of $ 0.5 million and other liabilities of $ 4.2 million , partially offset by an increase in other assets of $ 3.9 million .

- 10 - results of operations the following table compares the company 's consolidated statements of income data for the years ended december 31 , 2017 and 2016 ( $ 000 's omitted ) . replace_table_token_3_th revenue the company 's consolidated revenues from operations increased approximately $ 2,857,000 or 7.4 % for the twelve month period ended december 31 , 2017 when compared to the same period in 2016. the increase in revenue is attributable to an increase in commercial and government shipments at both the atg and cpg . commercial shipments increased approximately $ 1,627,000 or 4.6 % and government shipments increased approximately $ 1,230,000 or 37 % for the twelve month period ended december 31 , 2017. revenues from commercial shipments increased $ 717,000 or 2.6 % at the atg and increased $ 910,000 or 12.4 % at the cpg . revenues from shipments to the government and its prime vendors at the atg increased approximately $ 638,000 or 20.5 % and at the cpg increased approximately $ 592,000 or more than triple the twelve month period ended december 31 , 2017 when compared to the same period in 2016. cost of goods sold cost of goods sold increased approximately $ 2,046,000 or 7.2 % for the twelve month period ended december 31 , 2017 when compared to the same period in 2016. the increase in costs attributable to increased sales volume is approximately $ 574,000. cost of goods sold , as a percentage of revenue , decreased from 74.0 % to 73.9 % . the improvement is attributed to the cpg decrease of cost of goods sold as a percentage of revenue , from 88.3 % to 83.2 % . this is due to the realization of certain expected operational efficiencies attributable to increased production volumes . the improvement is slightly offset by the atg increase of cost of goods sold as a percentage of revenue , from 70.6 % to 71.2 % . this is due , in part , to the mix of product sold as well as higher labor costs and inefficiencies associated with hiring and training of employees . total employment levels dropped from 320 employees at december 31 , 2016 to 315 employees at december 31 , 2017 , due to higher than expected attrition . the company continues to pursue cost saving opportunities in material procurements and other operating efficiencies including capital investments and technical developments in updated and new equipment/machinery as well as investing in the development and training of its labor force . - 11 - selling , general and administrative expenses selling , general and administrative ( sg & a ) expenses increased approximately $ 1,139,000 or 17.1 % for the twelve month period ended december 31 , 2017 compared to the same period in 2016. approximately 46 % of the twelve month period ended december 31 , 2017 sg & a expense relates to labor and labor related costs to support sg & a functions , decreasing from 64 % for the same period in 2016. overall there is a decrease in labor and labor related costs partially offset by the previously disclosed accrual of $ 449,000 pursuant to the terms of the employment agreement for servotronics ' former chairman of the board and chief executive officer . the accrual was made to reflect the death benefits under the terms of his employment contract . the payment equals 50 % of base pay , payable to the estate of dr. trbovich from the date of death through december 31 , 2018. in addition , as discussed in note 5 , employee benefit plans - other postretirement benefit plans , the actuarially calculated future obligation of certain postretirement health and life insurance benefits at december 31 , 2017 is approximately $ 568,000 including the estimated liability related to postretirement benefits for the former executive officer discussed in note 8 , commitments and contingencies . such expenses increased primarily due to increased health and life insurance costs . approximately 9 % of sg & a expense is attributable to professional and legal services . these expenses increased approximately $ 278,000 due to ongoing legal proceedings . depreciation and amortization expense depreciation and amortization expense increased approximately $ 62,000 or 7.5 % for the twelve month period ended december 31 , 2017 compared to the same period in 2016 primarily due to the assets purchased for the atg in response to increased production demands . depreciation expense fluctuates due to variable estimated useful lives of depreciable property ( as identified in note 1 , business description and summary of significant accounting policies , of the accompanying consolidated financial statements ) as well as the amount and nature of capital expenditures in current and previous periods . it is anticipated that the company 's future capital expenditures and related depreciation and amortization expense will , at a minimum , follow the company 's requirements to support its manufacturing delivery commitments and to meet certain information technology related capital expenditure requirements . see also note 8 , commitments and contingencies , of the accompanying consolidated financial statements for more information on capital expenditures . interest expense interest expense remained relatively consistent for the twelve month period ended december 31 , 2017 compared to the same period in 2016. see also note 4 , long-term debt , of the accompanying consolidated financial statements for information on long-term debt . other income components of other income include interest income on cash and cash equivalents and other amounts not directly related to the sale of the company 's products . other income is immaterial in relationship to the consolidated financial statements . income taxes the company 's effective tax rate for operations was 36.5 % in 2017 and 29.0 % in 2016. the effective tax rate in both years reflects federal and state income taxes , permanent non-deductible expenditures , the deduction for domestic production activities and the federal tax credit for research and development story_separator_special_tag - 10 - results of operations the following table compares the company 's consolidated statements of income data for the years ended december 31 , 2017 and 2016 ( $ 000 's omitted ) . replace_table_token_3_th revenue the company 's consolidated revenues from operations increased approximately $ 2,857,000 or 7.4 % for the twelve month period ended december 31 , 2017 when compared to the same period in 2016. the increase in revenue is attributable to an increase in commercial and government shipments at both the atg and cpg . commercial shipments increased approximately $ 1,627,000 or 4.6 % and government shipments increased approximately $ 1,230,000 or 37 % for the twelve month period ended december 31 , 2017. revenues from commercial shipments increased $ 717,000 or 2.6 % at the atg and increased $ 910,000 or 12.4 % at the cpg . revenues from shipments to the government and its prime vendors at the atg increased approximately $ 638,000 or 20.5 % and at the cpg increased approximately $ 592,000 or more than triple the twelve month period ended december 31 , 2017 when compared to the same period in 2016. cost of goods sold cost of goods sold increased approximately $ 2,046,000 or 7.2 % for the twelve month period ended december 31 , 2017 when compared to the same period in 2016. the increase in costs attributable to increased sales volume is approximately $ 574,000. cost of goods sold , as a percentage of revenue , decreased from 74.0 % to 73.9 % . the improvement is attributed to the cpg decrease of cost of goods sold as a percentage of revenue , from 88.3 % to 83.2 % . this is due to the realization of certain expected operational efficiencies attributable to increased production volumes . the improvement is slightly offset by the atg increase of cost of goods sold as a percentage of revenue , from 70.6 % to 71.2 % . this is due , in part , to the mix of product sold as well as higher labor costs and inefficiencies associated with hiring and training of employees . total employment levels dropped from 320 employees at december 31 , 2016 to 315 employees at december 31 , 2017 , due to higher than expected attrition . the company continues to pursue cost saving opportunities in material procurements and other operating efficiencies including capital investments and technical developments in updated and new equipment/machinery as well as investing in the development and training of its labor force . - 11 - selling , general and administrative expenses selling , general and administrative ( sg & a ) expenses increased approximately $ 1,139,000 or 17.1 % for the twelve month period ended december 31 , 2017 compared to the same period in 2016. approximately 46 % of the twelve month period ended december 31 , 2017 sg & a expense relates to labor and labor related costs to support sg & a functions , decreasing from 64 % for the same period in 2016. overall there is a decrease in labor and labor related costs partially offset by the previously disclosed accrual of $ 449,000 pursuant to the terms of the employment agreement for servotronics ' former chairman of the board and chief executive officer . the accrual was made to reflect the death benefits under the terms of his employment contract . the payment equals 50 % of base pay , payable to the estate of dr. trbovich from the date of death through december 31 , 2018. in addition , as discussed in note 5 , employee benefit plans - other postretirement benefit plans , the actuarially calculated future obligation of certain postretirement health and life insurance benefits at december 31 , 2017 is approximately $ 568,000 including the estimated liability related to postretirement benefits for the former executive officer discussed in note 8 , commitments and contingencies . such expenses increased primarily due to increased health and life insurance costs . approximately 9 % of sg & a expense is attributable to professional and legal services . these expenses increased approximately $ 278,000 due to ongoing legal proceedings . depreciation and amortization expense depreciation and amortization expense increased approximately $ 62,000 or 7.5 % for the twelve month period ended december 31 , 2017 compared to the same period in 2016 primarily due to the assets purchased for the atg in response to increased production demands . depreciation expense fluctuates due to variable estimated useful lives of depreciable property ( as identified in note 1 , business description and summary of significant accounting policies , of the accompanying consolidated financial statements ) as well as the amount and nature of capital expenditures in current and previous periods . it is anticipated that the company 's future capital expenditures and related depreciation and amortization expense will , at a minimum , follow the company 's requirements to support its manufacturing delivery commitments and to meet certain information technology related capital expenditure requirements . see also note 8 , commitments and contingencies , of the accompanying consolidated financial statements for more information on capital expenditures . interest expense interest expense remained relatively consistent for the twelve month period ended december 31 , 2017 compared to the same period in 2016. see also note 4 , long-term debt , of the accompanying consolidated financial statements for information on long-term debt . other income components of other income include interest income on cash and cash equivalents and other amounts not directly related to the sale of the company 's products . other income is immaterial in relationship to the consolidated financial statements . income taxes the company 's effective tax rate for operations was 36.5 % in 2017 and 29.0 % in 2016. the effective tax rate in both years reflects federal and state income taxes , permanent non-deductible expenditures , the deduction for domestic production activities and the federal tax credit for research and development

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liquidity and capital resources the company 's primary liquidity and capital expenditure requirements relate to working capital needs ; primarily inventory , accounts receivable , accounts payable , capital expenditures for property , plant and equipment and principal payments on debt . at december 31 , 2017 , the company had working capital of approximately $ 20,307,000 ( $ 19,817,000 – 2016 ) of which approximately $ 4,707,000 ( $ 3,515,000 – 2016 ) was comprised of cash and cash equivalents . the company generated approximately $ 3,652,000 in cash from operations during the twelve months ended december 31 , 2017 as compared to $ 2,441,000 during the twelve months ended december 31 , 2016. cash was generated primarily through net income of approximately $ 1,317,000 , adjustments to reconcile net income to net cash of approximately $ 1,361,000 and timing of accrued expenses and employee compensation and benefit costs . the primary use of cash for the company 's operating activities for the twelve months ended december 31 , 2017 include working capital requirements , mainly an increase in accounts receivables of approximately $ 1,062,000 and on time payments to our suppliers of approximately $ 703,000. cash generated and used in operations is consistent with sales volume , customer expectations and competitive pressures . the company 's primary use of cash in its financing and investing activities in the twelve months ended december 31 , 2017 included approximately $ 548,000 of current principal payments on long-term debt , approximately $ 376,000 for cash dividends as well as approximately $ 195,000 for the purchase of treasury shares .

the following is management 's discussion and analysis of the financial condition and results of operations for the years ended december 31 , 2017 , 2016 and 2015 . this discussion should be read in conjunction with the consolidated financial statements , including the related notes , see item 8 “ financial statements ” of this annual report on form 10-k. for reconciliations of adjusted ebitda to net income ( loss ) , see “ selected financial data selected ” in item 6 of this annual report on form 10-k. key factors affecting operating results and financial condition key factors impacting our operating results and financial condition include the following : economic conditions , industry trends and relationships with customers and suppliers chemical availability and prices , including volume-based pricing acquisitions , dispositions and strategic investments operating efficiencies working capital requirements , interest rates and credit risk foreign currencies for a description of our business and how the above factors impact us , refer to item 1 “ business ” and item 1a “ risk factors ” of this annual report on form 10-k. in addition to the factors listed above , seasonal changes may affect our business and results of operations . our net sales are affected by the level of industrial production , which tends to decline in the fourth quarter of each year . certain of our end markets experience seasonal fluctuations , which also affect our net sales and results of operations . for example , our sales to the agricultural end market , particularly in canada , tend to peak in the second quarter in each year , depending in part on weather-related variations in demand for agricultural chemicals . sales to other end markets such as paints and coatings may also be affected by changing seasonal weather conditions . results of operations executive summary during 2017 , we strengthened our financial condition through the refinancing of debt and generation of strong operating cash flow which reduced our leverage . we made progress in the implementation of our key strategic initiatives of commercial greatness , operational excellence , and one univar , strengthened our management team and furthered the development of a 43 performance-driven culture . from an operations standpoint , we advanced on each of our priorities which form the framework for our strategy to grow the long-term value of univar for our equity and debt holders . as a result , in 2017 we : expanded our consolidated adjusted ebitda margins ; grew adjusted ebitda in each operating segment ; completed a significant transformation project in our usa segment , structuring the organization around asset type and customer need with clear accountability for profit and creating value through specialization ; acquired tagma brasil ltda . , expanding our agriculture business in one of the world 's fastest-growing agricultural markets ; launched the myunivar.com online platform in the us for product review and purchase ; refinanced debt extending maturity of the us term loan b to 2024 and lowering annual interest cost by 75 bps ; and resolved the canadian gaar tax court case with a federal court of appeals judgment in our favor . advances in our business were partially offset by : change in market , product mix , and inventory levels as a result of an agricultural season with drought conditions ; and sluggish demand for chemicals in mexico and strengthening of the us dollar against the peso . the following tables set forth , for the periods indicated , certain statements of operations data first on the basis of reported data and then as a percentage of total net sales for the relevant period . the financial data set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with our historical consolidated financial statements and accompanying notes included elsewhere herein . 44 year ended december 31 , 2017 compared to year ended december 31 , 2016 replace_table_token_4_th * foreign currency translation is included in the percentage change . unfavorable impacts from foreign currency translation are designated with parentheses . net sales net sales percentage change due to : acquisitions 0.1 % reported sales volumes ( 5.8 ) % sales pricing and product mix 7.4 % foreign currency translation 0.5 % total 2.2 % net sales were $ 8,253.7 million in the year ended december 31 , 2017 , an increase of $ 180.0 million , or 2.2 % , from the year ended december 31 , 2016 . the increase in net sales from acquisitions was driven by the september 2017 tagma acquisition in the rest of world segment , the march 2016 nexus ag acquisition in canada , and the march 2016 bodine acquisition in the usa . the decrease in net sales from reported sales volumes was driven by the usa , emea , and rest of world segments , partially offset by higher sales volumes in the canada segment . the increase in net sales from changes in sales pricing and product mix was driven by all of our segments . foreign currency translation increased net sales due to the us dollar weakening against the canadian dollar , euro , and brazilian real , partially offset by the strengthening of the us dollar against the british pound and the mexican peso . refer to the “ segment results ” for the year ended december 31 , 2017 discussion for additional information . 45 gross profit gross profit percentage change due to : acquisitions 0.2 % reported sales volumes ( 5.8 ) % sales pricing , product costs and other adjustments 9.5 % foreign currency translation 0.6 % total 4.5 % gross profit increased $ 78.4 million , or 4.5 % , to $ 1,805.5 million for the year ended december 31 , 2017 . story_separator_special_tag 52 gross profit gross profit percentage change due to : acquisitions 2.0 % reported sales volumes ( 4.1 ) % sales pricing , product costs and other adjustments ( 0.6 ) % foreign currency translation ( 1.3 ) % total ( 4.0 ) % gross profit decreased $ 72.0 million , or 4.0 % , to $ 1,727.1 million for the year ended december 31 , 2016. the increase in gross profit from acquisitions was primarily driven by the november 2015 weavertown , march 2016 bodine , and july 2015 chemical associates acquisitions in the us ; and the october 2015 future/bluestar and march 2016 nexus ag acquisitions in canada . the decrease in gross profit from reported sales volumes primarily resulted from reductions in upstream oil and gas products driven by reduced market demand . the decrease in gross profit from changes in sales pricing , product costs and other adjustments was primarily driven by the usa segment , partially offset by increases in the canada , emea , and rest of world segments . foreign currency translation decreased gross profit due to the us dollar strengthening against all major currencies . gross margin , which we define as gross profit divided by net sales , increased to 21.4 % in the year ended december 31 , 2016 from 20.0 % in the year ended december 31 , 2015. refer to the “ segment results ” for the year ended december 31 , 2016 discussion for additional information . outbound freight and handling outbound freight and handling expenses decreased $ 38.0 million , or 11.7 % , to $ 286.6 million for the year ended december 31 , 2016. foreign currency translation decreased outbound freight and handling expense by 0.7 % or $ 2.3 million . on a constant currency basis , outbound freight and handling expenses decreased 11.0 % or $ 35.7 million , which was attributable to lower reported sales volumes . refer to the “ segment results ” for the year ended december 31 , 2016 discussion for additional information . warehousing , selling and administrative warehousing , selling and administrative expenses increased $ 3.4 million , or 0.4 % , to $ 877.8 million for the year ended december 31 , 2016. foreign currency translation decreased warehousing , selling and administrative expenses by 1.1 % or $ 9.8 million . the $ 13.2 million increase was primarily driven by $ 16.4 million of incremental operating expenses from acquisitions , $ 10.4 million in higher personnel expenses primarily due annual compensation increases , and a reduction of $ 7.9 million of gains from the medical retiree benefit plan have now been fully amortized from accumulated other comprehensive income . partially offsetting the increases were $ 12.1 million of lower variable compensation expense and cost reductions of $ 3.5 million of lower contract labor expenses , $ 3.1 million of lower travel and entertainment expenses , and $ 3.0 million of lower information technology expenses driven by efforts to control costs . the remaining $ 0.2 million increase related to several insignificant components . refer to the “ segment results ” for the year ended december 31 , 2016 discussion for additional information . other operating expenses , net other operating expenses , net decreased $ 1.6 million , or 1.5 % , to $ 104.5 million for the year ended december 31 , 2016. the decrease was primarily related to a reduction of $ 26.2 million in fees paid to our pre-initial public offering significant stockholders , cvc capital partners ( “ cvc ” ) and clayton , dubilier & rice , llc ( “ cd & r ” ) resulting from the termination of the management contracts with cvc and cd & r as part of our june 2015 ipo . also contributing to the decrease was $ 25.8 million of lower redundancy and restructuring charges ( primarily severance costs ) in the year ended december 31 , 2016 compared to the year ended december 31 , 2015. the cost savings from the prior redundancy and restructuring programs have been largely completed as of december 31 , 2016 and represent $ 10.0 million of annual savings . approximately 85 percent of the savings are within warehouse , selling and administrative expenses and 15 percent within cost of goods sold . just over half of these cost savings were achieved this year and were primarily within the usa and emea segments . cost savings from these programs will help offset other investments we make in our business and the impact of inflation . these estimated cost savings are based on information currently available to us . there can be no guarantee that all or any of these cost savings will actually be achieved . the actual amount of costs savings , if any , may differ materially from the above estimates . refer to “ note 5 : restructuring charges ” in item 8 of this annual report on form 10-k for additional information . the decrease in costs was primarily offset by a pension mark to market and related adjustments of $ 67.3 million which was $ 50.2 million higher than the year ended december 31 , 2015 , and $ 2.9 million of stock-based compensation primarily due to incremental expenses related to awards made in 2016. the remaining decrease was driven by lower consulting fees incurred of 53 $ 2.8 million and decreased acquisition and integration expenses of $ 1.6 million during the year ended december 31 , 2016. the remaining $ 1.7 million increase related to several insignificant components . foreign currency translation decreased other operating expenses , net by $ 6.4 million , or 6.0 % . refer to “ note 4 : other operating expenses , net ” in item 8 of this annual report on form 10-k for additional information . depreciation and amortization depreciation expense increased $ 15.8 million , or 11.6 % , to $ 152.3 million for

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loss on extinguishment of debt increased $ 3.8 million for the year ended december 31 , 2017 . the $ 3.8 million loss on extinguishment of debt in the year ended december 31 , 2017 related to the write off of unamortized debt discount and debt issuance costs related to the january 2017 and november 2017 debt amendments of the senior term b loan agreement . refer to “ note 15 : debt ” in item 8 of our annual report on form 10-k for additional information . other expense , net other expense , net increased $ 27.1 million , or 444.3 % , to $ 33.2 million for the year ended december 31 , 2017 . the increase was primarily due to the $ 12.3 million change in mark to market for interest rate swaps resulting from a gain of $ 10.1 million during the year ended december 31 , 2016 compared to a $ 2.2 million loss in the year ended december 31 , 2017 . the increase was also driven by $ 5.3 million in fees related to the january 2017 and november 2017 amendments of the senior term b loan agreement . also contributing to the increase were $ 4.2 million in higher foreign currency denominated loan revaluation losses and $ 4.0 million in higher foreign currency transactions . the remaining $ 1.3 million increase is related to several insignificant components . refer to “ note 15 : debt ” and “ note 17 : derivatives ” in item 8 of this annual report on form 10-k for additional information . refer to “ note 6 : other expense , net ” in item 8 of this annual report on form 10-k for additional information . income tax expense ( benefit ) income tax expense increased $ 60.2 million from an income tax benefit of $ 11.2 million in the year ended december 31 , 2016 to an income tax expense of $ 49.0 million in the year ended december 31 , 2017 .

refinance existing debt as it matures ; · because of our holding company structure , the inability of our subsidiaries to pay dividends to the holding company in sufficient amounts could harm the holding company 's ability to meet its obligations ; · legislative , regulatory or tax changes , both domestic and foreign , that affect the cost of , or demand for , our subsidiaries ' products , the required amount of reserves and or surplus , or otherwise affect our ability to conduct business , including changes to statutory reserve requirements related to secondary guarantees under universal life , such as a change to reserve calculations under actuarial guideline 38 ( also known as the application of the valuation of life insurance policies model regulation , or “ ag38 ” ) , and variable annuity products under actuarial guideline 43 ( also known as commissioners annuity reserve valuation method for variable annuities , or “ ag43 ” ) ; restrictions on revenue sharing and 12b-1 payments ; and the potential for u.s. federal tax reform ; · uncertainty about the effect of rules and regulations to be promulgated under the dodd-frank wall street reform and consumer protection act on us and the economy and the financial services sector in particular ; · the initiation of legal or regulatory proceedings against us , and the outcome of any legal or regulatory proceedings , such as : adverse actions related to present or past business practices common in businesses in which we compete ; adverse decisions in 35 significant actions including , but not limited to , actions brought by federal and state authorities and class action cases ; new decisions that result in changes in law ; and unexpected trial court rulings ; · changes in or sustained low interest rates causing a reduction in investment income , the interest margins of our businesses , estimated gross profits and demand for our products ; · a decline in the equity markets causing a reduction in the sales of our subsidiaries ' products , a reduction of asset-based fees that our subsidiaries charge on various investment and insurance products , an acceleration of the net amortization of deferred acquisition costs ( “ dac ” ) , value of business acquired ( “ voba ” ) , deferred sales inducements ( “ dsi ” ) and deferred front-end loads ( “ dfel ” ) and an increase in liabilities related to guaranteed benefit features of our subsidiaries ' variable annuity products ; · ineffectiveness of our risk management policies and procedures , including various hedging strategies used to offset the effect of changes in the value of liabilities due to changes in the level and volatility of the equity markets and interest rates ; · a deviation in actual experience regarding future persistency , mortality , morbidity , interest rates or equity market returns from the assumptions used in pricing our subsidiaries ' products , in establishing related insurance reserves and in the net amortization of dac , voba , dsi and dfel , which may reduce future earnings ; · changes in gaap , including the potential incorporation of international financial reporting standards ( “ ifrs ” ) into the u.s. financial reporting system , that may result in unanticipated changes to our net income ; · lowering of one or more of our debt ratings issued by nationally recognized statistical rating organizations and the adverse effect such action may have on our ability to raise capital and on our liquidity and financial condition ; · lowering of one or more of the insurer financial strength ratings of our insurance subsidiaries and the adverse effect such action may have on the premium writings , policy retention , profitability of our insurance subsidiaries and liquidity ; · significant credit , accounting , fraud , corporate governance or other issues that may adversely affect the value of certain investments in our portfolios , as well as counterparties to which we are exposed to credit risk , requiring that we realize losses on investments ; · the effect of acquisitions and divestitures , restructurings , product withdrawals and other unusual items ; · the adequacy and collectibility of reinsurance that we have purchased ; · acts of terrorism , a pandemic , war or other man-made and natural catastrophes that may adversely affect our businesses and the cost and availability of reinsurance ; · competitive conditions , including pricing pressures , new product offerings and the emergence of new competitors , that may affect the level of premiums and fees that our subsidiaries can charge for their products ; · the unknown effect on our subsidiaries ' businesses resulting from changes in the demographics of their client base , as aging baby-boomers move from the asset-accumulation stage to the asset-distribution stage of life ; and · loss of key management , financial planners or wholesalers . the risks included here are not exhaustive . other sections of this report , our quarterly reports on form 10-q , current reports on form 8-k and other documents filed with the securities and exchange commission ( “ sec ” ) include additional factors that could affect our businesses and financial performance , including “ part i – item 1a . risk factors , ” “ part ii – item 7a . quantitative and qualitative disclosures about market risk ” and the risk discussions included in this section under “ critical accounting policies and estimates , ” “ consolidated investments ” and “ reinsurance , ” which are incorporated herein by reference . moreover , we operate in a rapidly changing and competitive environment . new risk factors emerge from time to time , and it is not possible for management to predict all such risk factors . story_separator_special_tag 2010-26 , “ accounting for costs associated with acquiring or renewing insurance contracts ” ( referred to herein as the “ new dac methodology ” ) , which clarifies the types of costs incurred by an insurance entity that can be capitalized in the acquisition of insurance contracts . only those costs incurred that result directly from and are essential to the successful acquisition of new or renewal insurance contracts may be capitalized as deferrable acquisition costs . this determination of deferability must be made on a contract-level basis . this new dac methodology contrasts to the existing guidance we follow that defines deferrable acquisition costs as costs that vary with and are related primarily to new or renewal business , regardless of whether the acquisition efforts were successful or unsuccessful . some examples of acquisition costs that remain subject to deferral as part of the new dac methodology include the following : · employee , agent or broker commissions for successful contract acquisitions ; · wholesaler production bonuses for successful contract acquisitions ; · renewal commissions and bonuses to agents or brokers ; · medical and inspection fees for successful contract acquisitions ; · premium-related taxes and assessments ; and · a portion of the salaries and benefits of certain employees involved in the underwriting , contract issuance and processing , medical and inspection and sales force contract selling functions related to the successful issuance or renewal of an insurance contract . all other acquisition-related costs , including costs incurred by the insurer for soliciting potential customers , market research , training , administration , management of distribution and underwriting functions , unsuccessful acquisition or renewal efforts and product development , are considered non-deferrable acquisition costs and must be expensed in the period incurred . in addition , the following indirect costs are considered non-deferrable acquisition costs as part of the new dac methodology and must be charged to expense in the period incurred : · administrative costs ; · rent ; · depreciation ; · occupancy costs ; · equipment costs ( including data processing equipment dedicated to acquiring insurance contracts ) ; and · other general overhead . we will adopt the new dac methodology effective january 1 , 2012 , and have elected to apply the guidance retrospectively . we expect that our adoption of the new dac methodology will result in an overall reduction in deferrable acquisition costs , partially offset by lower dac amortization , in each of our business segments . we currently estimate that retrospective adoption will result in the restatement of all years presented with a cumulative effect adjustment to the opening balance of retained earnings for the earliest period presented of approximately $ 950 million to $ 1.15 billion . in addition , the adoption of this accounting guidance will result in a lower dac adjustment associated with unrealized gains and losses on afs securities and certain derivatives ; therefore , we will also adjust these dac balances through a cumulative effect adjustment to the opening balance of accumulated other comprehensive income ( loss ) ( “ aoci ” ) . this adjustment is dependent on our unrealized position as of the date of adoption . we believe that the total of our segment results would have declined by approximately 5 % to 7 % for 2011 had we applied the provisions of the new dac methodology during 2011. this decline would not have been uniform across our segments as the effect on the life insurance segment would have been greater due to its products having longer contract lives and its more significant voba balance that is not affected by the new methodology . this estimate does not include changes that management may make to mitigate the effects of this new dac methodology . amortization deferrable acquisition costs for variable annuity and deferred fixed annuity contracts and ul and vul policies are amortized over the lives of the contracts in relation to the incidence of estimated gross profits ( “ egps ” ) derived from the contracts . broker commissions or broker-dealer expenses , which vary with and are related to sales of mutual fund products , respectively , are expensed as incurred . for our traditional products , we amortized deferrable acquisition costs either on a straight-line basis or as a level percent of premium of the related contracts , depending on the block of business . egps vary based on a number of sources including policy persistency , mortality , fee income , investment margins , expense margins and realized gains and losses on investments , including assumptions about the expected level of credit-related losses . each of these sources of profit is , in turn , driven by other factors . for example , assets under management and the spread between earned and 41 credited rates drive investment margins ; net amount at risk ( “ nar ” ) drives the level of cost of insurance ( “ coi ” ) charges and reinsurance premiums . the level of separate account assets under management is driven by changes in the financial markets ( equity and bond markets , hereafter referred to collectively as “ equity markets ” ) and net flows . realized gains and losses on investments include amounts resulting from differences in the actual level of impairments and the levels assumed in calculating egps . we amortize dac , voba , dsi and dfel in proportion to our egps for interest-sensitive products . when actual gross profits are higher in the period than egps , we recognize more amortization than planned . when actual gross profits are lower in the period than egps , we recognize less amortization than planned . in a calendar year where the gross profits for a certain group of policies , or “ cohorts , ” are negative , our actuarial process limits , or floors , the amortization expense offset to zero . for a discussion of the periods

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liquidity and capital resources sources of liquidity and cash flow liquidity refers to the ability of an enterprise to generate adequate amounts of cash from its normal operations to meet cash requirements with a prudent margin of safety . our principal sources of cash flow from operating activities are insurance premiums and fees and investment income , while sources of cash flows from investing activities result from maturities and sales of invested assets . our operating activities provided cash of $ 1.3 billion , $ 1.7 billion and $ 937 million in 2011 , 2010 and 2009 , respectively . when considering our liquidity and cash flow , it is important to distinguish between the needs of our insurance subsidiaries and the needs of the holding company , lnc . as a holding company with no operations of its own , lnc derives its cash primarily from its operating subsidiaries . the sources of liquidity of the holding company are principally comprised of dividends and interest payments from subsidiaries , augmented by holding company short-term investments , bank lines of credit and the ongoing availability of long-term public financing under an sec-filed shelf registration statement . these sources of liquidity and cash flow support the general corporate needs of the holding company , including its common and preferred stock dividends , interest and debt service , funding of callable securities , securities repurchases , acquisitions and investment in core businesses . our cash flows associated with collateral received from and posted with counterparties change as the market value of the underlying derivative contract changes . as the value of a derivative asset declines ( or increases ) , the collateral required to be posted by our counterparties would also decline ( or increase ) .

the company 's earnings from operations and net earnings in the 2012 fiscal year were also reduced by the pre-tax charge of $ 1.3 million recorded 27 by the company in the 2012 fiscal year fourth quarter in connection with the closing of its pacm business unit located in waterbury , connecticut . in the 2012 fiscal year second quarter , the company recognized a pre-tax gain of $ 1.6 million resulting from the settlement of a lawsuit for an insurance claim for business interruption at the company 's neltec , inc. business unit in tempe , arizona in the 2003 fiscal year caused by the explosion and resulting destruction of a treater at the company 's business unit in singapore and the settlement of a lawsuit pertaining to defective equipment purchased by the company 's patc business unit in newton , kansas . the company 's net earnings in the 2012 fiscal year were lower than in the 2011 fiscal year primarily as a result of the lower earnings from operations in the 2012 fiscal year than in the 2011 fiscal year , which were only partially offset by the litigation settlement gain , described above , realized by the company in the 2012 fiscal year and the lower income tax provision in the 2012 fiscal year than in the 2011 fiscal year . the increase in the company 's total net sales in the 2011 fiscal year compared to the 2010 fiscal year resulted in higher earnings from operations in the 2011 fiscal year than in the 2010 fiscal year , as the company 's gross profit margin , measured as a percentage of sales , improved to 33.0 % in the 2011 fiscal year compared to 29.4 % in the 2010 fiscal year . the company 's operating and earnings performance during the 2011 fiscal year also benefited from the higher percentage of sales of higher margin , high performance printed circuit materials during the 2011 fiscal year . however , the company 's operating and earnings performances were adversely affected by losses incurred at the company 's patc business unit in newton , kansas in the 2011 fiscal year as well as in the 2010 fiscal year . the company 's earnings from operations in the 2011 fiscal year were also reduced by the pre-tax charge of $ 1.3 million recorded by the company in the three-month period ended november 28 , 2010 related to the closure , in january of 2009 , of the operations of neltec europe sas , the company 's digital electronic materials business unit located in mirebeau , france . the company 's net earnings in the 2011 fiscal year were substantially higher than its net earnings in the 2010 fiscal year as a result of the company 's strong operating performance in the 2011 fiscal year and despite the aforementioned $ 1.3 million charge and despite the higher income tax provision in the 2011 fiscal year than in the 2010 fiscal year . the company 's net earnings for the 2010 fiscal year were impacted by a tax benefit of $ 3.1 million for the reduction of certain deferred tax liabilities in singapore related to a temporary tax incentive for offshore interest repatriation and by a charge of $ 1.2 million of additional tax reserves in the united states , both recorded in the fourth quarter of the 2010 fiscal year . such earnings were also impacted by a $ 0.9 million tax benefit primarily for a retroactive extension of a development and expansion tax incentive in singapore , recorded in the third quarter of the 2010 fiscal year . the markets in north america , asia and europe for the company 's printed circuit materials products strengthened in the 2010 fiscal year third and fourth quarters after prevailing weakness in the 2010 fiscal year first and second quarters , and such strength continued in the 2011 fiscal year but dissipated in the 2012 fiscal year . 28 the markets for the company 's advanced composite materials , parts and assemblies products were weak during the 2010 fiscal year but showed some small signs of improvement during the 2011 and 2012 fiscal years . the global markets for the company 's printed circuit materials products continue to be very difficult to forecast , and it is not clear to the company what the condition of the global markets for the company 's printed circuit materials products will be in the 2013 fiscal year . further , the company is not able to predict the impact the current global economic and financial conditions will have on the markets for its aerospace composite materials , parts and assemblies products in the 2013 fiscal year . in the 2012 fiscal year third quarter , the company completed a major expansion of its aerospace composite materials development and manufacturing facility in kansas in order to manufacture aerospace composite parts and assemblies . the expansion includes approximately 37,000 square feet of manufacturing and storage space , and the company spent approximately $ 5 million on the facility expansion and equipment . while the company continues to invest in its business , it also has made adjustments to certain of its operations , which resulted in workforce reductions and plant closures . in the 2012 fiscal year fourth quarter , the company announced that its pacm facility , located in waterbury , connecticut , would be closing its operations after the completion of the transfer of pacm 's aerospace composite materials manufacturing activities to the company 's patc facility located at the newton , kansas airport . the company expects such transfer to be completed in the second quarter of the 2013 fiscal year . story_separator_special_tag the company 's earnings from operations in the 2011 fiscal year were adversely affected by the pre-tax charge of $ 1.3 million recorded by the company in the three-month period ended november 28 , 2010 related to the closure , in january of 2009 , of the operations of neltec europe sas , the company 's printed circuit materials business unit located in mirebeau , 33 france , and the company 's net earnings in the 2011 fiscal year were adversely affected by such charge and by the higher income tax provision in the 2011 fiscal year than in the 2010 fiscal year . the company 's net earnings for the 2010 fiscal year were impacted by a tax benefit of $ 3.1 million for the reduction of certain deferred tax liabilities in singapore related to a temporary tax incentive for offshore interest repatriation and by a charge of $ 1.2 million for additional tax reserves in the united states , both recorded in the fourth quarter of the 2010 fiscal year . such earnings were also impacted by a $ 0.9 million tax benefit primarily for a retroactive extension of a development and expansion tax incentive in singapore , recorded in the third quarter of the 2010 fiscal year . the company 's earnings from operations and net earnings in both the 2011 and 2010 fiscal years were reduced by losses incurred at the company 's patc business unit . results of operations the company 's total net sales worldwide for the fiscal year ended february 27 , 2011 increased 20 % to $ 211.7 million from $ 175.7 million for the fiscal year ended february 28 , 2010. the increase in net sales was the result of higher unit volumes of printed circuit materials products shipped by the company 's operations in north america , asia and europe . total net sales of the company 's advanced composite materials , parts and assemblies products increased to $ 23.3 million in the 2011 fiscal year from $ 23.2 million in the 2010 fiscal year and comprised 11 % and 13 % , respectively , of the company 's total net sales worldwide in the 2011 and 2010 fiscal years . the company 's foreign sales were $ 112.8 million , or 53 % of the company 's total net sales worldwide , during the 2011 fiscal year , compared to $ 88.3 million of sales , or 50 % of total net sales worldwide , during the 2010 fiscal year and 48 % of total net sales worldwide during the 2009 fiscal year . the company 's foreign sales during the 2011 fiscal year increased 28 % from the 2010 fiscal year primarily as a result of increases in sales in europe and asia . for the fiscal year ended february 27 , 2011 , the company 's sales in north america , asia and europe were 47 % , 43 % and 10 % , respectively , of the company 's total net sales worldwide compared to 50 % , 40 % and 10 % , respectively , for the fiscal year ended february 28 , 2010. the company 's sales in north america increased 18 % , its sales in asia increased 41 % and its sales in europe increased 32 % in the 2011 fiscal year compared to the 2010 fiscal year . the gross profit as a percentage of net sales for the company 's worldwide operations improved to 33.0 % during the 2011 fiscal year compared to 29.4 % during the 2010 fiscal year . the improvement in the gross profit margin was attributable primarily to operating efficiencies resulting from the higher total net sales in the 2011 fiscal year as well as to the higher percentage of sales of higher margin , high performance printed circuit materials products in the 2011 fiscal year . during the fiscal year ended february 27 , 2011 , 74 % of the company 's total net sales worldwide of printed circuit materials consisted of high performance printed circuit materials , compared to 68 % for the 2010 fiscal year . 34 the company 's cost of sales increased by 14 % in the 2011 fiscal year from the 2010 fiscal year as a result of higher sales and higher production volumes in the 2011 fiscal year than in the 2010 fiscal year , but the company 's cost of sales as a percentage of net sales decreased to 67.0 % in the 2011 fiscal year from 70.6 % in the 2010 fiscal year resulting in a gross profit margin increase from 29.4 % to 33.0 % , which was attributable to operating efficiencies resulting from the higher total net sales in the 2011 fiscal year as well as to the higher percentage of sales of higher margin , high performance printed circuit materials products in the 2011 fiscal year than in the 2010 fiscal year . selling , general and administrative expenses increased by $ 3.4 million , or by 14 % , during the 2011 fiscal year compared to the 2010 fiscal year , but these expenses , measured as a percentage of sales , were 13.2 % during the 2011 fiscal year compared to 14.0 % during the 2010 fiscal year . the increase in such expenses in the 2011 fiscal year was attributable primarily to increases in freight costs and commissions , which vary with shipments , and increases in legal fees and expenses . selling , general and administrative expenses included $ 1.0 million for the 2011 fiscal year for stock option expenses compared to $ 1.1 million for the 2010 fiscal year . the company 's earnings from operations in both the 2011 and 2010 fiscal years were reduced by losses incurred at the company 's patc business unit . in the 2011 fiscal year third quarter , the company recorded a pre-tax charge of $ 1.3 million related to the closure

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liquidity and capital resources : at february 26 , 2012 , the company 's cash and marketable securities were $ 268.8 million compared to $ 250.4 million at february 27 , 2011 , the end of the company 's 2011 fiscal year . of that $ 268.8 million , approximately $ 198.0 million was owned by certain of the company 's wholly owned foreign subsidiaries . it is the company 's practice and intent to reinvest such cash owned by its foreign subsidiaries in the operations of its foreign subsidiaries or in other foreign activities . the company 's working capital ( which includes cash and marketable securities ) was $ 290.1 million at february 26 , 2012 compared to $ 271.7 million at february 27 , 2011. the increase in working capital at february 26 , 2012 compared to february 27 , 2011 was due principally to the increase in cash and marketable securities , an increase in inventories and decreases in accounts payable , accrued liabilities and income taxes payable partially offset by decreases in accounts receivable and other current assets . the change in cash and marketable securities at february 26 , 2012 compared to february 27 , 2011 was the result of cash provided by operating activities and a number of additional factors , including the following . inventories increased 23 % at february 26 , 2012 compared to february 27 , 2011 primarily due to increases in the quantities of raw materials and finished goods inventories . accounts payable decreased by 15 % at february 26 , 2012 compared to february 27 , 2011 primarily as a result of lower sales and production volumes in the 2012 fiscal year fourth quarter compared to such volumes in the 2011 fiscal year fourth quarter . accrued liabilities were 7 % lower at february 26 , 2012 than at february 27 , 2011 due primarily to lower employee benefits .

we are also commercializing the unyvero lrt bal test for testing bronchoalveolar lavage , or bal , specimens from patients with lower respiratory tract infections following fda clearance received by curetis in december 2019. the unyvero lrt bal automated test simultaneously detects 20 pathogens and 10 antibiotic resistance markers , and it is the first and only fda-cleared panel that now also includes pneumocystis jirovecii , a key fungal pathogen often found in immunocompromised patients that can be difficult to diagnose as the 20 th pathogen on the panel . we believe the unyvero lrt and lrt bal tests have the ability to help address a significant , previously unmet medical need that causes over $ 10 billion in annual costs for the u.s. healthcare system , according to the centers for disease control , or cdc . · the unyvero urinary tract infection , or uti , test which is ce-ivd marked in europe is currently being made available to laboratories in the u.s. as a research use only or ruo kit . the test detects a broad range of pathogens as well as antimicrobial resistance markers directly from native urine specimens . as part of our portfolio strategy update on october 13 , 2020 , we have decided to proceed with the analytical and clinical performance evaluation including clinical trials required for a subsequent u.s. fda submission . · the unyvero invasive joint infection , or iji , test , which is a variant developed for the u.s. market based on the ce-ivd-marked european unyvero iti test , has also been selected for analytical and clinical performance evaluation including clinical trials towards a future u.s. fda submission . microbial diagnosis of iji is difficult because of challenges in sample collection , usually at surgery , and patients being on prior antibiotic therapy which minimizes the chances of recovering viable bacteria . we believe that unyvero iji could be useful in identifying pathogens as well as their amr markers to help guide optimal antibiotic treatment for these patients . 55 · the acuitas amr gene panel ( isolates ) is currently pending final fda review and a potential clearance decision . the fda recently notified us that the agency plans to continue prioritizing emergency use authorization requests for diagnostic products intended to address the covid-19 pandemic for at least the remainder of the year , which will impact the statutory review periods for submissions , including the potential clearance decision on our acuitas amr gene panel ( isolates ) submission . despite the fda having informed us of their resumed review at the end of january 2021 of the responses filed by opgen to the ai letters , the fda still does not commit to any mdufa timelines . once fda cleared , we expect to commercialize the acuitas amr gene panel for isolates more broadly to customers in the u.s. the acuitas amr gene panel ( urine ) test has been discontinued as part of the october 13 , 2020 portfolio and pipeline strategy review . · we are also developing novel bioinformatics tools and solutions to accompany or augment our current and potential future ivd products and may seek regulatory clearance for such bioinformatics tools and solutions to the extent they would be required either as part of our portfolio of ivd products or even as a standalone bioinformatics product . opgen has extensive offerings of additional in vitro diagnostic tests including ce-ivd-marked unyvero tests for hospitalized pneumonia patients , implant and tissue infections , intra-abdominal infections , complicated urinary tract infections , and blood stream infections . our portfolio furthermore includes a ce-ivd-marked pcr based rapid test kit for sars cov-2 detection in combination with our pcr compatible universal lysis buffer ( pulb ) which we also market as a stand-alone ruo reagent . opgen 's combined amr bioinformatics offerings , once such products are cleared for marketing , if ever , will offer important new tools to clinicians treating patients with amr infections . we have collaborated with merck , inc. to establish the acuitas lighthouse knowledgebase , which is currently commercially available in the united states for ruo . the acuitas lighthouse knowledgebase includes approximately 15,000 bacterial isolates from the merck smart surveillance network of 192 hospitals in 52 countries and other sources . ares genetics ' aresdb is a comprehensive database of genetic and phenotypic information . aresdb was originally designed based on the siemens microbiology strain collection covering resistant pathogens and its development has significantly expanded , also by transferring data from the acuitas lighthouse® into aresdb to now cover approximately 55,000 bacterial isolates that have been sequenced using ngs technology and tested for susceptibility with applicable antibiotics from a range of over 100 antimicrobial drugs . in september 2019 , ares genetics signed a technology evaluation agreement with an undisclosed global ivd corporation . in the collaboration , ares genetics further enriched aresdb with a focus on certain pathogens relevant in a first , undisclosed infectious disease indication . following the successful completion of this collaborative r & d project , the ivd partner exercised their option for a 90-day period of exclusive negotiations with ares genetics for a potential exclusive license to aresdb in the field of human clinical diagnostics . following the lapse of such 90-day period without any commercial deal being signed , ares genetics is now in multiple , nonexclusive parallel discussions with several interested parties and such discussions are ongoing . in addition to potential future licensing and partnering , opgen 's subsidiary ares genetics intends to independently utilize the proprietary biomarker content in these databases , as well as to build an independent business in ngs and ai based offerings for amr research and diagnostics in collaboration with its current and potential future partners in the life science , pharmaceutical and diagnostics industries . story_separator_special_tag critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer/distributions relationships , developed technology , and in-process research & development discount rates , and terminal values . our estimate of fair value is based upon assumptions believed to be reasonable , but actual results may differ from estimates . we determine the fair value of assumed debt using a discounted cash flow analysis using interest rates for debt with similar terms and maturities . differences between the fair value and the stated value is recorded as a discount or premium and amortized over the remaining term using the effective interest method . we utilize a monte carlo simulation method to determine the fair value of conversion notes , which utilizes inputs including the common stock price , volatility of common stock , the risk-free interest rate and the probability of conversion to common shares at the conversion rate . other estimates associated with the accounting for the acquisition may change as additional information becomes available regarding the assets acquired and liabilities assumed , as more fully discussed in note 4 – business combination of the notes to the consolidated financial statements ( part ii , item 8 of this form 10-k ) . 61 revenue recognition the company derives revenues from ( i ) the sale of quickfish and pna fish diagnostic test products , unyvero application cartridges , unyvero systems , sars cov-2 tests , acuitas amr gene panel ruo test products , ( ii ) providing laboratory services , and ( iii ) providing collaboration services including funded software arrangements , and license arrangements . the company analyzes contracts to determine the appropriate revenue recognition using the following steps : ( i ) identification of contracts with customers , ( ii ) identification of distinct performance obligations in the contract , ( iii ) determination of contract transaction price , ( iv ) allocation of contract transaction price to the performance obligations and ( v ) determination of revenue recognition based on timing of satisfaction of the performance obligation . the company recognizes revenues upon the satisfaction of its performance obligation ( upon transfer of control of promised goods or services to our customers ) in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services . the company defers incremental costs of obtaining a customer contract and amortizes the deferred costs over the period that the goods and services are transferred to the customer . the company had no material incremental costs to obtain customer contracts in any period presented . deferred revenue results from amounts billed in advance to customers or cash received from customers in advance of services being provided . impairment of long-lived assets property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . recoverability measurement and estimating of undiscounted cash flows is done at the lowest possible level for which we can identify assets . if such assets are considered to be impaired , impairment is recognized as the amount by which the carrying amount of assets exceeds the fair value of the assets . definite-lived intangible assets include trademarks , developed technology , software and customer relationships . if any indicators were present , the company would test for recoverability by comparing the carrying amount of the asset to the net undiscounted cash flows expected to be generated from the asset . if those net undiscounted cash flows do not exceed the carrying amount ( i.e . , the asset is not recoverable ) , the company would perform the next step , which is to determine the fair value of the asset and record an impairment loss , if any . acquired in-process research & development represents the fair value assigned to those research and development projects that were acquired in a business combination for which the related products have not received regulatory approval and have no alternative future use . ipr & d is capitalized at its fair value as an indefinite-lived intangible asset , and any development costs incurred after the acquisition are expensed as incurred . upon achieving regulatory approval or commercial viability for the related product , the indefinite-lived intangible asset is accounted for as a finite-lived asset and is amortized on a straight-line basis over the estimated useful life . if the project is not completed or is terminated or abandoned , the company may have an impairment related to the ipr & d which is charged to expense . indefinite-lived intangible assets are tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount may be impaired . impairment is calculated as the excess of the asset 's carrying value over its fair value . goodwill represents the excess of the purchase price paid when the company acquired advandx , inc. in july 2015 and curetis in april 2020 , over the fair values of the acquired tangible or intangible assets and assumed liabilities . the company will conduct an impairment test of goodwill on an annual basis as of december 31 of each year and will also conduct tests if events occur or circumstances change that would , more likely than not , reduce the company 's fair value below its net equity value . share-based compensation share-based payments to employees , directors and consultants are recognized at fair value . the resulting fair value is recognized ratably over the requisite service period , which is generally the vesting period of the option . the estimated fair value of equity instruments issued to nonemployees is recorded at fair value on

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liquidity and capital resources at december 31 , 2020 , the company had cash and cash equivalents of $ 13.4 million , compared to $ 2.7 million at december 31 , 2019. the company has funded its operations primarily through external investor financing arrangements and has raised significant funds in 2020 and 2019 , including : on november 25 , 2020 , the company closed the 2020 pipe of 2,245,400 shares of common stock together with 2,597,215 pre-funded warrants . the 2020 pipe raised aggregate net proceeds of $ 9.3 million , and gross proceeds of $ 10.0 million . on february 11 , 2020 , we entered into the 2020 atm agreement , pursuant to which we may offer and sell from time to time at our option , up to an aggregate of $ 22.1 million of shares of our common stock through the sales agents . during the year ended december 31 , 2020 , the company sold 7,521,610 shares of its common stock under the 2020 atm offering resulting in aggregate net proceeds of approximately $ 15.8 million , and gross proceeds of $ 16.7 million . 59 during the year ended december 31 , 2020 , approximately 4.3 million common warrants issued in the company 's october 2019 public offering were exercised raising net proceeds of approximately $ 8.7 million . on october 28 , 2019 , the company closed the october 2019 public offering of 2,590,170 units at $ 2.00 per unit and 2,109,830 pre-funded units at $ 1.99 per pre-funded unit .

the las vegas economy , although severely impacted by the recession and housing crisis that spanned from 2008 to 2011 , began to stabilize in 2012 and , based on population and employment growth , was one of the fastest growing economies in the united states from 2015 to 2017. based on a recent u.s. census bureau release , nevada was second among all states in percentage growth of population from july 2015 to july 2017. in addition , based on preliminary data for december 2017 from the bureau of labor statistics , las vegas experienced a 3.1 % year-over-year increase in employment to 998,800 , which is an all-time high . this resulted in an unemployment rate of 4.9 % which has declined from 14.1 % in july 2011. businesses and consumers in las vegas continue to increase their spending as evidenced by 57 consecutive months of year-over-year increases in taxable retail sales from february 2013 to october 2017. home values have also improved significantly over the past several years with the median price of an existing single family home in las vegas up approximately 140 % at december 2017 compared to january 2012 , as reported by the greater las vegas association of realtors . the las vegas economy has shown recent improvements in employment , taxable sales and home prices , and we believe the stabilization of the local economy , positive trends in many of the key economic indicators and future projects and 41 infrastructure investments provide a foundation for future growth in our business . although we experienced improved operating results over the past few years due , in part , to more favorable local economic conditions , we can not be sure if , or how long , these favorable market conditions will persist or that they will continue to positively impact our results of operations . information about our results of operations is included herein and in the notes to our consolidated financial statements . our key performance indicators we use certain key indicators to measure our performance . gaming revenue measures : slot handle , table game drop and race and sports write are measures of volume . slot handle represents the dollar amount wagered in slot machines , and table game drop represents the total amount of cash and net markers issued that are deposited in table game drop boxes . write represents the aggregate dollar amount wagered on race and sports events . win represents the amount of wagers retained by us and recorded as casino revenue . hold represents win as a percentage of slot handle or table game drop . as our customers are primarily las vegas residents , our hold percentages are generally consistent from period to period . fluctuations in our casino revenue are primarily due to the volume and spending levels of customers at our properties . food and beverage revenue measures : average guest check is a measure of sales volume and product offerings , and represents the average amount spent per customer visit . number of guests served is an indicator of volume . room revenue measures : occupancy is calculated by dividing total occupied rooms , including complimentary rooms , by total rooms available . average daily rate ( “ adr ” ) is calculated by dividing total room revenue , which includes the retail value of complimentary rooms , by total rooms occupied , including complimentary rooms . revenue per available room is calculated by dividing total room revenue by total rooms available . 42 results of operations the following table presents information about our results of continuing operations ( dollars in thousands ) : replace_table_token_5_th n/m = not meaningful we view each of our las vegas casino properties as individual operating segments . we aggregate all of our las vegas operating segments into one reportable segment because all of our las vegas properties offer similar products , cater to the same customer base , have the same regulatory and tax structure , share the same marketing programs , are directed by a centralized management structure and have similar economic characteristics . we also aggregate our native american management arrangements into one reportable segment . the results of operations for our native american management segment are discussed in the section entitled “ management fee revenue ” below and the results of operations of our las vegas operations 43 are discussed in the remaining sections below . references herein to same-store basis represent results of operations excluding the impact of operations of palms from october 1 , 2016 , the date of acquisition , through december 31 , 2017 . net revenues . net revenues for the year ended december 31 , 2017 increase d by 11.2 % to $ 1.62 billion as compared to $ 1.45 billion for the year ended december 31 , 2016 primarily due to the acquisition of palms . same-store net revenues , which are further discussed below , increase d 3.5 % year over year , despite the negative impact related to construction disruption at palace station associated with the upgrade and expansion project that commenced during the fourth quarter of 2016. net revenues for the year ended december 31 , 2016 increase d by 7.4 % to $ 1.45 billion as compared to $ 1.35 billion for the year ended december 31 , 2015 , and same-store net revenues increased 4.6 % year over year . the increase in net revenues during 2016 is further discussed below . operating income . operating income increase d to $ 330.4 million for the year ended december 31 , 2017 as compared to $ 309.4 million for the year ended december 31 , 2016 . story_separator_special_tag during the year ended december 31 , 2017 , we recognized a $ 16.9 million net loss on extinguishment/modification of debt . this included losses on extinguishment/modification of debt of $ 27.2 million related to the redemption of the 7.50 % senior notes and $ 4.7 million related to credit facility amendments completed throughout the year , partially offset by a $ 14.9 million gain on debt extinguishment related to the restructured land loan recognized in june 2017. during the year ended december 31 , 2016 , we recognized a $ 7.3 million loss on extinguishment/modification of debt , primarily related to the refinancing of station llc 's credit facility in june 2016. as a result of the 2016 refinancing , station llc recognized a $ 6.6 million loss on extinguishment/modification of debt related to the extinguished portion of the debt . change in fair value of derivative instruments . during the year ended december 31 , 2017 , we recognized a $ 14.1 million net gain on the change in fair value of our interest rate swaps . the gain was primarily due to libor movements and our election to no longer apply hedge accounting beginning july 2017. provision for income tax . income tax expense totaled $ 134.8 million and $ 8.2 million for the years ended december 31 , 2017 and 2016 , respectively . the provision for income taxes in 2017 includes the unfavorable impacts of the tax cuts and jobs act due to the remeasurement of our u.s. federal deferred tax assets and liabilities to apply the new 21 % federal tax rate . we were formed on september 9 , 2015 and did not engage in any operations prior to the ipo . we first filed tax returns for tax year 2015 , which is the first tax year subject to examination by taxing authorities for u.s. federal and state income tax purposes . at december 31 , 2017 we held an economic interest of approximately 59.3 % in station holdco , which holds all of the economic interests in station llc . we have been designated as the sole managing member of both station holdco and station llc , and consolidate the financial position and results of operations of station llc and its subsidiaries and station holdco . the approximate 40.7 % ownership in station holdco is considered noncontrolling interest . station holdco is treated as a partnership for income tax reporting and station holdco 's members are liable for federal , state and local income taxes based on their share of station holdco 's taxable income . we are not liable for the noncontrolling interests ' share of station holdco 's taxable income . 47 net income attributable to noncontrolling interests . net income attributable to noncontrolling interests for the years ended december 31 , 2017 , 2016 and 2015 was $ 27.9 million , $ 63.8 million and $ 5.6 million , respectively . the decrease in net income attributable to noncontrolling interests in 2017 as compared to 2016 is primarily due to the decrease in station holdco 's net income as a result of the related party lease termination described above . net income attributable to noncontrolling interests for the period from may 2 , 2016 through december 31 , 2017 represents the portion of net income attributable to the ownership interest in station holdco not held by us , as well as the portion of mpm enterprises , llc 's ( “ mpm ” ) net income that was not attributable to us . net income attributable to noncontrolling interests for periods prior to may 2 , 2016 included the portion of mpm 's net income that was not attributable to us . adjusted ebitda adjusted ebitda for the years ended december 31 , 2017 , 2016 and 2015 for our two reportable segments and a reconciliation of net income to adjusted ebitda are presented below ( amounts in thousands ) . the las vegas operations segment includes all of our las vegas area casino properties and the native american management segment includes our native american management arrangements . replace_table_token_9_th the year over year increases in adjusted ebitda are due to the factors described above . adjusted ebitda is a non-gaap measure that is presented solely as a supplemental disclosure . we believe that adjusted ebitda is a widely used measure of operating performance in our industry and is a principal basis for valuation of gaming companies . we believe that in addition to net income , adjusted ebitda is a useful financial performance measurement for assessing our operating performance because it provides information about the performance of our ongoing core operations excluding non-cash expenses , financing costs , and other non-operational items . adjusted ebitda includes net 48 income plus depreciation and amortization , share-based compensation , write-downs and other charges , net , tax receivable agreement liability adjustment , related party lease termination , asset impairments , interest expense , net , loss on extinguishment/modification of debt , net , change in fair value of derivative instruments , provision for income tax and other , and excludes adjusted ebitda attributable to the noncontrolling interests of mpm . to evaluate adjusted ebitda and the trends it depicts , the components should be considered . each of these components can significantly affect our results of operations and should be considered in evaluating our operating performance , and the impact of these components can not be determined from adjusted ebitda . further , adjusted ebitda does not represent net income or cash flows from operating , investing or financing activities as defined by gaap and should not be considered as an alternative to net income as an indicator of our operating performance . additionally , adjusted ebitda does not consider capital expenditures and other investing activities and should not be considered as a measure of our liquidity . it should be noted that not all gaming companies that report ebitda

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cash flows from investing activities during the year s ended december 31 , 2017 , 2016 and 2015 , we paid $ 248.4 million , $ 162.4 million and $ 129.9 million , respectively , for capital expenditures , which were primarily related to various renovation projects , including the upgrade and expansion project at palace station which commenced in october 2016 and redevelopment of palms , as well as the purchase of slot machines and related gaming equipment . during the year ended december 31 , 2017 we paid $ 23.4 million to a 50 related party to purchase the land subject to the ground leases on which each of boulder station and texas station is located . during the year ended december 31 , 2016 , we paid $ 305.9 million , net of cash received , for the acquisition of palms . also during the year ended december 31 , 2016 , fertitta entertainment sold a consolidated subsidiary , which held an aircraft and related debt , to a related party for $ 8.0 million in cash and collected $ 18.3 million of related party notes . during the year ended december 31 , 2015 , we received $ 26.3 million in proceeds from asset sales , primarily from the sale of land previously held for development . in addition , during the year s ended december 31 , 2017 , 2016 and 2015 , we paid $ 2.5 million , $ 2.7 million and $ 1.8 million , respectively , in reimbursable advances for the north fork project . cash flows from financing activities during the year ended december 31 , 2017 , we completed an aggregate $ 531.9 million upsizing and repricing of station llc 's credit facility and issued $ 550.0 million in aggregate principal amount of 5.00 % senior notes . we paid fees and costs related to the credit facility amendments and 5 % senior notes issuance of $ 24.6 million and $ 6.6 million , respectively .

in october 2016 , we and onesubsea launched the development of our first roam for an estimated cost of approximately $ 12 million ( approximately $ 6 million for our 50 % interest ) , almost all of which will be incurred in 2017. the roam is expected to be available to customers in the third quarter of 2017. economic outlook and industry influences demand for our services is primarily influenced by the condition of the oil and gas industry , and in particular , the willingness of oil and gas companies to spend on operational activities as well as capital projects . the performance of our business is also largely dependent on the prevailing market prices for oil and natural gas , which are impacted by domestic and global economic conditions , hydrocarbon production and capacity , geopolitical issues , weather , and several other factors , including : worldwide economic activity , including available access to global capital and capital markets ; supply and demand for oil and natural gas , especially in the united states , europe , china and india ; regional conflicts and economic and political conditions in the middle east and other oil-producing regions ; actions taken by opec ; the availability and discovery rate of new oil and natural gas reserves in offshore areas ; the exploration and production of onshore shale oil and natural gas ; the cost of offshore exploration for and production and transportation of oil and natural gas ; the level of excess production capacity ; 32 the ability of oil and gas companies to generate funds or otherwise obtain external capital for capital projects and production operations ; the sale and expiration dates of offshore leases in the united states and overseas ; technological advances affecting energy exploration , production , transportation and consumption ; potential acceleration of the development of alternative fuels ; shifts in end-customer preferences toward fuel efficiency and the use of natural gas ; weather conditions and natural disasters ; environmental and other governmental regulations ; and domestic and international tax laws , regulations and policies . the significant decline in oil prices since mid-year 2014 and the resulting difficult industry environment has had a significant adverse impact on investments in oil and gas exploration and production . many oil and gas companies have terminated or not renewed contracts for many of their contracted rigs and have drastically cut investments in exploration and production as well as other operational activities . we expect these challenging industry conditions to continue through 2017 and beyond if oil and gas prices fail to increase to a level conducive to increased activity levels . increased competition for limited offshore oil and gas projects has driven down rates that drilling rig contractors are charging for their services , which affects all offshore oil and gas services contractors , including us . increased competition is also expected to affect utilization of our assets . in addition , the current volatile and uncertain macroeconomic conditions in some countries around the world , such as brazil and more recently the u.k. following brexit , may have a direct and or indirect impact on our existing contracts and contracting opportunities and may introduce further currency volatility into our operations and or financial results . we are continuing to monitor the impact of brexit and any exit agreements as they are negotiated , but the impact from brexit on our business and operations will depend on the outcome of tariff , tax treaties , trade , regulatory and other negotiations , as well as the impact of brexit on macroeconomic growth and currency volatility , which are uncertain at this time . many oil and gas companies are increasingly focusing on optimizing production of their existing subsea wells . we believe that we have a competitive advantage in terms of performing well intervention services efficiently . furthermore , we believe that when oil and gas companies begin to increase overall spending levels , it will likely be for production activities rather than for exploration projects . our well intervention and robotics operations are intended to service the life span of an oil and gas field as well as to provide abandonment services at the end of the life of a field as required by governmental regulations . thus over the longer term , we believe that fundamentals for our business remain favorable as the need for prolongation of well life in oil and gas production is the primary driver of demand for our services . our current strategy is to be positioned for future recovery while coping with a sustained period of weak activity . this strategy is based on the following factors : ( 1 ) the need to extend the life of subsea wells is significant to the commercial viability of the wells as plug and abandonment costs are considered ; ( 2 ) our services offer commercially viable alternatives for reducing the finding and development costs of reserves as compared to new drilling as well as extending and enhancing the commercial life of subsea wells ; and ( 3 ) in past cycles , well intervention and workover have been one of the first activities to recover , and in a prolonged market downturn are important to the commercial viability of deepwater wells . at december 31 , 2016 , we had cash on hand of $ 356.6 million and $ 18.9 million available for borrowing under our revolving credit facility . our capital expenditures for 2017 are currently anticipated to total approximately $ 200 million . story_separator_special_tag the vessel was 88 % utilized during 2014 , including the 29 idle days associated with the vessel being in regulatory dry dock during the fourth quarter of 2014. the well enhancer was 89 % utilized during 2015 as compared to 87 % utilized during 2014 , including the 24 idle days associated with the vessel being in regulatory dry dock in january 2014. in the gulf of mexico , we attempted to arrange replacement projects to fill the 150-day void in the helix 534 's schedule caused by a contract cancellation ( for which we received a termination fee of $ 11.6 million ) . we were successful in filling all but 26 days in the first quarter of 2015 but were only able to secure 50 days of utilization for the vessel in the second quarter of 2015. the helix 534 commenced its regularly scheduled regulatory dry dock in september 2015. the vessel was stacked and out of service following the completion of its dry dock in november 2015 due to low levels of activity . the helix 534 was 83 % utilized during 2014 with 53 idle days during the fourth quarter of 2014 , including 14 days for required annual inspections and 39 days following the cancellation of a contract . the q4000 was 71 % utilized during 2015 as compared to being 91 % utilized during 2014. idle time for the q4000 included 64 days in the second quarter of 2015 for its scheduled dry dock . the q5000 joined our well intervention fleet in the gulf of mexico in october 2015 following completion of certain modifications and upgrades necessary for its operations for bp in the gulf of mexico . the q5000 was utilized for 58 days during the fourth quarter of 2015. our robotics revenues decreased by 28 % in 2015 as compared to 2014. the decrease primarily reflects lower utilization of our robotics assets , accepting work at generally reduced rates , and 442 fewer days of spot vessel utilization . some of our rov units have been affected by other industry participants laying up vessels or canceling work as a result of the oil and gas industry downturn . utilization of our chartered rov support vessels decreased primarily in the fourth quarter of 2015 reflecting the end of a long-term project offshore india and a reduction in near term work opportunities as a result of further market deterioration in the offshore energy industry . our production facilities revenues decreased by 18 % in 2015 as compared to 2014 , which reflects the decrease in our variable throughput fee as a result of both the decline in oil prices and lower production volumes . the decrease in production volumes reflects natural declines in subsea reservoirs and the phoenix field being shut in for the majority of march 2015 for some development activities within the field and during which time the hp i underwent required maintenance . gross profit . excluding the impact of impairment charges related to the helix 534 and hp i vessels and certain capitalized vessel project costs ( note 4 ) , our gross profit decreased by 68 % as compared to 2014. excluding the $ 211.6 million impairment charges related to the helix 534 and certain capitalized vessel project costs , the gross profit related to our well intervention segment decreased by 79 % in 2015 as compared to 2014 reflecting reduced revenues as a result of the q4000 , the seawell and the helix 534 being idle while undergoing their respective regulatory dry dock inspections and repairs during 2015 , and our vessels operating under reduced rates or being idle for considerable periods of time during 2015 due to lack of available projects as a result of the ongoing industry downturn . 39 the gross profit associated with our robotics segment decreased by 52 % in 2015 as compared to 2014 primarily reflecting decreased utilization for our robotics assets , less spot work in 2015 and reduced profit margins on any newly awarded work . excluding the $ 133.4 million impairment charge for the hp i , the gross profit related to our production facilities segment decreased by 35 % in 2015 as compared to 2014. the decrease primarily reflects the decrease in revenues associated with our variable throughput fee , which was adversely affected by the decrease in oil prices and lower production volumes from the phoenix field . goodwill impairment . the $ 16.4 million impairment charge in 2015 reflects the write-off of the entire goodwill balance associated with our u.k. well intervention reporting unit ( notes 2 and 6 ) . gain on disposition of assets , net . the $ 10.2 million net gain on disposition of assets in 2014 primarily reflects a $ 10.5 million gain associated with the sale of our ingleside spoolbase in january 2014 ( note 4 ) . selling , general and administrative expenses . our selling , general and administrative expenses decreased by $ 35.2 million in 2015 as compared to 2014. the decrease was primarily attributable to a reduction in payroll-related costs including costs associated with our variable performance-based incentive compensation programs ( note 12 ) and overhead cost saving measures including headcount reductions . our selling , general and administrative expenses as a percentage of net revenues remained consistent in the comparable year-over-year periods . equity in earnings ( losses ) of investments . equity in earnings ( losses ) of investments was $ ( 124.3 ) million in 2015 and $ 0.9 million in 2014. the losses in 2015 primarily reflect our share of impairment charges that deepwater gateway and independence hub recorded in december 2015 ( note 5 ) . net interest expense . our net interest expense totaled $ 26.9 million in 2015 as compared to $ 17.9 million in 2014 primarily reflecting an increase in interest expense and a decrease in interest income , partially offset by an increase in capitalized

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liquidity and capital resources overview the following table presents certain information useful in the analysis of our financial condition and liquidity ( in thousands ) : replace_table_token_12_th ( 1 ) long-term debt does not include the current maturities portion of our long-term debt as that amount is included in net working capital . it is also net of unamortized debt discount and debt issuance costs . see note 7 for information relating to our existing debt . ( 2 ) liquidity , as defined by us , is equal to cash and cash equivalents plus available capacity under our revolving credit facility , which capacity is reduced by letters of credit drawn against the facility . our liquidity at december 31 , 2016 included cash and cash equivalents of $ 356.6 million ( including $ 150 million of minimum cash balance required by our credit agreement ) and $ 18.9 million of available borrowing capacity under our revolving credit facility ( note 7 ) . our liquidity has subsequently increased by approximately $ 220 million of net proceeds from our underwritten public equity offering in january 2017. our liquidity at december 31 , 2015 included cash and cash equivalents of $ 494.2 million and $ 249.4 million of available borrowing capacity under our revolving credit facility .

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

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liquidity management and capital resources liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature . our primary sources of funds consist of deposit inflows , loan repayments , maturities and sales of securities and borrowings from the fhlb . while maturities and scheduled amortization of loans and securities are predictable sources of funds , deposit flows , calls of investment securities and borrowed funds and prepayments on loans are greatly influenced by general interest rates , economic conditions and competition . at december 31 , 2018 , the bank had fixed rate advances outstanding with fhlb of $ 89.4 million and no borrowings outstanding at the federal reserve bank of chicago . the bank had unused collateral of $ 90.8 million with fhlb , a $ 143.4 million line-of-credit available with the federal reserve bank of chicago , and a $ 15.0 million line-of-credit with u.s. bank at december 31 , 2018. management adjusts our investments in liquid assets based upon an assessment of ( 1 ) expected loan demand , ( 2 ) expected deposit flows , ( 3 ) yields available on interest-earning deposits and securities , ( 4 ) the objectives of our interest-rate risk and investment policies and ( 5 ) the risk tolerance of management and our board of directors . our cash flows are composed of three primary classifications : cash flows from operating activities , investing activities , and financing activities . net cash provided by operating activities was $ 26.2 million and $ 11.3 million , for the years ended december 31 , 2018 and 2017 , respectively . net cash used in investing activities , which consists primarily of purchases of and proceeds from the sale , maturities/calls , and principal repayments of securities available for sale , as well as loan purchases , sales and originations , net of repayments was $ 139.8 million and $ 131.5 million , for the years ended december 31 , 2018 and 2017 , respectively .

the improvement program includes engaging outside experts and consultants who specialize in risk management , reliability , mechanical integrity and psm . we are also recruiting and hiring additional corporate and plant engineering and operational personnel , and accelerating acquisition of additional spare parts to supplement our existing spare parts program . we estimate to incur expenses of approximately $ 1.0 million associated with these programs . the program also includes the installation of additional automation and additional plant equipment protections . also see discussion concerning planned capital expenditures associated with these programs under “liquidity and capital resources – capital expenditures” . 27 as a result of certain of the events discussed above , we filed insurance claims to recover a portion of the costs incurred and lost profits . see further discussion relating to the downtime of certain chemical facilities and our property and business interruption insurance claims and recovery below under “downtime at certain chemical facilities-2012.” we are also planning to construct an ammonia plant at the el dorado facility at an estimated cost ranging from $ 250 million to $ 300 million . if constructed , the ammonia plant will produce all of this facility 's ammonia feedstock requirements replacing the ammonia currently being purchased at a cost disadvantage compared to ammonia produced from natural gas . the final decision to construct the ammonia plant is subject to approval of our board of directors , and a number of business considerations , including , but not limited to , obtaining the required permits and adequate third-party financing . an independent engineering firm has been engaged to assist in the preliminary engineering and cost evaluation leading to our final decision . see further discussion relating to capital expenditures and related financing under “liquidity and capital resources.” economic conditions since our two core business segments serve several diverse markets , we consider fundamentals for each market individually as we evaluate economic conditions . from a macro standpoint , we believe the u.s. economy is poised for modest growth , based upon certain economic reports , including the conference board composite index of leading indicators . chemical business—our chemical business ' primary markets are agricultural , industrial and mining . during 2012 , approximately 46 % of sales were into agricultural markets to customers that purchase at spot market and or futures market prices . during 2012 , our sales volumes to agricultural customers decreased 17 % while sales dollars decreased 6 % compared to 2011. this decrease in sales is primarily the result of the planned and unplanned downtime at certain of our chemical facilities as discussed above partially offset by higher sales prices . in normal circumstances , our agricultural sales volumes and prices depend upon the supply of and the demand for fertilizer , which in turn depends on the market fundamentals for crops including corn , wheat , cotton and forage . the current outlook for 2013 according to most market indicators , including reports in green markets , fertilizer week and the usda 's world agricultural supply and demand estimates , points to positive supply and demand fundamentals for the types of nitrogen fertilizer products we produce and sell . however , it is possible that the fertilizer outlook could change if there are unanticipated changes in commodity prices , fertilizer imports , domestic fertilizer production capacity , acres planted of crops requiring fertilizer , or unfavorable weather conditions . we use natural gas to produce anhydrous ammonia , which ammonia is also used to produce uan . agricultural customer demand for ammonia and uan was strong during 2012. selling prices for ammonia were generally higher while selling prices for uan were slightly less compared to 2011 and the cost for natural gas used to produce these products was generally lower . as a result , gross margins per ton increased for these two products . we produce agricultural grade an from purchased ammonia , which cost is significantly higher compared to previous years and significantly higher than producing it from natural gas , resulting in a cost disadvantage compared to nitrogen fertilizers that can be produced from natural gas . approximately 54 % of our chemical business ' sales were into industrial and mining markets of which approximately 60 % of these sales are to customers that have contractual obligations to purchase a minimum quantity and allow us to recover our cost plus a profit , irrespective of the volume of product sold . during 2012 , our sales volumes to industrial customers decreased 5 % and sales volumes to mining customers decreased 24 % , as compared to 2011. sales dollars during 2012 increased slightly to industrial customers and sales dollars to mining customers decreased 19 % as compared to 2011. the slight increase in industrial sales was due to our ability to pass through higher cost ammonia with our contractual pricing . mining sales were lower due , in part , to the unplanned downtime at our el dorado and cherokee facilities as discussed below under “downtime at certain chemical facilities—2012” and due to lower customer demand , which we believe is due to higher coal inventories and natural gas being a more attractive alternative feedstock than coal for utility companies . climate control business—sales for 2012 were 5 % lower than the same period in 2011 , including an 11 % decrease in geothermal and water source heat pump sales partially offset by a 3 % increase in hydronic fan coil and a 10 % increase in other hvac sales . from a market sector perspective , the sales decline is due to a 21 % decrease in residential product sales and a slight decrease in sales of commercial/institutional products although sales of our custom air handlers increased . story_separator_special_tag we received correspondence associated with the $ 20 million received in january 2013 , which stated that our insurance carriers are still investigating the circumstances surrounding this event ( including the cause of this event , scope of our losses and support for our claim ) under a reservation of rights . for financial reporting purposes , we allocated $ 28.6 million to our property insurance claim and $ 11.4 million to our business interruption claim primarily based on the claims information provided to our insurance carriers in relation to our requests for insurance proceeds . the $ 28.6 million allocated to the property insurance claim was applied against the recoverable costs totaling $ 21.7 million . the insurance recovery in excess of the recoverable costs of $ 6.9 million was not recognized since it is considered a gain contingency , which will be recognized if , and when , realized or realizable and earned . the insurance recovery of $ 11.4 million allocated to the business interruption claim was applied against recoverable costs ( primarily relating to purchased product sold to our customers while certain of our nitric and sulfuric acid plants were being repaired ) totaling $ 7.3 million as a reduction to cost of sales . the insurance recovery in excess of recoverable costs of $ 4.1 million was not recognized since a portion of this amount relates to recoverable costs , which we were unable to conclude that it was at least probable ( for financial reporting purposes ) that these costs would be approved and a portion of this amount relates to lost profits , which is considered a gain contingency . the unrecognized portion of this recovery , and any additional recoveries , will be recognized if , and when , realized or realizable and earned . as of december 31 , 2012 , the balance of the insurance claim receivable relating to this event was $ 9.0 million , which consists of the approved payments due from our insurance carriers and allocated to our insurance claim as discussed above . 32 cherokee facility—on november 13 , 2012 , a pipe ruptured within the cherokee facility causing damage primarily to the heat exchanger portion of its ammonia plant . no serious injuries or environmental impact resulted from the pipe rupture . as a result of the damage , the cherokee facility can only produce , on a limited basis , nitric acid and an solution from purchased ammonia until the repairs are completed . currently , we expect the cherokee facility to be in full production during may 2013. for 2012 , we believe the cumulative adverse impact to operating income for the unplanned downtime at the cherokee facility was approximately $ 13 million including lost absorption and gross profit margins . a notice of insurance claims for property damage and business interruption was filed with the insurance carriers but the total amounts have not been determined but are expected to be substantial . our insurance policy provides , for the policy period covering this claim , for repair or replacement cost coverage relating to property damage with a $ 2.5 million deductible and provides for business interruption coverage for certain lost profits and extra expense with a 30-day waiting period . because our assessment that it was probable that the amount of coverage for property damages would exceed our property loss deductible , the net book value of the damaged property and other recoverable costs incurred through december 31 , 2012 , we did not recognize a loss relating to property damage from this pipe rupture but we recorded an insurance claim receivable relating to this event consisting of the recoverable costs . in addition , a recovery for certain lost profits from our business interruption coverage has not been recognized since it is considered a gain contingency , which will be recognized if , and when , realized or realizable and earned . as of december 31 , 2012 , the balance of the insurance claim receivable relating to this event was $ 1.1 million consisting of recoverable costs . it is possible that the actual development of the insurance claims discussed above could be different from our current allocations and estimates . due to the increase in the total value of property , plant and equipment ( “pp & e” ) and the insurance claims discussed above relating to our chemical business , our insurance premiums have increased and could increase in 2013. story_separator_special_tag style= `` font-family : times new roman `` > on october 31 , 2012 , zena energy llc ( “zena” ) , a subsidiary within our chemical business , acquired working interests ( “working interests” ) in certain natural gas properties located in wyoming county , pennsylvania , within the marcellus shale . our chemical business acquired from clearwater enterprises , llc an average working interest of 9.7 % ( 7.7 % net revenue interest ) in 14 proved , developed producing natural gas wells , 7 proved , developed non-producing natural gas wells and 36 proved undeveloped future drilling locations identified on the leasehold . currently , our chemical business annually purchases 10 million to 12 million mmbtu of natural gas as a feedstock for the production of anhydrous ammonia . management considers this acquisition as an economic hedge against a potential rise in natural gas prices in the future for a portion of our future natural gas production requirements . this acquisition was accounted for in accordance with asc 805 – business combinations . the purchase price was approximately $ 50 million . subsequently , we financed $ 35 million in february 2013 associated with this acquisition , and used our working capital to fund the remaining balance . we report the working interests as part of the chemical business reportable segment . see discussion below under “committed and planned capital expenditures” for additional planned capital expenditures relating to our natural gas properties . committed

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liquidity and capital resources the following is our cash and cash equivalents , short-term investments , total interest bearing debt and stockholders ' equity : replace_table_token_12_th ( 1 ) these investments consisted of certificates of deposit with an original maturity of 13 weeks . all of these investments were held by financial institutions within the united states and none of these investments were in excess of the federally insured limits . at december 31 , 2012 , our cash and cash equivalents totaled $ 98.0 million and our $ 50 million revolving credit facility ( the “working capital revolver loan” ) was undrawn and available to fund operations , if needed , subject to the amount of our eligible collateral and outstanding letters of credit . for 2013 , we expect our primary cash needs will be to fund our operations , capital expenditures , and general obligations . we expect to fund these cash needs from our working capital , internally generated cash flows , third-party financing and insurance proceeds . see additional discussions below under “capital expenditures” and “loan agreements-terms and conditions.” our internally generated cash flows and liquidity could be affected by possible declines in sales volumes resulting from the uncertainty relative to the current economic conditions and changes in the production efficiency of our facilities . in addition , our cash flows and liquidity has been and will continue to be affected by the timing of these insurance proceeds . 33 also as discussed below under “loan agreements-terms and conditions , ” the term loan facility ( the “secured term loan” ) requires quarterly principal payments of approximately $ 0.9 million , plus interest and a final balloon payment of $ 56.3 million due on march 29 , 2016. at december 31 , 2012 , the weighted-average interest rate was approximately 3.92 % . the secured term loan is secured by the real property and equipment located at our el dorado and cherokee facilities .

as such , wes assets acquired from anadarko were initially recorded at anadarko 's historic carrying value , which did not correlate to the total acquisition price paid by wes ( see note 2—acquisitions in the notes to consolidated financial statements under item 8 of this form 10-k ) . further , after an acquisition of wes assets from anadarko , we , by virtue of our consolidation of wes , may be required to recast our financial statements to include the activities of such wes assets from date of common control . for those periods requiring recast , the consolidated financial statements for periods prior to the acquisition of wes assets from anadarko , have been prepared from anadarko 's historical cost-basis accounts and may not necessarily be indicative of the actual results of operations that would have occurred if wes had owned the wes assets during the periods reported . for ease of reference , we refer to the historical financial results of the wes assets prior to the acquisitions from anadarko as being “ our ” historical financial results . the following discussion analyzes our financial condition and results of operations and should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements , in which western gas partners , lp is fully consolidated , which are included in item 8 of this form 10-k 75 executive summary we were formed by anadarko in september 2012 by converting wgr holdings , llc into an mlp and changing its name to western gas equity partners , lp . we closed our initial public offering “ ipo ” in december 2012 and own wes gp and a significant limited partner interest in wes , a growth-oriented delaware mlp organized by anadarko to own , operate , acquire and develop midstream energy assets . our consolidated financial statements include the consolidated financial results of wes due to our 100 % ownership interest in wes gp and wes gp 's control of wes . our only cash-generating assets consist of our partnership interests in wes , and we currently have no independent operations . wes currently owns or has investments in assets located in the rocky mountains ( colorado , utah and wyoming ) , the mid-continent ( kansas and oklahoma ) , north-central pennsylvania and texas , and is engaged in the business of gathering , processing , compressing , treating and transporting natural gas , condensate , ngls and crude oil for anadarko , as well as for third-party producers and customers . as of december 31 , 2014 , wes 's assets and investments accounted for under the equity method consisted of the following : replace_table_token_13_th significant financial and operational highlights during the year ended december 31 , 2014 included the following : we raised our distribution to $ 0.31250 per unit for the fourth quarter of 2014 , representing a 7 % increase over the distribution for the third quarter of 2014 and a 35 % increase over the distribution for the fourth quarter of 2013 . wes completed the acquisition of dbm from a third party . dbm 's assets serve production from reeves , loving and culberson counties , texas and eddy and lea counties , new mexico . see acquisitions under items 1 and 2 of this form 10-k for additional information . wes issued 10,913,853 class c units to a subsidiary of anadarko , at a price of $ 68.72 per unit , generating proceeds of $ 750.0 million , all of which was used to fund a portion of the acquisition of dbm . wes issued 8,620,153 common units to the public , generating net proceeds of $ 603.0 million , including wes gp 's proportionate capital contribution , part of which was used to fund a portion of the acquisition of dbm . wes issued 1,133,384 common units to the public under its continuous offering program ( as defined and discussed in registered securities within this item 7 ) , generating net proceeds of $ 83.2 million , including wes gp 's proportionate capital contribution . net proceeds were used for general partnership purposes , including funding capital expenditures . see equity offerings under items 1 and 2 of this form 10-k for additional information . in april 2014 , wes completed construction and commenced operations of the 300 mmcf/d train i at the lancaster plant ( located in the dj basin complex ) in northeast colorado . wes is currently constructing the 300 mmcf/d train ii at the same plant , with operations expected to commence in the second quarter of 2015 . 76 wes issued $ 400.0 million aggregate principal amount of 5.450 % senior notes due 2044 and an additional $ 100.0 million aggregate principal amount of 2.600 % senior notes due 2018. net proceeds were used to repay amounts then outstanding under the wes rcf . see liquidity and capital resources within this item 7 for additional information . wes completed the acquisition of anadarko 's 20 % interests in teg and tep , and its 33.33 % interest in frp . see acquisitions under items 1 and 2 of this form 10-k for additional information . wes entered into an amended and restated $ 1.2 billion ( expandable to $ 1.5 billion ) senior unsecured wes rcf replacing the $ 800.0 million wes credit facility . see liquidity and capital resources within this item 7 for additional information . wes raised its distribution to $ 0.70 per unit for the fourth quarter of 2014 , representing a 4 % increase over the distribution for the third quarter of 2014 and a 17 % increase over the distribution for the fourth quarter of 2013 . throughput attributable to wes for natural gas assets totaled 3,493 mmcf/d for the year ended december 31 , 2014 , representing a 9 % increase compared to the year ended december 31 , 2013 . story_separator_special_tag ( 4 ) for the year ended december 31 , 2013 , includes capitalized interest of $ 1.4 million for the construction of the mont belvieu jv fractionation trains , reflected as a component of the equity investment balance . for the year ended december 31 , 2012 , excludes $ 0.6 million of pre-acquisition capitalized interest attributable to the non-operated marcellus interest systems . ( 5 ) excludes income of $ 0.5 million for the year ended december 31 , 2014 , and $ 1.6 million for each of the years ended december 31 , 2013 and 2012 , related to a component of a gas processing agreement accounted for as a capital lease . ( 6 ) reflects wes cash distributions of $ 2.65 per unit declared for the year ended december 31 , 2014 . see note 3—partnership distributions in the notes to consolidated financial statements under item 8 of this form 10-k. 83 items affecting the comparability of financial results our consolidated financial statements include the consolidated financial results of wes due to our 100 % ownership interest in wes gp and wes gp 's control of wes . our only cash-generating assets consist of our partnership interests in wes , and we currently have no independent operations . as a result , our results of operations do not differ materially from the results of operations and cash flows of wes , which are reconciled below . income taxes . prior to our conversion from wgr holdings , llc to a limited partnership in september 2012 , we were a single-member limited liability company . the separate existence of a limited liability company is disregarded for u.s. federal income tax purposes , resulting in the treatment of wgr holdings , llc as a division of anadarko and its inclusion in anadarko 's consolidated income tax return for federal and state tax purposes . the income tax expense recorded on the financial statements of wgr holdings , llc , and now included in our consolidated financial statements , reflects our income tax expense and liability on a separate-return basis . the deferred federal and state income taxes included in our consolidated financial statements are primarily attributable to the temporary differences between the financial statement carrying amount of our investment in wes and our outside tax basis with respect to our partnership interests in wes . when determining the deferred income tax asset and liability balances attributable to our partnership interests in wes , we applied an accounting policy that looks through our investment in wes . the application of such accounting policy resulted in no deferred income taxes being created on the difference between the book and tax basis on the non-tax deductible goodwill portion of our investment in wes in our consolidated financial statements . upon the completion of our ipo in december 2012 , we became a publicly traded limited partnership for u.s. federal and state income tax purposes and therefore are not subject to u.s. federal and state income taxes , except for texas margin tax . general and administrative expenses . as a separate publicly traded partnership , we incur general and administrative expenses which are separate from , and in addition to , those incurred by wes . in connection with our ipo in december 2012 , we entered into an omnibus agreement with wgp gp and anadarko that governs the following : ( i ) our obligation to reimburse anadarko for expenses incurred or payments made on our behalf in conjunction with anadarko 's provision of general and administrative services to us , including our public company expenses and general and administrative expenses ; ( ii ) our obligation to pay anadarko , in quarterly installments , an administrative services fee of $ 250,000 per year ( subject to an annual increase as described in the agreement ) ; and ( iii ) our obligation to reimburse anadarko for all insurance coverage expenses it incurs or payments it makes on our behalf . the following table summarizes the amounts we reimbursed to anadarko , separate from , and in addition to , those reimbursed by wes : replace_table_token_17_th noncontrolling interests . the interests in chipeta held by a third party member and prior to august 1 , 2012 , the 24 % membership interest in chipeta held by anadarko , are already reflected as noncontrolling interests as in wes 's consolidated financial statements . in addition , the limited partner interests in wes held by other subsidiaries of anadarko and the public are reflected as noncontrolling interests in the consolidated financial statements ( see note 1—summary of significant accounting policies in the notes to consolidated financial statements under item 8 of this form 10-k for further information ) . the difference between the carrying value of wgp 's investment in wes and the underlying book value of common units issued by wes is accounted for as an equity transaction . thus , if wes issues common units at a price different than wgp 's per-unit carrying value , any resulting change in the carrying value of wgp 's investment in wes is reflected as an adjustment to partners ' capital . 84 distributions . our partnership agreement requires that we distribute all of our available cash ( as defined in our partnership agreement ) within 55 days after the end of each quarter . our only cash-generating assets are our partnership interests in wes , consisting of general partner units , common units and incentive distribution rights , on which we expect to receive quarterly distributions from wes . our cash flow and resulting ability to make cash distributions are therefore completely dependent upon wes 's ability to make cash distributions with respect to our partnership interests in wes . generally , our available cash is our cash on hand at the end of a quarter after the payment of our expenses and the establishment of cash reserves and cash on

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debt and credit facilities . at december 31 , 2014 , wes 's debt consisted of $ 500.0 million aggregate principal amount of 5.375 % senior notes due 2021 ( the “ 2021 notes ” ) , $ 670.0 million aggregate principal amount of 4.000 % senior notes due 2022 ( the “ 2022 notes ” ) , $ 350.0 million aggregate principal amount of 2.600 % senior notes due 2018 ( the “ 2018 notes ” ) , $ 400.0 million aggregate principal amount of 5.450 % senior notes due 2044 ( the “ 2044 notes ” ) , and $ 510.0 million of borrowings outstanding under the wes rcf . the two tranches of the 2022 notes , issued in june and october 2012 , were issued under the same indenture and are considered a single class of securities . the two tranches of the 2018 notes , issued in august 2013 and march 2014 , were issued under the same indenture and are considered a single class of securities . as of december 31 , 2014 , the carrying value of wes 's outstanding debt consisted of $ 495.7 million of 2021 notes , $ 672.9 million of 2022 notes , $ 350.5 million of 2018 notes , $ 393.8 million of 2044 notes and $ 510.0 million of borrowings under the wes rcf . see note 13—debt and interest expense in the notes to consolidated financial statements under item 8 of this form 10-k. wes senior notes . the 2044 notes issued in march 2014 were offered at a price to the public of 98.443 % of the face amount . including the effects of the issuance and underwriting discounts , the effective interest rate of the 2044 notes is 5.633

institutional research services revenues consist of brokerage commissions derived from securities transactions executed on an agency basis on behalf of mutual funds , institutional and private wealth management clients as well as investment banking revenue , which consists of underwriting profits , selling concessions and management fees associated with underwriting activities . commission revenues vary directly with account trading activity and new account generation . investment banking revenues are directly impacted by the overall market conditions , which affect the number of public offerings which may take place . 28 distribution fees and other income primarily include distribution fee revenue earned in accordance with rule 12b-1 of the company act , as amended , along with sales charges and underwriting fees associated with the sale of the mutual funds plus other revenues . distribution fees fluctuate based on the level of aum and the amount and type of mutual funds sold directly by g.distributors or through various distribution channels . compensation costs include variable and fixed compensation and related expenses paid to officers , portfolio managers , sales , trading , research and all other professional staff . variable compensation paid to sales personnel and portfolio management generally represents 40 % of revenues and is the largest component of total compensation costs . distribution costs include marketing , product distribution and promotion costs . management fee is incentive-based and entirely variable compensation in the amount of 10 % of the aggregate pre-tax profits which is paid to mr. gabelli or his designee for acting as ceo pursuant to his 2008 employment agreement so long as he is an executive of gbl and devotes the substantial majority of his working time to the business . other operating expenses include general and administrative operating costs and clearing charges and fees for gabelli & company 's brokerage operation . other income and expenses include net gains and losses from investments ( which includes both realized and unrealized gains and losses from trading securities and equity in earnings of investments in partnerships ) , interest and dividend income , and interest expense . net gains and losses from investments are derived from our proprietary investment portfolio consisting of various public and private investments . net income ( loss ) attributable to noncontrolling interests represents the share of net income attributable to the minority stockholders , as reported on a separate company basis , of our consolidated majority-owned subsidiaries and net income attributable to third party limited partners of certain partnerships and offshore funds we consolidate . please refer to notes a and d in our consolidated financial statements included elsewhere in this report . consolidated statements of financial condition we ended the 2012 year with approximately $ 568.9 million in cash and investments , which includes $ 5.2 million of cash and investments held by our consolidated investment partnerships . the $ 568.9 million consists of $ 190.6 million cash and cash equivalents , primarily invested in our 100 % u.s. treasury money market fund , $ 138.5 million invested in common stocks , $ 43.0 million invested in u.s. treasury obligations , $ 97.6 million invested in partnerships and $ 2.1 million in other types of investments . this also included approximately $ 97.1 million of our available for sale ( “ afs ” ) securities , consisting of investments in the gabelli dividend & income trust , the gdl fund , and westwood holdings group and various other gabelli and gamco open-end funds . our debt consisted of $ 99 million of 5.5 % senior notes due may 2013 , $ 100 million of 5.875 % senior notes due june 1 , 2021 and $ 17.4 million in zero coupon subordinated debentures ( current principal amount of $ 21.7 million ) due december 31 , 2015 , which were originally distributed to shareholders as a dividend on december 31 , 2010. equity , excluding noncontrolling interest , was $ 367.6 million or $ 14.28 per share on december 31 , 2012 compared to $ 404.0 million or $ 15.10 per share on december 31 , 2011. the decline in equity from the end of 2011 was principally related to the declaration of dividends of $ 76.4 million and the purchase of treasury stock of $ 54.9 million during 2012 partially offset by comprehensive income of $ 79.3 million and $ 13.6 million of stock based compensation . replace_table_token_6_th our strong and liquid balance sheet provides us access to financial markets and the flexibility to opportunistically add operating resources to our firm and consider strategic initiatives . we filed a shelf registration with the sec in 2012 which , among other things , provides us the flexibility to sell any combination of senior and subordinate debt securities , convertible debt securities , equity securities ( including common and preferred stock ) , and other securities up to a total amount of $ 400 million . the shelf is available through may 30 , 2015 , at which time it may be renewed . our primary goal is to use our liquid resources to opportunistically and strategically grow operating income . while this goal is a priority , if opportunities are not present with what we consider a margin of safety , we will consider alternatives to return capital to our shareholders including stock repurchase and dividends . 29 assets under management highlights ( unaudited ) we reported assets under management as follows ( dollars in millions ) : replace_table_token_7_th our net cash inflows or outflows by product line were as follows ( in millions ) : replace_table_token_8_th ( a ) includes $ 104 million and $ 100 million of proprietary seed capital at december 31 , 2012 and december 31 , 2011 , respectively . story_separator_special_tag management fee : in 2011 management fee expense increased 2.5 % to $ 12.3 million versus $ 12.0 million in 2010. management fee expense is incentive-based and entirely variable in the amount of 10 % of the aggregate pre-tax profits which is paid to mr. gabelli ( or his designee ) for acting as ceo pursuant to his 2008 employment agreement so long as he is an executive of gbl and devoting the substantial majority of his working time to the business . in accordance with his 2008 employment agreement , mr. gabelli chose to allocate $ 0.5 million and $ 2.4 million of his management fee to employees of the company in 2011 and 2010 , respectively . distribution costs : distribution costs , which include marketing , promotion and distribution costs increased $ 13.4 million , or 43.2 % , to $ 44.4 million in 2011 from $ 31.0 million in 2010. included in this increase was $ 5.6 million in one-time costs directly related to the launch of a new closed-end fund in the first quarter of 2011. excluding this charge , distribution costs were $ 7.8 million , or 25.2 % , higher in 2011 driven by an increase in average open-end equity mutual funds aum of 28.4 % . other operating expenses : our other operating expenses were $ 24.2 million in 2011 compared to $ 22.5 million in 2010. this 7.6 % increase was spread across multiple categories of expenses with no one expense making up a significant portion of the increase . operating income and margin operating income was $ 113.3 million for the year ended december 31 , 2011 , increasing 24.5 % from $ 91.0 million in the prior year . the year over year increase in operating income was primarily due to the growth in revenues which were largely attributable to the higher levels of average aum in 2011 versus 2010. operating expenses grew at a slower rate benefiting from lower growth in non-variable compensation and other operating expenses and the impact of lower non-operating income on management fee . significant charges unique to each period included $ 5.6 million in distribution costs related to the launch of a new closed-end fund in 2011 and a $ 5.8 million charge to compensation costs in 2010 related to the acceleration of rsas . while these charges reduced operating income for each year their net impact on the year over year comparison of total operating income was only $ 0.2 million . operating margin was 34.6 % for the year ended december 31 , 2011 , versus 32.5 % in the prior year period . operating income before management fee was $ 125.6 million for the year ended of 2011 , versus $ 103.0 million in the prior year . operating margin before management fee was 38.4 % in 2011 versus 36.8 % in 2010. the reconciliation of operating income before management fee and operating margin before management fee is provided at the end of this section . other income and expense total other income ( expense ) ( which represents primarily investment income from our proprietary investments ) , net of interest expense , was an expense of $ 2.9 million for the year ended december 31 , 2011 compared to $ 18.3 million of income in 2010. net gain from investments was $ 5.6 million in 2011 as compared to $ 24.4 million in 2010. interest and dividend income was $ 6.6 million in 2011 compared to $ 5.9 million in 2010. the increase of $ 0.7 million was due to an increase of $ 1.0 million of dividend income offset by a reduction of interest income of $ 0.3 million due to lower interest rates on our cash and cash equivalent holdings . 35 interest expense increased $ 3.0 million to $ 15.0 million in 2011 , from $ 12.0 million in 2010. the increase was primarily due to the issuance of $ 100 million of 5.875 % ten-year senior notes in may 2011 and the issuance of $ 86.4 million in zero coupon subordinated debentures on december 31 , 2010 , slightly offset by the repurchases of the $ 40 million 2011 notes and the $ 60 million 2018 notes during the course of 2010. income taxes the effective tax rate was 36.9 % for the year ended december 31 , 2011 , versus 36.0 % for the year ended december 31 , 2010. net income attributable to noncontrolling interest net income attributable to noncontrolling interests was a loss of $ 7,000 in 2011 compared to $ 1.2 million of expense in 2010. the decrease was primarily due to decreased earnings in 2011 as compared to 2010 from the partnerships and offshore funds that we consolidate . net income net income for 2011 was $ 69.7 million or $ 2.61 per fully diluted share versus $ 68.8 million or $ 2.52 per fully diluted share for 2010. shareholder compensation and initiatives during 2011 , we returned $ 51.2 million of our earnings to shareholders through dividends and stock repurchases . we returned to shareholders a total of $ 0.15 per share in regular quarterly cash dividends and a special dividend of $ 1.00 per share totaling $ 30.8 million during 2011. during 2010 , we returned $ 139.2 million of our earnings to shareholders through dividends and stock repurchases . we returned to shareholders $ 1.82 per share in cash dividends through regular quarterly cash dividends and two special cash dividends of $ 0.90 per share and $ 0.80 per share , totaling $ 49.4 million , in 2010. additionally , we paid a special dividend of $ 59.6 million ( $ 3.20 of principal per share or $ 86.4 million ) to shareholders in the form of a five-year , zero coupon subordinated debenture due 2015. through our stock buyback program , we repurchased 450,966 and 684,003 shares in 2011 and 2010 , respectively , for a

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liquidity and capital resources our principal assets are highly liquid in nature and consist of cash and cash equivalents , short-term investments , securities held for investment purposes , investments in mutual funds , and investment partnerships . cash and cash equivalents are comprised primarily of 100 % u.s. treasury money market funds managed by gamco . although investments in partnerships and offshore funds are subject to restrictions on the timing of distributions , the underlying investments of such partnerships or funds are , for the most part , liquid , and the valuations of these products reflect that underlying liquidity . summary cash flow data derived from our audited consolidated statements of cash flows are as follows : replace_table_token_14_th cash and liquidity requirements have historically been met through cash generated by operating income and our borrowing capacity . we filed a registration with the sec in 2012 which , among other things , provides us opportunistic flexibility to sell any combination of senior and subordinate debt securities , convertible debt securities , equity securities ( including common and preferred stock ) , and other securities up to a total amount of $ 400 million . the shelf is available through may 30 , 2015 , at which time it may be renewed . at december 31 , 2012 , we had cash and cash equivalents of $ 190.6 million , a decrease of $ 85.7 million from the prior year-end primarily due to the company 's financing activities described below . cash and cash equivalents of $ 0.9 million and investments in securities of $ 7.0 million held by consolidated investment partnerships and offshore funds may not be readily available for the company to access .

in november 2020 , we and verona pharma , inc. ( `` verona u.s. `` ) entered into a term loan facility of up to $ 30.0 million ( the “ term loan ” ) , consisting of term loan advances in an aggregate amount of $ 5.0 million funded at closing , a term loan advance available subject to certain terms and conditions in an aggregate amount of $ 10.0 million , and a term loan advance available subject to certain terms and conditions in an aggregate amount of $ 15.0 million with silicon valley bank ( “ svb ” ) . see “ indebtedness ” below . we believe that our cash and cash equivalents as of december 31 , 2020 , together with funding expected to become available under the term loan and from cash receipts from u.k. tax credits , will enable us to fund our planned operating expenses and capital expenditure requirements into 2023 . 66 covid-19 impact and business continuity to help protect the health and safety of the patients , caregivers and healthcare professionals involved in its ongoing clinical trials of ensifentrine , as well as our employees and independent contractors , we continue to follow guidance from the fda and other health regulatory authorities regarding the conduct of clinical trials during the covid-19 pandemic to ensure the safety of study participants , minimize risks to study integrity , and maintain compliance with good clinical practice . we continue to review this guidance and the effect of the covid-19 pandemic on our operations and clinical trials and will provide an update if we become aware of any meaningful disruption caused by the pandemic to our clinical trials . we are closely monitoring activities at our contract manufacturers associated with clinical supply for our ongoing clinical trials , and are satisfied that appropriate plans and procedures are in place to ensure uninterrupted future supply of ensifentrine to the clinical trial sites , subject to potential limitations on their operations and on the supply chain due to the covid-19 pandemic . we continue to monitor this situation and will provide an update if we become aware of any meaningful disruption caused by the pandemic to the clinical supply of ensifentrine for our clinical trials . significant contracts ligand agreement in 2006 we acquired rhinopharma and assumed contingent liabilities owed to ligand uk development limited ( “ ligand ” ) ( formerly vernalis development limited ) . we refer to the assignment and license agreement as the ligand agreement . ligand assigned to us all of its rights to certain patents and patent applications relating to ensifentrine and related compounds ( the `` ligand patents `` ) and an exclusive , worldwide , royalty-bearing license under certain ligand know-how to develop , manufacture and commercialize products ( the `` licensed products `` ) developed using ligand patents , ligand know-how and the physical stock of certain compounds . the contingent liability comprises a milestone payment on obtaining the first approval of any regulatory authority for the commercialization of a licensed product , low single digit royalties based on the future sales performance of all licensed products and a portion equal to a mid-twenty percent of any consideration received from any sub-licensees for the ligand patents and for ligand know-how . at time of the acquisition the contingent liability was not recognized as part of the acquisition accounting as it was immaterial . we will therefore record as an r & d expense the milestone payment or royalties when they are payable . warrants on july 29 , 2016 , as part of a placement we issued warrants to investors . the warrant holders can subscribe for an ordinary share at a per share exercise price of £1.7238 . they can also opt for a cashless exercise of their warrants whereby they can choose to exchange the warrants held for a reduced number of warrants exercisable at nil consideration . if , after a transaction , should the warrants be exercisable for unlisted securities , the warrant holders may demand a cash payment instead of the delivery of the underlying securities . accordingly , they are accounted for as a liability under asc 480 “ distinguishing liabilities from equity ” and recorded at fair value using the black-scholes valuation methodology , on recognition and at each reporting date . the warrants are currently exercisable and may be exercised by the holders until april 2022 when the warrant instruments may either be exercised , cashlessly exercised , or expire . loan and security agreement in november , 2020 , we entered into the term loan . see “ indebtedness ” for additional information . 67 critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( `` us gaap `` ) . the preparation of these financial statements requires us to make estimates , judgments and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent liabilities as of the dates of the balance sheets and the reported amounts of expenses during the reporting periods . in accordance with us gaap , we evaluate our estimates and judgments on an ongoing basis . while our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this annual report , we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements . story_separator_special_tag funding requirements we initiated our phase 3 enhance program for the maintenance treatment of copd in the third quarter of 2020 after raising funds in the private placement that we estimated to be the required funds to complete this program . we believe that our cash and cash equivalents as of december 31 , 2020 , together with funding expected to become available under the term loan and from cash receipts from u.k. tax credits , will enable us to fund our planned operating expenses and capital expenditure requirements into 2023. we will require significant additional capital to further advance clinical and regulatory activities , to fund prelaunch and launch related costs and to create an effective sales and marketing organization to commercialize ensifentrine . we will need to seek additional funding through public or private financings , debt financing , collaboration or licensing agreements and other arrangements . however , there is no guarantee that we will be successful in securing additional finance on acceptable terms , or at all . to the extent that we raise additional capital through the sale of equity or convertible debt securities , the ownership interest of our shareholders and ads holders will be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect such holders ' rights as a shareholder or ads holder . any future debt financing or preferred equity financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends and may require the issuance of warrants , which could potentially dilute our security holders ' ownership interests . if we raise additional funds through collaborations , strategic alliances or licensing arrangements with third parties , we may have to relinquish valuable rights to our technologies , future revenue streams , research programs or product candidates or grant licenses on terms that may not be favorable to us . if we are unable to raise additional funds through equity or debt financings when needed , we may be required to delay , limit , reduce or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves . our future capital requirements for ensifentrine or any future product candidates will depend on many factors , including : the progress , timing and completion of pre-clinical testing and clinical trials for ensifentrine or any future product candidates and the potential that we may be required to conduct additional clinical trials for ensifentrine ; the number of potential new product candidates we decide to in-license and develop ; the costs involved in growing our organization to the size needed to allow for the research , development and potential commercialization of ensifentrine or any future product candidates ; the costs involved in filing patent applications and maintaining and enforcing patents or defending against claims or infringements raised by third parties ; the time and costs involved in obtaining regulatory approvals for ensifentrine or any future product candidate we develop and any delays we may encounter as a result of evolving regulatory requirements or adverse results with respect to ensifentrine or any future product candidates ; 74 any licensing or milestone fees we might have to pay during future development of ensifentrine or any future product candidates ; selling and marketing activities undertaken in connection with the anticipated commercialization of ensifentrine or any future product candidates , if approved , and costs involved in the creation of an effective sales and marketing organization ; and the amount of revenues , if any , we may derive either directly or in the form of royalty payments from future sales of ensifentrine or any future product candidates , if approved . our commercial revenues , if any , will be derived from sales of products that we do not expect to be commercially available for many years , if ever . accordingly , we will need to obtain substantial additional funds to achieve our business objective . off-balance sheet arrangements we do not have any relationships with unconsolidated entities or financial partnerships , including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes . we do not engage in off-balance sheet financing arrangements . in addition , we do not engage in trading activities involving non-exchange traded contracts . we therefore believe that we are not materially exposed to any financing , liquidity , market or credit risk that could arise if we had engaged in these relationships . recent accounting pronouncements for a discussion of pending and recently adopted accounting pronouncements , see note 2 to our consolidated financial statements included elsewhere in this annual report on form 10-k conversion from ifrs to us gaap as the company no longer qualifies as a foreign private issuer , its consolidated financial statements have been retroactively converted from ifrs to us gaap . the significant differences between ifrs and us gaap as they relate to the company are as follows : ( a ) rhinopharma acquisition in connection with the rhinopharma acquisition in 2006 , an in-process r & d ( “ ip r & d ” ) asset was recognized at fair value under both ifrs ( ifrs 3 “ business combinations ” ) and us gaap ( fas 141 “ business combinations ” ) . under us gaap the ip r & d asset was expensed immediately after its recognition in the business combination . also as part of the acquisition , and under both ifrs and us gaap , an assumed contingent liability was identified but was not recognized as the fair value was immaterial . under ifrs the assumed contingent liability was subsequently measured at amortized

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cash flows the following table summarizes our cash flows for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_2_th operating activities net cash used in operating activities increased to $ 45.1 million 2020 , from $ 42.9 million in 2019 , an increase of $ 2.2 million . operating expenses increased by $ 19.8 million , however $ 19.1 million of this was the non-cash share based compensation expense . the remaining variance of $ 1.5 million is due to the timing of supplier payments . investing activities net cash provided by investing activities decreased to $ 9.7 million for 2020 , from $ 47.3 million in 2019 due to less movement of funds from short term investments to cash in 2020. financing activities net cash provided by financing activities was $ 192.3 million for 2020 driven by net proceeds from the private placement and the first advance received under the term loan . we received $ 185.5 million after costs in the private placement . of the costs , $ 1.9 million were recorded in the statement of operations and comprehensive loss and therefore included in net cash used in operating activities . financing activities also includes a net $ 4.9 million receipt from the term loan facility .

we take a disciplined approach to acquisitions : we look for companies that are highly scalable and are a good strategic fit with our core competency . when we acquire a company , we seek to integrate it with our operations and scale it up by adding salespeople . we integrate the acquired operations with our technology platform , which connects them to our broader organization , and we give them access to our shared carrier pool . we gain more carriers , customers , lane histories and pricing histories with each acquisition , and in some cases an acquisition adds complementary services . 31 we use these resources company-wide to buy transportation more efficiently and to cross-sell a more complete supply chain solution to customers . since the beginning of 2012 , we have developed an active pipeline of targets . in 2012 , we completed the acquisition of four non-asset third party logistics companies . we acquired another six companies in 2013 , including 3pd , the largest non-asset , third party provider of heavy goods , last-mile logistics in north america , and nlm , the largest provider of web-based expedited transportation management in north america . on january 5 , 2014 , we agreed to acquire pacer international , inc. , a tennessee corporation ( “pacer” ) , the third largest provider of intermodal transportation services in north america . we plan to continue to acquire quality companies that fit our strategy for growth . cold-starts . we believe that cold-starts can generate high returns on invested capital because of the relatively low investment required and the large component of variable-based incentive compensation . we are currently ramping up 23 cold-starts : 10 in freight brokerage , 12 in freight forwarding and one in expedited transportation . we seek to locate our freight brokerage cold-starts in prime areas for sales recruitment . we plan to continue to open cold-start locations where we see the potential for strong returns . pending acquisition of pacer international on january 5 , 2014 , xpo entered into a definitive agreement and plan of merger ( the “merger agreement” ) with pacer international , inc. , a tennessee corporation ( “pacer” ) , and acquisition sub , inc. , a tennessee corporation and a wholly owned subsidiary of xpo ( “merger subsidiary” ) , providing for the acquisition of pacer by xpo . pursuant to the terms of merger agreement , merger subsidiary will be merged with and into pacer ( the “merger” ) , with pacer continuing as the surviving corporation and an indirect wholly owned subsidiary of xpo . pursuant to the terms of the merger agreement and subject to the conditions thereof , at the effective time of the merger , each outstanding share of common stock of pacer , par value $ 0.01 per share ( the “pacer common stock” ) , other than shares of pacer common stock held by pacer , xpo , merger subsidiary or their respective subsidiaries , will be converted into the right to receive ( 1 ) $ 6.00 in cash and ( 2 ) subject to the limitations in the following sentence , a fraction ( the “exchange ratio” ) of a share of xpo common stock , par value $ 0.001 per share ( the “xpo common stock” ) , equal to $ 3.00 divided by the volume-weighted average price per share of xpo common stock for the last 10 trading days prior to the closing date ( such average , the “vwap , ” and , such cash and stock consideration together , the “merger consideration” ) . for the purpose of calculating the exchange ratio , the vwap may not be less than $ 23.12 per share or greater than $ 32.94 per share . if the vwap for purposes of the exchange ratio calculation is less than or equal to $ 23.12 per share , then the exchange ratio will be fixed at 0.1298 of a share of xpo common stock . if the vwap for purposes of the exchange ratio calculation is greater than or equal to $ 32.94 per share , then the exchange ratio will be fixed at 0.0911 of a share of xpo common stock . the completion of the merger is subject to customary closing conditions , including approval of the merger by the holders of a majority of the outstanding shares of pacer common stock . xpo 's and merger subsidiary 's obligations to consummate the merger are not subject to any condition related to the availability of financing . revolving loan credit agreement on october 18 , 2013 , we and certain of our wholly-owned subsidiaries , as borrowers , entered into a $ 125.0 million multicurrency secured revolving loan credit agreement ( the “credit agreement” ) with the lender parties thereto and morgan stanley senior funding , inc. , as administrative agent for such lenders , with a maturity of five years . 32 the proceeds of the credit agreement may be used by us for ongoing working capital needs and other general corporate purposes , including strategic acquisitions . borrowings under the credit agreement bear interest at a per annum rate equal to , at our option , the one , two , three or six month ( or such other period less than one month or greater than six months as the lenders may agree ) libor rate plus a margin of 1.75 % to 2.25 % , or a base rate plus a margin of 0.75 % to 1.25 % . we are required to pay an undrawn commitment fee equal to 0.25 % or 0.375 % of the quarterly average undrawn portion of the commitments under the credit agreement , as well as customary letter of credit fees . the margin added to libor , or base rate , will depend on the quarterly average availability of the commitments under the credit agreement . story_separator_special_tag sg & a expense increased 539.1 % to $ 21.7 million in 2012 from $ 3.4 million in 2011. the increase in sg & a expense was associated with the addition of turbo , kelron , continental and birddog , as well as investments in sales force recruitment and the opening of new offices . our freight brokerage operations generated an operating loss of $ 5.6 million in 2012 compared to operating income of $ 1.3 million in 2011. the reduction in operating income was attributable to the increase in sg & a expense and the lower gross margin percentage associated with our cold-start sales offices . expedited transportation statement of operations data for the year ended december 31 , ( in thousands ) replace_table_token_6_th note : total depreciation and amortization for the expedited transportation operating segment , included in both direct expense and sg & a , was $ 1.4 million , $ 0.5 million and $ 0.6 million , for the years ended december 31 , 2013 , 2012 and 2011 , respectively . expedited transportation year ended december 31 , 2013 compared to year ended december 31 , 2012 revenue in our expedited transportation segment increased 8.3 % to $ 101.8 million in 2013 from $ 94.0 million in 2012. this growth was driven by the acquisition of east coast air charter on february 8 , 2013 partially offset by a decline in the rest of our over-the-road expedited business . 38 direct expenses consist primarily of payments to independent owner operators and contract carriers for ground transportation and air charter services , insurance and truck leasing expense . expedited transportation gross margin dollars increased 1.7 % to $ 17.2 million in 2013 from $ 16.9 million in 2012. as a percentage of revenue , expedited transportation gross margin was 16.8 % in 2013 , compared to 17.9 % in 2012. the decrease in gross margin as a percentage of revenue primarily reflects a soft expedited freight environment in the first half of the year as well as the addition of expedited air charter revenue from the 2013 acquisition of east coast air charter ; air charter services typically generate higher gross revenue but lower gross margin percentage than our over-the-road expedited business . sg & a expense increased 18.9 % to $ 12.0 million in 2013 from $ 10.1 million in 2012. the increase was due to the addition of east coast air charter , particularly intangible amortization associated with the acquisition . as a percentage of revenue , sg & a expense increased to 11.7 % in 2013 compared to 10.7 % in 2012. operating income decreased to $ 5.2 million in 2013 compared to $ 6.8 million in 2012. the decrease in operating income was primarily related to the decrease in gross margin as a percent of revenue , as described above . management 's growth strategy for our expedited transportation segment is based on : targeted investments to expand the sales and service workforce , in order to capture key opportunities in specialized areas ( e.g . , cross-border , refrigeration and air charter ) ; an increased focus on carrier recruitment and retention , as well as improved utilization of the current carrier fleet ; technology upgrades to improve efficiency in sales and carrier procurement ; selective acquisitions of non-asset based expedited businesses that would benefit from our scale and potential access to capital ; and cross-selling of expedited transportation services to customers of our other business segments . year ended december 31 , 2012 compared to year ended december 31 , 2011 revenue in our expedited transportation segment increased 7.4 % to $ 94.0 million in 2012 from $ 87.6 million in 2011. this growth was driven by an increase in temperature control and international revenue as well as an increase in air charter revenue related to a customer project completed in the first quarter of 2012. expedited transportation gross margin dollars decreased 7.6 % to $ 16.9 million in 2012 from $ 18.3 million in 2011. as a percentage of revenue , expedited transportation gross margin was 17.9 % in 2012 , compared to 20.9 % in 2011. the decrease in gross margin as a percentage of revenue primarily reflects higher rates paid to independent fleet owners and owner-operators , effective march 1 , 2012 , and an increase in costs associated with fleet recruiting initiatives . sg & a expense remained flat at $ 10.1 million in 2012 compared to 2011. as a percentage of revenue , sg & a expense decreased to 10.7 % in 2012 compared to 11.5 % in 2011. operating income decreased to $ 6.8 million in 2012 compared to $ 8.2 million in 2011. the decrease in operating income was primarily related to the decrease in gross margin as a percent of revenue and an increase in sg & a , as described above . 39 freight forwarding statement of operations data for the year ended december 31 , ( in thousands ) replace_table_token_7_th freight forwarding year ended december 31 , 2013 compared to year ended december 31 , 2012 revenue in our freight forwarding segment increased 8.1 % to $ 73.2 million in 2013 from $ 67.7 million in 2012. the increase was primarily the result of the opening of new freight forwarding locations . direct expense consists primarily of payments for purchased transportation and commissions paid to freight forwarding 's independently-owned stations . freight forwarding 's gross margin dollars increased 31.1 % to $ 10.2 million in 2013 from $ 7.8 million in 2012. as a percentage of revenue , freight forwarding gross margin increased to 14.0 % in 2013 as compared to 11.5 % in 2012. the increase in gross margin percentage was primarily driven by branch conversions from independent ownership to company ownership . sg & a expense increased 67.7 % to $ 11.2 million in 2013 from $ 6.7 million in 2012. as a percentage of revenue , sg

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cash flow during 2013 , $ 66.3 million was used in cash from operations compared to $ 24.3 million used for 2012 and $ 6.6 million generated for 2011. the primary use of cash for the period was payment of transportation services and various sg & a expenses . cash generated from revenue equaled $ 665.3 million for 2013 as compared to $ 264.8 million for 2012 and $ 178.7 million for 2011 and correlates directly with the revenue increase between the periods . cash flow increases are related primarily to volume increases between the periods ended december 31 , 2013 , 2012 and 2011. cash used for payment of transportation services for 2013 equaled $ 585.1 million as compared to $ 223.0 million for 2012 and $ 148.3 million for 2011. the increase in cash outflows between the periods also directly correlates to the increase in revenues between the periods ended december 31 , 2013 , 2012 and 2011. other operating uses of cash included sg & a items , which equaled $ 134.4 million , $ 67.2 million and $ 23.4 million for the years ended december 31 , 2013 , 2012 and 2011 , respectively . payroll represents the most significant sg & a item . for 2013 , cash used for payroll equaled $ 74.9 million as compared to $ 31.3 million for 2012 and $ 13.6 million for 2011 . 42 investing activities used approximately $ 470.3 million for 2013 compared to a use of $ 64.2 million and $ 0.7 million from these activities for 2012 and 2011 , respectively . during 2013 , $ 458.8 million was used in acquisitions and $ 11.6 million was used to purchase fixed assets while $ 0.1 million was provided by other investing activities . during 2012 , $ 57.2 million was used for acquisitions and $ 7.0 million was used to purchase fixed assets while during 2011 $ 0.7 million was used to purchase fixed assets . financing activities generated approximately $ 305.8 million for 2013 compared to $ 266.8 million and $ 67.6 million generated for 2012 and 2011 , respectively .

in the fourth quarter of 2017 , we recorded non-cash goodwill impairment charge associated with our personal care segment of $ 578 million . see item 8 , financial statements and supplementary data under note 15 “ closure and restructuring costs and liability ” and note 4 “ impairment of property , plant and equipment and goodwill ” , for more information . 2 in the fourth quarter of 2017 , we recorded a net tax benefit of $ 140 million related to the u.s. tax reform , which is composed of a benefit of $ 186 million for the remeasurement of deferred tax assets and liabilities and a charge of $ 46 million for the repatriation tax , and adjusted by $ 7 million in the third quarter of 2018. see item 8 , financial statements and supplementary data under note 10 “ income taxes ” for more information . 3 see item 8 , financial statements and supplementary data under note 6 `` earnings ( loss ) per common share `` for more information on the calculation of net earnings per common share . outlook in 2019 , our paper shipments will increase as we respond to increased demand from our customers following the announced industry capacity closures while paper prices will continue to improve in the wake of the recently announced price increases across the majority of our paper grades . softwood and fluff pulp markets will remain balanced through the year due to continued steady demand growth and limited announced new capacity . we anticipate costs , including freight , labor and raw materials , to marginally increase . personal care is expected to benefit from our margin improvement plan and new customer wins , partially offset by further raw material cost inflation . consolidated results of operations and segment review this section presents a discussion and analysis of our 2018 , 2017 and 2016 sales , operating income ( loss ) and other information relevant to the understanding of our results of operations . as a result of adopting the new accounting standard “ revenue from contracts with customers , ” we have revised our segment disclosures to conform to the new guideline . in 2017 and 2016 , previously reported sales were as follows : $ 4,216 million for pulp and paper ( 2016 - $ 4,239 million ) , $ 1,005 million for personal care ( 2016 - $ 917 million ) , and $ ( 64 ) million for intersegment sales ( 2016 - $ ( 58 ) million ) . as a result of adopting the new accounting guideline “ improving the presentation of net periodic pension cost and net periodic postretirement benefit cost , ” we have revised our 2017 and 2016 segment disclosures to conform to the new guideline . in 2017 and 2016 , previously reported numbers for operating income ( loss ) were as follows : $ 250 million for pulp and paper ( 2016 - $ 217 million ) , ( $ 527 ) million for personal care ( 2016 - $ 57 million ) , and $ ( 40 ) million for corporate ( 2016 - $ ( 51 ) million ) . 28 replace_table_token_6_th replace_table_token_7_th ( a ) includes sales of hdis since october 1 , 2016. replace_table_token_8_th ( a ) includes closure and restructuring charge and accelerated depreciation of property , plant and equipment associated with an announced margin improvement plan within our personal care segment of $ 8 million and $ 7 million , respectively . ( b ) includes non-cash goodwill impairment charge associated with our personal care segment of $ 578 million . replace_table_token_9_th 29 ( a ) includes raw materials ( such as fiber , chemicals , nonwovens and super absorbent polymers ) and energy costs . ( b ) includes maintenance , freight costs , selling , general and administrative ( “ sg & a ” ) expenses and other costs . ( c ) in our personal care segment , in 2018 , we recorded $ 7 million of non-cash impairment of property , plant and equipment compared to $ 578 million of non-cash impairment of goodwill recorded in 2017. depreciation charges were lower by $ 13 million in 2018 , excluding foreign currency impact . ( d ) 2018 restructuring charges relate mostly to : 2017 restructuring charges relate mostly to : -inventory write-down ( $ 4 million ) -severance and termination costs ( $ 3 million ) -other costs ( $ 1 million ) -severance and termination costs ( $ 2 million ) ( e ) 2018 operating expenses/income includes : 2017 operating expenses/income includes : - net gain on sale of property , plant and equipment ( $ 4 million ) - foreign exchange gain ( $ 2 million ) - environmental provision ( $ 5 million ) - bad debt expense ( $ 2 million ) - other income ( $ 1 million ) - net gain on sale of property , plant and equipment ( $ 13 million ) - reversal of contingent consideration ( $ 2 million ) - bad debt expense ( $ 1 million ) - environmental provision ( $ 3 million ) - foreign exchange loss ( $ 1 million ) - other income ( $ 4 million ) commentary - 2018 vs. 2017 interest expense , net we incurred $ 62 million of net interest expense in 2018 compared to net interest expense of $ 66 million in 2017. interest expense decreased mainly due to the repayment at maturity of the 10.75 % notes due in june 2017 and was partially offset by an increase in interest rate on the term loan . story_separator_special_tag mostly due to the acquisition of hdis on october 1 , 2016 and organic sales growth . this increase was partially offset by lower selling prices of 1 % when compared to 2016. operating income decreased by $ 584 million compared to 2016. our results were negatively impacted by : higher depreciation/impairment charges ( $ 579 million ) mostly due to the non-cash impairment of goodwill recorded in 2017 of $ 578 million unfavorable average net selling prices ( $ 11 million ) unfavorable foreign exchange impact , net of our hedging program ( $ 4 million ) higher restructuring charges ( $ 1 million ) unfavorable other income/expense ( $ 1 million ) these decreases were partially offset by the following : higher volume and mix ( $ 6 million ) lower input costs ( $ 3 million ) mostly due to a decrease in price of super absorbent polymers , fluff pulp and non-wovens lower operating expenses ( $ 3 million ) mostly due to lower manufacturing costs , partially offset by higher salaries & wages in our absorbent hygiene products business , we compete in an industry with fundamental drivers for long-term growth ; however , competitive market pressures in the healthcare and retail markets grew significantly in recent years . although the impact of such pressures presents some uncertainties , we expect them to result in lower than previously anticipated sales and operating margins . while we are expected to benefit from the overall increase in healthcare spending due to an aging population , the pressures to limit spending on healthcare may impact overall consumption or the channels in which consumption occurs . additionally , excess industry capacity has increased pricing pressure in all markets and instigated a shift in the infant and adult private label retail space as competitors historically almost absent in our markets have increased their presence in such markets . the principal methods and elements of competition remain brand recognition and loyalty , product innovation , quality and performance , price and marketing and distribution capabilities . 34 margin improvement plan on november 1 , 2018 , we announced a margin improvement plan within our personal care segment . as part of this plan , our board of directors approved the permanent closure of our waco , texas , manufacturing and distribution facility , the relocation of certain of our manufacturing assets and a workforce reduction across the division . the waco , texas facility is expected to cease operations in the third quarter of 2019. the aggregate pre-tax earnings charge in connection with this margin improvement plan is estimated to be $ 57 million , which includes : a ) an estimated $ 29 million in charges relating to accelerated depreciation of the carrying amounts of certain manufacturing equipment and the write-down of related spare parts ; b ) $ 10 million of estimated severance and related employee benefits ; c ) $ 11 million of estimated relocation and other costs ; and d ) $ 7 million of an estimated amount related to the future lease payments at the waco facility , net of expected sublease revenues . we also expect to incur approximately $ 5 million of capital expenditures related to certain equipment installation costs . closure and restructuring costs are based on management 's best estimates . although we do not anticipate significant changes , actual costs may differ from these estimates due to subsequent business developments . as such , additional costs and further impairment charges may be required in future periods . we recorded $ 7 million for the year ended december 31 , 2018 of accelerated depreciation under impairment of property , plant and equipment and goodwill on the consolidated statement of earnings ( loss ) and comprehensive income ( loss ) . during the fourth quarter of 2018 , we also recorded a $ 4 million write-down of inventory , $ 3 million of severance and termination costs , and $ 1 million of other costs under closure and restructuring costs . the balance will be recognized through the third quarter of 2019. stock-based compensation expense under the omnibus incentive plan , we may award to key employees and non-employee directors , at the discretion of the human resources committee of the board of directors , non-qualified stock options , incentive stock options , stock appreciation rights , restricted stock units , performance-conditioned restricted stock units , performance share units , deferred share units ( “ dsus ” ) and other stock-based awards . the non-employee directors only receive dsus . we generally grant awards annually and use , when available , treasury stock to fulfill awards settled in common stock and options exercised . for the year ended december 31 , 2018 , stock-based compensation expense recognized in our results of operations was $ 10 million ( 2017– $ 20 million ; 2016 – $ 16 million ) for all of the outstanding awards . compensation costs not yet recognized amounted to $ 17 million ( 2017– $ 20 million ; 2016– $ 17 million ) and will be recognized over the remaining service period of approximately 26 months . the aggregate value of liability awards settled in 2018 was $ 8 million ( 2017 – $ 7 million ; 2016 – $ 4 million ) . the total fair value of equity awards settled in 2018 was $ 6 million ( 2017 – $ 3 million ) , representing the fair value at the time of settlement . the fair value at the grant date for these settled equity awards was $ 7 million ( 2017 – $ 4 million ) . compensation costs for performance awards are based on management 's best estimate of the final performance measurement . liquidity and capital resources our principal cash requirements are for ongoing operating costs , pension contributions , working capital and capital expenditures , as well as principal and interest payments on our

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capital resources net indebtedness , consisting of long-term debt , net of cash and cash equivalents , was $ 743 million as of december 31 , 2018 compared to $ 991 million as of december 31 , 2017. notes maturity our 10.75 % notes , in aggregate principal amount of $ 63 million , matured on june 1 , 2017. our 9.5 % notes , in aggregate principal amount of $ 39 million , matured on august 1 , 2016. term loan in the fourth quarter of 2018 , we repaid the $ 300 million unsecured term loan that had been entered into in 2015 by a wholly-owned subsidiary of domtar with certain domestic banks . revolving credit facility in august 2018 , we amended and restated our unsecured revolving credit facility ( the “ credit agreement ” ) with certain domestic and foreign banks , extending the credit agreement 's maturity date from august 18 , 2021 to august 22 , 2023. the amount available under the credit agreement remains at $ 700 million . borrowings by the company under the credit agreement are guaranteed by our significant domestic subsidiaries . borrowings by foreign borrowers under the credit agreement are guaranteed by the company , our significant domestic subsidiaries and certain of our significant foreign subsidiaries . borrowings under the credit agreement bear interest at libor , euribor , canadian bankers ' acceptance or prime rate , as applicable , plus a margin linked to our credit rating . in addition , we pay facility fees quarterly at rates dependent on our credit ratings .

our next-generation solutions enable digital transformation and encompass software-defined data centers , all-flash arrays , hybrid cloud , converged and hyper-converged infrastructure , cloud-native application development tools , mobile , and security solutions . in addition , we provide important value differentiators through our extended warranty and delivery offerings , and software and peripherals , which are closely tied to the sale of our hardware products . dell technologies is committed to our customers . as we innovate to make our customers ' existing it increasingly productive , we help them reinvest their savings into the next generation of technologies that they need to succeed in the digital economy . we are positioned to help customers of any size and are differentiated by our practical innovation and efficient , simple , and affordable solutions . during fiscal 2018 , we celebrated the one year anniversary of our historic merger with emc , and recognize the many accomplishments we have made since the merger . these accomplishments include the broad expansion of our product 42 portfolio , integration of our supply chain , and achievement of revenue synergies across the business . with these accomplishments , we believe we are well-positioned for long-term sustainable growth and innovation . as we continue our integration of the emc acquired businesses , we remain committed to our customers , supporting them with outstanding solutions , products , and services . we will continue our focus on building superior customer relationships through our direct model and our network of channel partners , which includes value-added resellers , system integrators , distributors , and retailers . we also will continue to balance our efforts to drive cost efficiencies in the business with strategic investments in areas that will enable growth , such as our sales force , marketing , and research and development , as we seek to strengthen our position as a leading global technology company poised for long-term sustainable growth and innovation . products and services we design , develop , manufacture , market , sell , and support a wide range of products and services . we are organized into the following business units , which are our reportable segments : client solutions group ; infrastructure solutions group ; and vmware . due to our divestitures of dell services , dell software group , and dell emc enterprise content division , the results of these businesses , as well as the related gains or losses on sale , have been excluded from the results of continuing operations in the relevant periods , except as otherwise indicated . client solutions group ( `` csg `` ) — offerings by csg include branded hardware , such as desktop pcs , notebooks , and workstations , and branded peripherals , such as monitors , and projectors . csg also offers attached software , peripherals , and services , including support and deployment , configuration , and extended warranty services . approximately half of csg revenue is generated by sales to customers in the americas , with the remaining portion derived from sales to customers in the europe , middle east , and africa region ( `` emea `` ) and the asia-pacific and japan region ( `` apj `` ) . infrastructure solutions group ( `` isg `` ) — emc 's information storage segment and our former enterprise solutions group were merged to create the infrastructure solutions group , which contains storage , server , and networking offerings . the comprehensive portfolio of advanced storage solutions includes traditional storage solutions as well as next-generation storage solutions ( including all-flash arrays and scale-out file , and object platforms ) . the server portfolio includes high-performance rack , blade , tower , and hyperscale servers . the networking portfolio enables our business customers to transform and modernize their infrastructure , mobilize and enrich end-user experiences , and accelerate business applications and processes . isg also offers attached software , peripherals , and services , including support and deployment , configuration , and extended warranty services . approximately half of isg revenue is generated by sales to customers in the americas , with the remaining portion derived from sales to customers in emea and apj . vmware — the vmware reportable segment ( `` vmware `` ) reflects the operations of vmware , inc. ( nyse : vmw ) within dell technologies . see exhibit 99.1 filed with this report for further details on the differences between vmware reportable segment results and vmware , inc. results . vmware provides compute , cloud , mobility , networking and security infrastructure software to businesses that provides a flexible digital foundation for the applications that empower businesses to serve their customers globally . vmware offers a broad portfolio of virtualization technologies across three main product groups : software-defined data center ; hybrid cloud computing ; and end-user computing . approximately half of vmware revenue is generated by sales to customers in the united states . our other businesses , described below , consist of product and service offerings of rsa , secureworks , pivotal , and boomi . these businesses are not classified as reportable segments , either individually or collectively , as the results of the businesses are not material to our overall results and the businesses do not meet the criteria for reportable segments . rsa provides essential cybersecurity solutions engineered to enable organizations to detect , investigate , and respond to advanced attacks , confirm and manage identities , and , ultimately , help reduce ip theft , fraud , and cybercrime . secureworks ( nasdaq : scwx ) is a leading global provider of intelligence-driven information security solutions singularly focused on protecting its clients from cyber attacks . 43 pivotal provides a leading cloud-native platform that makes software development and it operations a strategic advantage for customers . story_separator_special_tag during fiscal 2018 , this amount includes a provisional tax benefit of $ 0.3 billion which was recorded in the fourth quarter of fiscal 2018 related to the tax cuts and jobs act of 2017 ( “ u.s . tax reform ” or the “ act ” ) which was signed into law on december 22 , 2017. for further information regarding u.s. tax reform , see note 14 of the notes to the consolidated financial statements included in this report . during fiscal 2017 , this amount also includes tax charges of $ 0.2 billion on previously untaxed earnings of a foreign subsidiary that will no longer be permanently reinvested as a result of the dell services and dsg divestitures . the tax effects are determined based on the tax jurisdictions where the above items were incurred . 47 the table below presents a reconciliation of each non-gaap financial measure to the most directly comparable gaap measure for each of the periods presented : replace_table_token_6_th 48 replace_table_token_7_th in addition to the above measures , we also use ebitda and adjusted ebitda to provide additional information for evaluation of our operating performance . adjusted ebitda excludes purchase accounting adjustments related to the emc merger transaction and the going-private transaction , acquisition , integration , and divestiture related costs , severance and facility action costs , and stock-based compensation expense . we believe that , due to the non-operational nature of the purchase accounting entries , it is appropriate to exclude these adjustments . as is the case with the non-gaap measures presented above , users should consider the limitations of using ebitda and adjusted ebitda , including the fact that those measures do not provide a complete measure of our operating performance . ebitda and adjusted ebitda do not purport to be alternatives to net income ( loss ) as measures of operating performance or to cash flows from operating activities as a measure of liquidity . in particular , ebitda and adjusted ebitda are not intended to be a measure of free cash flow available for management 's discretionary use , as these measures do not consider certain cash requirements , such as working capital needs , capital expenditures , contractual commitments , interest payments , tax payments , and other debt service requirements . 49 the table below presents a reconciliation of ebitda and adjusted ebitda to net loss from continuing operations for the periods presented : replace_table_token_8_th ( a ) see `` results of operations — interest and other , net `` for more information on the components of interest and other , net . ( b ) this amount includes the non-cash purchase accounting adjustments related to the emc merger transaction and the going-private transaction . ( c ) transaction-related expenses consist of acquisition , integration , and divestiture related costs . ( d ) consists of severance and facility action costs . 50 results of operations consolidated results the following table summarizes our consolidated results from continuing operations for each of the periods presented . unless otherwise indicated , all changes identified for the current-period results represent comparisons to results for the prior corresponding fiscal period . replace_table_token_9_th ( a ) product gross margin percentages represent product gross margin as a percentage of product net revenue , and non-gaap product gross margin percentages represent product gross margin as a percentage of non-gaap product net revenue . ( b ) services gross margin percentages represent services gross margin as a percentage of services net revenue , and non-gaap services gross margin percentages represent services gross margin as a percentage of non-gaap services net revenue . 51 non-gaap product net revenue , non-gaap services net revenue , non-gaap net revenue , non-gaap product gross margin , non-gaap services gross margin , non-gaap gross margin , non-gaap operating expenses , non-gaap operating income , non-gaap net income from continuing operations , ebitda , and adjusted ebitda are not measurements of financial performance prepared in accordance with gaap . non-gaap financial measures as a percentage of revenue are calculated based on non-gaap net revenue . see `` non-gaap financial measures `` for information about these non-gaap financial measures , including our reasons for including these measures , material limitations with respect to the usefulness of the measures , and a reconciliation of each non-gaap financial measure to the most directly comparable gaap financial measure . as a result of the emc merger transaction completed on september 7 , 2016 and its impact on fiscal 2017 results , our results for the fiscal periods discussed below are not directly comparable . overview during fiscal 2018 , our net revenue and non-gaap net revenue increased 28 % and 27 % , respectively . the increase in net revenue and non-gaap net revenue was attributable to the incremental net revenue from the emc acquired businesses and , to a lesser extent , an increase in csg net revenue . the emc merger transaction had an impact on the mix of revenue contributed by our business units . csg net revenue represented approximately 50 % of our net revenue during fiscal 2018. in comparison , csg net revenue constituted a higher proportion of our net revenue during fiscal 2017 , representing approximately 60 % of our net revenue . our operating loss increased 2 % during fiscal 2018 , primarily due to higher operating expenses from the emc acquired businesses , mostly offset by an increase in gross margin . while the emc acquired businesses contributed higher gross margin overall , we experienced gross margin pressure in isg related to the changing product mix within isg as well as component cost inflation , particularly for memory components used in isg products . our operating loss was impacted by purchase accounting adjustments associated with the emc merger transaction and , to a lesser extent , the going-private transaction , amortization of intangible assets , transaction-related expenses , and other corporate expenses . in aggregate

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cash provided by operating activities was $ 6.8 billion during fiscal 2018. the increase in operating cash flows during fiscal 2018 was driven by improved profitability , including the incremental profitability from the emc acquired businesses , and ongoing working capital initiatives . see `` market conditions , liquidity , capital commitments , and contractual cash obligations '' for further information on our cash flow metrics . net revenue fiscal 2018 compared to fiscal 2017 during fiscal 2018 , our net revenue and non-gaap net revenue increased 28 % , and 27 % , respectively , primarily due to the incremental net revenue from the emc acquired businesses and , to a lesser extent , an increase in csg net revenue . see `` business unit results '' for further information . product net revenue — product net revenue includes revenue from the sale of hardware products and software licenses . during fiscal 2018 , product net revenue and non-gaap product net revenue increased 21 % and 20 % , respectively , primarily due to the incremental product net revenue from the emc acquired businesses and , to a lesser extent , an increase in csg product net revenue . the increases in product net revenue and non-gaap product net revenue during fiscal 2018 were driven by strength in sales of notebooks , workstations , servers , and vmware license revenue . services net revenue — services net revenue includes revenue from our services offerings , third-party software license sales , and support services related to hardware products and software licenses . during fiscal 2018 , services net revenue and non-gaap services net revenue increased 54 % and 52 % , respectively . these increases were primarily due to the incremental services net revenue from the emc acquired businesses . from a geographical perspective , net revenue generated by sales to customers in all regions increased in fiscal 2018 primarily as a result of the incremental net revenue from the emc acquired businesses . our mix of revenues generated in the americas , emea , and apj did not change substantially as a result of the emc merger transaction .

although our jurisdiction of organization is ireland , we manage our affairs so that we are centrally managed and controlled in the united kingdom ( the `` u.k. `` ) and therefore have our tax residency in the u.k. our former parent company , pentair ltd. , took its form on september 28 , 2012 as a result of a reverse acquisition ( the `` merger `` ) involving pentair , inc. and an indirect , wholly-owned subsidiary of flow control ( defined below ) , with pentair , inc. surviving as an indirect , wholly-owned subsidiary of pentair ltd. `` flow control `` refers to pentair ltd. prior the merger . prior to the merger , tyco international ltd. ( `` tyco `` ) engaged in an internal restructuring whereby it transferred to flow control certain assets related to the flow control business of tyco , and flow control assumed from tyco certain liabilities related to the flow control business of tyco . on september 28 , 2012 prior to the merger , tyco effected a spin-off of flow control through the pro-rata distribution of 100 % of the outstanding ordinary shares of flow control to tyco 's shareholders ( the `` distribution `` ) , resulting in the distribution of approximately 110.9 million of our ordinary shares to tyco 's shareholders . the merger was accounted for as a reverse acquisition under the purchase method of accounting with pentair , inc. treated as the acquirer . on january 30 , 2014 , we acquired , as part of water quality systems , the remaining 19.9 percent ownership interest in two entities , a u.s. entity and an international entity ( collectively , pentair residential filtration or `` prf `` ) , from ge water & process technologies ( a unit of general electric company ) ( `` ge `` ) for $ 134.3 million in cash . prior to the acquisition , we held a 80.1 percent ownership equity interest in prf , representing our and ge 's respective global water softener and residential water filtration businesses . 22 on july 28 , 2014 , our board of directors approved a decision to exit our water transport business in australia . the results of the water transport business have been presented as discontinued operations and the assets and liabilities of the water transport business have been reclassified as held for sale for all periods presented . during 2014 , we recognized an impairment charge related to allocated amounts of goodwill , intangible assets , property , plant & equipment and other non-current assets totaling $ 380.1 million , net of tax , representing our estimated loss on disposal of the water transport business . the sale of the water transport business was completed in 2015. on september 18 , 2015 , we acquired , as part of technical solutions , all of the outstanding shares of capital stock of erico global company ( `` erico `` ) for approximately 1.8 billion ( the `` erico acquisition `` ) . erico is a leading global manufacturer and marketer of engineered electrical and fastening products for electrical , mechanical and civil applications . erico has employees in 30 countries across the world with recognized brands including caddy fixing , fastening and support products ; erico electrical grounding , bonding and connectivity products and lenton engineered systems . on august 18 , 2016 , we entered into a share purchase agreement to sell our valves & controls business to emerson electric co. for a purchase price of $ 3.15 billion in cash , subject to customary adjustments . we believe the sale will be completed by the end of the first quarter of 2017 , subject to customary regulatory approvals and closing conditions . the results of the valves and controls business have been presented as discontinued operations and the related assets and liabilities have been reclassified as held for sale for all periods presented . the valves & controls business was previously disclosed as a stand-alone reporting segment . key trends and uncertainties regarding our existing business the following trends and uncertainties affected our financial performance in 2016 and 2015 , and will likely impact our results in the future : despite the favorable long-term outlook for our end-markets , we experience differing levels of volatility depending on the end-market and may continue to do so over the medium and longer term . during 2015 and 2016 , our core sales have been challenged by broad-based industrial capital expenditure and maintenance deferrals . we expect this trend to continue into 2017. we experienced declines within our industrial and energy businesses . we expect headwinds in the industrial and energy businesses to continue and oil prices to remain depressed into 2017. we initiated restructuring actions to offset the negative earnings impact of core revenue decline and foreign exchange . we expect to continue these actions into 2017 and these actions will contribute to margin growth in 2017. in late 2015 and continuing through 2016 , our results were negatively impacted due to the strengthening of the u.s. dollar against most key global currencies . we expect this trend to continue into 2017. we have identified specific product and geographic market opportunities that we find attractive and continue to pursue , both within and outside the united states . we are reinforcing our businesses to more effectively address these opportunities through research and development and additional sales and marketing resources . unless we successfully penetrate these markets , our core sales growth will likely be limited or may decline . we have experienced material and other cost inflation . we strive for productivity improvements , and we implement increases in selling prices to help mitigate this inflation . we expect the current economic environment will result in continuing price volatility for many of our raw materials , and we are uncertain as to the timing and impact of these market changes . story_separator_special_tag we experience seasonal cash flows primarily due to seasonal demand in a number of markets within flow & filtration solutions and water quality systems . we generally borrow in the first quarter of our fiscal year for operational purposes , which usage reverses in the second quarter as the seasonality of our businesses peaks . end-user demand for pool and certain pumping equipment follows warm weather trends and is at seasonal highs from april to august . the magnitude of the sales spike is partially mitigated by employing some advance sale `` early buy `` programs ( generally including extended payment terms and or 31 additional discounts ) . demand for residential and agricultural water systems is also impacted by weather patterns , particularly by heavy flooding and droughts . additionally , technical solutions generally experiences increased demand for thermal protection products and services during the fall and winter months in the northern hemisphere . operating activities cash provided by operating activities of continuing operations was $ 702.4 million in 2016 , or $ 104.7 million higher than in 2015 . the increase in cash provided by operating activities from continuing operations was due primarily to a $ 122.6 million increase in net income from continuing operations , net of the following non-cash items : depreciation and amortization , loss on sale of businesses , trade name impairment and pension and other post-retirement expense . cash provided by operating activities from continuing operations was $ 597.7 million in 2015 , or $ 78.3 million lower than in 2014 . the decrease in cash provided by operating activities from continuing operations was due primarily to changes in non-cash pension and other post-retirement expenses and increases in net working capital during 2015. investing activities story_separator_special_tag have the ability and sufficient capacity to meet these cash requirements by using available cash and internally generated funds and to borrow under our committed and uncommitted credit facilities . further , we plan to utilize a portion of the proceeds from the sale of our valves & controls business to retire a significant portion of outstanding debt , and thus reduce our future contractual obligations . we believe the sale of the valves & controls business will be completed by the end of the first quarter of 2017 , subject to customary regulatory approvals and closing conditions . dividends on december 6 , 2016 , the board of directors declared a quarterly cash dividend of $ 0.345 that was paid on february 10 , 2017 to shareholders of record at the close of business on january 27 , 2017. additionally , the board of director 's approved a plan to increase the 2017 annual cash dividend to $ 1.38 , which is intended to paid in four quarterly installments . the 2017 increase will mark the 41 st consecutive year we have increased dividends . 33 we paid dividends in 2016 of $ 243.6 million , or $ 1.34 per ordinary share , compared with $ 231.7 million , or $ 1.28 per ordinary share , in 2015 and $ 211.4 million , or $ 1.10 per ordinary share , in 2014 . under irish law , the payment of future cash dividends and repurchases of shares may be paid only out of pentair plc 's `` distributable reserves `` on its statutory balance sheet . pentair plc is not permitted to pay dividends out of share capital , which includes share premiums . distributable reserves may be created through the earnings of the irish parent company and through a reduction in share capital approved by the irish high court . distributable reserves are not linked to a u.s. generally accepted accounting principles ( `` gaap `` ) reported amount ( e.g . , retained earnings ) . on july 22 , 2014 , the irish high court approved pentair plc 's conversion of approximately $ 14.4 billion of share premium to distributable reserves . on july 29 , 2014 , following the approval of the irish high court , we made the required filing of pentair plc 's initial accounts with the irish companies registration office , which completed the process to allow us to pay future cash dividends and redeem and repurchase shares out of pentair plc 's `` distributable reserves . `` our distributable reserve balance was $ 9.4 billion and $ 9.6 billion as of december 31 , 2016 and 2015 , respectively . authorized shares our authorized share capital consists of 426.0 million ordinary shares with a par value of $ 0.01 per share . ordinary shares held in treasury in august 2015 , we canceled all of our ordinary shares held in treasury . at the time of the cancellation , we held 19.1 million ordinary shares in treasury at a cost of $ 1.2 billion . share repurchases prior to the closing of the merger , our board of directors , and tyco as our sole shareholder , authorized the repurchase of our ordinary shares with a maximum aggregate value of $ 400.0 million following the closing of the merger . in october 2012 , the board of directors authorized the repurchase of our ordinary shares with a maximum dollar limit of $ 800.0 million . the authorization expired on december 31 , 2015. there is no remaining availability under the 2012 authorizations . in december 2013 , the board of directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $ 1.0 billion . the authorization expired on december 31 , 2016. there is no remaining availability under the 2013 authorization . in december 2014 , the board of directors authorized the repurchase of our ordinary shares up to a maximum dollar limit of $ 1.0 billion . the authorization expires on december 31 , 2019 . during the year ended december 31 , 2015 , we repurchased 3.1 million of our ordinary shares for $ 200.0 million . we have $ 800.0

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net cash used for investing activities of continuing operations was $ 123.3 million in 2016 , compared to $ 2,003.6 million in 2015 and $ 93.9 million in 2014 . the following investing activities impacted our cash flow : acquisitions in november 2016 , we paid cash of $ 25.0 million to acquire a business as part of water quality systems . in 2015 , we paid cash of $ 1,806.3 million , net of cash acquired , to acquire erico global company during the third quarter and cash of $ 96.0 million , net of cash acquired , to acquire nuheat industries limited ( `` nuheat '' ) during the second quarter , both as part of technical solutions . during the fourth quarter , we paid an additional $ 0.9 million related to the nuheat acquisition in settlement of a working capital adjustment . in december 2014 , we paid cash of $ 7.5 million and $ 4.8 million to acquire businesses as part of water quality systems and technical solutions , respectively . capital expenditures capital expenditures in 2016 , 2015 and 2014 were $ 117.8 million , $ 91.3 million and $ 83.7 million , respectively . we anticipate capital expenditures for fiscal 2017 to be approximately $ 100 million , primarily for capacity expansions of manufacturing facilities located in our low-cost countries , developing new products and general maintenance . financing activities net cash used for financing activities was $ 600.1 million in 2016 . cash used for financing activities in 2016 was primarily due to net repayments of commercial paper and revolving long-term debt and payment of dividends . net cash provided by financing activities was $ 1,286.3 million in 2015 . cash provided by financing activities in 2015 was primarily due to cash proceeds received from the september 2015 issuance of senior notes ( discussed below ) , partially offset by share repurchases , repayment of $ 350.0 million of senior notes due 2015 and payment of dividends . net cash used for financing activities was $ 995.1 million in 2014 .

we also opened 30 athleta stores , ending fiscal 2013 with 65 athleta stores . our franchisees added 72 new stores and five new markets . fiscal 2013 consisted of 52 weeks versus 53 weeks in fiscal 2012. net sales and operating results for fiscal 2013 reflect the impact of one less selling week as well as the calendar shift , which positively impacted the results of the first quarter of fiscal 2013 and negatively impacted the results of the fourth quarter of 2013. in addition , due to the 53rd week in fiscal 2012 , comparable ( `` comp `` ) sales for the fiscal year ended february 1 , 2014 are compared to the 52-week period ended february 2 , 2013. financial results for fiscal 2013 are as follows : net sales for fiscal 2013 increased 3 percent to $ 16.1 billion compared with $ 15.7 billion for fiscal 2012 . excluding the impact of foreign exchange , our net sales increased 5 percent for fiscal 2013 compared with fiscal 2012. see net sales discussion for impact of foreign exchange . 17 online sales for fiscal 2013 increased 21 percent to $ 2.3 billion compared with $ 1.9 billion for fiscal 2012 and grew 2 percentage points , as a percentage of total net sales , to 14 percent compared with 12 percent for fiscal 2012. comparable sales for fiscal 2013 increased 2 percent compared with a 5 percent increase last year . gross profit for fiscal 2013 was $ 6.3 billion compared with $ 6.2 billion for fiscal 2012 . gross margin for fiscal 2013 was 39.0 percent compared with 39.4 percent for fiscal 2012 . operating margin for fiscal 2013 was 13.3 percent compared with 12.4 percent for fiscal 2012 . operating margin is defined as operating income as a percentage of net sales . net income for fiscal 2013 was $ 1.3 billion compared with $ 1.1 billion for fiscal 2012 . diluted earnings per share increased 18 percent to $ 2.74 for fiscal 2013 compared with $ 2.33 for fiscal 2012 . during fiscal 2013 , we generated free cash flow of $ 1.0 billion compared with free cash flow of $ 1.3 billion for fiscal 2012. free cash flow is defined as net cash provided by operating activities less purchases of property and equipment . for a reconciliation of free cash flow , a non-gaap financial measure , from a gaap financial measure , see liquidity and capital resources section . our business and financial priorities for fiscal 2014 are as follows : grow sales ; manage our expenses in a disciplined manner ; deliver earnings per share growth ; and return excess cash to shareholders . in addition to increasing sales within our existing business , we also plan to grow revenues through our newer brands , channels , and geographies , including the following : growing global online sales , driven by continued investments in our omni-channel capabilities ; opening additional stores in asia with a focus on gap china , old navy china , and old navy japan ; expanding our global outlet presence ; opening additional athleta stores ; and continuing to expand our franchise presence worldwide . in fiscal 2014 , we expect foreign exchange rate fluctuations to have a meaningful negative impact on the results of our largest foreign subsidiaries in canada and japan . with the continuing depreciation of the canadian dollar and japanese yen , we expect net sales in canadian dollars and japanese yen translated into u.s. dollars will decrease and negatively impact our total company net sales growth . in addition , we expect gross margins for our largest foreign subsidiaries to be negatively impacted as our merchandise purchases are primarily in u.s. dollars . in fiscal 2014 , we expect diluted earnings per share to be in the range of $ 2.90 to $ 2.95. results of operations net sales net sales primarily consist of retail sales from stores and online , and franchise revenues . see item 8 , financial statements and supplementary data , note 17 of notes to consolidated financial statements for net sales by brand and region . 18 comparable sales beginning in fiscal 2013 , the company reports comp sales by global brand : gap global , old navy global , and banana republic global . fiscal 2012 comp sales have been conformed to the current year presentation . the percentage change in comp sales by global brand and for total company , including the associated comparable online sales , as compared with the preceding year , is as follows : replace_table_token_5_th comparable online sales favorably impacted total company comp sales by 3 percent and 2 percent in fiscal 2013 and 2012 , respectively . only company-operated stores are included in the calculations of comp sales . gap and banana republic outlet comp sales are reflected within the respective results of each global brand . the calculation of total company comp sales includes the results of athleta stores and online , intermix stores and online , and the piperlime store , but excludes the results of our franchise business and piperlime online . a store is included in the comp sales calculations when it has been open and operated by gap , inc. for at least one year and the selling square footage has not changed by 15 percent or more within the past year . a store is included in the comp sales calculations on the first day it has comparable prior year sales . stores in which the selling square footage has changed by 15 percent or more as a result of a remodel , expansion , or reduction are excluded from the comp sales calculations until the first day they have comparable prior year sales . story_separator_special_tag management has discussed the development and selection of these critical accounting policies and estimates with the audit and finance committee of our board of directors , which has reviewed our disclosure relating to critical accounting policies and estimates in this annual report on form 10-k. merchandise inventory we value inventory at the lower of cost or market ( “ lcm ” ) , with cost determined using the weighted-average cost method . we review our inventory levels in order to identify slow-moving merchandise and broken assortments ( items no longer in stock in a sufficient range of sizes or colors ) and we primarily use promotions and markdowns to clear merchandise . we record an adjustment to inventory when future estimated selling price is less than cost . our lcm adjustment calculation requires management to make assumptions to estimate the selling price and amount of slow-moving merchandise and broken assortments subject to markdowns , which is dependent upon factors such as historical trends with similar merchandise , inventory aging , forecasted consumer demand , and the promotional environment . in addition , we estimate and accrue shortage for the period between the last physical count and the balance sheet date . our shortage estimate can be affected by changes in merchandise mix and changes in actual shortage trends . historically , actual shortage has not differed materially from our estimates . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our lcm or inventory shortage adjustments . however , if estimates regarding consumer demand are inaccurate or actual physical inventory shortage differs significantly from our estimate , our operating results could be affected . we have not made any material changes in the accounting methodology used to calculate our lcm or inventory shortage adjustments in the past three fiscal years . impairment of long-lived assets , goodwill , and intangible assets we review the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable . events that result in an impairment review include the decision to close a store , corporate facility , or distribution center , or a significant decrease in the operating performance of the long-lived asset . long-lived assets are considered impaired if the estimated undiscounted future cash flows of the asset or asset group are less than the carrying amount . for impaired assets , we recognize a loss equal to the difference between the carrying amount of the asset or asset group and its estimated fair value . the estimated fair value of the asset or asset group is based on estimated discounted future cash flows of the asset or asset group using a discount rate commensurate with the risk . the asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets . the asset group for our retail stores is reviewed for impairment primarily at the store level . our estimate of future cash flows requires management to make assumptions and to apply judgment , including forecasting future sales and expenses and estimating useful lives of the assets . these estimates can be affected by factors such as future store results , real estate demand , and economic conditions that can be difficult to predict . we have not made any material changes in the methodology to assess and calculate impairment of long-lived assets in the past three fiscal years . we recorded a charge for the impairment of long-lived assets of $ 1 million , $ 8 million , and $ 16 million for fiscal 2013 , 2012 , and 2011 , respectively . we also review the carrying amount of goodwill and other indefinite-lived intangible assets for impairment annually and whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount may not be recoverable . events that result in an impairment review include significant changes in the business climate , declines in our operating results , or an expectation that the carrying amount may not be recoverable . 28 in connection with the acquisitions of athleta in september 2008 and intermix in december 2012 , we allocated $ 99 million and $ 81 million of the respective purchase prices to goodwill . the carrying amount of goodwill was $ 180 million as of february 1 , 2014 . we review goodwill for impairment , as appropriate , by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount , including goodwill , as a basis for determining whether it is necessary to perform the two-step goodwill impairment test . if it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying amount , the two-step test is performed to identify potential goodwill impairment . if it is determined that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount , it is unnecessary to perform the two-step goodwill impairment test . based on certain circumstances , we may elect to bypass the qualitative assessment and proceed directly to performing the first step of the two-step goodwill impairment test . the first step of the two-step goodwill impairment test compares the fair value of the reporting unit to its carrying amount , including goodwill . the second step includes hypothetically valuing all the tangible and intangible assets of the reporting unit as if the reporting unit had been acquired in a business combination . then , the implied fair value of the reporting unit 's goodwill is compared to the carrying amount of

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cash flows from financing activities our cash outflows from financing activities consist primarily of repurchases of our common stock , repayments of debt , and dividend payments . cash inflows primarily consist of proceeds from the issuance of debt and proceeds from issuances under share-based compensation plans , net of withholding tax payments . net cash used for financing activities during fiscal 2013 decreased $ 477 million compared with fiscal 2012 , primarily due to the following : $ 419 million of payments of debt in fiscal 2012 ; $ 144 million of proceeds from issuance of long-term debt in fiscal 2013 ; and $ 51 million less repurchases of common stock in fiscal 2013 compared with fiscal 2012 , partially offset by $ 81 million more dividends paid in fiscal 2013 compared with fiscal 2012 ; and 24 $ 77 million less proceeds from issuances under share-based compensation plans , net of withholding taxes , in fiscal 2013 compared with fiscal 2012. net cash used for financing activities during fiscal 2012 increased $ 879 million compared with fiscal 2011 , primarily due to the following : $ 1.6 billion of proceeds from our issuance of long-term debt in fiscal 2011 ; and $ 400 million of payments of long-term debt in fiscal 2012 ; partially offset by $ 1.1 billion less repurchases of common stock in fiscal 2012 compared with fiscal 2011. free cash flow free cash flow is a non-gaap financial measure . we believe free cash flow is an important metric because it represents a measure of how much cash a company has available for discretionary and non-discretionary items after the deduction of capital expenditures , as we require regular capital expenditures to build and maintain stores and purchase new equipment to improve our business . we use this metric internally , as we believe our sustained ability to generate free cash flow is an important driver of value creation . however , this non-gaap financial measure is not intended to supersede or replace our gaap result . the following table reconciles free cash flow , a non-gaap financial measure , from a gaap financial measure .

only 56 % of total revenue ( excluding reimbursed management type contract revenue ) for the year ended december 31 , 2019 , however , was from management type contracts because , under those contracts , the revenue collected from customers belongs to our clients . therefore , gross profit and total general and administrative expense , rather than revenue , are management 's primary focus . we believe that sophisticated clients ( which also include property owners ) recognize the potential for parking services , parking management , ground transportation services , baggage handling services and other ancillary services to be a profit generator and or a service differentiator to their customers . by outsourcing these services , they are able to capture additional profit and customer experience by leveraging the unique operational skills and controls that an experienced services company can offer . our ability to consistently deliver a uniformly high level of services to our clients , including the use of various technological enhancements , allows us to maximize the profit and or customer experience to our clients and improves our ability to win contracts and retain existing clients . our focus on customer service and satisfaction is a key driver of our high retention rate , which was approximately 93 % and 88 % for the years ended december 31 , 2019 and 2018 , respectively . this retention rate captures facilities for the commercial segment . commercial segment facilities the following table reflects our commercial facilities ( by contractual type ) operated at the end of the years indicated : replace_table_token_3_th ( 1 ) includes partial ownership in one leased facility for 2019 , 2018 and 2017 . 21 revenue we recognize services revenue from lease and management type contracts as the related services are provided . substantially all of our revenue comes from the following two sources : lease type contracts . consists of all revenue received at lease type locations , including gross receipts ( net of local taxes ) , consulting and real estate development fees , gains on sales of contracts and payments for exercising termination rights . revenue from lease type contracts includes a reduction of services revenue - lease type contracts due to the adoption of topic 853 , which requires rental expense for the periods after january 1 , 2018 be presented as a reduction of services revenue - lease type contracts for that business ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement . management type contracts . consists of management fees , including fixed , variable and or performance-based fees , and amounts attributable to ancillary services such as accounting , equipment leasing , baggage services , payments received for exercising termination rights , consulting , developmental fees , gains on sales of contracts , insurance and other value-added services with respect to managed type contracts . we believe we generally purchase required insurance at lower rates than our clients can obtain on their own because we effectively self-insure for all liability and worker 's compensation and health care claims by maintaining a large per-claim deductible . as a result , we have generated operating income on the insurance provided under our management type contracts by focusing on our risk management efforts and controlling losses . management type contract revenues do not include gross customer collections at managed type contracts as these revenues belong to the client rather than to us . management type contracts generally provide us with a management fee regardless of the operating performance of the underlying management type contract . reimbursed management type contract revenue . c onsists of the direct reimbursement from the client for operating expenses incurred under a management type contract , which are reflected in our revenue . cost of services our cost of services consists of the following : lease type contracts . consists of contractual rents or fees paid to the client and all operating expenses incurred in connection with operating the leased facility . contractual rents or fees paid to the client are generally based on either a fixed contractual amount or a percentage of gross revenue or a combination thereof . generally , under a lease type arrangement we are not responsible for major capital expenditures or real estate taxes . cost of services from lease type contracts includes a reduction of cost of services revenue - lease type contracts due to the adoption of topic 853 , which requires rental expense for the periods after january 1 , 2018 be presented as a reduction of services revenue - lease type contracts ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement . management type contracts . the cost of services under a management type contract is generally the responsibility of the client . as a result , these costs are not included in our results of operations . however , our reverse management type contracts , which typically provide for larger management fees , do require us to pay for certain costs and those costs are included in our results of operations . reimbursed management type contract expense . c onsists of direct reimbursed costs incurred on behalf of a client under a management type contract , which are reflected in our cost of services . gross profit gross profit equals our revenue less the cost of generating such revenue . this is the key metric we use to examine our performance because it captures the underlying economic benefit to us of both lease and management type contracts . general and administrative expenses general and administrative expenses include salaries , wages , payroll taxes , insurance , travel and office related expenses for our headquarters , field offices , supervisory employees , and board of directors . story_separator_special_tag 2017-10 , service concession arrangements ( topic 853 ) , which requires rental expense to be presented as a reduction of services revenue - lease type contracts versus the comparative period presentation of recording rent expense as an increase to cost of services - lease type contracts for that business ( and corresponding contracts ) meeting the criteria and definition of a service concession arrangement , as discussed in note 5. revenue to the consolidated financial statements included in item 15 . `` exhibits and financial statement schedules `` , partially offset by net increases in short-term parking revenue , monthly parking revenue and transient parking revenue . from a reporting segment perspective , lease type contract revenue decreased primarily due to expired business in commercial , existing business in commercial and aviation , conversions in commercial , and new/acquired business in aviation , partially offset by increases from new/acquired business in commercial and existing business in other . 27 management type contracts management type contract revenue increased $ 13.3 million , or 3.8 % , to $ 361.5 million for the year ended december 31 , 2018 , compared to $ 348.2 million for the prior year . the increase in management type contract revenue resulted primarily from increases of $ 32.1 million from new/acquired business , and $ 4.0 million from existing business , partially offset by a decrease of $ 22.5 million from expired business and $ 0.3 million from business that converted from lease type contracts during the periods presented . existing business revenue increased $ 4.0 million , or 1.5 % , primarily due to change in contract terms for certain management type contracts , whereby the contract terms converted from a management type contract to a `` reverse `` management type contract , which typically has higher management fees from the client but require us to pay certain operating costs associated with the operation , and increased management fees . from a reporting segment perspective , management type contract revenue increased primarily due to increases in new/acquired business for commercial and aviation , existing business for commercial and other , and conversions in aviation , partially offset by decreases in expired business in commercial and aviation , existing business for aviation , and conversions in commercial . reimbursed management type contract revenue reimbursed management type contract revenue increased $ 13.8 million , or 2.0 % , to $ 693.0 million for the year ended december 31 , 2018 , compared to $ 679.2 million in the prior year . the slight increase resulted primarily from an increase in reimbursements for costs incurred on behalf of a client . segment cost of services information is summarized as follows : replace_table_token_8_th ( a ) the year ended december 31 , 2018 new/acquired business in commercial includes a $ 8.9 million reduction of cost of services - lease type contracts due to the adoption of topic 853 , which requires rent expense for the current period be presented as a reduction of services revenue - lease type contracts for that business ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement . ( b ) the year ended december 31 , 2018 new/acquired business in aviation includes a $ 2.3 million reduction of cost of services - lease type contracts due to the adoption of topic 853 , which requires rent expense for the current period be presented as a reduction of services revenue - lease type contracts for that business ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement . ( c ) the year ended december 31 , 2018 expired business in commercial includes a $ 0.3 million reduction of cost of services - lease type contracts due to the adoption of topic 853 , which requires rental expense for the current period be presented as a reduction of services revenue - lease type contracts for that business ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement . ( d ) the year ended december 31 , 2018 existing business in commercial includes a $ 14.9 million reduction of cost of services - lease type contracts due to the adoption of topic 853 , which requires rent expense for the current period be presented as a reduction of services revenue - lease type contracts for that business ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement . ( e ) the year ended december 31 , 2018 existing business in aviation includes a $ 107.1 million reduction of cost of services - lease type contracts due to the adoption of topic 853 , which requires rent expense for the current period be presented as a reduction of services revenue - lease type contracts for that business ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement . ( f ) on november 30 , 2018 , we completed the acquisition . the year ended december 31 , 2018 new/acquired business in aviation includes bags cost of services - management type contracts , for the period of november 30 , 2018 through december 31 , 2018. see note 3. acquisition , which is included in part iv , item 15 . `` exhibits and financial statement schedules `` for further discussion of the acquisition . lease type contracts cost of services for lease type contracts decreased $ 140.8 million , or 27.2 % , to $ 377.6 million for the year ended december 31 , 2018 , compared to $ 518.4 million for the prior year . the decrease in cost of services for lease type contracts resulted primarily from decreases of $ 110.1 million from existing business , $ 30.6 million from expired business and $ 5.1 million from business that converted from management type contracts during the periods presented , partially

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cash and cash equivalents we had cash and cash equivalents of $ 24.1 million at december 31 , 2019 , compared to $ 39.9 million at december 31 , 2018 . the cash balances reflect our ability to utilize funds deposited into our local bank accounts . cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements were $ 0.5 million and $ 1.7 million as of december 31 , 2019 and 2018 , respectively , and are included within cash and cash equivalents within the consolidated balance sheets . availability , timing of deposits and the subsequent movement of cash into our corporate bank accounts may result in significant changes to our cash balances . summary of cash flows replace_table_token_11_th operating activities our primary sources of funds are cash flows from operating activities and changes in operating assets and liabilities . net cash provided by operating activities totaled $ 76.0 million for 2019 , compared to $ 70.9 million for 2018 . cash provided during 2019 included $ 91.7 million from operations , partially offset by changes in operating assets and liabilities that resulted in a use of $ 15.7 million .

for the years ended december 31 , 2017 , 2016 , and 2015 , approximately 17 % , 17 % , and 23 % , respectively , of our net timber sales revenue was derived from the mahrt timber agreements . the percentage of our annual net timber sales revenue derived from westrock in 2017 remained consistent with 2016 and decreased from 2015 as a result of our acquisitions and expansion of our customer base over the years . see note 7 – commitments and contingencies of our accompanying consolidated financial statements for additional information regarding the material terms of the mahrt timber agreements . in connection with the carolinas midlands iii transaction that closed in june 2016 , we assumed the carolinas supply agreement which requires us to harvest and sell agreed-upon pulpwood volumes to ip , and ip is required to purchase such volume at defined market prices . during the year ended december 31 , 2017 , we sold approximately 171,000 tons under the carolinas supply agreement , which exceeded the 150,000 tons requirement . for the year ended december 31 , 2017 , approximately 6 % of our net timber sales revenue was derived from the carolinas supply agreement . general economic conditions and timber market factors impacting our business our operating results are influenced by a variety of factors , including timber prices ; the demand for pulp and paper products , lumber , panel , and other wood-related products ; the supply of timber ; and competition . timber prices can experience significant variations and have been historically volatile . the demand for timber and wood products is 34 affected primarily by the level of new residential construction activity , repair and remodeling activity , the supply of manufactured timber products including imports , and , to a lesser extent , other commercial and industrial uses . the demand for timber also is affected by the demand for wood chips in the pulp and paper markets and for hardwood in the furniture and other hardwood industries . the u.s. economy as well as the housing market continued to improve in 2017. according to the u.s. bureau of economic analysis , the real gross domestic product increased by 2.3 % in 2017 , up from an increase of 1.5 % in 2016. the u.s. census bureau and the u.s. department of housing and urban development estimated that 1.2 million housing units were started in 2017 , a 2.5 % increase compared to 2016 and the highest since 2007. we believe that the housing market will continue to show modest and gradual improvement in 2018 , but that in 2018 , the surplus log inventory in the market will likely not allow for significant improvement in sawtimber pricing . we expect our 2018 harvest volumes to be down slightly from 2017 as we tactically defer some harvests to maximize returns for our stockholders , waiting for more favorable market conditions anticipated in 2019 and 2020. recently announced capital improvements and expansions of mills in our regions should provide significant favorable market impacts to achieve greater value for our products in coming years when we anticipate taking advantage of increased demand , especially for recovering softwood timber . in the meantime , we anticipate our pulpwood and sawtimber prices will remain steady or improve modestly during 2018. we expect to continue to build on market and business diversity and leverage our relationships in key markets to garner additional quota and delivery opportunities . liquidity and capital resources overview cash flows generated from our operations are primarily used to fund recurring expenditures and distributions to our stockholders . the amount of distributions to common stockholders is determined by our board of directors and is dependent upon a number of factors , including funds deemed available for distribution based principally on our current and future projected operating cash flows , less capital requirements necessary to maintain our existing timberland portfolio . in determining the amount of distributions to common stockholders , we also consider our financial condition , our expectations of future sources of liquidity , current and future economic conditions , market demand for timber and timberlands , and tax considerations , including the annual distribution requirements necessary to maintain our status as a reit under the code . in determining how to allocate cash resources in the future , we will initially consider the source of the cash . we anticipate using a portion of cash generated from operations , after payments of periodic operating expenses and interest expense , to fund certain capital expenditures required for our timberlands . any remaining cash generated from operations may be used to partially fund timberland acquisitions and pay distributions to stockholders . therefore , to the extent that cash flows from operations are lower , timberland acquisitions and stockholder distributions are anticipated to be lower as well . capital expenditures , including new timberland acquisitions , are generally funded with cash from operations or existing debt availability ; however , proceeds from future debt financings and equity offerings may be used to fund capital expenditures , acquire new timberland properties and pay down existing and future borrowings . shelf registration statement and follow-on offering on june 2 , 2017 , we filed a shelf registration statement on form s-3 with the sec ( the `` shelf registration statement `` ) , which was declared effective by the sec on june 16 , 2017. the shelf registration statement provides us with future flexibility to offer , from time to time and in one or more offerings , up to $ 600 million in an undefined combination of debt securities , common stock , preferred stock , depositary shares , or warrants . the terms of any such future offerings would be established at the time of an offering . story_separator_special_tag our net loss per share for the years ended december 31 , 2016 and 2015 was $ 0.29 and $ 0.21 , respectively . 42 index to consolidated financial statements adjusted ebitda the discussion below is intended to enhance the reader 's understanding of our operating performance and ability to satisfy lender requirements . ebitda is a non-gaap measure of operating performance . ebitda is defined by the sec as earnings before interest , taxes , depreciation and amortization ; however , we have excluded certain other expenses which we believe are not indicative of the ongoing operating results of our timberland portfolio , and we refer to this measure as adjusted ebitda ( see the reconciliation table below ) . as such , our adjusted ebitda may not be comparable to similarly titled measures reported by other companies . due to the significant amount of timber assets subject to depletion and the significant amount of financing subject to interest and amortization expense , management considers adjusted ebitda to be an important measure of our financial performance . by providing this non-gaap financial measure , together with the reconciliation below , we believe we are enhancing investors ' understanding of our business and our ongoing results of operations , as well as assisting investors in evaluating how well we are executing our strategic initiatives . items excluded from adjusted ebitda are significant components in understanding and assessing financial performance . adjusted ebitda is a supplemental measure of operating performance that does not represent and should not be considered in isolation or as an alternative to , or substitute for net income , cash from operations , or other financial statement data presented in our consolidated financial statements as indicators of our operating performance . adjusted ebitda has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under u.s. gaap . some of the limitations are : adjusted ebitda does not reflect our capital expenditures , or our future requirements for capital expenditures ; adjusted ebitda does not reflect changes in , or our interest expense or the cash requirements necessary to service interest or principal payments on , our debt ; and although depletion is a non-cash charge , we will incur expenses to replace the timber being depleted in the future , and adjusted ebitda does not reflect all cash requirements for such expenses . due to these limitations , adjusted ebitda should not be considered as a measure of discretionary cash available to us to invest in the growth of our business . our credit agreement contains a minimum debt service coverage ratio based , in part , on adjusted ebitda since this measure is representative of adjusted income available for interest payments . we further believe that our presentation of this non-gaap financial measurement provides information that is useful to analysts and investors because they are important indicators of the strength of our operations and the performance of our business . for the year ended december 31 , 2017 , adjusted ebitda was $ 42.0 million , a $ 5.2 million increase from the year ended december 31 , 2016 , primarily due to a $ 2.4 million increase in revenue from timberland sales , $ 2.0 million generated by the dawsonville bluffs joint venture and a $ 1.1 million increase in net timber sales . our reconciliation of net loss to adjusted ebitda for the years ended december 31 , 2017 , 2016 , and 2015 follows : 43 index to consolidated financial statements replace_table_token_15_th ( 1 ) includes non-cash basis of timber and timberland assets written-off related to timberland sold , terminations of timberland leases and casualty losses . ( 2 ) for the purpose of the above reconciliation , amortization includes amortization of deferred financing costs , amortization of intangible lease assets , and amortization of mainline road costs , which are included in either interest expense , land rent expense , or other operating expenses in the accompanying consolidated statements of operations . ( 3 ) reflects our share of depletion , amortization , and basis of timberland and mitigation credits sold of the unconsolidated joint venture . ( 4 ) includes certain cash expenses that management believes do not directly reflect the core business operations of our timberland portfolio on an on-going basis , including costs required to be expensed by gaap related to acquisitions , transactions , joint ventures or new business initiatives . election as a reit we have elected to be taxed as a reit under the code , and we have operated as such beginning with our taxable year ended december 31 , 2009. to qualify to be taxed as a reit , we must meet certain organizational and operational requirements , including a requirement to distribute at least 90 % of our adjusted taxable income , as defined in the code , to our stockholders , computed without regard to the dividends-paid deduction and by excluding our net capital gain . as a reit , we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders . if we fail to qualify to be taxed as a reit in any taxable year , we will then be subject to federal income taxes on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a reit for federal income tax purposes for that year and for the four years following the year during which qualification is lost , unless the irs grants us relief under certain statutory provisions . such an event could materially adversely affect our net income and net cash available for distribution to our stockholders . however , we believe that we are organized and operate in such a manner as to qualify for treatment as a reit for federal income tax purposes . inflation our

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debt covenants the 2017 amended credit agreement contains , among others , the following financial covenants : limits the ltv ratio to ( i ) 50 % at any time prior to the last day of the fiscal quarter corresponding to the fourth anniversary of the effective date and ( ii ) 45 % at any time thereafter ; requires that we maintain a fccr of not less than 1.05:1 ; and requires maintenance of a minimum liquidity balance of no less than $ 25.0 million at any time ; and limits the aggregated capital expenditures not exceeding 1 % of the value of the timberlands during any fiscal year . we were in compliance with the financial covenants of the 2017 amended credit agreement as of december 31 , 2017 . share repurchase program on august 7 , 2015 , our board of directors approved a share repurchase program for up to $ 30.0 million of our common stock at management 's discretion . the program has no set duration and the board may discontinue or suspend the program at any time . during the year ended december 31 , 2017 , we repurchased 97,469 shares of our common stock at an average price of $ 10.60 per share for a total of approximately $ 1.0 million . all common stock purchases under the stock repurchase program were made in open-market transactions and were funded with cash on-hand . as of december 31 , 2017 , we had 43.4 million shares of common stock outstanding and may repurchase up to an additional $ 19.8 million under the program . we can borrow up to $ 30.0 million under the 2017 multi-draw term facility , compared to $ 25.0 million under the previous credit facility , to repurchase our common stock . management believes that opportunistic repurchases of our common stock are a prudent use of capital resources .

the acquisition of annie 's in october 2014 significantly expanded our scale and participation in the attractive u.s. natural and organic food category . combined net sales in the u.s. for our portfolio of natural and organic brands exceeded $ 570 million in fiscal 2015. we increased our share of u.s. cereal category measured dollar sales . we increased our share of u.s. yogurt category measured dollar sales , including strong gains in the greek yogurt segment , and renewed sales growth in the regular and child yogurt segments . our international yogurt operations expanded to china with first production and order shipments to the shanghai market commencing near the end of the fiscal year . we generated strong levels of supply chain productivity savings in 2015 through our ongoing holistic margin management ( hmm ) efforts . beyond this program , we began several new cost savings initiatives during the fiscal year . project century is our effort to simplify our north american supply chain . project catalyst is focused on increasing the agility and effectiveness of our u.s. retail and corporate organizations , and we are making changes to various corporate policies and practices to reduce overhead expense . together , these three initiatives generated more than $ 75 million in cost savings during fiscal 2015 , and they are expected to produce a cumulative $ 260 to $ 280 million in savings in fiscal 2016. we delivered strong cash returns to stockholders through dividends of $ 1.67 per share and share repurchases totaling $ 1.2 billion . share repurchase activity in fiscal 2015 and 2014 reduced the average number of diluted shares outstanding in fiscal 2015 by 4 percent from fiscal 2014. a detailed review of our fiscal 2015 performance appears below in the section titled “fiscal 2015 consolidated results of operations.” our sales and earnings growth targets for fiscal 2016 reflect the impact of one less week compared to fiscal 2015. the annie 's business will contribute 6 months of incremental results . we expect foreign currency exchange will continue to have a negative impact on reported results for our international operations , and we expect the operating environment in our large developing markets ( china and brazil ) to remain uncertain . we estimate our input cost inflation for fiscal 2016 at 2 percent . with these assumptions in mind : we expect fiscal 2016 net sales to essentially match 2015 levels in constant currency , reflecting the impact of one less week of business . we expect fiscal 2016 total segment operating profit to increase at a low-single-digit rate in constant currency , as hmm and our more recent cost-saving initiatives increase our efficiency and improve margins . we expect fiscal 2016 adjusted diluted eps to increase at a mid-single-digit rate in constant currency . our fiscal 2016 plans call for continued strong cash returns to stockholders . the current annualized dividend rate of $ 1.76 per share is up 5 percent from the annual dividend paid in 2015. share repurchases in fiscal 2016 are expected to result in a net reduction in average diluted shares outstanding of approximately 1 percent . certain terms used throughout this report are defined in a glossary in item 8 of this report . 18 fiscal 2015 consolidated results of operations fiscal 2015 had 53 weeks compared to 52 weeks in fiscal 2014. fiscal 2015 net sales declined 2 percent to $ 17,630 million and increased 1 percent on a constant-currency basis . in fiscal 2015 , net earnings attributable to general mills were $ 1,221 million , down 33 percent from $ 1,824 million in fiscal 2014 , and we reported diluted eps of $ 1.97 in fiscal 2015 , down 30 percent from $ 2.83 in fiscal 2014. fiscal 2015 results include restructuring-related charges , an indefinite-lived intangible asset impairment charge , tax impact of the repatriation of foreign earnings , losses from the mark-to-market valuation of certain commodity positions and grain inventories , integration costs resulting from the acquisition of annie 's , and the impact of venezuela currency devaluation . fiscal 2014 results include the impact of venezuela currency devaluation , a gain on the divestiture of certain grain elevators , losses from the mark-to-market valuation of certain commodity positions and grain inventories , and restructuring charges related to our fiscal 2012 productivity and cost savings plan . diluted eps excluding these items affecting comparability totaled $ 2.86 in fiscal 2015 , up 1 percent from $ 2.82 in fiscal 2014. diluted eps excluding certain items affecting comparability on a constant-currency basis increased 4 percent compared to fiscal 2014 ( see the “non-gaap measures” section below for a description of our use of these measures not defined by gaap ) . net sales declined 2 percent to $ 17,630 million in fiscal 2015 from $ 17,910 in fiscal 2014. the components of net sales growth are shown in the following table : fiscal 2015 vs. 2014 contributions from volume growth ( a ) ( 1 ) pt net price realization and mix 2 pts foreign currency exchange ( 3 ) pts net sales growth ( 2 ) pts ( a ) measured in tons based on the stated weight of our product shipments . the 53 rd week in fiscal 2015 contributed approximately 1 percentage point of net sales growth , reflecting 1 percentage point of growth from volume . cost of sales increased $ 141 million in fiscal 2015 to $ 11,681 million . in fiscal 2015 , we recorded a $ 90 million net increase in cost of sales related to mark-to-market valuation of certain commodity positions and grain inventories as described in note 7 to the consolidated financial statements in item 8 of this report , compared to a net decrease of $ 49 million in fiscal 2014. in fiscal 2015 , we recorded $ 60 million of restructuring charges in cost of sales . story_separator_special_tag the acquisition of annie 's added 1 percentage point of net sales growth , reflecting 1 percentage point of growth from volume in fiscal 2015. the 53 rd week in fiscal 2015 contributed approximately 1 percentage point of net sales growth , reflecting 1 percentage point of growth from volume . net sales for our u.s. retail operating units are shown in the following table : replace_table_token_7_th 25 u.s. retail net sales percentage change by operating unit are shown in the following table : replace_table_token_8_th segment operating profit of $ 2,159 million in fiscal 2015 declined $ 152 million , or 7 percent , from fiscal 2014. the decrease was primarily driven by lower volume and an increase in supply chain costs , partially offset by a 6 percent reduction in advertising and media expense . segment operating profit of $ 2,312 million in fiscal 2014 declined $ 81 million , or 3 percent , from fiscal 2013. the decrease reflected higher trade spending , partially offset by a 1 percent reduction in advertising and media expense . international segment our international segment consists of retail and foodservice businesses outside of the united states . our product categories include ready-to-eat cereals , shelf stable and frozen vegetables , meal kits , refrigerated and frozen dough products , dessert and baking mixes , frozen pizza snacks , refrigerated yogurt , grain and fruit snacks , and super-premium ice cream and frozen desserts . we also sell super-premium ice cream and frozen desserts directly to consumers through owned retail shops . our international segment also includes products manufactured in the united states for export , mainly to caribbean and latin american markets , as well as products we manufacture for sale to our international joint ventures . revenues from export activities and franchise fees are reported in the region or country where the end customer is located . net sales for our international segment were down 5 percent in fiscal 2015 compared to fiscal 2014 , to $ 5,128 million . net sales totaled $ 5,386 million in fiscal 2014 , up 4 percent from $ 5,200 million in fiscal 2013. the components of international net sales growth are shown in the following table : replace_table_token_9_th ( a ) measured in tons based on the stated weight of our product shipments . the 53 rd week in fiscal 2015 contributed approximately 1 percentage point of net sales growth , reflecting 1 percentage point of growth from volume . 26 net sales for our international segment by geographic region are shown in the following table : replace_table_token_10_th ( a ) fiscal 2013 net sales for the europe region include an additional month of results . international change in net sales by geographic region are shown in the following table : replace_table_token_11_th ( a ) see the “non-gaap measures” section below for our use of this measure . segment operating profit for fiscal 2015 declined 2 percent to $ 523 million from $ 535 million in fiscal 2014 , primarily driven by unfavorable foreign currency exchange and higher input costs , partially offset by favorable net price realization and mix . international segment operating profit increased 9 percent on a constant-currency basis in fiscal 2015 compared to fiscal 2014 ( see the “non-gaap measures” section below for our use of this measure ) . segment operating profit for fiscal 2014 grew 4 percent to $ 535 million from $ 515 million in fiscal 2013 , primarily driven by volume growth , favorable net price realization and mix , and an additional quarter of results from the yoki acquisition , partially offset by unfavorable foreign currency and higher input costs . in addition , we recorded a $ 17 million non-recurring expense related to the assumption of the canadian yoplait franchise license in fiscal 2013. international segment operating profit increased 10 percent on a constant-currency basis in fiscal 2014 compared to fiscal 2013 ( see the “non-gaap measures” section below for our use of this measure ) . convenience stores and foodservice segment in our convenience stores and foodservice segment our major product categories are ready-to-eat cereals , snacks , refrigerated yogurt , frozen breakfasts , unbaked and fully baked frozen dough products , baking mixes , and flour . many products we sell are branded to the consumer and nearly all are branded to our customers . we sell to distributors and operators in many customer channels including foodservice , convenience stores , vending , and supermarket bakeries . substantially all of this segment 's operations are located in the united states . 27 for fiscal 2015 , net sales for our convenience stores and foodservice segment increased 4 percent to $ 1,995 million . for fiscal 2014 , net sales decreased 2 percent to $ 1,919 million compared to $ 1,959 million in fiscal 2013. the components of convenience stores and foodservice net sales growth are shown in the following table : replace_table_token_12_th ( a ) measured in tons based on the stated weight of our product shipments . the 53 rd week in fiscal 2015 contributed approximately 2 percentage points of net sales growth , reflecting 2 percentage points of growth from volume . in fiscal 2015 , segment operating profit was $ 353 million , up 15 percent from $ 307 million in fiscal 2014. the increase was primarily driven by favorable net price realization and mix and higher volume . in fiscal 2014 , segment operating profit was $ 307 million , down 2 percent from $ 315 million in fiscal 2013. the decrease was primarily driven by volume declines , unfavorable net price realization , and investments to protect and grow the business . unallocated corporate items beginning in the first quarter of fiscal 2015 , we changed how we assess segment operating performance to exclude the asset and liability remeasurement impact from hyperinflationary economies . this impact is now included in unallocated corporate items . all periods presented

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cash flows from financing activities replace_table_token_15_th net cash used by financing activities decreased by $ 439 million in fiscal 2015. we had $ 204 million less net debt issuances in fiscal 2015 than the same period a year ago . for more information on our debt issuances and payments , please refer to note 8 to the consolidated financial statements in item 8 of this report . during fiscal 2015 , we received $ 164 million in proceeds from common stock issued on exercised options compared to $ 108 million in fiscal 2014 , an increase of $ 56 million . during fiscal 2013 , we received $ 301 million in proceeds from common stock issued on exercised options . in may 2014 , our board of directors authorized the repurchase of up to 100 million shares of our common stock . purchases under the authorization can be made in the open market or in privately negotiated transactions , including the use of call options and other derivative instruments , rule 10b5-1 trading plans , and accelerated repurchase programs . the authorization has no specified termination date . during fiscal 2015 , we repurchased 22 million shares of our common stock for $ 1,162 million . during fiscal 2014 , we repurchased 36 million shares of our common stock for $ 1,745 million . during fiscal 2013 , we repurchased 24 million shares of our common stock for $ 1,015 million . dividends paid in fiscal 2015 totaled $ 1,018 million , or $ 1.67 per share , an 8 percent per share increase from fiscal 2014. dividends paid in fiscal 2014 totaled $ 983 million , or $ 1.55 per share , a 17 percent per share increase from fiscal 2013 dividends of $ 1.32 per share . on march 10 , 2015 , our board of directors approved a 5 percent dividend increase , effective with the may 1 , 2015 payment , to an annualized rate of $ 1.76 per share .

the phase 2 trial achieved its primary endpoint of safety and tolerability and showed an improvement in the once-daily and combined ov101 dosing groups on the prespecified physician-rated clinical global impressions-improvement ( “ cgi-i ” ) endpoint as well as improvements in relevant symptoms such as sleep and motor function . based upon feedback from our end of phase 2 meeting with the fda in november 2018 , we intend to initiate a single pivotal phase 3 trial of ov101 in pediatric patients with angelman syndrome ( neptune ) . pending fda concurrence on the study protocol and supporting framework and materials , neptune is expected to be a single 12-week , two-arm , randomized , double-blind , placebocontrolled trial with a once daily dose with an enrollment of 50-60 patients aged 4 to 12 years . it is expected that the primary endpoint will be the change in the overall cgi-i score between ov101 versus placebo groups with enrollment initiation expected in the second half of 2019. based on the stars trial data , we also initiated an open-label extension study ( elara ) which enrolled its first patient in february of 2019. along with our collaborator , takeda pharmaceutical company limited , ( “ takeda ” ) , we initiated patient recruitment in our phase 1b/2a trial of ov935 in adults with dee in june 2017. as announced on december 17 , 2018 , the phase 1b/2a trial of ov935 achieved its primary endpoint of safety and tolerability and showed ov935 was generally well tolerated and met its secondary exploratory endpoints including a satisfactory pharmacokinetic profile and signals of efficacy . exploratory analyses also showed the potential applicability of using plasma 24-hydroxy cholesterol ( 24hc ) as a serum biomarker . in july 2018 , we initiated our phase 2 rocket clinical trial , a randomized , double-blind , parallel-group trial evaluating ov101 for the treatment of adolescent and young male adults with fragile x syndrome . the trial is currently enrolling and is expected to enroll up to 30 males ages 13 to 22 with a confirmed diagnosis of fragile x syndrome . the primary endpoint is safety and tolerability of ov101 over 12 weeks of treatment in three different cohorts of either 5mg qd , 5mg bid , or 5mg three times daily . a secondary efficacy endpoint will evaluate changes in behavior during 12 weeks of treatment with ov101 using the activities-specific balance confidence scale ( abc ) that has been used in previous trials for fragile x syndrome . we anticipate data from this trial in the second half of 2019. in december 2018 , we initiated the sky rocket study , a 12-week , non-drug study to assess the suitability of several behavioral scales in individuals with fragile x syndrome . the trial is an observational study designed to provide additional data on the key endpoints that are being explored in the trial as well as provide contextual data on the benefit offered by the standard of care . the study will enroll 10-30 males ages 5 to 30 with fragile x syndrome . ovid and takeda continue to enroll patients in three clinical trials : a phase 2 clinical trial in pediatric patients with dravet syndrome or lennox-gastaut syndrome ( elektra ) ; a phase 2 clinical trial in pediatric patients with cdkl5 deficiency disorder or duplication 15q syndrome ( arcade ) ; and an open-label extension trial for patients with dee who participated in a previous ov935 clinical trial ( endymion ) . since our inception in april 2014 , we have devoted substantially all of our efforts to organizing and planning our business , building our management and technical team , acquiring operating assets and raising capital . 69 we have not generated any revenue and have funded our business primarily through the sale of our capital stock . through december 31 , 2018 , we have raised net p roceeds of $ 142.3 million from the sale of our convertible preferred stock and our common stock . as of december 31 , 2018 , we had $ 41.5 million in cash , cash equivalents and short-term investments . we recorded net losses of $ 52.0 million and $ 64.8 million for the year s ended december 31 , 201 8 and 201 7 , respectively . the net loss for the year ended december 2017 included a non-cash charge of $ 25.9 million related to our takeda collaboration ( as defined below ) . as of december 31 , 2018 , we had an accumulated d eficit of approximately $ 152.7 million . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . our net losses may fluctuate significantly from period to period , depending on the timing of our planned clinical trials and expenditures on our other research and development and commercial development activities . we expect our expenses will increase substantially over time as we : continue the ongoing and planned preclinical and clinical development of our drug candidates ; build a portfolio of drug candidates through the acquisition or in-license of drugs , drug candidates or technologies ; initiate preclinical studies and clinical trials for any additional drug candidates that we may pursue in the future ; seek marketing approvals for our current and future drug candidates that successfully complete clinical trials ; establish a sales , marketing and distribution infrastructure to commercialize any drug candidate for which we may obtain marketing approval ; develop , maintain , expand and protect our intellectual property portfolio ; implement operational , financial and management systems ; and attract , hire and retain additional administrative , clinical , regulatory and scientific personnel . story_separator_special_tag emerging growth company status we are an “ emerging growth company , ” as defined in the jumpstart our business startups act of 2012 , or the jobs act , and may remain an emerging growth company for up to five years . for so long as we remain an emerging growth company , we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies . these exemptions include : reduced disclosure about our executive compensation arrangements ; no non-binding stockholder advisory votes on executive compensation or golden parachute arrangements ; and exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting . we have taken advantage of reduced reporting requirements in this annual report on form 10-k. in particular , in this annual report on form 10-k , we have not included all of the executive compensation related information that would be required if we were not an emerging growth company . we may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company . we would cease to be an emerging growth company if we have more than $ 1.07 billion in annual revenues as of the end of any fiscal year , if we are deemed to be a large accelerated filer under the rules of the sec or if we issue more than $ 1.0 billion of non- convertible debt over a three-year period . section 107 of the jobs act provides that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards . thus , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have irrevocably elected not to avail ourselves of this extended transition period and , as a result , we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies . critical accounting policies and estimates our management 's discussion and analysis of financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the revenue and expenses incurred 74 during the reported periods . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses and stock-based compensation . we base our estimates on historical experience and on various other factors that we believe are reasonable under the c ircumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources . changes in estimates are reflected in reported results for the period in which they become k nown . actual results may differ from these estimates under different assumptions or conditions . our significant accounting policies are described in more detail in note 2 to our audited financial statements appearing elsewhere in this form 10-k. we believe the following critical accounting policies are most important to understanding and evaluating our reported financial results . accrued clinical expenses when preparing our consolidated financial statements , we are required to estimate our accrued clinical expenses . this process involves reviewing open contracts and communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost . payments under some of the contracts we have with third parties depend on factors , such as successful enrollment of certain numbers of patients , site initiation and the completion of clinical trial milestones . when accruing clinical expenses , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if possible , we obtain information regarding unbilled services directly from our service providers . however , we may be required to estimate the cost of these services based only on information available to us . if we underestimate or overestimate the cost associated with a trial or service at a given point in time , adjustments to research and development expenses may be necessary in future periods . historically , our estimated accrued clinical expenses have approximated actual expense incurred . stock-based compensation we account for stock-based compensation awards in accordance with the financial accounting standards board accounting standards codification , or asc , topic 718 , compensation—stock compensation , or asc 718. asc 718 requires all stock-based compensation awards to employees to be recognized as expense based on their grant date fair values . we recognized expenses over the requisite service period , which is generally the vesting period of the award under the straight-line method . we account for forfeitures as they occur . we record the expense for stock-based compensation awards subject to performance-based milestone vesting over the remaining service period when management determines that achievement of the milestone is probable . management evaluates when the achievement of a performance-based milestone is probable based on the expected satisfaction of the performance conditions at each reporting date . we measure the grant-date fair value based on the black-scholes option-pricing model , which uses highly subjective assumptions . these assumptions include : expected volatility . due to the lack of sufficient volatility data , the expected volatility is estimated using weighted average measures of the historical volatility of a

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liquidity and capital resources overview as of december 31 , 2018 , we had total cash , cash equivalents and short-term investments of $ 41.5 million as compared to $ 87.1 million as of december 31 , 2017. in february 2019 we completed the february offering of our capital stock generating approximately $ 31.0 million of net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by us . we have incurred losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses for at least the next several years . we incurred net losses of approximately $ 52.0 million and $ 64.8 million for the years ended december 31 , 2018 and 2017 , respectively . as of december 31 , 2018 , we had an accumulated deficit of approximately $ 152.7 million and working capital of $ 35.4 million . we believe that our existing cash and cash equivalents as of december 31 , 2018 combined with the proceeds from the february offering , will be sufficient to fund our current operating plans through at least the next 12 months from the filing of this annual report on form 10-k. until such time , if ever , as we can generate revenue from drug sales , we expect to finance our cash needs through a combination of equity offerings , debt financings and potential collaborations and license and development agreements .

during the year ended december 31 , 2017 , the company incurred $ 44.1 million in costs related to this transaction ( including severance , retention , transaction and integration related costs ) as well as deferred revenue write-offs of $ 7.8 million . the company expects the remaining aggregate amount of transaction-related expenses , including deferred revenue write-offs , during 2018 to be in the range of $ 10 million to $ 20 million . the company also incurred $ 122.1 million in stock-based compensation expense during 2017 related to the modification of previously issued homeadvisor vested and unvested equity awards , which were converted into angi homeservices ' equity awards , the expense related to previously issued angie 's list equity awards and the acceleration of certain angie 's list equity awards resulting from the termination of employees in connection with the combination . stock- 29 based compensation expense arising from the combination is expected to be approximately $ 70 million in 2018. on november 1 , 2017 , the company borrowed $ 275 million under a five-year term loan facility . on march 24 , 2017 , the company acquired a controlling interest in mybuilder limited ( “ mybuilder ” ) , a leading home services platform in the united kingdom , which is included in our europe segment . on february 8 , 2017 , the company acquired a controlling interest in homestars inc. ( “ homestars ” ) , a leading home services platform in canada , which is included in our north america segment . on november 3 , 2016 , the company acquired a controlling interest in myhammer holding ag ( “ myhammer ” ) , the leading home services marketplace in germany , which is included in our europe segment . operating metrics in connection with the management of our businesses we identify , measure and assess a variety of operating metrics . the principal metrics we use in managing our business are set forth below : marketplace ( formerly domestic ) revenue includes revenue from the homeadvisor domestic marketplace service , including consumer connection revenue for consumer matches and membership subscription revenue from service professionals . it excludes other operating subsidiaries within the north america segment . advertising & other revenue includes angie 's list revenue ( revenue from service professionals under contract for advertising and membership subscription fees from consumers ) as well as revenue from mhelpdesk , homestars and felix . marketplace ( formerly domestic ) service requests are fully completed and submitted domestic customer service requests on homeadvisor . marketplace ( formerly domestic ) paying service professionals ( or “ marketplace paying sps ” ) are the number of homeadvisor domestic service professionals that had an active membership and or paid for consumer matches in the last month of the period . angie 's list advertising service professionals are the total number of angie 's list service professionals under contract for advertising at the end of the period . components of results of operations revenue marketplace revenue is primarily derived from ( i ) consumer connection revenue , which includes fees paid by service professionals for consumer matches ( regardless of whether the professional ultimately provides the requested service ) , and ( ii ) membership subscription fees paid by service professionals . consumer connection revenue varies based upon several factors , including the service requested , type of match ( such as instant booking , instant connect , same day service or next day service ) and geographic location of service . the company 's consumer connection revenue is generated and recognized when an in-network service professional is delivered a consumer match . membership subscription revenue is generated through subscription sales to service professionals and is deferred and recognized over the term of the applicable membership . membership agreements can be one month , three months , or one year . effective with the combination , revenue is also derived from angie 's list ( i ) sales of time-based advertising to service professionals and ( ii ) membership subscription fees from consumers . angie 's list advertising service professionals generally pay for advertisements in advance on a monthly or annual basis at the option of the service professional , with the average advertising contract term being approximately one year . these contracts include an early termination penalty . angie 's list revenue from the sale of website , mobile and call center advertising is recognized ratably over the period during which the advertisements run . revenue from the sale of advertising in the angie 's list magazine is recognized in the period in which the publication is published and distributed . angie 's list prepaid consumer membership subscription fees are recognized as revenue ratably over the term of the associated subscription , which is typically one year . deferred revenue is $ 64.1 million and $ 18.8 million at december 31 , 2017 and 2016 , respectively . the balance at december 31 , 2017 includes angie 's list deferred revenue of $ 37.7 million . 30 cost of revenue cost of revenue consists primarily of traffic acquisition costs , credit card processing fees and hosting fees . traffic acquisition costs include amounts based on revenue share arrangements . selling and marketing expense selling and marketing expense consists primarily of advertising expenditures , which include online marketing , including fees paid to search engines , offline marketing , which is primarily television advertising , and partner-related payments to those who direct traffic to our brands , and compensation ( including stock-based compensation expense ) and other employee-related costs for personnel engaged in selling and marketing and sales support . story_separator_special_tag income tax benefit ( provision ) replace_table_token_13_th in the fourth quarter of 2017 , the company recorded a tax provision of $ 33.0 million due to effects of the tax cuts and jobs act ( the “ tax act ” ) , which was enacted on december 22 , 2017. the tax act required a remeasurement of the company 's net deferred tax asset position due to the reduction in the corporate tax rate from 35 % to 21 % under the tax act , resulting in a provision of $ 33.0 million . the company was not subject to the one-time transition tax because it has cumulative losses from its international operations . while the company was able to make a reasonable estimate of the impacts of the tax act , certain amounts are provisional as the company gathers additional data . any adjustment of the company 's provisional tax expense will be reflected as a change in estimate in its results in the period in which the change in estimate is made in accordance with staff accounting bulletin no . 118 , income tax accounting implications of the tax cuts and jobs act . in addition , our estimates may also be impacted and adjusted as the law is clarified and additional guidance is issued at the federal and state levels . in 2017 , the effective income tax rate is lower than the statutory rate of 35 % due primarily to the effect of the tax cuts and jobs act , largely offset by adopting the provisions of the financial accounting standards board issued accounting standards update ( `` asu `` ) no . 2016-09 , compensation-stock compensation ( topic 718 ) : improvements to employee share-based payment accounting , on january 1 , 2017. the tax cuts and jobs act required a remeasurement of net deferred tax assets from the 35 % rate to a 21 % rate , resulting in a provision of $ 33.0 million . under asu no . 2016-09 , excess tax benefits generated by the settlement or exercise of stock-based awards of $ 35.8 million for the year december 31 , 2017 are recognized as a reduction to the income tax provision rather than as an increase to additional paid-in capital . 37 in 2016 , the effective income tax rate is higher than the statutory rate of 35 % due primarily to unbenefited losses in separate jurisdictions and state taxes , partially offset by research credits . in 2015 , the income tax provision is due primarily to an increase in income tax reserves and unbenefited losses in separate jurisdictions , partially offset by research credits . for further details of income tax matters , see `` note 3—income taxes `` to the consolidated and combined financial statements included in `` item 8. consolidated and combined financial statements and supplementary data . `` net loss attributable to noncontrolling interests noncontrolling interests represent the noncontrolling holders ' percentage share of earnings or losses from the subsidiaries in which the company holds a majority , but less than 100 % , ownership interest and the results of which are included in our consolidated and combined financial statements . replace_table_token_14_th net loss attributable to noncontrolling interests in 2017 represents the net losses attributable to the noncontrolling interests in mhelpdesk , mybuilder , homestars and myhammer . net loss attributable to noncontrolling interests in 2016 represents the net losses attributable to the noncontrolling interests in mhelpdesk and myhammer . net loss attributable to noncontrolling interests in 2015 represents the net losses attributable to the noncontrolling interests in mhelpdesk . 38 principles of financial reporting we report adjusted ebitda as a supplemental measure to u.s. generally accepted accounting principles ( `` gaap `` ) . this measure is one of the primary metrics by which we evaluate the performance of our businesses , on which our internal budgets are based and by which management is compensated . we believe that investors should have access to , and we are obligated to provide , the same set of tools that we use in analyzing our results . this non-gaap measure should be considered in addition to results prepared in accordance with gaap , but should not be considered a substitute for or superior to gaap results . we endeavor to compensate for the limitations of the non-gaap measure presented by providing the comparable gaap measure with equal or greater prominence and descriptions of the reconciling items , including quantifying such items , to derive the non-gaap measure . we encourage investors to examine the reconciling adjustments between the gaap andnon-gaap measure , which we discuss below . definition of non-gaap measure adjusted earnings before interest , taxes , depreciation and amortization ( `` adjusted ebitda `` ) is defined as operating income excluding : ( 1 ) stock-based compensation expense ; ( 2 ) depreciation ; and ( 3 ) acquisition-related items consisting of amortization of intangible assets and impairments of goodwill and intangible assets , if applicable . we believe this measure is useful for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors . moreover , our management uses this measure internally to evaluate the performance of our business as a whole and our individual business segments , and this measure is one of the primary metrics by which our internal budgets are based and by which management is compensated . the above items are excluded from our adjusted ebitda measure because these items are non-cash in nature , and we believe that by excluding these items , adjusted ebitda corresponds more closely to the cash operating income generated from our business , from which capital investments are made and debt is serviced . adjusted ebitda has certain limitations in that it does not take into account the impact to our consolidated and combined statement of operations of certain expenses . for a reconciliation

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net cash used in investing activities includes $ 66.3 million of cash used for the acquisitions of mybuilder , angie 's list , and homestars , and capital expenditures of $ 26.8 million , primarily related to investments in the development of capitalized software to support our products and services and computer hardware . the cash used for the acquisition of angie 's list includes $ 61.5 million that the company loaned to angie 's list to fund the repayment of angie 's list debt outstanding immediately prior to the combination . net cash provided by financing activities includes proceeds from borrowings under the term loan of $ 275.0 million , proceeds from borrowings of related party debt of $ 131.4 million , including $ 61.5 million in borrowings from iac used by the company to fund the repayment of angie 's list debt immediately prior to the combination , cash transfers of $ 24.2 million from iac pursuant to iac 's centrally managed u.s. treasury management function and funds returned from escrow for the myhammer tender offer of $ 10.6 million , partially offset by principal payments on related party debt of $ 181.6 million , the purchase of noncontrolling interests of $ 12.8 million and $ 10.1 million for the payment of withholding taxes on behalf of employees for stock-based awards that were net settled .

executed new construction loans aggregating $ 91.5 million to fund our development pipeline . capital activity completed our ipo in may 2013 raising net proceeds of $ 192.0 million after deducting the underwriting discount and offering expenses . entered into a credit facility with an aggregate capacity of $ 155.0 million of which $ 70.0 million was borrowed as of december 31 , 2013. retired $ 182.5 million of debt . refinanced $ 28.5 million of secured debt to remove the recourse components , lower the interest rates and extend the maturity dates to 2018. amended $ 24.8 million of secured debt to extend the maturity date to 2017. declared cash dividends of $ 0.40 per share covering the period may 13 , 2013 to december 31 , 2013. operating results net income of $ 14.5 million compared to $ 8.9 million for the year ended december 31 , 2012. ffo of $ 19.8 million compared to $ 21.9 million for the year ended december 31 , 2012. ffo for 2013 includes losses on debt extinguishments of $ 2.4 million and noncash stock compensation expense of $ 1.2 million . see “—non-gaap financial measures” . net income attributable to stockholders of $ 7.3 million , or $ 0.39 per share . net operating income of $ 42.1 million compared to $ 40.8 million for the year ended december 31 , 2012. cash from operations of $ 22.2 million compared to $ 22.3 million during the year ended december 31 , 2012. weighted average occupancy of 94.4 % as of december 31 , 2013 compared to 94.2 % as of december 31 , 2012. approximately 242,000 square feet of new and renewal leases executed in our office and retail property portfolios . new construction contracts of $ 64.7 million . third-party construction backlog of $ 46.4 million as of december 31 , 2013. we view 2013 as a year in which we laid a solid foundation for sustained future net operating income and asset value growth . we accomplished what we set out to do in 2013 including : transitioning to a publicly traded company , executing on development opportunities , identifying attractive opportunities for the next generation pipeline , and positioning our income portfolio for further growth . development pipeline in addition to the projects in our development pipeline , in november 2012 , we were selected by johns hopkins university , after an extensive competitive selection process , to join with the university in the redevelopment of a 1.12 acre property adjacent to the university 's homewood campus in baltimore , maryland . this mixed-use development will include student housing , retail space , restaurants and parking . the goal of the completed project will be to complement the homewood campus and nearby charles village neighborhood and 51 provide a catalyst for future development in the area . the johns hopkins project continues to progress , with the program now defined and strong interest from retailers for the ground floor commercial space . our development pipeline consists of the following office , retail and multifamily properties ( $ in thousands ) : replace_table_token_11_th replace_table_token_12_th ( 1 ) represents estimates that may change as the development process proceeds . ( 2 ) this property will be located in the town center of virginia beach . ( 3 ) approximately 83,000 square feet is leased to clark nexsen , an architectural firm and approximately 23,000 square feet is leased to the city of virginia beach development authority . ( 4 ) the principal tenant lease has not been signed as of the date of this annual report on form 10-k. ( 5 ) the company has a contract to sell walmart a pad-ready site adjacent to greentree shopping center . ( 6 ) reflects actual purchase price of the acquisition , which occurred in january 2014 . ( 7 ) reflects the current development program as of the date of this annual report on form 10-k. our execution on all of the projects identified in the preceding table and the johns hopkins project are subject to , among other factors , regulatory approvals , financing availability and suitable market conditions . excluding the total consideration paid for liberty apartments , the total estimated costs of the projects identified in the preceding table are approximately $ 165.0 million , of which approximately $ 137.9 million represent hard costs for land and construction and $ 27.1 million represent soft costs for architecture , engineering , real estate taxes , insurance , interest and compensation and overhead related to our development team . during the year ended december 31 , 2013 , we capitalized approximately $ 1.6 million of development-related compensation and overhead . 4525 main street is our most recent addition to the town center of virginia beach and is located across from the cosmopolitan , one columbus and armada hoffler tower . this 15-story office tower is the future home of clark nexsen , an international architecture and engineering firm , which has agreed to lease approximately 83,000 square feet . additionally , the city of virginia beach development authority has agreed to lease approximately 23,000 square feet of office space . 4525 main street will also feature approximately 21,000 square feet of ground floor retail space . on july 30 , 2013 , we closed on a $ 63.0 million loan of which $ 37.8 million is available to fund our construction of 4525 main street . 52 sandbridge commons continues our long-standing relationship with harris teeter , which has agreed to anchor the shopping center . in addition to a 53,000 square foot harris teeter grocery store , sandbridge commons will include approximately 22,000 square feet of small shop retail space . on august 27 , 2013 , we purchased the underlying land for $ 5.2 million . the site includes two outparcels that we plan to either lease or sell . story_separator_special_tag releasing spreads on retail leases renewed during the year ended december 31 , 2013 were $ ( 0.17 ) per square foot on a gaap basis and $ ( 1.94 ) per square foot on a cash basis . while we seek to obtain rents that are higher than amounts within our expiring leases , there are many variables and uncertainties that can significantly affect the leasing market at any given time . as such , we can not guarantee that future leases will continue to be signed for rents that are equal to or higher than current amounts . 57 rental revenues increased $ 1.1 million and noi increased $ 0.2 million during the year ended december 31 , 2012 compared to the year ended december 31 , 2011. the increases in rental revenues and noi resulted from our completion and concurrent stabilization of courthouse 7-eleven in the first quarter of 2012 and tyre neck harris teeter in the second quarter of 2012. also contributing to the increases in rental revenues and noi was commerce street retail , which reached 100 % occupancy at the end of the second quarter of 2011. during the year ended december 31 , 2012 , we executed new retail leases aggregating approximately 9,000 square feet . the total leasing costs associated with new retail leases were approximately $ 0.2 million , or $ 17.89 per square foot . during the year ended december 31 , 2012 we renewed expiring retail leases aggregating approximately 55,000 square feet . the total leasing costs associated with renewed office leases were approximately $ 0.1 million , or $ 2.39 per square foot . retail same store results retail same store rental revenues , property expenses and noi for the comparative years ended december 31 , 2013 and 2012 and december 31 , 2012 and 2011 were as follows : replace_table_token_16_th ( 1 ) same store results exclude bermuda crossroads , which was an unconsolidated property prior to may 13 , 2013 . ( 2 ) same store results exclude tyre neck harris teeter , which was in lease-up during the comparative period . ( 3 ) same store results exclude courthouse 7-eleven , which was in lease-up during the comparative period . same store rental revenues decreased $ 0.9 million and same store noi decreased $ 0.7 million during the year ended december 31 , 2013 compared to the year ended december 31 , 2012. the decreases in same store rental revenues and same store noi resulted from declines in occupancy at south retail in the town center of virginia beach and dick 's at town center . same store rental revenues increased $ 0.5 million while same store noi decreased $ 0.1 million during the year ended december 31 , 2012 compared to the year ended december 31 , 2011. commerce street retail reached 100 % occupancy at the end of the second quarter of 2011 and generated the increase in same store rental revenues , which was offset by increased operating expenses across our same store retail portfolio . multifamily segment data replace_table_token_17_th ( 1 ) includes smith 's landing beginning may 13 , 2013 . ( 2 ) as of the end of the periods presented . 58 rental revenues increased $ 2.5 million and noi increased $ 1.2 million during the year ended december 31 , 2013 compared to the year ended december 31 , 2012 due to our consolidation of smith 's landing upon completion of our ipo and the formation transactions on may 13 , 2013. rental revenues decreased $ 0.3 million and noi decreased slightly during the year ended december 31 , 2012 compared to the year ended december 31 , 2011. higher vacancy and rent concessions during the year ended december 31 , 2012 at the cosmopolitan caused the decreases in rental revenues and noi . multifamily same store results multifamily same store rental revenues , property expenses and noi for the comparative years ended december 31 , 2013 and 2012 and december 31 , 2012 and 2011 were as follows : replace_table_token_18_th ( 1 ) same store results exclude smith 's landing , which was an unconsolidated property prior to may 13 , 2013. same store rental revenues increased slightly while same store noi decreased $ 0.2 million during the year ended december 31 , 2013 compared to the year ended december 31 , 2012. the increase in same store rental revenues resulted from increased ground floor retail occupancy at the cosmopolitan , which helped to offset residential occupancy declines . increased operating expenses at the cosmopolitan caused the decrease in same store noi during the year ended december 31 , 2013. same store rental revenues decreased $ 0.3 million while same store noi decreased slightly during the year ended december 31 , 2012 compared to the year ended december 31 , 2011. higher vacancy and rent concessions during the year ended december 31 , 2012 at the cosmopolitan caused the decreases in same store rental revenues and same store noi . general contracting and real estate services segment data replace_table_token_19_th segment revenues for the year ended december 31 , 2013 increased $ 28.5 million compared to the year ended december 31 , 2012. the increase in segment revenues was driven primarily by our progress and completion of the newport news apprentice school of shipbuilding , liberty apartments and the biomedical research laboratory at hampton university . noi decreased $ 0.2 million during the year ended december 31 , 2013 compared to the year ended december 31 , 2012 as we experienced tighter operating margins during 2013 . 59 segment revenues for the year ended december 31 , 2012 decreased $ 23.6 million compared to the year ended december 31 , 2011 as because we had lower construction volume during 2012 as a result of our substantial completion of a number of construction projects during the year ended december 31 , 2011. noi decreased $ 1.5 million during

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cash flows comparison of the years ended december 31 , 2013 and 2012. replace_table_token_29_th net cash provided by operating activities decreased slightly for the year ended december 31 , 2013 compared to the year ended december 31 , 2012. the less than 1.0 % change resulted from increased net income adjusted for noncash items offset by cash used for operating assets and liabilities . net income adjusted for noncash items increased $ 2.0 million during the year ended december 31 , 2013 while cash used for operating assets and liabilities increased at a slightly higher rate . we made significant progress on executing on the opportunities in our development pipeline during the year ended december 31 , 2013 and , as a result , net cash used for investing activities increased $ 43.2 million during the year . during the year ended december 31 , 2013 , we invested $ 41.3 million of cash on new real estate development compared to $ 2.7 million during the year ended december 31 , 2012. during the year ended december 31 , 2013 , we began construction of the following properties in our development pipeline : ( i ) 4525 main street , ( ii ) encore apartments , ( iii ) whetstone apartments , ( iv ) sandbridge commons , ( v ) greentree shopping center and ( vi ) the oceaneering international facility . during the year ended december 31 , 2013 , we invested $ 3.9 million in tenant and building improvements compared to $ 2.3 million during the year ended december 31 , 2012. in connection with our formation transactions , we paid $ 2.1 million of cash to acquire controlling interests in bermuda crossroads and smith 's landing . leasing costs and leasing incentives paid during the year ended december 31 , 2013 were $ 1.4 million compared to $ 1.2 million during the year ended december 31 , 2012. net proceeds from our ipo in may 2013 and borrowings under our credit facility offset by debt repayments resulted in the overall $ 56.9 million increase in cash provided by financing activities during the year ended december 31 , 2013 .

the preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets , liabilities , income and expenses , and related disclosure of contingent assets and liabilities . we evaluate our estimates on an ongoing basis . our estimates are based on historical experience and on various other assumptions that we believe to be reasonable . overview the following is our only product candidate in the clinical stage of development : · pedmark tm ( sodium thiosulfate ( sts ) anhydrous injection ) –has announced results of two phase 3 clinical trials for the prevention of cisplatin induced hearing loss , or ototoxicity in children including the pivotal phase 3 study siopel 6 , “ a multicentre open label randomised phase 3 trial of the efficacy of sodium thiosulfate in reducing ototoxicity in patients receiving cisplatin chemotherapy for standard risk hepatoblastoma , ” and the proof of concept phase 3 study “ a randomized phase 3 study of sodium thiosulfate for the prevention of cisplatin-induced ototoxicity in children ” . we continue to focus our resources on the development of pedmark tm . we have licensed from ohsu intellectual property rights for the use of pedmark tm as a chemoprotectant and are developing pedmark tm as a protectant against the hearing loss often caused by platinum-based anti-cancer agents in children . preclinical and clinical studies conducted by ohsu and others have indicated that pedmark tm can effectively reduce the incidence of hearing loss caused by platinum-based anti-cancer agents . we have received orphan drug designation in the united states for the use of pedmark tm in the prevention of platinum-induced ototoxicity in pediatric patients . hearing loss among children receiving platinum-based chemotherapy is frequent , permanent and often severely disabling . the incidence of hearing loss in these children depends upon the dose and duration of chemotherapy , and many of these children require lifelong hearing aids . there is currently no established preventive agent for this hearing loss and only expensive , technically difficult and sub-optimal cochlear ( inner ear ) implants have been shown to provide some benefit . in addition , adults undergoing chemotherapy for several common malignancies , including ovarian cancer , testicular cancer , and particularly head and neck cancer and brain cancer , often receive intensive platinum-based therapy and may experience severe , irreversible hearing loss , particularly in the high frequencies . in the u.s. and europe , it is estimated annually that over 10,000 children may receive platinum-based chemotherapy . the incidence of ototoxicity depends upon the dose and duration of chemotherapy , and many of these children require lifelong hearing aids . there is currently no established preventive agent for this hearing loss and only expensive , technically difficult and sub-optimal cochlear ( inner ear ) implants have been shown to provide some benefit . infants and young children that suffer ototoxicity at critical stages of development lack speech language development and literacy , and older children and adolescents lack social-emotional development and educational achievement . pedmark has been studied by cooperative groups in two phase 3 clinical studies of survival and reduction of ototoxicity , the clinical oncology group protocol accl0431 and siopel 6. both studies have been completed . the cog accl0431 protocol enrolled one of five childhood cancers typically treated with intensive cisplatin therapy for localized and disseminated disease , including newly diagnosed hepatoblastoma , germ cell tumor , osteosarcoma , neuroblastoma , and medulloblastoma . siopel 6 enrolled only hepatoblastoma patients with localized tumors . in july 2018 , the pediatric committee ( pdco ) of the european medicines agency ( ema ) accepted our pediatric investigation plan ( pip ) for sodium thiosulfate for infusion for the condition of the prevention of platinum-induced ototoxic hearing loss . an accepted pip is a prerequisite for filing a full marketing authorization application ( maa ) for a new medicinal product in europe . the indication targeted by the company 's pip is for the prevention of platinum-induced ototoxic hearing loss for standard risk hepatoblastoma ( sr-hb ) . additional tumor types within the proposed maa indication will be subject to the committee for medicinal products for human use ( chmp ) assessment at the time of the maa . no deferred clinical studies were required in the positive opinion given by pdco . the company was also advised that sodium thiosulfate for infusion is eligible for submission of an application for a pediatric use marketing authorization ( puma ) . therefore , this pip decision allows fennec to proceed with the submission of a puma in the european union ( eu ) with incentives of automatic access to the centralized procedure and up to 10 years of data and market protection . the puma is a dedicated ma for new products of medicines previously authorized and no longer under data or marketing protection , covering the indication and appropriate formulation for medicines developed exclusively for use in the pediatric population . in february 2020 , fennec announced that it has submitted a maa for the prevention of ototoxicity induced by cisplatin chemotherapy in patients 1 month to < 18 years of age with localized , non-metastatic , solid tumors . the company is targeting potential commercial launch of sodium thiosulfate for infusion , if approved , in the first half of 2021 . story_separator_special_tag we incurred approximately $ 0.25 million in executive search services as we continue to build a commercial team . · all of our derivative instruments were exercised or expired during fiscal 2018 . · amortization expense relates to the bridge bank loan facility as the loan origination fees were capitalized in fiscal 2019 . · interest income decreased in fiscal 2019 as compared to 2018 , due to a lower average balance in savings and money market accounts for the comparable periods . quarterly information the following table presents selected consolidated financial data for each of the last eight quarters through december 31 , 2019 , as prepared under u.s. gaap ( dollars in thousands , except per share information ) . replace_table_token_3_th quarter ended december 31 , 2019 versus 2018 replace_table_token_4_th we reported a net loss from operations of $ 3.6 million for the three months ended december 31 , 2019 , compared to a net loss from operations of $ 3.0 million for the same period in 2018. research and development expenses totaled $ 1.1 million for the three months ended december 31 , 2019 , as compared to a $ 1.7 million in the same period in 2018 as largely most cost associated with the production of registration batches was incurred in the first three quarters of 2019. general and administrative expenses increased by $ 1.1 million in the three months ended december 31 , 2019 , as compared to the same period in 2018. the increase arises from our commercialization activities for pedmark tm as we execute on our plan to be ready to bring product to market co-incidentally with fda approval , expected to occur later in 2020. there were also increases in compensation expenses in fiscal 2019 as we hired a chief commercial officer in september 2019. replace_table_token_5_th 50 replace_table_token_6_th story_separator_special_tag roman , times , serif ; margin : 0pt 0 ; text-align : left `` > critical accounting policies and estimates the preparation of financial statements in conformity with u.s. gaap requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period . these estimates are based on assumptions and judgments that may be affected by commercial , economic and other factors . actual results could differ from these estimates . an accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made , and if different estimates reasonably could have been used , or changes in the accounting estimates that are reasonably likely to occur periodically , could materially impact the financial statements . the following description of critical accounting policies , judgments and estimates should be read in conjunction with our december 31 , 2019 consolidated financial statements . stock-based compensation the calculation of the fair values of our stock-based compensation plans requires estimates that require management 's judgments . under asc 718 , the fair value of each stock option is estimated on the grant date using the black-scholes option-pricing model . the valuation models require assumptions and estimates to determine expected volatility , expected life , expected dividends and expected risk-free interest rates . the expected volatility was determined using historical volatility of our stock based on the contractual life of the award . the risk-free interest rate assumption was based on the yield on zero-coupon u.s. treasury strips at the award grant date . we also used historical data to estimate forfeiture experience . in valuing options granted in the fiscal years ended december 31 , 2019 and 2018 , we used the following weighted average assumptions : replace_table_token_8_th common shares and warrants common shares are recorded as the net proceeds received on issuance after deducting all share issuance costs and the relative fair value of investor warrants . warrants are recorded at relative fair value and are deducted from the proceeds of common shares and recorded on the consolidated statements of stockholders ' equity as additional paid-in capital . derivative instruments the company applies asc topic 815-40 , `` derivatives and hedging `` ( asc 815-40 ) . one of the conclusions reached under asc 815-40 was that an equity-linked financial instrument would not be considered indexed to the entity 's own stock if the strike price is denominated in a currency other than the issuer 's functional currency . the conclusion reached under asc 815-40 clarified the accounting treatment for these and certain other financial instruments . asc 815-40 specifies that a contract will not be treated as a derivative if it meets the following conditions : ( a ) indexed to our own stock ; and ( b ) classified in stockholders ' equity in our statement of financial position . our options issued to consultants and denominated in canadian dollars were not considered to be indexed to our own stock because the exercise price is denominated in canadian dollars and our functional currency is united states dollars . therefore , these options were treated as derivative financial instruments and recorded at their fair value as a liability . all other outstanding convertible instruments are considered to be indexed to our stock , because their exercise price is denominated in the same currency as our functional currency , and are included in stockholders ' equity . 52 during the year ended december 31 , 2018 , there were exercises of options to purchase 19 shares of our common shares , which were classified as derivative instruments . this resulted in gross proceeds of $ 26 and a non-cash gain on the extinguishment of the remaining derivative liability of $ 167. the fair value of these options was estimated using the black-scholes option-pricing model and is summarized below . replace_table_token_9_th outstanding share information our outstanding

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liquidity and capital resources · there was a $ 9.1 million decrease in cash and cash equivalents between december 31 , 2019 and december 31 , 2018. during the period ended december 31 , 2019 , cash for operations was used mainly in regulatory and manufacturing activities and our general and administrative expenses . · the increase in other current assets between december 31 , 2019 and december 31 , 2018 primarily relates to an increase in the prepaid amount for director and officer insurance premiums and prepaid conference expenses . · current liabilities at december 31 , 2019 increased from december 31 , 2018 primarily due to an increase in accounts payable associated with our commercialization and manufacturing activities for the production of pedmark tm and related regulatory expenses at year-end 2019 . · working capital decreased between december 31 , 2019 and december 31 , 2018 by $ 9.7 million . the decrease was a result of cash used in operations offset by $ 0.3 million interest income and the capitalization of $ 0.3 million loan origination expenses . cash outflows related to the regulatory and commercial development of pedmark tm and general and administrative expenses . we expect increased cash outflows as we prepare regulatory submission and commercial preparation to launch pedmark tm . replace_table_token_7_th the net cash flow used in operating activities for the year ended december 31 , 2019 was approximately $ 9.1 million as compared to $ 7.8 million in 2018. this increase relates to the regulatory and commercial development of pedmark tm . we continue to pursue various strategic alternatives including collaborations with other pharmaceutical and biotechnology companies . our projections of further capital requirements are subject to substantial uncertainty .

21 while we corrected these errors and they were not material to any previously reported financial statements , we have determined that there was a reasonable possibility that a material misstatement of our annual or interim financial statements may not have been prevented or detected on a timely basis due to control deficiencies in our internal controls . thus , management has determined that the control deficiencies constitute a material weakness . because we have identified this material weakness , we have implemented additional procedures to verify the reliability of our accounting for income taxes . based on the additional procedures , we believe that the consolidated financial statements included in this report are fairly stated in all material respects in accordance with generally accepted accounting principles . for additional information on the procedures and controls we are implementing to address the material weakness , see item 9a , controls and procedures . summary of results and significant highlights net revenues increased 0.8 % to $ 35.3 billion in 2013 and decreased 2.2 % to $ 35.0 billion in 2012. organic net revenues increased 3.9 % to $ 35.9 billion in 2013 and increased 4.4 % to $ 36.3 billion in 2012. organic net revenues is a non-gaap financial measure we use to evaluate our underlying results ( see the definition of organic net revenues and our reconciliation with net revenues within non-gaap financial measures appearing later in this section ) . organic net revenues excludes the impact of currency , acquisitions , divestitures and accounting calendar changes . diluted eps attributable to mondelēz international increased 28.1 % to $ 2.19 in 2013 and decreased 14.9 % to $ 1.71 in 2012. excluding the results of discontinued operations , our diluted eps attributable to mondelēz international from continuing operations increased 46.6 % to $ 1.29 in 2013 and decreased 11.1 % to $ 0.88 in 2012. adjusted eps increased 7.1 % to $ 1.51 in 2013 and increased 0.7 % to $ 1.41 in 2012. on a constant currency basis , adjusted eps increased 13.5 % to $ 1.60 in 2013 and increased 5.0 % to $ 1.47 in 2012. adjusted eps is a non-gaap financial measure we use to evaluate our underlying results ( see the definition of adjusted eps and our reconciliation with diluted eps within non-gaap financial measures appearing later in this section ) . adjusted eps includes diluted eps attributable to mondelēz international from continuing operations and excludes the following items discussed below : spin-off costs and related costs , 2012-2014 restructuring program costs , integration program costs and other acquisition integration costs , a benefit from the resolution of a cadbury acquisition-related indemnification , the loss on debt extinguishment and related expenses , net gain on acquisition and divestitures , acquisition-related costs and net earnings from divestitures . we also evaluate adjusted eps on a constant currency basis . on february 6 , 2014 , we completed a cash tender offer and retired $ 1.6 billion of our long-term u.s. dollar debt . in connection with retiring this debt , during the first quarter of 2014 , we recorded a $ 495 million loss on debt extinguishment and related expenses related to the amount we paid to retire the debt in excess of its carrying value and from recognizing unamortized discounts and deferred financing costs in earnings at the time of the debt extinguishment . on january 16 , 2014 , we issued $ 3.0 billion of u.s. dollar notes that generated approximately $ 3.0 billion of net cash proceeds , which were used in part to fund the february 2014 tender offer and for other general corporate purposes . in january 2014 , we also recorded approximately $ 18 million of discounts and deferred financing costs , which will be amortized into interest expense over the life of the notes . on december 18 , 2013 , we completed a cash tender offer and retired $ 3.4 billion of our long-term u.s. dollar debt . we recorded a $ 612 million loss on debt extinguishment and related expenses related to the amount we paid to retire the debt in excess of its carrying value and from recognizing unamortized discounts and deferred financing costs in earnings at the time of the debt extinguishment . on december 11 , 2013 , we issued € 2.4 billion of euro-denominated notes , or approximately $ 3.3 billion in u.s. dollars as of december 31 , 2013. we received net proceeds of € 2,381 million , or $ 3,239 million in u.s. dollars , which were used to partially fund the december 2013 tender offer . we also recorded approximately $ 27 million of discounts and deferred financing costs , which will be amortized into interest expense over the life of the notes . 22 during 2013 , our board of directors authorized the repurchase of $ 7.7 billion of our common stock under a share repurchase program . during 2013 , we repurchased $ 2.7 billion , or 82.8 million shares of common stock at an average cost of $ 33.09 per share . the repurchases include $ 1.5 billion of shares acquired through an accelerated share repurchase program we initiated in december 2013. all share repurchases were funded through available cash , including cash from the resolution of the starbucks arbitration described below , and commercial paper issuances . as of december 31 , 2013 , we have $ 5.0 billion in remaining share repurchase capacity . in december 2013 , a dispute over a license and supply agreement between starbucks coffee company ( “starbucks” ) and kraft foods group was resolved when an independent arbitrator issued a decision and final award that resulted in starbucks paying $ 2.8 billion for its unilateral termination of the agreement . the dispute arose within the kraft foods group discontinued operation and was directed to mondelēz international as part of the spin-off recapitalization plans . story_separator_special_tag the gains were recorded within selling , general and administrative expenses and the cash proceeds were recorded in cash flows from other investing activities in the year ended december 31 , 2012 . 2012-2014 restructuring program in 2012 , our board of directors approved $ 1.5 billion of restructuring and related implementation costs ( “2012-2014 restructuring program” ) reflecting primarily severance , asset disposals and other manufacturing-related one-time costs . the primary objective of the restructuring and implementation activities was to ensure that both mondelēz international and kraft foods group were each set up to operate efficiently and execute on our respective business strategies upon separation and in the future . of the $ 1.5 billion of anticipated 2012-2014 restructuring program costs , we retained approximately $ 925 million and kraft foods group retained the balance of the program . since inception , we have incurred $ 440 million of our estimated $ 925 million total 2012-2014 restructuring program charges . we recorded restructuring charges of $ 267 million in 2013 and $ 102 million in 2012 within asset impairment and exit costs . we also incurred implementation costs of $ 63 million in 2013 and $ 8 million in 2012 , which were recorded within cost of sales and selling , general and administrative expenses . see note 6 , 2012-2014 restructuring program , and note 10 , benefit plans , for additional information . 27 integration program as a result of our combination with cadbury limited ( formerly , cadbury plc or “cadbury” ) in 2010 , we launched an integration program ( the “integration program” ) to realize expected annual cost savings of approximately $ 750 million by the end of 2013 and revenue synergies from investments in distribution , marketing and product development . we achieved cost savings of approximately $ 800 million one year ahead of schedule and achieved our planned revenue synergies by december 31 , 2013. to achieve the expected annual cost savings and synergies and integrate the two businesses , we incurred total integration charges of approximately $ 1.5 billion through the end of 2013 and have now completed the integration program . we recorded integration program charges of $ 216 million in 2013 , $ 185 million in 2012 and $ 521 million in 2011. at december 31 , 2013 , we had an accrued liability of $ 145 million related to the integration program , of which , $ 101 million was recorded within other current liabilities and $ 44 million , primarily related to leased facilities no longer in use , was recorded within other long-term liabilities . during 2012 , we refined our estimate of 2010 integration program charges by $ 45 million primarily related to planned and announced position eliminations that did not occur within our europe segment . the reversal was based on final negotiations with local workers councils , the majority of which were concluded in april 2012. we recorded integration program charges in operations as a part of selling , general and administrative expenses primarily within our europe , eemea , asia pacific and latin america segments , as well as within general corporate expenses . see note 7 , integration program and cost savings initiatives , to the consolidated financial statements for additional information . cost savings initiatives cost savings initiatives generally include exit , disposal and other project costs outside of our integration program and 2012-2014 restructuring program and consist of the following specific initiatives : in 2013 , we recorded a $ 20 million charge primarily within the segment operating income of latin america related to severance benefits provided to terminated employees and one-time charges and within the segment operating income of north america related to supply chain reinvention team expenses . in 2012 , we recorded a $ 21 million charge primarily within the segment operating income of europe related to severance benefits provided to terminated employees and charges in connection with the reorganization within the europe and eemea segments ( the “europe reorganization” ) . in 2011 , we recorded a $ 61 million charge primarily within the segment operating income of europe related to severance benefits provided to terminated employees and charges in connection with the europe reorganization . we also reversed approximately $ 15 million of cost savings initiative program costs across the north america , europe and eemea segments . accounting calendar changes in 2013 and 2011 the majority of our operating subsidiaries report results as of the last calendar day of the period . in connection with moving toward a common consolidation date across the company , in the first quarter of 2013 , we changed the consolidation date for our europe segment . the change in the consolidation date for our europe segment had a favorable impact of $ 37 million on net revenues and $ 6 million on operating income in 2013. at this time , primarily our north american operating subsidiaries report results as of the last saturday of the period . prior to these changes , in 2012 and 2011 , the majority of our operating subsidiaries reported results as of the last saturday of the year . in 2011 , the last saturday of the year fell on december 31 , so our 2011 results included one more week of operating results ( “53 rd week” ) than 2013 or 2012 , which each had 52 weeks . in 2011 , we also changed the consolidation dates for certain operations of our europe , latin america and eemea segments . previously , these operations primarily reported results two weeks prior to the end of the period . subsequent to the 2011 changes , the majority of our europe segment reported results as of the last saturday of each period and certain operations within our latin america and eemea segments began to report results as of the last calendar day of the period or the last saturday of the period .

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net cash used in investing activities : net cash used in investing activities was $ 1,483 million in 2013 , $ 1,687 million in 2012 and $ 1,728 million in 2011. the decrease in net cash used in investing activities in 2013 relative to 2012 related to payments made to kraft foods group in 2012 related to the spin-off , partially offset by cash paid , net of cash received , in connection with the 2013 acquisition of a biscuit operation in morocco and lower proceeds on divestitures in 2013. the decrease in net cash used in investing activities in 2012 relative to 2011 related to proceeds received from our divested businesses and lower capital expenditures in the current year , partially offset by cash transferred to kraft foods group related to the spin-off . capital expenditures , which were funded by operating activities and include expenditures for kraft foods group in all periods prior to october 1 , 2012 , were $ 1,622 million in 2013 , $ 1,610 million in 2012 and $ 1,771 million in 2011. the 2013 capital expenditures were made primarily to modernize manufacturing facilities and support new product and productivity initiatives . we expect 2014 capital expenditures to be up to $ 2.0 billion , including capital expenditures required for investments in systems and the 2012-2014 restructuring program . we expect to continue to fund these expenditures from operations . net cash ( used in ) / provided by financing activities : net cash used in financing activities was $ 6,645 million in 2013 , $ 204 million provided in 2012 and $ 3,175 million used in 2011. the decrease in net cash provided by financing activities in 2013 relative to 2012 was primarily due to lower net proceeds from the issuance of long-term debt , higher re-payment of long-term debt and repurchase of common stock , partially offset by lower dividend payments reflecting our new capital structure and dividend rate following the spin-off and higher short-term borrowings .

our customers face challenges in planning , procuring and managing their inventories efficiently due to customer demand fluctuations , product design changes , short product life cycles and component price fluctuations . we employ production management systems to manage their procurement and manufacturing processes in an efficient and cost-effective manner so that , where possible , components arrive on a just-in-time , as-and-when-needed basis . we are a significant purchaser of electronic components and other raw materials , and can capitalize on the economies of scale associated with our relationships with suppliers to negotiate price discounts , obtain components and other raw 29 materials that are in short supply , and return excess components . our expertise in supply chain management and our relationships with suppliers across the supply chain enables us to reduce our customers ' cost of goods sold and inventory exposure . we recognize revenue from the sale of manufactured products built to customer specifications and excess inventory when title and risk of ownership have passed , the price to the buyer is fixed or determinable and collectibility is reasonably assured , which generally is when the goods are shipped . revenue from design , development and engineering services is recognized when the services are performed and collectibility is reasonably certain . such services provided under fixed price contracts are accounted for using the percentage of completion method . we generally assume no significant obligations after product shipment as we typically warrant workmanship only . therefore , our warranty provisions are generally not significant . our cost of sales includes the cost of materials , electronic components and other items that comprise the products we manufacture , the cost of labor and manufacturing overhead and adjustments for excess and obsolete inventory . our procurement of materials for production requires us to commit significant working capital to our operations and to manage the purchasing , receiving , inspection and stocking of materials . although we bear the risk of fluctuations in the cost of materials and excess scrap , we periodically negotiate cost of materials adjustments with our customers . our gross margin for any product depends on the sales price , the proportionate mix of the cost of materials in the product and the cost of labor and manufacturing overhead allocated to the product . we typically have the potential to realize higher gross margins on products where the proportionate level of labor and manufacturing overhead is greater than that of materials . as we gain experience in manufacturing a product , we usually achieve increased efficiencies , which result in lower labor and manufacturing overhead costs for that product and higher gross margins . our operating results are impacted by the level of capacity utilization of manufacturing facilities . operating income margins have generally improved during periods of high production volume and high capacity utilization . during periods of low production volume , we generally have idle capacity and reduced operating income margins . acquisitions on june 3 , 2013 , we acquired all of the outstanding common stock of suntron corporation ( suntron ) , an ems company headquartered in phoenix , arizona ( the suntron acquisition ) for $ 19.3 million in cash subject to a final purchase adjustment in accordance with the acquisition agreement . the suntron acquisition added two manufacturing facilities , tijuana , mexico and phoenix , arizona , and strengthened our capabilities and global reach to better serve our customers in the aerospace and defense industries . on october 2 , 2013 , we acquired all of the outstanding common stock of cts electronics manufacturing solutions , inc. and cts electronics corporation ( thailand ) ltd. , the full-service ems segment of cts corporation ( cts ) , for $ 75 million ( the cts acquisition ) . the acquired business has five locations ( 4 in north america and 1 in asia ) and approximately 1,000 employees . the cts acquisition expanded our portfolio of customers in non-traditional and highly regulated markets and strengthened the depth and scope of our new product express capabilities on the west coast . severe flooding in thailand and suspension of thailand operations our facilities in ayudhaya , thailand were flooded and remained closed from october 13 , 2011 to december 20 , 2011. as a result of the flooding and temporary closing of our facilities , we incurred property losses and flood related costs during 2012 and 2011 which were partially offset by insurance recoveries . during 2013 , thailand flood related items resulted in a gain of $ 41.3 million including $ 41.2 million of insurance proceeds . we will record additional insurance recoveries when the appropriate recognition criteria have been met . the recovery process with our insurance carriers is largely complete and we expect final resolution in the first quarter of 2014. as a result of the flooding , we have been unable to renew or otherwise obtain adequate cost-effective flood insurance to cover assets at our facilities in thailand . we continue to investigate all flood risk-mitigation 30 alternatives in thailand . we maintain insurance on all our properties and operations—including our assets in thailand—for risks and in amounts customary in the industry . such insurance includes general liability , property & casualty , and directors & officers liability coverage . not all losses are insured , and we retain certain risks of loss through deductibles , limits and self-retentions . in the event we were to experience a significant uninsured loss in thailand or elsewhere , it could have a material adverse effect on our business , financial condition and results of operations . summary of 2013 results sales for the years ended december 31 , 2013 and 2012 were $ 2.5 billion in each year . our future sales are dependent on the success of our customers , some of which operate in businesses associated with rapid technological change and consequent product obsolescence . story_separator_special_tag sales to customers in the telecommunication equipment industry for the year ended december 31 , 2013 decreased 9 % to $ 578.4 million from $ 637.9 million in 2012. the decrease in sales is primarily due to lower demand from our customers and timing of program ramps and transitions somewhat offset by the impact of the acquisition of cts . in addition , in 2012 , our telecommunication sector had a strong rebound as a result of the recovery from the thailand flooding . medical devices . sales to customers in the medical devices industry for the year ended december 31 , 2013 increased 15 % to $ 281.7 million from $ 244.1 million in 2012 primarily as a result of new programs and the impact of the acquisitions of suntron and cts . testing and instrumentation products . sales to customers in the testing and instrumentation products industry for the year ended december 31 , 2013 increased 11 % to $ 172.0 million from $ 154.4 million in 2012 as a result of improvement in the semiconductor industry and the impact of the acquisitions of suntron and cts . our future sales are dependent on the success of our customers , some of which operate in businesses associated with rapid technological change and consequent product obsolescence . developments adverse to our major customers or their products , or the failure of a major customer to pay for components or services , could have an adverse effect on us . adverse worldwide economic conditions have impacted our customers . see note 10 to the consolidated financial statements in item 8 of this report . a substantial percentage of our sales have been made to a small number of customers , and the loss of a major customer , if not replaced , would adversely affect us . sales to our ten largest customers represented 53 % and 56 % of our sales in 2013 and 2012 , respectively . in 2013 and 2012 , sales to international business machines corporation represented 17 % and 21 % , respectively , of our sales . sales to this customer decreased to $ 430.2 million in 2013 compared to $ 506.1 million in 2012. the decrease in sales to our largest customer is primarily due to the timing of 36 new program ramps and product transitions as well as market uncertainty in the global economy which has led to lower demand . our international operations are subject to the risks of doing business abroad . see item 1a for factors pertaining to our international sales and fluctuations in the exchange rates of foreign currency and for further discussion of potential adverse effects in operating results associated with the risks of doing business abroad . during 2013 and 2012 , 51 % and 50 % , respectively , of our sales were from our international operations . we had a backlog of approximately $ 1.7 billion at december 31 , 2013 , as compared to the 2012 year-end backlog of $ 1.5 billion . backlog consists of purchase orders received , including , in some instances , forecast requirements released for production under customer contracts . although we expect to fill substantially all of our backlog at december 31 , 2013 during 2014 , we do not have long-term agreements with all of our customers and customer orders can be canceled , changed or delayed by customers . the timely replacement of canceled , changed or delayed orders with orders from new customers can not be assured , nor can there be any assurance that any of our current customers will continue to utilize our services . because of these factors , backlog is not a meaningful indicator of future financial results . gross profit gross profit increased 6 % to $ 186.5 million for 2013 from $ 176.7 million in 2012 due primarily to an increase in sales . our gross profit as a percentage of sales increased to 7.4 % for the year ended december 31 , 2013 from 7.2 % in the same period of 2012 primarily due to changes in the mix of programs and the impact of the acquisitions . we experience fluctuations in gross profit from period to period . different programs contribute different gross profits depending on factors such as the types of services involved , location of production , size of the program , complexity of the product and level of material costs associated with the various products . moreover , new programs can contribute relatively less to our gross profit in their early stages when manufacturing volumes are usually lower , resulting in inefficiencies and unabsorbed manufacturing overhead costs . in addition , a number of our new and higher volume programs remain subject to competitive constraints that could exert downward pressure on our margins . during periods of low production volume , we generally have idle capacity and reduced gross profit . selling , general and administrative expenses selling , general and administrative expenses increased to $ 99.3 million in 2013 from $ 90.0 million in 2012. selling , general and administrative expenses , as a percentage of sales , were 4.0 % and 3.6 % , respectively , for 2013 and 2012. the increase in selling , general and administrative expenses is primarily associated with the suntron and cts acquisitions . restructuring charges and integration and acquisition-related costs we recognized $ 9.3 million in restructuring charges and integration and acquisition-related costs during 2013 primarily related to the closure of our brazil and singapore facilities and the acquisitions of suntron and cts . we expect these 2013 restructuring activities to result in annualized cost savings of approximately $ 4 million . the majority of these annual cost savings related to the restructuring activities is expected to be reflected as a reduction in cost of revenue and to a lesser extent as a reduction in selling , general and administrative expenses . the recognition of

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liquidity and capital resources we have historically financed our growth and operations through funds generated from operations and proceeds from the sale and maturity of our investments . cash and cash equivalents totaled $ 345.6 million at december 31 , 2013 and $ 384.6 million at december 31 , 2012 , of which $ 307.3 million at december 31 , 2013 and $ 261.2 million at december 31 , 2012 was held outside the u.s. in various foreign subsidiaries . substantially all of the amounts held outside of the u.s. are intended to be permanently reinvested in foreign operations . under current tax laws and regulations , if cash and cash equivalents held outside the u.s. were to be distributed to the u.s. in the form of dividends or otherwise , we would be subject to additional u.s. income taxes and foreign withholding taxes . cash provided by operating activities was $ 99.1 million for the year ended december 31 , 2013 , which included $ 41.2 million of thailand flood insurance recoveries . the cash provided by operations during 2013 consisted primarily of $ 111.2 million of net income adjusted for $ 40.9 million of depreciation and amortization , offset by a $ 56.6 million increase in accounts receivable . working capital was $ 944.5 million at december 31 , 2013 and $ 883.7 million at december 31 , 2012. we are continuing the practice of purchasing components only after customer orders or forecasts are received , which mitigates , but does not eliminate , the risk of loss on inventories . supplies of electronic components and other materials used in operations are subject to industry-wide shortages . in certain instances , suppliers may allocate 40 available quantities to us . if shortages of these components and other material supplies used in operations occur , vendors may not ship the quantities we need for production and we may be forced to delay shipments , which would increase backorders and therefore impact cash flows .

refer to note 2 , `` revenue recognition `` within part 2 of this form 10-k ● cost of sales attributable to acquired businesses ● foreign currency translation partially offset by : ● restructuring cost savings 2017 vs. 2016 cost of sales , exclusive of depreciation and amortization , increased $ 544 million due to the following : ● raw material cost inflation ● higher sales volumes ● cost of sales attributable to acquired businesses ● foreign currency translation partially offset by : ● lower manufacturing costs selling , general and administrative expenses replace_table_token_6_th 2018 vs. 2017 selling , general and administrative expenses declined as a percent of net sales , but increased $ 19 million primarily due to : ● higher sales volumes ● wage and other cost inflation ● selling , general and administrative expenses from acquired businesses 2018 ppg annual report and form 10-k 29 ● foreign currency translation partially offset by : ● cost reclassifications associated with the adoption of the new revenue recognition standard . refer to note 2 , `` revenue recognition `` within part 2 of this form 10-k ● cost management including restructuring cost savings 2017 vs. 2016 selling , general and administrative expenses decreased $ 1 million primarily due to : ● lower net periodic pension and other postretirement benefit costs ● lower selling and advertising costs ● restructuring cost savings partially offset by : ● wage and other cost inflation ● selling , general and administrative expenses from acquired businesses ● foreign currency translation other charges and other income replace_table_token_7_th interest expense , net of interest income interest expense , net of interest income increased $ 10 million in 2018 versus 2017 primarily due to the issuance of long-term debt in early 2018. interest expense , net of interest income decreased $ 14 million in 2017 versus 2016 due to lower interest rate debt outstanding in 2017. business restructuring , net a pretax restructuring charge of $ 83 million was recorded in the second quarter of 2018 , offset by certain changes in estimates to complete previously recorded programs of $ 17 million . a pretax charge of $ 191 million was recorded in 2016. refer to note 8 , `` business restructuring `` in item 8 of this form 10-k for additional information . pension settlement charges during 2017 , ppg made lump-sum payments to certain retirees who had participated in ppg 's u.s. qualified and non-qualified pension plans totaling approximately $ 127 million . as the lump-sum payments were in excess of the expected 2017 service and interest costs for the affected plans , ppg remeasured the periodic benefit obligation of these plans in the period payments were made and recorded settlement charges totaling $ 60 million ( $ 38 million after-tax ) during 2017. during 2016 , ppg permanently transferred approximately $ 1.8 billion of its u.s. and canadian pension obligations and assets to several highly rated insurance companies . these actions triggered remeasurement and partial settlement of certain of the company 's defined benefit pension plans . ppg recognized a $ 968 million pre-tax settlement charge in connection with these transactions . refer to note 13 , `` employee benefit plans `` in item 8 of this form 10-k for additional information . other charges other charges in 2018 and 2016 were higher than 2017 primarily due to environmental remediation charges . these charges were principally for environmental remediation at a former chromium manufacturing plant and associated sites in new jersey . refer to note 14 , `` commitments and contingent liabilities `` in item 8 of this form 10-k for additional information . other income other income was lower in 2018 and 2016 than in 2017 primarily due to the gain from the sale of the mexican plaka business of $ 25 million and income from a legal settlement of $ 18 million in 2017. refer to note 3 , `` acquisitions and divestitures `` in item 8 of this form 10-k for additional information . 30 2018 ppg annual report and 10-k effective tax rate and earnings per diluted share , continuing operations % change ( $ in millions , except percentages ) 2018 2017 2016 2018 vs. 2017 2017 vs. 2016 income tax expense $ 353 $ 615 $ 214 ( 42.6 ) % 187.4 % effective tax rate 20.9 % 30.7 % 27.5 % ( 9.8 ) % 3.2 % adjusted effective tax rate * 22.1 % 24.3 % 24.5 % ( 2.2 ) % ( 0.2 ) % earnings per diluted share $ 5.40 $ 5.31 $ 2.04 1.7 % 160.3 % adjusted earnings per diluted share * $ 5.92 $ 5.86 $ 5.64 1.0 % 3.9 % * see the regulation g reconciliations - results of operations the effective tax rate for the year-ended december 31 , 2018 was 20.9 % and decreased 9.8 % from the prior year . in 2017 , the tax rate included the tax toll charge for unremitted foreign earnings under the u.s. tax cuts and jobs act , while in 2018 , the tax rate benefited from prior period adjustments , including finalization of the provisional toll charge recorded in 2017. the 2019 effective tax rate from continuing operations is expected to be in the range of 23 % to 25 % . as reported , earnings per diluted share from continuing operations for the year ended december 31 , 2018 increased year-over-year . refer to the regulation g reconciliations - results of operations for additional information . the company 's earnings per diluted share and adjusted earnings per diluted share benefited from the 15.9 million , 7.4 million and 10.7 million shares of stock repurchased in 2018 , 2017 and 2016 , respectively , in conjunction with the company 's cash deployment objectives . story_separator_special_tag ppg 's packaging coatings business continued to expand well ahead of the industry driven by continued strong sales growth momentum related to customer adoption of ppg 's new interior can coatings technologies . ppg 's automotive oem coatings business performance was slightly better than industry demand levels due to modest share gains . the u.s. and canada region remained ppg 's largest , representing approximately 42 % of 2018 sales , although a smaller percentage of total sales than in the prior year . europe , middle east and africa european economic activity was mixed in 2018. industrial production was higher in the first half of the year and moderated as the year progressed . the region was impacted by continuing uncertainty over the united kingdom 's exit from the european union . overall gdp and industrial production were similar to 2017 in the region . regional demand continued to be mixed by country and end-uses . demand for ppg 's products in several end-uses drove the regional growth rate , including above market performance in general industrial coatings , packaging coatings and specialty coatings and materials . ppg 's architectural coatings - emea business sales volumes decreased year-over-year , driven by soft demand in southern europe . emea represented approximately 30 % of ppg 's 2018 sales , similar to prior year levels . regional coatings volumes remain approximately 15 % below their pre-recession levels in 2008. the modest volume recovery reflects the slow pace of economic growth in the region . ppg expects modest volume growth over time at attractive incremental margins due to significant cost structure improvements and available capacity to satisfy additional demand . in the second half of the year , the euro and british pound both depreciated against the u.s. dollar . asia pacific and latin america the emerging regions of asia pacific and latin america represented 28 % of ppg 's 2018 sales in aggregate , similar to the prior year . 36 2018 ppg annual report and 10-k asia remained the largest emerging region , with sales of approximately $ 2.5 billion , led by china , which continued as ppg 's second largest country by revenue . the performance coatings segment led sales volume growth in asia , in part due to strong sales volume growth in protective and marine coatings , aerospace coatings , and automotive refinish coatings . these increases were partially offset by a decline in automotive oem coatings , particularly in china where industry retail automobile sales fell for the first time in over 25 years . overall , demand in latin america improved year-over-year for the second consecutive year , with continued above market growth in mexico and central america . economic conditions were mixed in south america , and there was heightened currency volatility throughout the entire region . in mexico , the ppg-comex business added over 200 new concessionaire locations . the overall region 's performance was supported by strong growth in the general industrial and packaging coatings businesses . foreign currency translation was volatile and finished 4 percent unfavorable compared to 2017 , principally the mexican peso and brazilian real . outlook looking ahead to 2019 , we expect global market growth to continue , but we expect a downshift in the pace of growth , and it will likely be uneven by region and end-use . we expect most regional growth rates to be modestly lower than 2018 , but the latin america region growth rate to be slightly higher . we anticipate ppg 's u.s. and canada regional growth will be led by general industrial coatings and aerospace coatings , with flat automotive industry builds . we expect growth in housing and commercial construction to be comparable to 2018. we expect demand in europe to grow but at lower levels than 2018. regional growth is expected to remain mixed by sub-region and country . favorable end-use trends are expected to continue in general industrial and packaging with flattening demand in automotive oem coatings as industry growth rates are anticipated to be flat . demand is expected to stay subdued in the architectural coatings business . we continue to monitor the economic environment in the u.k. as their exit from the european union progresses and impacts consumer sentiment and coatings demand . in asia pacific , we expect continued industrial production growth in china , southeast asia and india . in china , we foresee continued above global average growth with heightened risk as the chinese economy continues to shift and rely more on domestic consumption . the sharp decline in automotive oem activity seen in the second half of 2018 is expected to continue in the beginning of 2019. we expect year-over-year demand patterns to become more favorable in the second half of 2019. the recovery in marine coatings demand is expected to continue , albeit off a low base . in latin america , we anticipate economic expansion will continue in mexico , most of central america and south america . significant other factors in may 2018 , ppg initiated an $ 83 million global restructuring program . the program is largely centered around the change in customer assortment related to the u.s. architectural coatings diy business . ppg recognized $ 18 million of savings from this program in 2018. significant progress was made on the global restructuring program that was announced in december 2016. this program targeted annual savings of approximately $ 125 million once fully implemented . the company achieved approximately $ 60 million of savings in 2018 bringing the total savings to approximately $ 110 million to date . we expect to achieve the full-annualized target of $ 125 million in 2019. we will continue to aggressively manage the company 's cost structure to ensure alignment with the overall demand environment , and we will make adjustments as required to remain competitive in the marketplace . restructuring savings from the 2018 and 2016 programs are expected to

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cash proceeds from divestitures in september 2017 , ppg completed the sale of its north american fiber glass business to nippon electric glass co. and received approximately $ 540 million in pre-tax cash proceeds . during 2016 , ppg finalized the sale of its flat glass business and several other businesses and business affiliates . the company received total pre-tax cash proceeds of approximately $ 1.1 billion from these business divestitures . refer to note 3 , “ acquisitions and divestitures ” under item 8 of this form 10-k for additional information . 40 2018 ppg annual report and 10-k cash used for financing activities - continuing operations replace_table_token_18_th 2018 vs. 2017 the $ 749 million decrease in cash used for financing activities - continuing operations , was primarily due to the issuance of long term debt , partially offset by higher net purchases of treasury stock year-over-year . 2017 vs. 2016 the $ 744 million increase in cash used for financing activities - continuing operations , was primarily due to repayment of long term debt and higher dividends in 2017 , partially offset by issuance of long term debt in 2016 and lower net purchases of treasury stock year-over-year . share repurchase activity replace_table_token_19_th the company has approximately $ 1.8 billion remaining under the current authorization from the board of directors , which was approved in december 2017. the current authorized repurchase program has no expiration date . dividends paid to shareholders replace_table_token_20_th ppg has paid uninterrupted annual dividends since 1899 , and 2018 marked the 47th consecutive year of increased annual per-share dividend payments to shareholders .

in particular , we note that we expect capital and investment expenditures to total between $ 3.96 billion and $ 4.59 billion in 2015. of this total , maintenance capital expenditures , which are generally considered nondiscretionary and include expenditures to meet legal and regulatory requirements , to maintain and or extend the operating capacity and to complete certain well connections , are expected to total $ 490 million . expansion capital expenditures , which are generally more discretionary to fund projects in order to grow our business are expected to total between $ 3.47 billion and $ 4.10 billion . see company outlook - expansion projects for discussions describing the general nature of these expenditures . in addition , we retain the flexibility to adjust our planned levels of capital and investment expenditures in response to changes in economic conditions or business opportunities . liquidity based on our forecasted levels of cash flow from operations and other sources of liquidity , we expect to have sufficient liquidity to manage our businesses in 2015. our internal and external sources of consolidated liquidity to fund working capital requirements , capital and investment expenditures , debt service payments , dividends and distributions , and tax payments include : cash and cash equivalents on hand ; cash generated from operations , including cash distributions from the merged partnership and our equity-method investees based on our level of ownership and incentive distribution rights ; 71 cash proceeds from issuances of debt and or equity securities ; use of our credit facility . these sources are available to us at either the parent or subsidiary level , as applicable , and are expected to be available to certain of our subsidiaries , particularly equity and debt issuances . the merged partnership is expected to be self-funding through its cash flows from operations , its credit facilities and or commercial paper program , and its access to capital markets . we anticipate our more significant uses of cash to be : maintenance and expansion capital expenditures ; contributions to our equity-method investees to fund their expansion capital expenditures ; interest on our long-term debt ; quarterly dividends to our shareholders . potential risks associated with our planned levels of liquidity and the planned capital and investment expenditures discussed above include those previously discussed in company outlook . as of december 31 , 2014 , we had a working capital deficit ( current liabilities , inclusive of commercial paper issuances and long-term debt due within one year , in excess of current assets ) of $ 677 million . however , we note the following about our available liquidity . replace_table_token_18_th ( 1 ) the highest amount outstanding during 2014 was $ 370 million . see note 14 – debt , banking arrangements , and leases of notes to consolidated financial statements for discussion of the second amended and restated credit agreement we entered into on february 2 , 2015 extending the maturity date to february 2 , 2020. we are in compliance with the financial covenants as measured at december 31 , 2014. at february 24 , 2015 , we have no borrowings outstanding under our credit facility . ( 2 ) in managing our available liquidity , we do not expect a maximum outstanding amount under wpz 's commercial paper program in excess of the capacity available under wpz 's credit facility . during 2014 , pre-merger wpz borrowed under the commercial paper program and the highest amount outstanding during the year was $ 1 billion . ( 3 ) the highest amount outstanding during the six months ended december 31 , 2014 was $ 728 million . ( 4 ) on february 2 , 2015 , in conjunction with the merger , these credit facilities were terminated and replaced with a $ 3.5 billion credit facility with a maturity date of february 2 , 2020 , with an option to extend the maturity date up to february 2 , 2022 , subject to certain circumstances . the merged partnership also amended and restated the commercial paper program to allow a maximum outstanding of $ 3 billion . on february 3 , 2015 , the merged partnership also entered into a $ 1.5 billion short-term credit facility with a maturity date of august 3 , 2015 , with 72 an option to extend the maturity date to february 2 , 2016. we are in compliance with the financial covenants as measured at december 31 , 2014. see note 14 – debt , banking arrangements , and leases of notes to consolidated financial statements for further discussion . at february 24 , 2015 , $ 1.3 billion is outstanding under wpz 's credit facilities and $ 1.8 billion is outstanding under wpz 's commercial paper program . as described in note 14 – debt , banking arrangements , and leases of notes to consolidated financial statements , we have determined that we have net assets that are technically considered restricted in accordance with rule 4-08 ( e ) of regulation s-x of the securities and exchange commission in excess of 25 percent of our consolidated net assets . we do not expect this determination will impact our ability to pay dividends or meet future obligations as the terms of the merged partnership 's agreement require it to make quarterly distributions of all available cash , as defined , to its unitholders . story_separator_special_tag we made contributions to our pension and other postretirement benefit plans of $ 69 million in 2014 and $ 100 million in 2013 . in 2015 , we expect to contribute approximately $ 69 million to these plans ( see note 9 – employee benefit plans of notes to consolidated financial statements ) . tax-qualified pension plans are required to meet minimum contribution requirements . in the past , we have contributed amounts to our tax-qualified pension plans in excess of the minimum required contribution . these excess amounts can be used to offset future minimum contribution requirements . during 2014 , we contributed $ 60 million to our tax-qualified pension plans . in addition to these contributions , a portion of the excess contributions was used to meet the minimum contribution requirements . during 2015 , we expect to contribute approximately $ 60 million to our tax-qualified pension plans and use excess amounts to satisfy minimum contribution requirements , if needed . additionally , estimated future minimum funding requirements may vary significantly from historical requirements if actual results differ significantly from estimated results for assumptions such as returns on plan assets , interest rates , retirement rates , mortality , and other significant assumptions or by changes to current legislation and regulations . ( 3 ) we have not included income tax liabilities in the table above . see note 7 – provision ( benefit ) for income taxes of notes to consolidated financial statements for a discussion of income taxes , including our contingent tax liability reserves . effects of inflation our operations have historically not been materially affected by inflation . approximately 35 percent of our gross property , plant , and equipment is comprised of our interstate natural gas pipeline assets . they are subject to regulation , which limits recovery to historical cost . while amounts in excess of historical cost are not recoverable under current ferc practices , we anticipate being allowed to recover and earn a return based on increased actual cost incurred to replace existing assets . cost-based regulations , along with competition and other market factors , may limit our ability 77 to recover such increased costs . for our gathering and processing assets , operating costs are influenced to a greater extent by both competition for specialized services and specific price changes in crude oil and natural gas and related commodities than by changes in general inflation . crude oil , natural gas , and ngl prices are particularly sensitive to the organization of the petroleum exporting countries ( opec ) production levels and or the market perceptions concerning the supply and demand balance in the near future , as well as general economic conditions . however , our exposure to certain of these price changes is reduced through the fee-based nature of certain of our services and the use of hedging instruments . environmental we are a participant in certain environmental activities in various stages including assessment studies , cleanup operations and or remedial processes at certain sites , some of which we currently do not own ( see note 18 – contingent liabilities and commitments of notes to consolidated financial statements ) . we are monitoring these sites in a coordinated effort with other potentially responsible parties , the epa , or other governmental authorities . we are jointly and severally liable along with unrelated third parties in some of these activities and solely responsible in others . current estimates of the most likely costs of such activities are approximately $ 44 million , all of which are included in a ccrued liabilities and other noncurrent liabilities on the consolidated balance sheet at december 31 , 2014 . we will seek recovery of approximately $ 11 million of these accrued costs through future natural gas transmission rates . the remainder of these costs will be funded from operations . during 2014 , we paid approximately $ 11 million for cleanup and or remediation and monitoring activities . we expect to pay approximately $ 11 million in 2015 for these activities . estimates of the most likely costs of cleanup are generally based on completed assessment studies , preliminary results of studies or our experience with other similar cleanup operations . at december 31 , 2014 , certain assessment studies were still in process for which the ultimate outcome may yield different estimates of most likely costs . therefore , the actual costs incurred will depend on the final amount , type , and extent of contamination discovered at these sites , the final cleanup standards mandated by the epa or other governmental authorities , and other factors . in march 2008 , the epa promulgated a new , lower national ambient air quality standard ( naaqs ) for ground-level ozone . however , in september 2009 , the epa announced it would reconsider the 2008 naaqs for ground level ozone to ensure that the standards were clearly grounded in science and were protective of both public health and the environment . as a result , the epa delayed designation of new eight-hour ozone nonattainment areas under the 2008 standards until the reconsideration is complete . in january 2010 , the epa proposed to further reduce the ground-level ozone naaqs from the march 2008 levels . in september 2011 , the epa announced that it was proceeding with required actions to implement the 2008 ozone standard and area designations . in may 2012 , the epa completed designation of new eight-hour ozone nonattainment areas . several transco facilities are located in 2008 ozone nonattainment areas ; however , each facility has been previously subjected to federal and or state emission control requirements implemented to address the preceding ozone standards . to date , no new federal or state actions have been proposed to mandate additional emission controls at these facilities . at this time , it is unknown whether future federal or state regulatory actions associated with implementation of

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net cash provided by operating activities in 2013 increased from 2012 primarily due to proceeds from insurance recoveries on the eminence storage field leak and geismar incident , $ 93 million of distributions from our investment in access midstream partners acquired in december 2012 , and net favorable changes in operating working capital , partially offset by lower operating income . financing activities significant transactions include : 74 2014 $ 1.895 billion net received from our debt offerings ; $ 2.74 billion net proceeds received from pre-merger wpz 's debt offerings : $ 1.040 billion received from our credit facility borrowings and $ 1.646 billion received for the six months ended december 31 , 2014 , on acmp 's credit facility borrowings ; $ 670 million paid on our credit facility borrowings and $ 1.156 billion paid for the six months ended december 31 , 2014 , on acmp 's credit facility borrowings ; $ 572 million net proceeds received from pre-merger wpz 's commercial paper issuances ; $ 3.416 billion received from our equity offerings ; $ 1.412 billion paid for quarterly dividends on common stock ; $ 840 million paid for dividends and distributions to noncontrolling interests ; $ 340 million received in contributions from noncontrolling interests .

competition has historically increased pricing pressures for our products and decreased our average selling prices . royalty payments under our existing license agreements also could be lower than currently anticipated for a variety of reasons , including decreased royalty rates triggered by larger volume shipments or lower royalty rates negotiated with customers due to competitive pressure . moreover , some of our competitors have reduced their licensing and royalty fees to attract customers and expand their market share . in order to penetrate new markets and maintain our market share with our existing products , we may need to offer our products in the future at lower prices which may result in lower profits . in addition , our future growth is dependent not only on the continued success of our existing products but also the successful introduction of new products , which requires the dedication of resources into research and development which in turn may increase our operating expenses . we anticipate that our operating expenses will be higher for 2012 in comparison to 2011 , mainly due to : ( 1 ) an increase in non-cash equity-based compensation expenses due to anticipated new equity grants to employees ; ( 2 ) increased investments in research and development in next-generation baseband processors for lte-advance as well as our new mm3000 hd imaging and vision platform , and ( 3 ) lower government research and development grants . furthermore , since our products are incorporated into end products of our oem customers , our business is very dependent on our oem customers ' ability to achieve market acceptance of their end products in the handsets and consumer electronic markets , which are similarly very competitive . the ever-changing nature of the market also affects our continued business growth potential . for example , the success of our imaging and audio products is highly dependent on the market adoption of new services and products , such as smartphones , tablets , smart tvs and set-top boxes . in addition , our business is affected by market conditions in emerging markets , such as india , latin america and africa , where the penetration of handsets , especially low-cost phones , could generate future growth potential for our business . the maintenance of our competitive position and our future growth also are dependent on our ability to adapt to ever-changing technologies , short product life cycles , evolving industry standards , changing customer needs and the trend towards cellular connectivity , and voice , audio and video convergence in the markets that we operate . moreover , due to the uncertainty about the sustainability of the market recovery , it is extremely difficult for our customers , our vendors and us to accurately forecast and plan future business activities . therefore , current economic conditions , and specifically the volatility in the semiconductor and consumer electronics industries , and consolidation in the semiconductor industry , could seriously impact our revenue and harm our business , financial condition and operating results . as a result , our past operating results should not be relied upon as an indication of future performance . we currently anticipate that the first quarter of 2012 to be a sequentially down quarter as third quarter 2011 shipments of ceva-powered chipsets , as reflected in our fourth quarter 2011 royalty revenues , were an all-time record high . also , we currently anticipate that the second quarter of 2012 to be a down quarter due to the typical seasonality trend we experience annually . 28 critical accounting policies , estimates and assumptions our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states ( u.s. gaap ) . these accounting principles require us to make certain estimates , judgments and assumptions . we believe that the estimates , judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates , judgments and assumptions are made . these estimates , judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements , as well as the reported amounts of revenues and expenses during the periods presented . to the extent there are material differences between these estimates , judgments or assumptions and actual results , our financial statements will be affected . the significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following : revenue recognition ; allowances for doubtful accounts ; income taxes ; equity-based compensation ; and impairment of marketable securities . in many cases , the accounting treatment of a particular transaction is specifically dictated by u.s. gaap and does not require management 's judgment in its application . there are also areas in which management 's judgment in selecting among available alternatives would not produce a materially different result . revenue recognition significant management judgments and estimates must be made and used in connection with the recognition of revenue in any accounting period . material differences in the amount of revenue in any given period may result if these judgments or estimates prove to be incorrect or if management 's estimates change on the basis of development of business or market conditions . management 's judgments and estimates have been applied consistently and have been reliable historically . we generate our revenues from ( 1 ) licensing intellectual property , which in certain circumstances is modified for customer-specific requirements , ( 2 ) royalty revenues and ( 3 ) other revenues , which include revenues from support , training and sale of development systems . we license our ip to semiconductor companies throughout the world . these semiconductor companies then manufacture , market and sell custom-designed chipsets to oems of a variety of consumer electronics products . story_separator_special_tag licensing revenues replace_table_token_11_th the increase in licensing revenues from 2010 to 2011 principally reflected higher revenues from our ceva-x dsp core family of products , our ceva-teak dsp core family of products , our bluetooth ip and our sata ip , partially offset by lower revenues from our ceva-teaklite dsp core family of products . the decrease in licensing revenues from 2009 to 2010 principally reflected lower revenues from our ceva-x dsp core family of products and our sas ip , partially offset by higher revenues from our ceva-teaklite dsp core family of products . licensing revenues accounted for 33.6 % of our total revenues in 2011 , compared with 41.0 % and 48.8 % of our total revenues in 2010 and 2009 , respectively . the percentage decreases in licensing revenues principally reflect the percentage increase in royalty revenues . in 2011 , we signed 30 new license agreements , compared to 25 and 34 in 2010 and 2009 , respectively . royalty revenues replace_table_token_12_th 34 based on strategic analytics and internal data , ceva 's worldwide market share of baseband chips that incorporate our technologies represented approximately 42 % , 36 % and 18 % of the worldwide baseband volume based on third quarter shipments in 2011 , 2010 and 2009 , respectively , and accounted for approximately 78 % , 72 % and 61 % of our total royalty revenues for 2011 , 2010 and 2009 , respectively . generally , the average royalty per unit from baseband chips incorporating our technologies is lower than the average royalty per unit from other consumer electronics products incorporating our technologies . the increase in royalty revenues from 2010 to 2011 principally reflected the continued expansion of our dsps across both handset and non-handset cellular-enabled products , which were driven by large volume 2g , 3g and td-scdma phones , partially offset by a decrease in the average per unit royalty rate . royalty revenues for 2010 included $ 0.4 million of “catch-up” royalties on past shipments from two existing customers in the consumer space . royalty revenues for 2009 included $ 0.9 million of “catch up” royalties on past shipments from another existing customer . excluding the “catch up” royalties , the increase in royalty revenues from 2009 to 2010 is due to : ( i ) significantly higher shipments of 2g and 3g feature phones , ( ii ) worldwide market expansion for handsets , and ( iii ) our market share gains within our customer base . the five largest customers paying per unit royalty accounted for 74.0 % of our total royalty revenues in 2011 , compared to 81.1 % and 73.4 % in 2010 and 2009 , respectively . our per unit and prepaid royalty customers reported sales of 1,027 million chipsets incorporating our technologies in 2011 , compared to 613 million in 2010 and 334 million in 2009. the increase in units shipped in both 2011 compared to 2010 and 2010 compared to 2009 primarily results from the strong momentum in the shipments of cellular processors enabled by our dsps that are now widely deployed across all market segments . other revenues other revenues include support and training for licensees and sale of development systems . replace_table_token_13_th the slight decrease in other revenues in 2011 compared to 2010 principally reflects a decrease in support revenues , offset by an increase in revenues from sales of development systems . the increase in other revenues in 2010 compared to 2009 principally reflects an increase in revenues from sales of development systems . geographic revenue analysis replace_table_token_14_th * ) less than 10 % 35 due to the nature of our license agreements and the associated potential large individual contract amounts , the geographic spilt of revenues both in absolute and percentage terms generally varies from period to period . the increase in revenues in absolute and percentage terms in the united states from 2010 to 2011 and from 2009 to 2010 reflects more design activities in the united states by large semiconductor companies and oems , mainly for our dsp core products , and royalty ramp-up mainly from cellular products . the increase in revenues in absolute term in the eme region from 2010 to 2011 and from 2009 to 2010 primarily reflects significantly higher royalty revenues and unit shipment ramp-up from cellular products , offset by a continued decrease in licensing activities in the eme region due to the consolidation of semiconductor companies and overall economic slowdown ( most significantly in 2011 ) . the increase in revenues in absolute terms in the apac region from 2010 to 2011 and from 2009 to 2010 primarily reflects significantly higher royalty revenues and unit shipment ramp-up from cellular products . in 2011 , we also generated significantly higher licensing revenues from our dsp core products for audio applications and lte designs , as well as from our bluetooth ip . cost of revenues replace_table_token_15_th cost of revenues accounted for 5.9 % of our total revenues in 2011 , compared with 8.3 % of our total revenues in 2010 and 10.7 % of our total revenues in 2009. the absolute and percentage decrease in cost of revenues in 2011 compared to 2010 principally reflected lower customization work for our licensees , partially offset by higher labor-related and commission costs and higher non-cash equity compensation expenses . the absolute and percentage decrease in cost of revenues in 2010 compared to 2009 principally reflected lower royalty expense payments to the office of the chief scientist of israel of the israeli ministry of industry and trade . royalty expenses relate to royalties payable to the office of the chief scientist of israel that amount to 3 % -3.5 % of the actual sales of certain of our products , the development of which previously included grants from the office of the chief scientist of israel . the obligation to pay these royalties is contingent on actual sales of these products . cost

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liquidity and capital resources as of december 31 , 2011 , we had approximately $ 15.0 million in cash and cash equivalents , $ 55.4 million in short term bank deposits , $ 69.0 million in marketable securities , and $ 25.1 million in long term bank deposits , totaling $ 164.5 million , compared to $ 131.0 million at december 31 , 2010. during 2011 , we invested $ 107.0 million of cash in bank deposits and available-for-sale marketable securities with maturities up to 36 months . in addition , bank deposits and available-for-sale marketable securities were sold or redeemed for cash amounting to $ 69.0 million in 2011. during 2010 , we invested $ 98.8 million of cash in bank deposits and available-for-sale marketable securities with maturities up to 34 months . in addition , bank deposits and available-for-sale marketable securities were sold or redeemed for cash amounting to $ 72.9 million in 2010. during 2009 , we invested $ 94.6 million of cash in bank deposits and available-for-sale marketable securities with maturities up to 29 months . in addition , bank deposits and available-for-sale marketable securities were sold or redeemed for cash amounting to $ 78.2 million in 2009. all of our marketable securities are classified as available-for-sale . the purchase and sale or redemption of available-for-sale marketable securities are considered part of investing cash flow . available-for-sale marketable securities are stated at fair value , with unrealized gains and losses reported in accumulated other comprehensive income ( loss ) , a separate component of stockholders ' equity , net of taxes . realized gains and losses on sales of investments , as determined on a specific identification basis , are included in the consolidated statements of income . we did not recognize any other-than-temporarily-impaired charges on marketable securities in 2011 , 2010 and 2009. for more information about our marketable securities , see notes 1 and 2 to the attached notes to consolidated financial statement for the year ended december 31 , 2011. bank deposits are classified as short-term bank deposits and long-term bank deposits .

non-ticket revenues also include revenues derived from the sale of advertising to third parties on our website and on board our aircraft . substantially all of our revenues are denominated in u.s. dollars . passenger revenues , as well as most non-ticket revenues , are recognized once the related flight departs . accordingly , the value of tickets and portions of non-ticket revenues sold in advance of travel is included under our current liabilities as “ air traffic liability , ” or atl , until the related air travel is provided . some of our non-ticket revenues are recognized at the time the ancillary products are purchased or ancillary services 39 are provided , such as revenues from our subscription-based $ 9 fare club , which we recognize on a straight-line basis over 12 months . revenue generated from the free spirit credit card affinity program are recognized in accordance with the criteria as set forth in accounting standards update asu no . 2009-13. please see “ —critical accounting policies and estimates—frequent flier program . ” we recognize revenues net of certain taxes and airport passenger fees , which are collected by us on behalf of airports and governmental agencies and remitted to the applicable governmental entity or airport on a periodic basis . these taxes and fees include u.s. federal transportation taxes , federal security charges , airport passenger facility charges and foreign arrival and departure taxes . these items are collected from customers at the time they purchase their tickets , but are not included in our revenues . we record a liability upon collection from the customer and relieve the liability when payments are remitted to the applicable governmental agency or airport . operating expenses our operating expenses consist of the following line items . salaries , wages and benefits . salaries , wages and benefits expense includes the salaries , hourly wages , bonuses and equity compensation paid to employees for their services , as well as the related expenses associated with employee benefit plans and employer payroll taxes . aircraft fuel . aircraft fuel expense includes the cost of jet fuel , related federal taxes , fueling into-plane fees and transportation fees . it also includes realized and unrealized gains and losses arising from any activity on our fuel derivatives . our fuel derivatives generally consist of united states gulf coast jet fuel swaps ( jet fuel swaps ) and united states gulf coast jet fuel options ( jet fuel options ) . aircraft rent . aircraft rent expense consists of all minimum lease payments under the terms of the company 's aircraft and spare engine lease agreements recognized on a straight-line basis . aircraft rent expense also includes supplemental rent . supplemental rent is made up of maintenance reserves paid or expected to be paid to aircraft lessors in advance of the performance of major maintenance activities that are not probable of being reimbursed and probable return condition obligations . aircraft rent expense is net of the amortization of gains and losses on sale leaseback transactions on our flight equipment . as of december 31 , 2016 , 59 of our 95 aircraft and 11 of our 12 spare engines are financed under operating leases . landing fees and other rents . landing fees and other rents include both fixed and variable facilities expenses , such as the fees charged by airports for the use or lease of airport facilities , overfly fees paid to other countries and the monthly rent paid for our headquarters facility . depreciation and amortization . depreciation and amortization expense includes the depreciation of fixed assets we own and leasehold improvements . it also includes the amortization of heavy maintenance expenses we defer under the deferral method of accounting for heavy maintenance events and recognize into expense on a straight-line or usage basis until the earlier of the next estimated heavy maintenance event or the remaining lease term . maintenance , materials and repairs . maintenance , materials and repairs expense includes parts , materials , repairs and fees for repairs performed by third-party vendors directly required to maintain our fleet . it excludes direct labor cost related to our own mechanics , which is included under salaries , wages and benefits . it also excludes the amortization of heavy maintenance expenses , which we defer under the deferral method of accounting and amortize as a component of depreciation and amortization expense . distribution . distribution expense includes all of our direct costs , including the cost of web support , our third-party call center , travel agent commissions and related gds fees and credit card transaction fees , associated with the sale of our tickets and other products and services . special charges . special charges include lease termination costs and secondary offering costs . loss on disposal of assets . loss on disposal of assets includes the net losses on the disposal of our fixed assets . other operating expenses . other operating expenses include airport operations expense and fees charged by third-party vendors for ground handling services and food and liquor supply service expenses , passenger re-accommodation expense , the cost of passenger liability and aircraft hull insurance , all other insurance policies except for employee related insurance , travel and training expenses for crews and ground personnel , professional fees , personal property taxes and all other administrative and operational overhead expenses . no individual item included in this category represented more than 5 % of our total operating expenses . 40 other expense ( income ) interest expense . interest expense in 2016 and 2015 was primarily related to the financing of purchased aircraft . for 2014 , interest expense primarily represented interest related to the financing of purchased aircraft , interest related to the underpayment of prior year jet fuel fet and interest charged under the tax receivable agreement ( tra ) which was settled during 2014. capitalized interest . story_separator_special_tag these revenues also include commissions from the 43 sales of hotel rooms , trip insurance and rental cars recognized at the time the service is rendered . non-ticket revenues also include revenues from our subscription-based $ 9 fare club , recognized on a straight-line basis over 12 months . customers may elect to change their itinerary prior to the date of departure . a service charge is assessed and recognized on the date the change is initiated and is deducted from the face value of the original purchase price of the ticket , and the original ticket becomes invalid . the amount remaining after deducting the service charge is called a credit shell which expires 60 days from the date the credit shell is created and can be used towards the purchase of a new ticket and our other service offerings . the amount of credits expected to expire unused is recognized as revenue upon issuance of the credit and is estimated based on historical experience . estimating the amount of credits that will go unused involves some level of subjectivity and judgment . frequent flier program . we accrue for mileage credits earned through travel , including mileage credits for members with an insufficient number of mileage credits to earn an award , under our free spirit program based on the estimated incremental cost of providing free travel for credits that are expected to be redeemed . incremental costs include fuel , insurance , security , ticketing and facility charges reduced by an estimate of amounts required to be paid by the passenger when redeeming the award . under our affinity card program , funds received for the marketing of a co-branded spirit credit card and delivery of award miles are accounted for as a multiple-deliverable arrangement . at the inception of the arrangement , we evaluated all deliverables in the arrangement to determine whether they represent separate units of accounting . we determined the arrangement had three separate units of accounting : ( i ) travel miles to be awarded , ( ii ) licensing of brand and access to member lists and ( iii ) advertising and marketing efforts . at inception of the arrangement , we established the estimated selling price for all deliverables that qualified for separation , as arrangement consideration should be allocated based on relative selling price . the manner in which the selling price was established was based on the applicable hierarchy of evidence . total arrangement consideration was then allocated to each deliverable on the basis of the deliverable 's relative selling price . in considering the hierarchy of evidence , we first determined whether vendor-specific objective evidence of selling price or third-party evidence of selling price existed . we determined that neither vendor-specific objective evidence of selling price nor third-party evidence existed due to the uniqueness of our program . as such , we developed our best estimate of the selling price for all deliverables . for the selling price of travel , we considered a number of entity-specific factors , including the number of miles needed to redeem an award , average fare of comparable segments , breakage , restrictions , fees to redeem miles and other charges . for licensing of brand and access to member lists , we considered both market-specific factors and entity-specific factors , including general profit margins realized in the marketplace/industry , brand power , market royalty rates and size of customer base . for the advertising and marketing element , we considered market-specific factors and entity-specific factors , including our internal costs ( and fluctuations of costs ) of providing services , volume of marketing efforts and overall advertising plan . consideration allocated based on the relative selling price to both brand licensing and advertising elements is recognized as revenue when earned and recorded in non-ticket revenue . consideration allocated to award miles is deferred and recognized ratably as passenger revenue over the estimated period the transportation is expected to be provided which is currently estimated at 17 months . we used entity-specific assumptions coupled with the various judgments necessary to determine the selling price of a deliverable in accordance with the required selling price hierarchy . changes in these assumptions could result in changes in the estimated selling prices . determining the frequency to reassess selling price for individual deliverables requires significant judgment . for additional information , refer to “ notes to financial statements—1 . summary of significant accounting policies—frequent flier program ” . accounting for property and equipment . property and equipment is stated at cost , less accumulated depreciation and amortization . depreciation of operating property and equipment is computed using the straight-line method applied to each unit of property . property under capital leases and related obligations are initially recorded at an amount equal to the present value of future minimum lease payments computed using our incremental borrowing rate or , when known , the interest rate implicit in the lease . amortization of property under capital leases is on a straight-line basis over the lease term and is included in depreciation and amortization expense . in accounting for property and equipment , we must make estimates about the expected useful lives of the assets , the expected residual values of the assets , and the potential for impairment based on the fair value of the assets and their future expected cash flows . the depreciable lives used for the principal depreciable asset classifications are : 44 estimated useful life aircraft 25 years spare rotables and flight assemblies 7 to 15 years other equipment and vehicles 5 to 7 years internal use software 3 to 10 years capital lease lease term leasehold improvements lesser of lease term or estimated useful life of the improvement as of december 31 , 2016 , we had 36 aircraft and 1 spare engine capitalized within flight equipment with depreciable lives of 25 years . as of december 31 , 2016 , we

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net cash flows provided by operating activities . operating activities in 2016 provided $ 473.7 million in cash compared to $ 473.0 million provided in 2015 . cash provided by operating activities remained relatively flat , year over year , despite lower net income , primarily due to the non-cash lease termination costs in 2016 of $ 37.2 million recorded within special charges on the statement of operations . other notable differences include $ 65.0 million of federal income tax payments made in 2015 and refunded in 2016 and lower deferral of income taxes , year over year . operating activities in 2015 provided $ 473.0 million in cash compared to $ 261.8 million provided in 2014 . the increase resulted from higher net income , larger cash collections on flights sold but not yet flown , and higher deferrals of income taxes year over year . net cash flows used in investing activities . during 2016 , investing activities used $ 826.3 million , compared to $ 701.3 million used in 2015 . the increase was mainly driven by the purchase of short-term available-for-sale investment securities of 57 $ 103.3 million made during 2016. in addition , there was an increase in paid pdps , net of refunds , driven by timing of future aircraft deliveries .

among the material estimates required to establish the allowance are : loss exposure at default ; the amount and timing of future cash flows on impacted loans ; value of collateral ; and determination of loss factors to be applied to the various elements of the portfolio . all of these estimates are susceptible to significant change . management reviews the level of the allowance at least quarterly and establishes the provision for loan losses based upon an evaluation of the portfolio , past loss experience , current economic conditions and other factors related to the collectability of the loan portfolio . although we believe that we use the best information available to establish the allowance for loan losses , future adjustments to the allowance may be necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation . in addition , the banking regulators , as an integral part of their examination process , periodically review our allowance for loan losses and may require us to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination . a large loss could deplete the allowance and require increased provisions to replenish the allowance , which would adversely affect earnings . see note 1 of the notes to consolidated financial statements beginning on page f-1 of this annual report for additional information regarding the methodology used to determine the allowance for loan losses . valuation methodologies . in the ordinary course of business , management applies various valuation methodologies to assets and liabilities that often involve a significant degree of judgment , particularly when active markets do not exist for the items being valued . generally , in evaluating various assets for potential impairment , management compares the fair value to the carrying value . quoted market prices are referred to when estimating fair values for certain assets , such as investment securities . however , for those items for which market-based prices do not exist , management utilizes significant estimates and assumptions to value such items . examples of these items include loans held for sale , loan servicing rights , derivative financial instruments , goodwill and other intangible assets , foreclosed and other repossessed assets , estimated present value of impaired loans , value ascribed to stock-based compensation and certain other financial investments . the use of different assumptions could produce significantly different results , which could have material positive or negative effects on the company 's results of operations . see note 22 of the notes to consolidated financial statements beginning on page f-1 of this annual report for additional information . deferred tax assets . income tax expense involves estimates related to the valuation allowance on deferred tax assets . a valuation allowance reduces deferred tax assets to the amount management believes is more likely than not to be realized . in evaluating the realization of deferred tax assets , management considers the likelihood that sufficient taxable income of appropriate character will be generated within carryback and carryforward periods , including consideration of available tax planning strategies . see note 18 of the notes to consolidated financial statements beginning on page f-1 of this annual report for additional information . balance sheet analysis story_separator_special_tag > replace_table_token_8_th ​ ( 1 ) includes multifamily loans . ( 2 ) includes farmland , land and land development loans . ( 3 ) includes construction loans for which the bank has committed to provide permanent financing . 38 fixed vs. adjustable rate loans the following table sets forth the dollar amount of all loans at september 30 , 2020 that are due after september 30 , 2021 , and have either fixed interest rates or adjustable interest rates . the amounts shown below exclude unearned loan origination fees . ​ replace_table_token_9_th ​ ( 1 ) includes multifamily loans ( 2 ) includes farmland , land and land development loans . ( 3 ) includes construction loans for which the bank has committed to provide permanent financing . trading account securities . our trading account securities represent an investment in a managed brokerage account that invests in small and medium lot , investment grade municipal bonds . the brokerage account is managed by an investment advisory firm registered with the u.s. securities and exchange commission . the bank ceased its trading account securities activity and liquidated this portfolio as of june 30 , 2018. securities available for sale . our available for sale securities portfolio consists primarily of u.s. government agency and sponsored enterprises securities , mortgage backed securities and collateralized mortgage obligations issued by u.s. government agencies and sponsored enterprises , municipal bonds , privately-issued collateralized mortgage obligations and asset-backed securities , and pass-through asset-backed securities guaranteed by the sba . available for sale securities increased by $ 24.7 million , from $ 177.3 million at september 30 , 2019 to $ 202.0 million at september 30 , 2020 , due primarily to purchases of $ 37.8 million and an increase in unrealized gains of $ 4.8 million , partially offset by principal repayments of $ 6.0 million , sales of $ 3.2 million and maturities and calls of $ 8.2 million . securities held to maturity . our held to maturity securities portfolio consists of mortgage-backed securities issued by government sponsored enterprises and municipal bonds . held to maturity securities decreased by $ 234,000 from september 30 , 2019 to september 30 , 2020 , due primarily to maturities and principal repayments . 39 the following table sets forth the amortized costs and fair values of our investment securities at the dates indicated . ​ replace_table_token_10_th ​ the following table sets forth the stated maturities and weighted average yields of debt securities at september 30 , 2020. weighted average yields on tax-exempt securities are presented on a tax equivalent basis using a federal marginal tax rate of 21.0 % . story_separator_special_tag issuance costs , to 6.48 % for 2019 , net of amortization of debt issuance costs . 43 average balances and yields . the following tables present information regarding average balances of assets and liabilities , the total dollar amounts of interest income and dividends from average interest-earning assets , the total dollar amounts of interest expense on average interest-bearing liabilities , and the resulting annualized average yields and costs . the yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities , respectively , for the periods presented . nonaccrual loans are included in average balances only . loan fees are included in interest income on loans and totaled $ 1.8 million , $ 753,000 and $ 723,000 for 2020 , 2019 and 2018 , respectively . tax exempt income on loans and investment securities for the 2020 , 2019 and 2018 periods has been adjusted to a tax equivalent basis using a federal marginal tax rate of 21.0 % , 21.0 % and 24.5 % , respectively . ​ replace_table_token_13_th ​ 44 rate/volume analysis . the following table sets forth the effects of changing rates and volumes on our net interest income . the rate column shows the effects attributable to changes in rate ( changes in rate multiplied by prior volume ) . the volume column shows the effects attributable to changes in volume ( changes in volume multiplied by prior rate ) . the net column represents the sum of the prior columns . changes attributable to changes in both rate and volume have been allocated proportionally based on the absolute dollar amounts of change in each . ​ replace_table_token_14_th ​ provision for loan losses . the provision for loan losses increased $ 6.5 million , or 444.2 % , from $ 1.5 million for the year ended september 30 , 2019 to $ 8.0 million for the year ended september 30 , 2020 due primarily to an increase in total loans of $ 289.3 million , an increase in nonperforming loans for the year and changes to qualitative factors within the allowance for loan losses calculation related to economic uncertainties surrounding the covid-19 pandemic . net charge-offs in 2020 were $ 976,000 compared to $ 746,000 for 2019 and nonperforming loans increased $ 8.4 million to $ 13.6 million at september 30 , 2020. in 2019 , the provision for loan losses increased $ 110,000 , or 8.1 % , from $ 1.4 million for the year ended september 30 , 2018 to $ 1.5 million for the year ended september 30 , 2019 due primarily to an increase in the total loans of $ 106.7 million . net charge-offs in 2019 were $ 746,000 compared to $ 122,000 for 2018 and nonperforming loans increased $ 907,000 to $ 5.2 million at september 30 , 2019. the consistent application of management 's allowance for loan losses methodology resulted in an increase in the level of the allowance for loan losses for 2020. see “ analysis of nonperforming and classified assets ” included herein . it is management 's assessment that the allowance for loan losses at september 30 , 2020 was adequate and appropriately reflected the probable incurred losses in the bank 's loan portfolio at that date . 45 noninterest income . noninterest income increased $ 87.2 million , or 199.0 % , from $ 43.9 million for the year ended september 30 , 2019 to $ 131.1 million for the year ended september 30 , 2020. the increase was due primarily to an increase in mortgage banking income of $ 84.8 million . the increase in mortgage banking income is due to production from the secondary-market residential mortgage lending segment that commenced operations in april 2018. net gains on the sale of loans guaranteed by the sba also increased $ 1.1 million for 2020. in 2019 , noninterest income increased $ 30.6 million , or 229.9 % , from $ 13.3 million for the year ended september 30 , 2018 to $ 43.9 million for the year ended september 30 , 2019. the increase was due primarily to increases in mortgage banking income and real estate lease income of $ 30.7 million and $ 589,000 , respectively . these increases were partially offset by a decrease in the net gain on sale of loans guaranteed by the sba of $ 924,000. the increase in mortgage banking income is due to production from the secondary-market residential mortgage lending segment that commenced operations in april 2018. the increase in real estate lease income for 2019 is due to the acquisition in october 2018 of a commercial office building that now serves as the company 's new corporate headquarters , a portion of which is leased to other tenants . noninterest expense . noninterest expenses increased $ 63.4 million , or 101.6 % , from $ 62.4 million for the year ended september 30 , 2019 to $ 125.8 million for the year ended september 30 , 2020. the increase was due primarily to increases in compensation and benefits , advertising expense and other operating expenses of $ 50.0 million , $ 4.6 million and $ 4.2 million , respectively . the increase in compensation and benefits expense is attributable to the addition of new employees primarily to support the growth of the company 's mortgage banking and sba lending activities , routine salary and benefits adjustments , and increased incentive compensation as a result of the company 's performance . the increases in advertising expense and other operating expenses are primarily due to the mortgage banking segment . in 2019 , noninterest expenses increased $ 29.4 million , or 89.0 % , from $ 33.0 million for the year ended september 30 , 2018 to $ 62.4 million for the year ended september 30 , 2019. the increase was due primarily to increases in compensation and benefits , occupancy and equipment , advertising

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cash and cash equivalents . at september 30 , 2020 and 2019 , cash and cash equivalents totaled $ 33.7 million and $ 41.4 million , respectively . the bank is required to maintain reserve balances on hand and with the federal reserve bank , which are unavailable for investment but are interest-bearing . loans . our primary lending activity is the origination of loans secured by real estate . we originate one to four family mortgage loans , multifamily loans , commercial real estate loans , commercial business loans and construction loans . to a lesser extent , we originate various consumer loans including home equity lines of credit . net loans increased $ 279.4 million , from $ 810.7 million at september 30 , 2019 to $ 1.09 billion at september 30 , 2020. at september 30 , 2020 , residential mortgage loans totaled $ 191.8 million , or 17.3 % of total loans , compared to $ 197.5 million , or 24.1 % of total loans at september 30 , 2019. we generally originate loans for investment purposes , although , depending on the interest rate environment , we typically sell 25-year and 30-year fixed rate residential mortgage loans that we originate into the secondary market in order to limit exposure to interest rate risk and to earn noninterest income . management intends to continue offering short-term adjustable rate residential mortgage loans and generally sell long-term fixed rate mortgage loans in the secondary market .

as our business has grown , we have become increasingly subject to the risks arising from adverse changes in domestic and global economic conditions . if general economic conditions were to deteriorate , including declines in 40 private sector employment growth and business productivity , increases in the unemployment rate and changes in interest rates , we may experience delays in our sales cycles , increased pressure from prospective customers to offer discounts and increased pressure from existing customers to renew expiring recurring revenue agreements for lower amounts . our interest income on funds held for clients continues to be adversely impacted by historically low interest rates . our operating subsidiary paylocity corporation was incorporated in july 1997 as an illinois corporation . in november 2013 , we formed paylocity holding corporation , a delaware corporation , of which paylocity corporation is a wholly owned subsidiary . paylocity holding corporation had no operations prior to the restructuring . all of our business operations , excluding interest earned on certain cash holdings and expenses associated with certain secondary stock offerings , have historically been , and are currently , conducted by paylocity corporation , and the financial results presented herein are entirely attributable to the results of its operations . key metrics we regularly review a number of metrics , including the following key metrics , to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions . recurring revenue growth our recurring revenue model and high annual revenue retention rates provide significant visibility into our future operating results and cash flow from operations . this visibility enables us to better manage and invest in our business . recurring revenue , which is comprised of recurring fees and interest income on funds held for clients , increased from $ 144.1 million in fiscal 2015 to $ 220.1 million in fiscal 2016 , representing a 53 % year-over-year increase . recurring revenue increased from $ 220.1 million in fiscal 2016 to $ 288.4 million in fiscal 2017 , representing a 31 % year-over-year increase . recurring revenue was positively impacted by the launch in fiscal 2016 of our affordable care act ( “ aca ” ) compliance solution , which had significant penetration beginning in the second quarter of fiscal 2016. the impact on year-over-year revenue growth of our aca compliance solution was the highest in the first quarter of fiscal 2017. recurring revenue represented 94 % , 95 % and 96 % of total revenue in fiscal 2015 , 2016 and 2017 , respectively . client count growth we believe there is a significant opportunity to grow our business by increasing our number of clients . we have increased our number of clients from approximately 10,350 as of june 30 , 2015 to approximately 14,550 as of june 30 , 2017 , representing a compound annual growth rate of approximately 19 % . the table below sets forth our client count for the periods indicated , rounded to the nearest fifty . replace_table_token_7_th the rate at which we add clients is highly variable period-to-period and highly seasonal as many clients switch solutions during the first calendar quarter of each year . although many clients have multiple divisions , segments or locations , we only count such clients once for these purposes . annual revenue retention rate our annual revenue retention rate has been in excess of 92 % during each of the past three fiscal years . we calculate our annual revenue retention rate as our total revenue for the preceding 12 months , less the annualized value of revenue lost during the preceding 12 months , divided by our total revenue for the preceding 12 months . we calculate the annualized value of revenue lost by summing the recurring fees paid by lost clients over the previous twelve months prior to their termination if they have been a client for a minimum of twelve months . for those lost clients who became clients within the last twelve months , we sum the recurring fees for the period that they have been a client and then 41 annualize the amount . we exclude interest income on funds held for clients from the revenue retention calculation . we believe that our annual revenue retention rate is an important metric to measure overall client satisfaction and the general quality of our product and service offerings . recurring fees from new clients we calculate recurring fees from new clients as the percentage of year-to-date recurring fees from all clients on our solutions , which had not been on or used any of our solutions for a full year as of the start of the current fiscal year . we believe recurring fees from new clients is an important metric to measure the expansion of our existing client base as well as the growth in our client base . our recurring fees from new clients was 45 % for both fiscal 2015 and fiscal 2016 and 40 % for fiscal 2017. adjusted gross profit , adjusted recurring gross profit and adjusted ebitda we disclose adjusted gross profit , adjusted recurring gross profit and adjusted ebitda because we use them to evaluate our performance , and we believe adjusted gross profit , adjusted recurring gross profit and adjusted ebitda assist in the comparison of our performance across reporting periods by excluding certain items that we do not believe are indicative of our core operating performance . we believe these metrics are used in the financial community , and we present it to enhance investors ' understanding of our operating performance and cash flows . story_separator_special_tag general and administrative replace_table_token_16_th general and administrative expenses for the year ended june 30 , 2017 increased by $ 14.5 million , or 31 % , to $ 62.1 million from $ 47.6 million for the year ended june 30 , 2016. general and administrative expenses increased primarily as a result of $ 6.3 million of additional stock-based compensation costs , of which $ 2.9 million is related to modified equity awards as explained in note 13 of the notes to the consolidated financial statements included in part ii , item 8 : “ financial statements and supplementary data ” , $ 3.9 million of increased occupancy costs incurred as a result of our requirement for additional office space and $ 3.8 million of additional employee-related expenses including the addition of 14 personnel . general and administrative expenses for the year ended june 30 , 2016 increased by $ 14.8 million , or 45 % , to $ 47.6 million from $ 32.8 million for the year ended june 30 , 2015. general and administrative expenses increased primarily as a result of $ 6.7 million of additional employee-related expenses relating to 36 additional personnel , $ 2.9 million of additional stock-based compensation costs , $ 1.5 million of increased occupancy costs incurred as a result of our requirement for additional office space and $ 1.3 million of increased professional services fees . other income ( expense ) replace_table_token_17_th * not meaningful other income ( expense ) for the year ended june 30 , 2017 increased by $ 0.2 million as compared to the year ended june 30 , 2016. other income ( expense ) for the year ended june 30 , 2017 primarily consists of interest income earned on our cash and cash equivalents , partially offset by loss on the disposal of property and equipment . other income ( expense ) for the year ended june 30 , 2016 decreased by $ 0.2 million as compared to the year ended june 30 , 2015. other income ( expense ) for the year ended june 30 , 2016 primarily consists of loss on the disposal of property and equipment , partially offset by interest income earned on our cash and cash equivalents . income tax expense replace_table_token_18_th * not meaningful 49 income tax expense for the year ended june 30 , 2017 was higher due to the generation of net income for fiscal 2017 as compared to the year ended june 30 , 2016. income tax expense for the year ended june 30 , 2016 was not materially different as compared to the year ended june 30 , 2015. see note 11 of the notes to consolidated financial statements included in part ii , item 8 : “ financial statements and supplementary data ” of this annual report on form 10-k for further details on the valuation allowance and a reconciliation of the u.s. federal statutory rate to the effective tax rate . critical accounting policies and significant judgments and estimates in preparing our financial statements and accounting for the underlying transactions and balances in accordance with gaap , we apply various accounting policies that require our management to make estimates , judgments and assumptions that affect the amounts reported in our financial statements . we consider the policies discussed below as critical to understanding our financial statements , as their application places the most significant demands on management 's judgment . management bases its estimates , judgments and assumptions on historical experience , current economic and industry conditions and on various other factors deemed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . because the use of estimates is an integral part of the financial reporting process , actual results could differ and such differences could be material . revenue recognition we derive revenues predominantly from recurring revenues associated with our cloud-based payroll and hcm software applications and one-time service fees for implementation of our solutions . our agreements with clients do not include general rights of return and do not provide clients with the right to take possession of the software supporting the services being provided . as such , revenue is recognized as services are performed . we recognize revenue when all of the following criteria are achieved : · there is persuasive evidence of an agreement ; · the service has been provided to the client ; · the amount of fees to be paid by the client is fixed or determinable ; and · collection of the fees is reasonably assured . for arrangements with multiple-elements , we recognize revenues in accordance with accounting standards update ( asu ) 2009-13 , multiple-deliverable revenue arrangements . for each agreement , we evaluate whether the individual deliverables qualify as separate units of accounting . if one or more of the deliverables does not have standalone value upon delivery , the deliverables that do not have standalone value are generally combined and treated as a single unit of accounting . revenue for arrangements treated as a single unit of accounting is generally recognized within the same month that the services are rendered given that the agreements are cancellable with 60 days ' or less notice . in determining whether revenues from implementation services can be accounted for separately from recurring revenues , we consider the nature of the implementation services and the availability of the implementation services from other vendors . we established standalone value for implementation primarily due to the historical activity of third-party vendors that performed these services and as such , account for such implementation services separate from the recurring revenues . if we determine that the services have standalone value upon delivery , we account for each separately and revenues are recognized as the services are delivered with allocation of consideration based on the relative selling price method .

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cash flows the following table sets forth data regarding cash flows for the periods indicated : replace_table_token_21_th operating activities net cash provided by operating activities was $ 11.1 million , $ 33.0 million and $ 62.0 million for the years ended june 30 , 2015 , 2016 and 2017 , respectively . the increase in net cash provided by operating activities from fiscal 2016 to fiscal 2017 as well as from fiscal 2015 to fiscal 2016 was primarily due to improved operating results after adjusting for non-cash items , including stock-based compensation expense and depreciation and amortization expense . investing activities net cash provided by ( used in ) investing activities was $ ( 199.2 ) million , $ ( 673.4 ) million and $ 259.3 million , for the years ended june 30 , 2015 , 2016 and 2017 , respectively . changes in net cash provided by ( used in ) investing activities are significantly influenced by the amount of funds held for clients at the end of a reporting period . changes in the amount of funds held for clients from period to period will vary substantially as a result of the timing of payroll and tax obligations due . our payroll processing activities involves the movement of significant funds from the account of an employer to employees and relevant taxing authorities . during the year ended june 30 , 2017 , we processed over $ 92 billion in payroll transactions .

our strategy for achieving profitability is centered upon our ability to utilize chegg services to increase student engagement with our learning platform . we plan to continue to invest in the expansion of our chegg services to provide a more compelling and personalized solution and deepen engagement with students . in addition , we believe that the investments we have made to achieve our current scale will allow us to drive increased operating margins over time that , together with increased contributions of chegg services , will enable us to accomplish profitability and become cash-flow positive in the long-term . our ability to achieve these long-term objectives is subject to numerous risks and uncertainties , including our ability to attract , retain , and increasingly engage the student population , intense competition in our markets , the ability to achieve sufficient contributions to revenue from chegg services and other factors described in greater detail in part i , item 1a , “ risk factors . ” we have presented revenues for our two product lines , chegg services and required materials , based on how students view us and the utilization of our products by them . more detail on our two product lines is discussed in the next two sections titled `` chegg services `` and `` required materials . `` 38 chegg services our chegg services for students primarily includes chegg study , chegg writing , chegg tutors , and chegg math solver . students typically pay to access chegg services such as chegg study on a monthly basis . we also work with leading brands to provide students with discounts , promotions , and other products that , based on student feedback , delight them . in the aggregate , chegg services revenues were 79 % , 73 % and 51 % of net revenues during the years ended december 31 , 2018 , 2017 and 2016 , respectively . required materials our required materials product line includes a revenue share on the rental and sale of print textbooks , as well as revenues from etextbooks . we have entered into agreements with partners to provide our customers a wide variety of print textbooks . these agreements have allowed us to reduce and eliminate the capital requirements and operating expenses that were historically incurred to acquire and maintain a print textbook library . as a result , our revenues include a share on the total transaction amount that we earn upon fulfillment of a rental or sale transaction using print textbooks for which our partners have title and risk of loss , as opposed to the total transaction amount . we offer our etextbooks on a standalone basis or as a rental-equivalent solution and for free to students awaiting the arrival of their print textbook rental for select print textbooks . etextbooks and supplemental course materials are available from approximately 120 publishers as of december 31 , 2018 . we also use our website to rent , sell and source used print textbooks on behalf of our partners . we attract students to our website by offering to buy back their used print textbooks as opposed to selling them back to their campus bookstore . in the aggregate , required materials revenues were 21 % , 27 % , and 49 % of net revenues during the years ended december 31 , 2018 , 2017 and 2016 , respectively . seasonality of our business the recognition of revenues from our chegg services and etextbooks are primarily recognized ratably over the term a student subscribes to our chegg services or rents an etextbook . this has generally resulted in our highest revenues and profitability in the fourth quarter as it reflects more days of the academic year . our variable expenses related to marketing activities remain highest in the first and third quarter such that our profitability may not provide meaningful insight on a sequential basis . as a result of these factors , the most concentrated periods for our revenues and expenses do not necessarily coincide , and comparisons of our historical quarterly operating results on a sequential basis may not provide meaningful insight into our overall financial performance . components of results of operations net revenues we recognize revenues from our chegg services or required materials product lines , net of allowances for refunds or charge backs from our payment processors who process payments from credit cards , debit cards and paypal . during the years ended december 31 , 2018 and 2017 , we no longer recognize rental or sales revenues from the gross amount charged to students for the rental or sale of print textbooks . instead , our services revenues includes a revenue share of the gross amount that we earn upon our partner 's fulfillment of a rental transaction using books for which they have control , including title and risk of loss . revenues from our chegg services product line primarily includes chegg study , chegg writing , chegg tutors , and chegg math solver . chegg services are offered to students primarily through weekly or monthly subscriptions , and we recognize revenues ratably over the respective subscription period . revenues from our required materials product line includes a revenue share on the rental and sale of print textbooks , as well as revenues from etextbooks . the revenue share on the rental and sale of print textbooks is recognized immediately when a book ships to the student . revenues from the rental of etextbooks is recognized ratably over the contractual period , generally two to five months . revenues from the sale of etextbooks is recognized immediately when the etextbook sale occurs . when deciding the most appropriate basis for presenting revenues or costs of revenues , both the legal form and substance of the agreement between us and our business partners are reviewed to determine each party 's respective role in the transaction . story_separator_special_tag gain on liquidation of textbooks we did not record a gain on liquidation of textbooks during the year ended december 31 , 2018 as we liquidated our remaining inventory of print textbooks during the first quarter of 2017. during the years ended december 31 , 2017 and 2016 , we recorded a gain on liquidation of print textbooks of $ 4.8 million and $ 0.7 million , respectively , resulting from proceeds received from liquidation of previously rented print textbooks on our website and through various other liquidation channels . interest expense , net and other income ( expense ) , net the following table sets forth our interest expense , net , and other income ( expense ) , net , for the periods shown ( in thousands , except percentages ) : replace_table_token_7_th _ n/m - not meaningful interest expense , net increased during the year ended december 31 , 2018 compared to the same period in 2017 as a result of the amortization of debt discount and issuance costs and contractual interest expense related to our april 2018 convertible senior notes offering . interest expense , net , decreased during the year ended december 31 , 2017 compared to the same period in 2016 as a result of replacing our previous expired credit facility with a line of credit that carries a lower interest rate . other income ( expense ) , net , was a net income during the years ended december 31 , 2018 and 2017 , primarily attributable to interest earned on investments purchased with the net proceeds from our april 2018 convertible senior notes and 45 2017 follow-on offerings . other income ( expense ) , net , was a net expense during the year ended december 31 , 2016 , primarily attributable to the accretion of the deferred cash consideration as a result of our acquisition of imagine easy solutions . provision for income taxes the following table sets forth our provision for income taxes for the periods shown ( in thousands , except percentages ) : replace_table_token_8_th we recorded an income tax provision of approximately $ 1.4 million , $ 1.8 million , and $ 1.7 million for the years ended december 31 , 2018 , 2017 , and 2016 , respectively , which was primarily due to state and foreign income tax expense and federal and state tax expense related to the tax amortization of acquired indefinite lived intangible assets . liquidity and capital resources as of december 31 , 2018 , our principal sources of liquidity were cash , cash equivalents , and investments totaling $ 484.1 million , which were held for working capital purposes . the substantial majority of our net revenues are from e-commerce transactions with students , which are settled immediately through payment processors , as opposed to our accounts payable , which are settled based on contractual payment terms with our suppliers . in april 2018 , we closed an offering of our 0.25 % convertible senior notes ( the notes ) generating net proceeds of approximately $ 335.6 million , after deducting the initial purchasers ' discount and estimated offering expenses payable by us . the notes mature on may 15 , 2023 unless converted , redeemed or repurchased in accordance with their terms prior to such date . as of december 31 , 2018 , we have incurred cumulative losses of $ 406.6 million from our operations and we expect to incur additional losses in the future . our operations have been financed primarily by our initial public offering of our common stock ( ipo ) , our 2017 follow-on public offering , our 2018 convertible senior notes offering , and cash generated from operations . we believe that our existing sources of liquidity will be sufficient to fund our operations and debt service obligations for at least the next 12 months . our future capital requirements will depend on many factors including our rate of revenue growth , our investments in research and development activities , our acquisition of new products and services and our sales and marketing activities . to the extent that existing cash and cash from operations are insufficient to fund our future activities , we may need to raise additional funds through public or private equity or debt financing . additional funds may not be available on terms favorable to us or at all . if adequate funds are not available on acceptable terms , or at all , we may be unable to adequately fund our business plans and it could have a negative effect on our business , operating cash flows and financial condition . most of our cash is held in the united states . as of december 31 , 2018 , our foreign subsidiaries held an insignificant amount of cash in foreign jurisdictions . we currently do not intend or foresee a need to repatriate some of these foreign funds however , as a result of the tax cuts and jobs act we anticipate the u.s. federal impact to be minimal if these foreign funds are repatriated . in addition , based on our current and future needs , we believe our current funding and capital resources for our international operations are adequate . the following table sets forth our cash flows ( in thousands ) : replace_table_token_9_th * adjusted to reflect the adoption of asu 2016-18. see item 8 , note 2 for more information . cash flows from operating activities although we incurred net losses during the years ended december 31 , 2018 , 2017 and 2016 , our net losses were fully offset by non-cash expenditures such as other depreciation and amortization expense , share-based compensation expense , and 46 amortization of debt discount and issuance costs expense . story_separator_special_tag under stock plans of $ 23.7 million partially offset by the payment of $ 20.1 million in taxes related to the net share settlement of equity awards and the payment

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net cash provided by operating activities during the year ended december 31 , 2018 was $ 75.1 million . our net loss of $ 14.9 million was offset by significant non-cash operating expenses , including other depreciation and amortization expense of $ 22.8 million , share-based compensation expense of $ 52.0 million , and the amortization of debt discount and issuance costs expense of $ 10.5 million . net cash provided by operating activities during the year ended december 31 , 2017 was $ 51.6 million . our net loss of $ 20.3 million was offset by significant non-cash operating expenses , including other depreciation and amortization expense of $ 19.3 million , share-based compensation expense of $ 38.4 million , and the change in our prepaid and other current assets of $ 13.6 million , which was primarily driven by the decline in the reimbursement balance from ingram as they moved to normal payment terms in 2017. net cash provided by operating activities during the year ended december 31 , 2016 was $ 24.3 million . our net loss of $ 42.2 million was offset by significant non-cash operating expenses , including print textbook library depreciation expense of $ 9.3 million , other depreciation and amortization expense of $ 14.6 million , share-based compensation expense of $ 41.8 million and loss from write-offs of print textbooks of $ 1.1 million .

these include combat trauma centers ( ctcs ) , military treatment facilities ( mtfs ) , medical centers , community-based outpatient clinics ( cbocs ) , and pharmacy distribution centers ( including va consolidated mail-order outpatient pharmacy ) . we leverage our network of over 400 active clinicians and other healthcare workers throughout selected regions in the us , applying differentiating tools , databases and technology ( including e-prat and spot-m ) to deliver these services . for over a decade , dlh solutions has been serving the dva and dod in providing qualified medical and other professionals in a variety of positions . as more and more federal and dod programs increase their performance-based requirements , dlh solutions ' workforce profile of medical talent and credentials will help it to compete and differentiate itself in the market place . our healthcare and medical service new business pipeline adds important credentials strategically linked to diversifying and profitably growing our healthcare delivery solutions business base . professional services have included case management , health and injury assessment , critical care , medical/surgical , emergency room/trauma center , counseling , behavioral health and traumatic brain injury management , medical systems analysis , and medical logistics . while the dva is its largest customer in this business unit , the company has focused on leveraging that experience in adjacent healthcare markets within dod and other federal agencies . logistics & technical services logistics & technical services draws heavily upon our proven logistics expertise and processes . dlh resources possess expertise covering a wide range of logistics , readiness and project engineering . the experience of dlh solutions ' project personnel is diverse from operational unit level to systems and program office experience . our core competencies include supply chain management , performance-based logistics , distribution center and inventory management , statistical process control , packaging/handling/storage & transportation , configuration management , readiness planning , and supply support operations . in addition , we provide program and project management , systems engineering and applicable information technology services , integrated logistics support ( including operational systems ) , readiness assessments , training , equipment maintenance , hazardous material management , facilities and shipyard support services and more . dlh solutions also provides professional staff to the federal government specializing in logistics , office administration , it , and facilities/warehouse management . contingency staff augmentation provides disaster and emergency response services and civilian workforce augmentation services . through competitively awarded contracts and task orders ( including its logworld contract ) dlh solutions has developed a strong portfolio of logistics processes , personnel and tools to help its clients achieve nationally recognized awards for customer satisfaction . while the dva is its largest customer in this area , the company has taken steps to expand in adjacent logistics markets within dod and other federal agencies . forward looking business trends dlh continues to see stability and growth within our sector of the federal government market , specifically the dva , which comprises approximately 96 % of our current customer base . we continue to see strong bipartisan support for improving the healthcare of us veterans . the veterans access , choice , and accountability act of 2014 was passed by both houses of congress , and signed into law by president obama on august 7 , 2014. according to the congressional budget office , the bill would result in net spending of roughly $ 10 billion from 2014 through 2024. portions of the bill cover our addressable market of providing services to facilitate access to and quality of care for veterans . passage of this bill followed the president 's march 2014 proposed $ 163.9 billion budget for the dva 2015 fiscal year , to support the va 's goals to expand access to health care and other benefits , eliminate the disability claims backlog , and end homelessness among veterans . the $ 68.3 billion discretionary portion of the budget is a $ 2.0 billion increase over 2014 enacted 18 levels . this request reflects a 35.2 % increase in discretionary budget since 2009 with a 3.0 % increase over 2014 , covering approximately 9.3 million veterans enrolled in va healthcare . dlh is encouraged by recent bipartisan and pentagon support for our strategic addressable markets within the dod and department of veterans affairs . the dva fiscal year 2014 - 2020 strategic plan includes the goal to enhance and develop trusted partnerships with the dod and the private sector , among others . we believe that our operational efficiency and expertise is well aligned with the dva strategic goals to manage and improve va operations to deliver seamless and integrated support . from an overall budget perspective , on september 18 , 2014 , the 113th congress passed continuing resolution ( cr ) , h.j . res . 124 . the cr continues funding for all federally funded programs through december 11 , 2014 at slightly below fiscal year 2014 funding levels , on an annualized basis . when lawmakers return after the november 2014 mid-term election , congress will either finalize fiscal year 2015 into an omnibus appropriations bill , or extend the cr into early/mid 2015 to be acted upon by the 114th congress whose session begins in january 2015. while there have been bipartisan calls to increase defense spending in 2015 and beyond , it remains likely that government discretionary spending will be constrained for several years to come . story_separator_special_tag the company may incur additional interest and may incur possible additional penalties through the future date that this obligation is settled , however , it is not currently possible to estimate what , if any , additional amount ( s ) may be claimed in the future , given the uncertain timing and nature of any future settlement negotiations . no payments were made in fiscal 2014 and 2013. management believes that the ultimate resolution of these remaining payroll tax matters will not have a significant adverse effect on its financial position or future results of operations . the company 's intention is that it will in due course seek to negotiate a mutually satisfactory payment plan with the irs , but there is no assurance that it would be successful in doing so and the company 's future cash flows and liquidity could therefore be materially affected by this matter . contractual obligations replace_table_token_8_th ( 1 ) represents the amounts recorded in respect of the loan payable due to presidential financial corporation in accordance with the loan agreement . 25 retroactive billing adjustments revenues related to retroactive billings in 2008 from an agency of the federal government were recognized when : ( 1 ) the company developed and calculated an amount for such prior period services and had a contractual right to bill for such amounts under its arrangements , ( 2 ) there were no remaining unfulfilled conditions for approval of such billings and ( 3 ) collectibility was reasonably assured based on historical practices with , and contractual requirements of , the dva . the related direct costs , principally comprised of salaries and benefits , were accrued to match the recognized reimbursements from the federal agency . during the year ended september 30 , 2008 , dlh recognized revenues of $ 10.8 million and direct costs of $ 10.1 million related to these non-recurring adjustments . at september 30 , 2014 and september 30 , 2013 , the amount of the remaining accounts receivable with the dva approximated $ 9.3 million and accrued liabilities for salaries to employees and related benefits totaled $ 8.7 million . the $ 9.3 million in accounts receivable was unbilled to the dva at september 30 , 2014 and september 30 , 2013 . in april 2012 , the company received formal contract modifications from the dva concerning the retroactive billing matter for which revenue was accrued in 2008. the contract modifications from the dva incorporate relevant wage determinations covering largely 2006 and 2007 applying to the company 's historical contracts with dva during those periods . these government modifications initiate the procedures whereby the company may invoice the dva in accordance with the modified wage determinations and subsequently make timely retroactive payments to employees ( active and inactive ) covering work performed at the certain locations . the company expects to follow the process directed by and in conjunction with the department of labor and the dva in generating these invoices . the company continues to support the government 's review of the detailed supporting calculations for the retroactive billings and to negotiate an incremental final amount related to indirect costs and fees applied to these retroactive billings . dlh has had ongoing interactions with the customer during fiscal 2014 , and in september 2014 we submitted a claim to the dva to seek a final determination by the dva 's contracting officer of the amount due to dlh , and immediate payment of such amount . although the timing can not be guaranteed , at present , the company expects to bill and collect such amounts within the next twelve months . the additional indirect costs and fees are estimated to be between $ 0.4 million and $ 0.6 million . the company has developed these estimates under the same contractual provisions applied to the sites that were settled in 2008. however , because these amounts remain subject to government review , no assurances can be given that any amounts the company may receive will be within the range specified above . off-balance sheet arrangements the company did not have any off-balance sheet arrangements subsequent to , or upon the filing of our consolidated financial statements in our annual report as defined under sec rules . effects of inflation inflation and changing prices have not had a material effect on dlh 's net revenues and results of operations , as dlh has been able to modify its prices and cost structure to respond to inflation and changing prices . critical accounting policies and estimates use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . significant estimates include valuation of goodwill , expected settlement amounts of accounts receivable , measurement of prepaid workers ' compensation , valuation allowances established against accounts receivable and deferred tax assets , measurement of payroll tax contingencies , accounts payable , workers ' compensation claims , and accrued expenses and the valuation of derivative financial instruments associated with debt agreements . in addition , the company estimates overhead charges and allocates such charges throughout the year . actual results could differ from those estimates . in particular , a material reduction in the fair value of goodwill would have a material adverse effect on the company 's financial position and results of operations . for a detailed discussion on the application of these and other accounting policies , you should review the discussion under the caption significant accounting policies in note 7 of the notes to our consolidated financial statements contained elsewhere in this annual report on form 10-k. 26 revenue recognition dlh 's revenue is derived from professional and other specialized service

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liquidity and capital resources presently , the company derives all of its revenue from agencies of the federal government . a major customer is defined as a customer from whom the company derives at least 10 % of its revenues . in each of the fiscal year ended september 30 , 2014 and 2013 , revenue from the u.s. government accounted , either directly or indirectly , for 100 % of the company 's total revenue . within the u.s. government , our largest customer continues to be the department of veterans affairs ( dva ) , at 96 % of revenue for the years ended september 30 , 2014 and 2013. accordingly , dlh remains dependent upon the continuation of its relationship with the dva . as of september 30 , 2014 , these awards from the dva have anticipated periods of performance ranging from approximately two to up to five years . these agreements are subject to the federal acquisition regulations , and there can be no assurance as to the actual amount of services that the company will ultimately provide to the dva under these awards . the company 's results of operations , cash flows and financial condition would be materially adversely affected in the event that we were unable to continue our relationships with the dva . cash position at september 30 , 2014 for the year ended september 30 , 2014 , the company generated operating income of $ 0.8 million and net income of approximately $ 5.4 million . at september 30 , 2014 , the company had an accumulated deficit of approximately $ ( 62.2 ) million . our cash position has significantly improved during the year ended september 30 , 2014 . selected sources and uses of cash are shown in the table below , ( amounts in millions ) : 22 replace_table_token_7_th ref ( a ) : at september 30 , 2014 , the company had cash deposits on hand of approximately $ 3.9 million . ref ( b ) : the company had no borrowing on our line of credit at september 30 , 2014 . this represents a reduction in borrowing of approximately $ 1.0 million for the year ended september 30 , 2014 .

in september 2012 , european society for medical oncology ( esmo ) 2012 congress in vienna , austria we announced preliminary data from the physician initiated clinical trial of th-302 in combination with bevacizumab in patients with recurrent glioblastoma . in february of 2012 we reported top-line results from the randomized and controlled phase 2 trial of th-302 plus gemcitabine in patients with pancreatic cancer ( 404 trial ) . the median progression-free survival progression free survival was 5.6 months for patients treated with gemcitabine in combination with th-302 at 240 mg/m2 and 340 mg/m2 compared to 3.6 months for patients treated with gemcitabine alone . the progression free survival hazard ratio comparing the th-302 combination to gemcitabine alone was 0.61 ( 95 % confidence 46 interval : 0.43—0.87 ) which was highly statistically significant ( p = 0.005 ) and represented a 63 % improvement in progression free survival . the response rate in the combination arms was 22 % compared to 12 % in the gemcitabine alone group . results also demonstrated greater efficacy in the higher th-302 dose group compared to the lower dose group . the combination had a safety profile that was consistent with our prior study of this combination regimen . as in that study , skin and mucosal toxicities related to th-302 were dose dependent but not dose limiting . in april 2012 , we provided detailed results from our 404 trial at the american association of cancer research ( aacr ) annual meeting including results for each of the 240 mg/m2 and 340 mg/m2 th-302 combination arms . the median progression free survival was 6.0 months in the 340 mg/m2 group . the response rate was 27 % in the 340 mg/m2 group . a similar dose dependency was reported in serum ca19-9 levels . there was greater drug exposure in the combination groups with a median of 4 cycles received with gemcitabine alone compared with 5 cycles in the 240 mg/m2 group and 6 cycles in the 340 mg/m2 group . the combination safety profile was consistent with the prior study of this combination regimen . as in that study , skin and mucosal toxicities were less than what had been seen at the single-agent maximum tolerated dose of th-302 , which was previously established at 575 mg/m2 . the incidence of grade 3/4 thrombocytopenia and grade 3/4 neutropenia was significantly higher in the combination arms and highest in the 340 mg/m2 group . discontinuations for adverse events were lowest however in the 340 mg/m2 group . in september 2012 , at esmo 2012 congress , updated results were presented confirming a significant improvement ( p=0.008 ) in progression free survival . the updated progression free survival hazard ratio comparing the th-302 combinations to gemcitabine alone was 0.64 ( 95 % confidence interval : 0.45—0.89 ) . this was associated with a 2.4-month increase in median progression free survival for patients receiving th-302 340 mg/m 2 . new findings from the phase 2b trial were presented including an analysis of overall survival , which was a secondary endpoint of the study . this analysis indicated that patients treated with gemcitabine alone had a median overall survival of 6.9 months compared with 9.2 months for patients treated with 340 mg/m2 th-302 plus gemcitabine ( hr : 0.955 , 95 % ci : 0.67-1.37 , p=0.800 ) and 8.7 months for patients treated with 240 mg/m2 th-302 plus gemcitabine ( hr : 0.960 , 95 % ci : 0.67-1.38 , p=0.827 ) . while not statistically significant , the improvement in median overall survival is consistent with the improvement in median progression free survival reported previously . the trial was not designed to detect a statistically significant improvement in overall survival and included a cross-over component . patients receiving gemcitabine alone who crossed over to receive gemcitabine plus th-302 upon disease progression contributed to an increase in survival of the control arm . th-302 continued to demonstrate a safety profile consistent with what had been previously reported at aacr . the most common adverse events were fatigue , nausea , constipation and peripheral edema , and were similar across groups . skin and mucosal toxicities and myelosuppression were the most common adverse events related to th-302 , were mostly grade 1 and 2 , and did not result in increases in treatment discontinuation . adverse events leading to discontinuation of study treatment as well as serious adverse events were balanced across all treatment arms . grade 3/4/5 adverse events were generally below 10 % . in december 2012 , merck kgaa opened maestro a global phase 3 trial of th-302 plus gemcitabine in patients with pancreatic cancer . maestro stands for th-302 in the treatment of metastatic or unresectable pancreatic adenocarcinoma . in 2011 , we presented updated top-line results from our phase 1/2 combination therapy in patients with soft tissue sarcoma treated with doxorubicin plus th-302 at the maximum tolerated dose of 300 mg/m 2 ( 403 trial ) . we also provided additional data from the maintenance component as well as an update on the overall efficacy of the phase 2 component of the 403 trial at the 17 th ctos annual meeting in november 2012. in february 2011 , we reached agreement with the fda on the design and planned analysis of a pivotal phase 3 trial in patients with soft tissue sarcoma ( 406 trial ) . as part of the special protocol assessment ( spa ) submission , the fda agreed that the design and planned analysis of the proposed phase 3 trial adequately addresses the objectives necessary to support a regulatory submission . story_separator_special_tag the number of shares we are able to sell under this arrangement will be limited in practice based on the trading volume of our common stock . as of december 31 , 2010 we had not sold any stock pursuant to the sales agreement . for the year ended december 31 , 2011 , we sold an aggregate of 971,037 shares of our common stock at an average price of $ 2.66 pursuant to the sales agreement . net proceeds from the sale of stock in 2011 were $ 2.3 million . the sales of the stock did not result in an adjustment to the exercise price of certain of our outstanding warrants . pursuant to an amendment to the at the market issuance sales agreement and a prospectus supplement we filed on january 20 , 2012 and pursuant to a new registration statement filed with the securities and exchange commission , we may sell shares of our common stock having an aggregate offering price of up to $ 15.0 million from time to time through mlv as our sales agent on the terms and conditions described above . 53 during year ended december 31 , 2012 , we sold 2,022,144 shares of our common stock at an average price of $ 6.29 pursuant to the sales agreement . net proceeds from the sale of stock were $ 12.3 million . the sale of stock did not result in an adjustment to the exercise price of certain of our outstanding warrants . license and development agreements on february 3 , 2012 , we entered into a global license and co-development agreement with merck kgaa , of darmstadt , germany , to co-develop and commercialize th-302 , our small molecule hypoxia-targeted drug . under the terms of the agreement , merck will receive co-development rights , exclusive global commercialization rights and will provide us an option to co-commercialize th-302 in the united states . in exchange , we received an upfront payment of $ 25 million and received another $ 72.5 million in development milestones , including $ 42.5 million subsequent to december 31 , 2012. we can earn additional potential milestone payments of $ 452.5 million , comprised of $ 112.5 million in regulatory and development milestones and $ 340 million in sales-based milestones . in the united states , we will have primary responsibility for development of th-302 in the soft tissue sarcoma indication . we with merck kgaa will jointly develop th-302 in all other cancer indications being pursued . merck kgaa will pay 70 % of worldwide development costs for th-302 . subject to fda approval in the united states , merck kgaa will initially be responsible for commercialization of th-302 while we will receive a tiered , double-digit royalty on sales . under the royalty-bearing portion of the agreement , we retain the option to co-promote th-302 in the united states . additionally , we retain the option to co-commercialize th-302 upon the achievement of certain sales or regulatory milestones , allowing us to participate in up to 50 % of the profits in the united states depending on total sales . outside of the united states , merck kgaa will be solely responsible for the commercialization of th-302 while we will receive a tiered , double-digit royalty on sales in these territories . the agreement became effective on march 12 , 2012 , upon termination of the applicable waiting period under the hart-scott-rodino antitrust improvements act of 1976. the agreement will continue on a country-by-country basis until the later of the last to expire patent covering th-302 in such country or ten years following the commercial launch of a product containing th-302 in such country , unless terminated earlier . merck has the right to terminate the agreement after the achievement of certain milestones , and each party has the right to terminate the agreement following uncured material breach by the other party . on october 14 , 2009 , we entered into an exclusive license agreement with eleison pharmaceuticals , inc. ( “eleison” ) . pursuant to the agreement we granted eleison exclusive worldwide rights to develop and commercialize glufosfamide for the treatment of cancer in humans and animals , and certain other uses . under the agreement , eleison is responsible for the development , manufacturing and marketing of glufosfamide . eleison and threshold will share equally in the profits of commercialization , if the further clinical development of glufosfamide leads to regulatory approval and marketing . eleison will pay us 50 % of its profits from commercialization on a quarterly basis , beginning on the date of first commercial sale , if any . eleison has the right to sublicense some or all of its rights under the agreement , and will pay us 50 % of amounts received under any sublicenses , including , without limitation , any royalty payments , license fee payments , milestone payments and payments for any equity or debt purchases by a sublicensee , within 30 days of the receipt of any such amounts or payments by eleison . eleison will bear all costs associated with development , commercialization and patent prosecution , and will control product development and commercialization . in addition , eleison will be responsible for all royalty and milestone payments due under the baxter license and medibic development agreement discussed below . the agreement contemplates that eleison , to satisfy its diligence obligations , will raise sufficient funds to commence clinical development activities with glufosfamide . 54 off-balance sheet arrangements as of december 31 , 2012 , 2011 and 2010 , we did not have any relationships with unconsolidated entities or financial partnerships , such as entities often referred to as structured finance or special purpose entities , which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes . in addition , we do not engage in trading activities involving non-exchange traded

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liquidity and capital resources we have incurred net losses of $ 323.3 million since inception through december 31 , 2012. we have not generated and do not expect to generate revenue from sales of product candidates in the near term . since our inception , we funded our operations primarily through private placements and public offerings of equity securities and through payments received under our license and co-development agreement with merck kgaa . during the year ended december 31 , 2012 , we sold an aggregate of approximately 2.0 million shares of common stock under our at the market stock issuance facility for net proceeds of $ 12.3 million , and we received approximately $ 8.8 million from the exercise of warrants to purchase approximately 4.7 million shares of common stock . during the year ended december 31 , 2011 we sold approximately 1.0 million shares of our common stock at an average price of $ 2.66 under our at the market stock issuance facility , for net proceeds of $ 2.3 million . in march 2011 , we sold to certain investors an aggregate of approximately 14.3 million shares of our common stock for a purchase price equal to $ 2.05 per share and , for a purchase price equal to $ 0.05 per share , warrants exercisable for a total of approximately 5.7 million shares of our common stock for aggregate gross proceeds equal to $ 30.1 million in connection with the offering . the warrants have an exercise price equal to $ 2.46 per share . net proceeds generated from the offering were approximately $ 27.8 million , which includes underwriter discounts and offering costs . 51 on february 3 , 2012 , we entered into an agreement with merck kgaa and to date have received upfront and milestone payments of $ 97.5 million , including $ 42.5 million in milestone payments received subsequent to december 31 , 2012. we could also receive an additional $ 12.5 million in a potential milestone payment in 2013.

during the year ended december 31 , 2017 , we recognized approximately $ 374,000 of royalty expense . following the signing of the new collaboration agreement , we retained a right to offset $ 15.0 million of future royalty payments . this offset will be reduced by up to $ 5.0 million upon the earlier of the approval of iluvien for posterior uveitis in any eu country or january 1 , 2020 , unless certain conditions under the new collaboration agreement are not met . 42 we commenced operations in june 2003. since our inception we have incurred significant losses . as of december 31 , 2017 , we had accumulated a deficit of $ 399.1 million . we expect to incur substantial losses through the continued commercialization of iluvien as we : continue the commercialization of iluvien in the u.s. and eea and , through our distributors , in the middle east , italy and spain ; continue to seek regulatory approval of iluvien in other jurisdictions and for other indications ; evaluate the use of iluvien for the treatment of other diseases ; and advance the clinical development of any future products or product candidates either currently in our pipeline , or that we may license or acquire in the future . as of december 31 , 2017 , we had approximately $ 24.1 million in cash and cash equivalents . on january 5 , 2018 , we entered into a $ 40.0 million loan and security agreement ( 2018 loan agreement ) with solar capital ltd. ( solar capital ) . under the 2018 loan agreement , we borrowed the entire $ 40.0 million as a term loan that matures on july 1 , 2022. we used the proceeds of the 2018 loan agreement loan to refinance the previous loan agreement with hercules capital , inc. ( hercules term loan agreement ) and to pay closing expenses associated with the 2018 loan agreement . we expect to use the remaining loan proceeds to provide additional working capital for general corporate purposes . ( see note 9 of our notes to consolidated financial statements below . ) our revenues for the fiscal years ended december 31 , 2017 and 2016 were generated from product sales primarily in the u.s. , germany , portugal and the united kingdom . in the u.s. , two large pharmaceutical distributors accounted for 73 % and 75 % of our consolidated revenues for the years ended december 31 , 2017 and 2016 , respectively . these distributors purchase iluvien from us , maintain inventories of iluvien and sell downstream to physician offices , pharmacies and hospitals . internationally , in countries where we sell direct , our customers are hospitals , clinics and pharmacies . we sometimes refer to physician offices , pharmacies , hospitals and clinics as end users . in international countries where we sell to distributors , these distributors maintain inventory levels of iluvien and sell to their customers . 43 results of operations replace_table_token_3_th revenue we began generating revenue from iluvien in 2013 , but do not expect positive cash flow from operations until late 2018 , if at all . in addition to generating revenue from product sales , we intend to seek to generate revenue from other sources such as upfront fees , milestone payments in connection with collaborative or strategic relationships , and royalties resulting from the licensing of iluvien or any future product candidates and other intellectual property . net revenue increased by approximately $ 1.6 million , or 5 % , to approximately $ 35.9 million for the year ended december 31 , 2017 , compared to approximately $ 34.3 million for the year ended december 31 , 2016. the increase was primarily attributable to increased sales volume in the u.s. and international segments , offset by the timing of the ordering of our two large u.s. distributors . cost of goods sold , excluding depreciation and amortization , and gross profit gross profit is affected by costs of goods sold , which includes ( a ) costs of manufactured goods sold and ( b ) payments to psivida in the form of ( 1 ) royalty payments under the new collaboration agreement ( after july 1 , 2017 ) , and ( 2 ) payments based on a percentage of net profits under our previous agreement with psivida ( before july 1 , 2017 ) . additionally , revenue from our international distributors fluctuates depending on the timing of the shipment of iluvien to the distributor and the distributors ' sales of iluvien to their customers . cost of goods sold , excluding depreciation and amortization increased by approximately $ 1.1 million , or 48 % , to approximately $ 3.4 million for the year ended december 31 , 2017 , compared to approximately $ 2.3 million for the year ended december 31 , 2016. the increase was primarily attributable to increases of approximately $ 370,000 in profit share and royalty expenses payable to psivida and $ 310,000 of costs associated with certain parts used to manufacture iluvien that were no longer unusable . 44 gross profit increased by approximately $ 500,000 , or 2 % , to approximately $ 32.5 million for the year ended december 31 , 2017 , compared to approximately $ 32.0 million for the year ended december 31 , 2016. gross margin was 90 % and 93 % for the years ended december 31 , 2017 and 2016 , respectively . the change in gross margin was primarily impacted by profit share expense and royalty expense , in each case , payable to psivida . story_separator_special_tag for the year ended december 31 , 2017 , net cash provided by our financing activities was approximately $ 5.7 million . in the second and third quarters of 2017 , we sold a total of 4,203,015 shares of our common stock through our at-the-market offering , resulting in total gross proceeds of approximately $ 6.0 million , prior to the payment of by $ 180,000 of related commissions , issuance costs and placement agent fees . for the year ended december 31 , 2016 , net cash provided by our financing activities was approximately $ 25.4 million . in august 2016 , we closed an underwritten public offering in which we sold and issued 18,900,000 shares of our common stock at a price to the public of $ 1.40 per share , resulting in gross proceeds of $ 26,460,000. in june and july 2016 , we sold a total of 662,779 shares of our common stock through our at-the-market offering , resulting in total gross proceeds of $ 1.2 million . offsetting these increases were payments of approximately $ 1.3 million relating to common stock issuance costs , $ 1.1 million associated with the amendments of our hercules term loan agreement and $ 230,000 in payments on capital leases . 50 critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the u.s. the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . on an ongoing basis , we evaluate these estimates and judgments , including those described below . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . these estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results and experiences may differ materially from these estimates . we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our consolidated financial statements . product revenue we recognize revenue from our product sales when persuasive evidence of an arrangement exists , title to product and associated risk of loss have passed to the customer , the price is fixed or determinable , and collection from the customer is reasonably assured . title passes generally upon receipt by the customer . precise information regarding the receipt of product by the customer is not always readily available . in these cases , we estimate the date of receipt based upon shipping policies by geographic location . our shipping policies require delivery within 24 hours of shipment in most instances . taxes that are collected from customers and remitted to governmental authorities , primarily in europe , are not included in revenue . in the u.s. , we sell iluvien to a limited number of pharmaceutical distributors who in turn sell the product downstream to physician offices , pharmacies and hospitals . revenue is recorded net of provisions for estimated rebates , wholesaler chargebacks , distribution related fees , and other deductions . calculating these provisions involves management 's estimates and judgments . we review our estimates of rebates , chargebacks and other applicable provisions each period and record any necessary adjustments in the current period 's net product sales . in the international segment , in countries where we sell direct we recognize revenue at the time of sale to hospitals , pharmacies , and physician practices . revenue is recorded net of provisions for contractual rebates , cash discounts , and other deductions . in countries where we utilize a distributor , we recognize revenue in accordance with the terms of the respective distributor agreements , which may reflect revenue recognition upon the initial purchase of product by the distributor or upon sale to the end user at which time we recognize royalty revenue , or both . from time to time , we may recognize milestone revenue as it is earned . research and development costs research and development expenditures are expensed as incurred , pursuant to asc 730 , research and development . costs to license technology to be used in our research and development that have not reached technological feasibility , defined as regulatory approval for iluvien or any future products or product candidates , and have no alternative future use are expensed when incurred . payments to licensors that relate to the achievement of preapproval development milestones are recorded as research and development expense when incurred . clinical trial prepaid and accrued expenses we record prepaid assets and accrued liabilities related to clinical trials associated with contract research organizations ( cros ) , clinical trial investigators and other vendors based upon amounts paid and the estimated amount of work completed on each clinical trial . the financial terms of agreements vary from vendor to vendor and may result in uneven payment flows . as such , if we have advanced funds exceeding our estimate of the work completed , we record a prepaid asset . if our estimate of the work completed exceeds the amount paid , an accrued liability is recorded . all such costs are charged to research and development expenses based on these estimates . our estimates may or may not match the actual services performed by the organizations as determined by patient enrollment levels and related activities . we monitor patient enrollment levels and related activities to the extent possible through internal reviews , correspondence and discussions with our cros and review of contractual terms . however , if we have incomplete or inaccurate information , we may underestimate or

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liquidity and capital resources since inception , we have incurred recurring losses , negative cash flow from operations and have accumulated a deficit of $ 399.1 million through december 31 , 2017. we have funded our operations through the public and private placement of common stock , convertible preferred stock , warrants , the sale of certain assets of the non-prescription business in which we were previously engaged and certain debt facilities . in september 2014 , we entered into a sales agreement with cowen and company , llc ( cowen ) to offer shares of our common stock from time to time through cowen , as our sales agent for the offer and sale of the shares up to an aggregate offering price of $ 35.0 million . we paid a commission equal to 3 % of the gross proceeds from the sales of shares of our common stock under the sales agreement . in 2015 , we sold a total of 268,978 shares of our common stock at a weighted average price of $ 3.07 per share through our at-the-market offering , for total gross proceeds of approximately $ 825,000 , reduced by approximately $ 100,000 of related commissions , issuance costs and placement agent fees . we used the net proceeds from this offering for general corporate purposes and working capital . in 2016 , we sold a total of 662,779 shares of our common stock at a weighted average price of $ 1.83 per share through our at-the-market offering , for total gross proceeds of approximately $ 1.2 million , reduced by approximately $ 60,000 of related commissions , issuance costs and placement agent fees . in 2017 , we sold 4,203,015 shares of our common stock at a weighted average price of $ 1.43 per share through our at-the-market offering , for total gross proceeds of approximately $ 6.0 million , reduced by approximately $ 180,000 of related commissions , issuance costs and placement agent fees . we used the net proceeds from this offering for general corporate purposes and working capital .

by the end of the third quarter , all of our newspaper markets had rolled out this model . under our bundled model , subscribers receive access to all of our newspaper content on all platforms . only limited digital content is available to non-subscribers . we also offer digital-only subscriptions . we expect to realize the financial benefits of the bundled subscription model in future periods as subscriptions renew and we sell more digital-only subscriptions . we continue our investment in our digital initiatives . we are hiring and developing digital-only sales professionals , streamlining digital sales processes and creating digital content . we expect these investments to drive digital revenue growth in f-4 each of our divisions . in 2013 , we hired 107 digital-only sales professionals for our television and newspaper segments and expect to hire an additional 50 in 2014. we continue to investment in the digital area with the january 2014 acquisition of digital video news provider media convergence group , which operates newsy , for $ 35 million in cash . this acquisition fits our digital strategy to run a national news brand that both enhances our local content offerings and gives us more access to the fast-growing digital news audiences and revenues on national platforms . newsy adds a new dimension to our video news strategy with a multi-source , multi-platform approach to storytelling , specifically geared for digital audiences . critical accounting policies and estimates the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) requires us to make a variety of decisions that affect reported amounts and related disclosures , including the selection of appropriate accounting principles and the assumptions on which to base accounting estimates . in reaching such decisions , we apply judgment based on our understanding and analysis of the relevant circumstances , including our historical experience , actuarial studies and other assumptions . we are committed to incorporating accounting principles , assumptions and estimates that promote the representational faithfulness , verifiability , neutrality and transparency of the accounting information included in the financial statements . note 1 to the consolidated financial statements describes the significant accounting policies we have selected for use in the preparation of our financial statements and related disclosures . we believe the following to be the most critical accounting policies , estimates and assumptions affecting our reported amounts and related disclosures . acquisitions — the accounting for a business combination requires assets acquired and liabilities assumed to be recorded at fair value . with the assistance of third party appraisals , we generally determine fair values using comparisons to market transactions and a discounted cash flow analysis . the use of a discounted cash flow analysis requires significant judgment to estimate the future cash flows derived from the asset and the expected period of time over which those cash flows will occur and to determine an appropriate discount rate . changes in such estimates could affect the amounts allocated to individual identifiable assets . while we believe our assumptions are reasonable , if different assumptions were made , the amount allocated to intangible assets could differ substantially from the reported amounts . long-lived assets — long-lived assets ( primarily property , plant and equipment and amortizable intangible assets ) must be tested for impairment whenever events occur or circumstances change that indicate that the carrying value of an asset or asset group may not be recoverable . a long-lived asset group is determined not to be recoverable if the estimated future undiscounted cash flows of the asset group are less than the carrying value of the asset group . estimating undiscounted cash flows requires significant judgments and estimates . we continually monitor the estimated cash flows of our newspaper properties and may incur impairment charges if future cash flows are less than our current estimates . goodwill and other indefinite-lived intangible assets — goodwill for each reporting unit must be tested for impairment on an annual basis or when events occur or circumstances change that would indicate the fair value of a reporting unit is below its carrying value . for purposes of performing the impairment test for goodwill , our reporting units are television and newspapers . if the fair value of the reporting unit is less than its carrying value , an impairment loss is recorded to the extent that the fair value of the goodwill for the reporting unit is less than its carrying value . at december 31 , 2013 , we had $ 28.0 million of goodwill . in 2013 , we adopted the recent accounting guidance related to the annual goodwill impairment testing , which allows us to first qualitatively assess whether it is more likely than not that goodwill has been impaired . as part of our qualitative assessment , we consider the following factors related to the reporting units , where applicable : significant changes in the macroeconomic conditions ; significant changes in the regulatory environment ; significant changes in the operating model , management , products and services , customer base , cost structure and or margin trends ; comparison of current year and prior year operating performance and forecast trends for future operating performance ; and the excess of the fair value over carrying value of the reporting units determined in prior quantitative assessments . in our prior quantitative assessment the fair value of the reporting unit was over a 100 % in excess of the carrying value . f-5 if we conclude that it is more likely than not that a reporting unit is impaired , we will apply the quantitative step-two method for determining the amount of impairment , if any . our annual impairment test for goodwill indicated that it was more likely than not that the fair value of our television reporting unit exceeds its recorded value . story_separator_special_tag the impact of state and local taxes and non-deductible expenses has made our effective rate volatile due to relatively small amounts of pretax income or loss in each of the reporting periods . in addition , our effective income tax rate has been impacted by tax settlements and changes in our reserve for uncertain tax positions as described below . in 2012 , we recognized $ 5.5 million of previously unrecognized tax benefits primarily due to the lapse of the statutes of limitations in certain jurisdictions , decreasing our effective tax rate by 9.6 percentage points . in 2011 , we recorded a benefit of $ 1.6 million when we settled the examinations of our 2005 to 2009 federal tax returns with the internal revenue service ( “ irs ” ) , increasing our effective tax benefit rate by 6.6 percentage points . f-10 business segment results — as discussed in the notes to the consolidated financial statements , our chief operating decision maker evaluates the operating performance of our business segments using a measure called segment profit . segment profit excludes interest , defined benefit pension plan expense ( other than current service costs ) , income taxes , depreciation and amortization , impairment charges , divested operating units , restructuring activities , investment results and certain other items that are included in net income ( loss ) determined in accordance with accounting principles generally accepted in the united states of america . items excluded from segment profit generally result from decisions made in prior periods or from decisions made by corporate executives rather than the managers of the business segments . depreciation and amortization charges are the result of decisions made in prior periods regarding the allocation of resources and are therefore excluded from the measure . generally , our corporate executives make financing , tax structure and divestiture decisions . excluding these items from measurement of our business segment performance enables us to evaluate business segment operating performance based upon current economic conditions and decisions made by the managers of those business segments in the current period . information regarding the operating performance of our business segments and a reconciliation of such information to the consolidated financial statements is as follows : replace_table_token_14_th f-11 television — our television segment includes 10 abc-affiliated stations , three nbc-affiliated stations , one independent station that we operate as a duopoly with our kansas city nbc affiliate and five azteca america affiliates . our television stations reach approximately 13 % of the nation 's households . our television stations earn revenue primarily from the sale of advertising time to local and national advertisers and retransmission fees received from cable operators and satellite carriers . national television networks offer affiliates a variety of programs and sell the majority of advertising within those programs . in addition to network programs , we broadcast locally produced programs , syndicated programs , sporting events , and other programs of interest in each station 's market . news is the primary focus of our locally produced programming . the operating performance of our television group is most affected by the health of the local and national economies , particularly conditions within the automotive , services and retail categories , and by the volume of advertising time purchased by campaigns for elective office and political issues . the demand for political advertising is significantly higher in the third and fourth quarters of even-numbered years . operating results for our television segment were as follows : replace_table_token_15_th 2013 compared with 2012 total television revenues decreased 14.4 % in 2013 primarily due to expected declines in political advertising in this off-election year . the prior year included $ 107 million of political advertising , as well as incremental revenue from airing the 2012 olympics on our three nbc-affiliated stations . as is common during election cycles , the influx of political advertising displaces certain traditional advertising . retransmission revenues increased 37.7 % , or $ 11.6 million , in 2013 primarily due to an extension of an agreement that increases the amounts we receive under our retransmission fees . we forecast that our retransmission revenues in 2014 will be more than $ 50 million . during 2014 , we will renegotiate retransmission agreements covering approximately 5.6 million subscribers . based on our current estimate of the renewal rates covering those subscribers , we expect that retransmission revenue will almost double in 2015 from the 2014 amount . many factors can impact the revenues we will receive from renewals , including competitive conditions , governmental regulations and cable and television industry consolidation . on february 13 , 2014 , comcast and time warner cable announced their agreement to merge . about one-third of the approximately 14.5 million scripps cable subscribers are customers of comcast or time warner . in addition , time warner negotiates on behalf of cable provider bright house for about 900,000 subscribers in scripps markets . the scripps/time warner retransmission agreement , which covers approximately 2.9 million subscribers ( including the bright house subscribers ) , expires at the end of 2015. the scripps/comcast retransmission agreement , which covers approximately 2.6 million subscribers , expires at the end of 2019. any time warner cable systems in the scripps markets ultimately acquired by f-12 comcast in the merger would become subject to the scripps/comcast retransmission agreement . the proposed merger would not affect retransmission revenues we receive in 2014 and 2015. until the details ( e.g . , required divestures of cable systems or other governmental restrictions ) of a completed merger are known , it is unclear how a comcast/time warner merger would impact our retransmission revenues between 2016 and 2020. digital revenues for 2013 increased 12.0 % , or $ 1.8 million , as we continued our focus on increasing digital advertising revenues . costs and expenses total costs and expenses decreased 3.3 % year-over-year , primarily due to the decline in costs for programs and

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liquidity and capital resources our primary source of liquidity is our available cash and borrowing capacity under our revolving credit facility . operating activities cash provided by operating activities for the years ended december 31 is as follows : replace_table_token_17_th 2013 to 2012 the $ 139 million decrease in cash provided by operating activities was primarily attributable to changes in working capital in each of the periods and lower segment profit in 2013. the primary factors affecting changes in working capital are described below . due to the high level of political advertising in the fourth quarter of 2012 , the timing of collections of accounts receivable decreased working capital by $ 14.1 million in 2013. we received $ 25 million in 2012 for refunds of prior year taxes from the carryback of our 2011 net operating loss , increasing our cash flow from operations . income tax benefits recognized in 2013 of $ 21.6 million will not be realized until we utilize our net operating loss against future taxable income . the accrual of annual incentive compensation , net of the payment of amounts earned in the prior year , decreased working capital by $ 9.8 million in 2013 and increased working capital by $ 5.6 million in 2012 . 2012 to 2011 cash flow provided by operating activities was $ 173 million in 2012 compared with $ 15 million in 2011. the $ 158 million increase was primarily attributable to higher television segment profit in an election year . in addition to the changes in segment profit , changes in working capital increased cash flow from operating activities by $ 61 million in 2012 and decreased cash flow from operations by $ 42 million in 2011. the primary factors affecting the changes in working capital are described below . we received $ 25 million in 2012 for refunds of prior year taxes from the carryback of our 2011 net operating loss , decreasing our working capital .

the aggregate purchase price for the acquisition of calypso soft drinks ( the “calypso soft drinks acquisition” ) was $ 12.1 million , which includes approximately $ 7.0 million paid at closing , deferred payments of approximately $ 2.3 million and $ 3.0 million to be paid on the first and second anniversary of the closing date , respectively of the calypso soft drinks acquisition . the closing payment was funded from available cash . 25 in 2010 , we completed the acquisition of substantially all of the assets and liabilities of cliffstar corporation ( “cliffstar” ) and its affiliated companies for approximately $ 503.0 million in cash , $ 14.0 million in deferred consideration payable in equal installments over three years and contingent consideration of up to $ 55.0 million ( the “cliffstar acquisition” ) . the first $ 15.0 million of the contingent consideration was paid upon the achievement of milestones in certain expansion projects in 2010. the remainder of the contingent consideration was to be calculated based on the achievement of certain performance measures during the fiscal year ending january 1 , 2011. in 2011 , the seller of cliffstar raised certain objections to the performance measures used to calculate the contingent consideration , and the parties commenced the dispute resolution mechanism provided for in the asset purchase agreement . during 2011 , cott made interim payments to the seller equal to $ 29.6 million , which was net of a $ 4.7 million refund due to cott and included $ 0.9 million in settlement of certain of the seller 's objections to the calculation of the contingent consideration . the seller 's claims for an additional $ 12.1 million in contingent consideration were submitted to binding arbitration pursuant to the asset purchase agreement and favorably resolved in february 2013 by payment of $ 0.6 million by cott to settle all claims . summary financial results our net income in 2013 was $ 17.0 million or $ 0.18 per diluted share , compared with net income of $ 47.8 million or $ 0.50 per diluted share in 2012. the following items of significance impacted our 2013 financial results : our filled beverage 8-ounce equivalents ( “beverage case volume” ) , which excludes concentrate sales , decreased 8.6 % due primarily to the general market decline in the north american csd category , prolonged aggressive promotional activity from the national brands in north america as well as the exiting of case pack water ; our revenue decreased 7.0 % in 2013 compared to 2012 due primarily to lower global volumes partially offset by an increase in net selling price per beverage case ( which is net revenue divided by filled beverage case volume ) . excluding the impact of foreign exchange , revenue decreased 6.5 % from the comparable prior year period ; our gross profit as a percentage of revenue decreased to 12.0 % in 2013 from 12.9 % in 2012 due primarily to lower global volumes which resulted in unfavorable fixed cost absorption ; our selling , general and administrative ( “sg & a” ) expenses decreased to $ 160.4 million from $ 178.0 million due primarily to lower employee-related expenses , lower information technology costs and a reduction in professional fees and similar costs ; our loss on disposal of property , plant and equipment was related to the disposal of $ 1.0 million of equipment that was either replaced or no longer being used in our operating segments ; our other expense in 2013 was $ 12.8 million due primarily to costs associated with the redemption of $ 200.0 million aggregate principal amount of our 2017 notes , compared to other income in 2012 of $ 2.0 million as a result of insurance recoveries in excess of the loss incurred on a facility in the united states in the amount of $ 1.9 million and recording a bargain purchase of $ 0.9 million in the united kingdom offset partially by foreign exchange losses of $ 0.8 million ; our interest expense decreased by $ 2.6 million , or 4.8 % , due primarily to the redemption of $ 200.0 million aggregate principal amount of our 2017 notes and to an amendment to our abl facility to more favorable terms ; our income tax expense decreased to $ 2.2 million in 2013 compared to an income tax expense of $ 4.6 million in 2012 due primarily to a reduction in pretax income ; our adjusted ebitda decreased to $ 196.8 million from $ 212.9 million in the comparable prior year period due to the items listed above ; and our adjusted net income and adjusted earnings per diluted share were $ 36.3 million and $ 0.38 , respectively , compared to $ 51.9 million and $ 0.55 in the prior year , respectively . 26 the following items of significance impacted our 2012 financial results : our filled beverage case volume decreased 9.6 % due primarily to our exit from certain low gross margin business and the general decline in the north american csd and juice categories ; our revenue decreased 3.6 % in 2012 compared to 2011 due primarily to lower volumes and a product mix shift into juice drinks and sports drinks from 100 % shelf-stable juice in north america . excluding the impact of foreign exchange , revenue decreased 3.0 % ; our gross profit as a percentage of revenue increased to 12.9 % in 2012 from 11.8 % in 2011 due primarily to an increase in average price per case and our exit from lower margin business , as well as operational efficiencies in north america ; our sg & a expenses increased to $ 178.0 million from $ 172.7 million , due primarily to an increase in certain employee-related costs compared to a lowering of the annual incentive and long-term incentive accruals in the prior year partially offset by lower information technology expenses in 2012 ; our loss on disposal story_separator_special_tag we record annual amounts relating to these plans based on calculations specified by gaap , which include various actuarial assumptions such as discount rates ( 4.4 % to 4.5 % ) and assumed rates of return ( 6.1 % to 7.0 % ) depending on the pension plan . material changes in pension costs may occur in the future due to changes in these assumptions . future annual amounts could be impacted by changes in the discount rate , changes in the expected long-term rate of return , changes in the level of contributions to the plans and other factors . 30 the discount rate for the u.s. plan is based on a model portfolio of aa rated bonds with a maturity matched to the estimated payouts of future pension benefits for this type of plan . the discount rate of the u.k. plans for 2012 and 2011 were based on a model portfolio of aa rated bonds , using the redemption yields on the constituent stocks of the merrill lynch index with a maturity matched to the estimated future pension benefits . the discount rate of the u.k. plans for 2013 is based on the annualized yield of the aon hewitt gbp select aa curve . the expected return on plan assets is based on our expectation of the long-term rates of return on each asset class based on the current asset mix of the funds , considering the historical returns earned on the type of assets in the funds , plus an assumption of future inflation . the current investment policy target asset allocation differs between our three plans , but it is between 50.0 % to 80.0 % for equities and 20.0 % to 50.0 % for bonds . the current inflation assumption is 2.3 % . we review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when appropriate . the effects of the modifications are amortized over future periods . non-gaap measures in this annual report on form 10-k , we supplement our reporting of financial measures determined in accordance with gaap by utilizing certain non-gaap financial measures . we exclude the impact of foreign exchange to separate the impact of currency exchange rate changes from our results of operations , and , in some cases , by excluding the impact of the calypso soft drinks acquisition or the cliffstar acquisition , as the case may be . we exclude these items to better understand trends in the business and the impact of the calypso soft drinks acquisition or the cliffstar acquisition , as the case may be . we also utilize earnings before interest expense , taxes , depreciation and amortization ( “ebitda” ) , which is gaap earnings before interest expense , provision for income taxes , depreciation and amortization . we consider ebitda to be an indicator of operating performance . we also use ebitda , as do analysts , lenders , investors and others , because it excludes certain items that can vary widely across different industries or among companies within the same industry . these differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies . we also utilize adjusted ebitda , which is ebitda adjusted for inventory step-up ( step-down ) , acquisition costs , and integration costs related to the calypso soft drinks acquisition or the cliffstar acquisition , as the case may be ( “adjusted ebitda” ) . we consider adjusted ebitda to be an indicator of our operating performance . adjusted ebitda excludes certain items to make more meaningful period-over-period comparisons of our ongoing core operations before material charges . we also utilize adjusted net income , which is gaap earnings ( loss ) excluding purchase accounting adjustments , integration expenses , restructuring expenses and asset impairments , as well as adjusted earnings per diluted share , which is adjusted net income divided by diluted weighted average outstanding shares . we consider these measures to be indicators of our operating performance . these measures exclude certain items to make period-over-period comparisons of our ongoing core operations before material charges . additionally , we supplement our reporting of net cash provided by operating activities determined in accordance with gaap by excluding capital expenditures to present free cash flow , which management believes provides useful information to investors about the amount of cash generated by the business that , after the acquisition of property and equipment , can be used for strategic opportunities , including investing in our business , making strategic acquisitions , paying dividends , and strengthening the balance sheet . because we use these adjusted financial results in the management of our business and to understand underlying business performance , we believe this supplemental information is useful to investors for their independent evaluation and understanding of our business performance and the performance of our management . the non-gaap financial measures described above are in addition to , and not meant to be considered superior to , or a substitute for , our financial statements prepared in accordance with gaap . in addition , the non-gaap financial measures included in this annual report on form 10-k reflect our judgment of particular items , and may be different from , and therefore may not be comparable to , similarly titled measures reported by other companies . 31 the following table summarizes our consolidated statements of operations as a percentage of revenue for 2013 , 2012 and 2011 : replace_table_token_5_th 32 the following table summarizes our revenue and operating income by reporting segment for 2013 , 2012 and 2011 ( for purposes of the table below , our corporate oversight function ( “corporate” ) is not treated as a segment ; it includes certain general and administrative costs that are not allocated to any of the reporting segments ) : replace_table_token_6_th the following table summarizes our beverage

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debt our total debt as of december 28 , 2013 and december 29 , 2012 was as follows : replace_table_token_24_th 1. our 8.375 % senior notes were issued at a discount of 1.425 % on november 13 , 2009. asset-based lending facility on march 31 , 2008 , we entered into a credit agreement with jpmorgan chase bank n.a . as agent that created an abl facility to provide financing for our north america , u.k. and mexico operations . in connection with the cliffstar acquisition , we refinanced the abl facility on august 17 , 2010 to , among other things , provide for the cliffstar acquisition , the note offering and the application of net proceeds therefrom , the equity offering and the application of net proceeds therefrom and to increase the amount available for borrowings to $ 275.0 million . we drew down a portion of the indebtedness under the abl facility in order to fund the cliffstar acquisition . we incurred $ 5.4 million of financing fees in connection with the refinancing of the abl facility . on july 19 , 2012 , we amended the abl facility to , among other things , extend the maturity date to either july 19 , 2017 or , if we have not redeemed , repurchased or refinanced the 2017 notes by may 1 , 2017 , may 15 , 2017. we incurred $ 1.2 million of financing fees in connection with the amendment of the abl facility . this amendment was considered to be a modification of the original agreement under generally accepted accounting standards .

this transaction allowed us to acquire a commercial banking franchise in our backyard . the independence bank branch locations will connect our existing footprint between orange county and the broader coachella valley and represents an important element of our strategic growth plan by providing meaningful operational scale in our core markets . the acquisition also allows us to deploy a portion of our current capital base into a compelling investment which we anticipate will produce attractive returns for shareholders . under the terms of the merger agreement , each share of independence bank common stock was converted into the right to receive $ 13.75 per share in cash or 0.9259 shares of company common stock , or a combination thereof , subject to the overall requirement that approximately 10 % of the consideration will be in the form of cash and approximately 90 % will be in the form of company common stock . the value of the total deal consideration was $ 78.5 million , which includes $ 6.1 million of cash consideration for independence bank common stockholders , $ 1.5 million of aggregate cash consideration to the holders of independence bank stock options and warrants , and the issuance of 4,480,645 shares of the corporation 's common stock , which was valued at $ 70.9 million based on the closing stock price of the company 's common stock on january 26 , 2015 of $ 15.83 per share . critical accounting policies and estimates we have established various accounting policies that govern the application of accounting principles generally accepted in the united states of america in the preparation of the company 's financial statements in item 8 hereof . the company 's significant accounting policies are described in the note 1 to the consolidated financial statements . certain accounting policies require management to make estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities ; management considers these to be critical accounting policies . the estimates and assumptions management uses are based on historical experience and other factors , which management believes to be reasonable under the circumstances . actual results could differ significantly from these estimates and assumptions , which could have a material impact on the carrying value of assets and liabilities at consolidated statements of financial condition dates and the company 's results of operations for future reporting periods . we consider the determination of alll to be among our critical accounting policies that require judicious estimates and assumptions in the preparation of the company 's financial statements that is particularly susceptible to significant change . for further information on the alll , see “ business—allowances for loan losses ” and notes 1 and 5 to the consolidated financial statements in item 8 hereof . allowance for loan losses the company maintains an alll at a level deemed appropriate by management to provide for known or inherent risks in the portfolio at the consolidated statements of financial condition date . the company has implemented and adheres to an internal asset review system and loss allowance methodology designed to provide for the detection of problem assets and an adequate allowance to cover loan losses . management 's determination of the adequacy of alll is based on an evaluation of the composition of the portfolio , actual loss experience , industry charge-off experience on income property loans , current economic conditions , and other relevant factors in the area in which the company 's lending and real estate activities are based . these factors may affect the borrowers ' ability to pay and the value of the underlying collateral . the allowance is calculated by applying loss factors to loans held for investment according to loan program type and loan classification . the loss factors are established based primarily upon the bank 's historical loss experience and the industry charge-off experience and are evaluated on a quarterly basis . various regulatory agencies , as an integral part of their examination process , periodically review the company 's alll . such agencies may require the bank to recognize additions to the allowance based on judgments different from those of management . in the opinion of management , and in accordance with the credit loss allowance methodology , the present allowance is considered adequate to absorb estimable and probable credit losses . additions and reductions to the allowance are reflected in current operations . charge-offs to the allowance are made when specific assets are considered uncollectible or are transferred to oreo and the fair value of the property is less than the loan 's recorded investment . recoveries are credited to the allowance . although management uses the best information available to make these estimates , future adjustments to the allowance may be necessary due to economic , operating , regulatory and other conditions that may be beyond the company 's control . we account for acquisitions under the purchase accounting method . all identifiable assets acquired and liabilities assumed are recorded at fair value . we review each loan or loan pool acquired to determine whether there is evidence of deterioration in credit quality since inception and if it is probable that the company will be unable to collect all amounts due under the contractual loan agreements . we consider expected prepayments and estimated cash flows including principal and interest payments at the date of acquisition . the amount in excess of the estimated future cash flows is not accreted into earnings . the amount in excess of the estimated future cash flows over the book value of the loan is accreted into interest income over the remaining life of the loan ( accretable yield ) . the company records these loans on the acquisition date at their net realizable value . thus , an allowance for estimated future losses is not established on the acquisition date . story_separator_special_tag our efficiency ratio was 61.35 % for 2014 , compared to 64.68 % for 2013 and 57.41 % for 2012. the increase in the efficiency ratio in 2013 compared to 2012 was primarily related to the time required to redeploy the liquidity received from the acquisitions we completed in 2013 and the expansion of our lending platform to increase loan production . income taxes . the company recorded income taxes of $ 10.7 million in 2014 , compared with $ 5.6 million in 2013 and $ 10.0 million in 2012. our effective tax rate was 39.2 % for 2014 , 38.3 % for 2013 , and 38.8 % for 2012. the effective tax rate in each year is affected by various items , including enterprise zone net interest deductions , interest expense related to payments of prior year taxes , and adjustments to income tax reserves related to management 's favorable assessment of our income tax exposure . the net impact of these items were expense reductions of $ 358,000 in 2014 , $ 265,000 in 2013 , $ 755,000 in 2012. see note 11 to the consolidated financial statements included in item 8 hereof for further discussion of income taxes and an explanation of the factors which impact our effective tax rate . financial condition at december 31 , 2014 , total assets of the company were $ 2.0 billion , up $ 324.7 million or 18.9 % from total assets of $ 1.7 billion at december 31 , 2013 the increase in assets since year-end 2013 was primarily related to the increase in loans held for investment of $ 388.5 million associated with organic loan growth and the acquisition of infinity , which added assets at the acquisition date of $ 80.2 million , including $ 78.8 million in loans . partially offsetting these increases in assets was a reduction in investment securities available for sale of $ 54.5 million and cash and cash equivalents of $ 15.9 million . investment securities available for sale totaled $ 201.6 million at december 31 , 2014 , down $ 54.5 million or 21.3 % from december 31 , 2013. the decrease in investment securities since year-end 2013 was primarily due to sales of $ 164.8 million and principal pay downs of $ 28.7 million , partially offset by purchases of $ 135.6 million . in general , the purchase of investment securities primarily related to investing excess liquidity from our banking operations , while the sales were made to help fund loan production , which improved our interest-earning asset mix , and helped to prepare for the independence bank acquisition , which closed in january 2015. the total end of period weighted average interest rate on investments at december 31 , 2014 was 1.95 % , compared to 2.21 % at december 31 , 2013. net loans held for investment totaled $ 1.6 billion at december 31 , 2014 , an increase of $ 384.5 million or 31.2 % from december 31 , 2013. the increase in loans from december 31 , 2013 included $ 78.8 million of c & i loans from our acquisition of infinity , as well as organic growth in real estate loans of $ 110.6 million , c & i loans of $ 241.2 million , warehouse facilities loans of $ 26.3 million and sba loans of $ 17.7 million , partially offset by a decrease in commercial owner occupied loans of $ 10.1 million . the total end of period weighted average interest rate on loans at december 31 , 2014 was 4.91 % , compared to 4.95 % at december 31 , 2013. at december 31 , 2014 , total deposits were $ 1.6 billion , up $ 324.5 million or 24.8 % from december 31 , 2013. the increase in deposits since year-end 2013 included increases in money market of $ 98.7 million , noninterest bearing checking of $ 90.0 million , brokered certificates of deposit of $ 72.4 million and retail certificates of deposit of $ 54.6 million . the brokered deposits were raised in the third and fourth quarter of 2014 to lengthen the overall maturity of our liabilities and support our interest rate risk management strategies . these brokered deposits had a weighted average term of 18 months at closing and at an all-in cost of 66 basis points . these deposit decreased the mix of our transaction accounts to 72.9 % of total deposits at december 31 , 2014 , down from 75.9 % at december 31 , 2013. the total end of period weighted average interest rate on deposits at december 31 , 2014 was 0.36 % , compared to 0.33 % at december 31 , 2013. at december 31 , 2014 , total borrowings amounted to $ 187.0 million , down $ 27.4 million or 12.8 % from december 31 , 2013. the decrease in borrowings at december 31 , 2014 from 2013 was primarily related to a decrease in fhlb overnight advances . on august 29 , 2014 , the company completed the issuance of $ 60 million in aggregate principal amount of 5.75 % subordinated notes due september 3 , 2024 in a private placement transaction . the net proceeds of the offering were approximately $ 59 million and are being used for general corporate purposes , including , but not limited to , contribution of capital to the bank of $ 40 million to support both organic growth as well as acquisition activities . additionally , toward the end of the third quarter of 2014 , we locked in borrowings from the fhlb of $ 25.0 million at 60 basis points for 18 months and $ 25.0 million at 84 basis points for 2 years . these borrowings lengthen the overall maturity of our liabilities and support our interest rate risk management strategies as well as leverage our balance sheet for future growth . at december 31 , 2014 , total borrowings represented

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liquidity our primary sources of funds are principal and interest payments on loans , deposits , fhlb advances and other borrowings . while maturities and scheduled amortization of loans are a predictable source of funds , deposit flows and loan prepayments are greatly influenced by general interest rates , economic conditions and competition . we seek to maintain a level of liquid assets to ensure a safe and sound operation . our liquid assets are comprised of cash and unpledged investments . as part of our daily monitoring , we calculate a liquidity ratio by dividing the sum of cash balances plus unpledged securities by the sum of deposits that mature in one year or less plus transaction accounts and fhlb advances . at december 31 , 2014 , our liquidity ratio was 14.93 % , compared with 15.90 % at december 31 , 2013. we believe our level of liquid assets is sufficient to meet current anticipated funding needs . at december 31 , 2014 , liquid assets of the company represented approximately 11.8 % of total assets , compared to 13.0 % at december 31 , 2013. at december 31 , 2014 , the company had seven unsecured lines of credit with other correspondent banks to purchase federal funds totaling $ 82.0 million , one reverse repo line with a correspondent bank of $ 50.0 million and access through the federal reserve bank discount window to borrow $ 3.3 million , as business needs dictate . we also have a line of credit with the fhlb allowing us to borrow up to 45 % of the bank 's total assets . at december 31 , 2014 , we had a borrowing capacity of $ 527.4 million , based on collateral pledged at the fhlb , with $ 70.0 million outstanding in fhlb borrowing . the fhlb advance line is collateralized by eligible loans and fhlb stock . at december 31 , 2014 , we had approximately $ 618.6 million of collateral pledged to secure fhlb borrowings .

2017 compared to 2016 net income was $ 5.0 million in 2017 a decrease from $ 5.8 million in 2016 primarily due to a $ 2.4 million after-tax charge to write down the company 's deferred tax assets as a result of the tax cuts and jobs act of 2017. net income available to common shareholders was $ 4.8 million , or $ 0.55 per diluted common share , in 2017 compared to $ 4.8 million , or $ 0.78 per diluted common share , in 2016 . net interest income to average assets of 3.90 percent in 2017 increased from 3.77 percent in 2016 as a result of a higher percentage of average earning assets to average total assets . noninterest income to average assets of 0.42 percent in 2017 increased slightly from 0.41 percent in 2016 due to higher customer service fees , higher interchange and debit cards fees , and higher other noninterest income . noninterest expense to average assets increased from 3.20 percent in 2016 to 3.29 percent in 2017 primarily due to $ 2.4 million in merger expenses . the resulting pretax income to average assets was 1.00 percent in 2017 compared to 0.95 percent in 2016 . finally , the effective tax rate of 56.2 percent in 2017 was elevated due to a $ 2.4 million after-tax charge to write down the company 's deferred tax assets as a result of the tax cuts and jobs act of 2017 while in 2016 the effective tax rate was 36.70 percent .. net interest income and yield analysis 2018 compared to 2017 net interest income , taxable equivalent , increased to $ 76.8 million in 2018 from $ 46.4 million in 2017 . the increase in net interest income , taxable equivalent , was the result of a significant increase in earning assets primarily from the mergers but also from organic business activity . average earning assets increased from $ 1.1 billion in 2017 to $ 1.7 billion in 2018 . over this period , average loan balances increased by $ 592.1 million and average securities balances increased by $ 33.0 million . in addition , total average interest-bearing deposits increased by $ 543.1 million . net interest income to average assets of 3.90 percent in 2018 was unchanged from 3.90 percent in 2017 . net interest margin , taxable equivalent , was 4.43 percent in 2018 , compared to 4.29 percent in 2017 , with the increase due to higher yields on earning assets . net interest margin , taxable equivalent , was slightly negatively impacted by an increase in the cost of interest bearing liabilities from 0.66 percent in 2017 to 1.10 percent in 2018 . in 2019 we expect net interest income to average assets and net interest margin , taxable equivalent , to experience pressure as there is the potential for pressure to increase deposit rates as short term rates have continued to increase but do anticipate the effect of rate increases will be mitigated on the income side by increases in yields of our floating rate earning assets . 2017 compared to 2016 net interest income , taxable equivalent , increased to $ 46.4 million in 2017 from $ 38.3 million in 2016 . the increase in net interest income , taxable equivalent , was the result of a significant increase in earning assets primarily from the merger but also from organic business activity . average earning assets increased from $ 944.6 million in 2016 to $ 1.1 billion in 2017 . over this period , average loan balances increased by $ 149.6 million and average securities and interest bearing balances decreased by $ 17.3 million . in addition , total average interest-bearing deposits increased by $ 113.8 million . net interest income to average assets of 3.90 percent in 2017 increased from 3.77 percent in 2016 . net interest margin , taxable equivalent , was 4.29 percent in 2017 4.06 percent in 2016 , with the increase due to higher yields on earning assets .. net interest margin , taxable equivalent , was slightly negatively impacted by an increase in the cost of interest bearing liabilities from 0.56 percent in 2016 to 0.66 percent in 2017 . 33 the following table summarizes the major components of net interest income and the related yields and costs for the periods presented . replace_table_token_1_th ( 1 ) loans include nonaccrual loans . yields related to loans exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 21.0 percent in 2018 and 34.0 percent in 2017 and 2016. the taxable-equivalent adjustment was $ 10 thousand for 2018 , $ 28 thousand for 2017 and $ 16 thousand for 2016 . loan fees included in loan income was $ 2.7 million , $ 2.5 million , and $ 2.6 million for 2018 , 2017 and 2016 , respectively . ( 2 ) yields related to investment securities exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 21.0 percent in 2018 and 34.0 percent in 2017 and 2016. the taxable-equivalent adjustment was $ 180 thousand , $ 90 thousand and $ 55 thousand for 2018 , 2017 and 2016 , respectively . ( 3 ) net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities . ( 4 ) net interest margin represents net interest income divided by average interest-earning assets . 34 rate and volume analysis net interest income , taxable equivalent , increased by $ 30.4 million between the years ended december 31 , 2018 and 2017 and by $ 8.1 million between the years ended december 31 , 2017 and 2016 . story_separator_special_tag ” the following table sets forth , based on our best estimate , the allocation of the allowance to types of loans as well as the unallocated portion as of december 31 for each of the past five years and the percentage of loans in each category to total loans ( in thousands ) : replace_table_token_12_th the increase in the overall allowance for loan losses is due to the increased balance of organic loans offset by improvements of our loan portfolio and the reduction of nonperforming loans and net charge-offs , which is largely influenced by the overall improvement in the economies in our market areas . the allocation by category is determined based on the assigned risk rating , if applicable , and environmental factors applicable to each category of loans . for impaired loans , those loans are reviewed for a specific allowance allocation . specific valuation allowances related to impaired loans were approximately $ 534 thousand at december 31 , 2018 , compared to $ 445 thousand at december 31 , 2017 . additional information on the allocation of the allowance between performing and impaired loans is provided in note 4-loans and allowance for loan losses to our audited consolidated financial statements . 41 analysis of the allowance for loan losses the following is a summary of changes in the allowance for loan losses for each of the years in the five-year period ended december 31 , 2018 and the ratio of the allowance for loan losses to total loans as of the end of each period ( in thousands ) : replace_table_token_13_th we assess the adequacy of the allowance at the end of each calendar quarter . this assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance . the level of the allowance is based upon our evaluation of the loan portfolios , past loan loss experience , known and inherent risks in the portfolio , the views of the bank 's regulators , adverse situations that may affect the borrower 's ability to repay ( including the timing of future payments ) , the estimated value of any underlying collateral , composition of the loan portfolio , economic conditions , industry and peer bank loan quality indications and other pertinent factors . this evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change . investment portfolio our investment portfolio which is carried at fair market value , consisting primarily of federal agency bonds , mortgage-backed securities , state and municipal securities and other debt securities amounted to $ 201.7 million and $ 151.9 million at december 31 , 2018 and 2017 , respectively . this increase was a result of purchasing additional investments from liquidity received through the sale of the investment portfolios after the two mergers . in 2016 , the investment portfolio amounted to $ 131.0 million million and it increased in 2017 to $ 151.9 million as a result purchasing additional investments from liquidity received through the sale of the investment portfolios after the capstone merger . our investment to asset ratio has decreased from 12.1 percent at december 31 , 2016 , to 8.8 percent at december 31 , 2017 , and then increased slightly to 8.9 percent at december 31 , 2018 . over the last several years we have reduced the ratio of investments to total assets and the absolute level of investment securities on our balance sheet as we have allocated more funding to loans . our investment portfolio serves many purposes including serving as a potential liquidity source , collateral for public funds , and as a stable source of income . 42 the following table shows the amortized cost of the company 's investment securities . in 2018 , 2017 , and 2016 , all investment securities were classified as available for sale . investment securities ( in thousands ) replace_table_token_14_th the following table presents the contractual maturity of investment securities by contractual maturity date and average yields based on amortized cost ( for all obligations on a fully taxable basis ) . the composition and maturity / repricing distribution of the securities portfolio is subject to change depending on rate sensitivity , capital and liquidity needs . expected maturity of investment securities as of december 31 , 2018 ( in thousands ) replace_table_token_15_th ( 1 ) based on amortized cost , taxable equivalent basis deposits deposits are the primary source of funds for the company 's lending and investing activities . the company provides a range of deposit services to businesses and individuals , including noninterest-bearing checking accounts , interest-bearing checking accounts , savings accounts , money market accounts , individual retirement accounts ( `` iras `` ) and certificates of deposit ( `` cds `` ) . these accounts generally earn interest at rates the company establishes based on market factors and the anticipated amount and timing of funding needs . the establishment or continuity of a core deposit relationship can be a factor in loan pricing decisions . while the company 's primary focus is on establishing customer relationships to attract core deposits , at times , the company uses brokered deposits and other wholesale deposits to supplement its funding sources . as of december 31 , 2018 , brokered deposits represented approximately 12.6 percent of total deposits . the composition of the deposit portfolio , by category , as of december 31 , 2018 was as follows : 33.8 percent in time deposits , 33.4 percent in money market and savings , 16.2 percent in interest-bearing demand deposit , and 16.6 percent in noninterest-bearing demand deposits . the composition of the deposit portfolio , by category , as of december 31 , 2017 was as follows : 30.8 percent in time deposits , 37.8 percent in money market and savings , 16.1

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capital resources the company uses leverage analysis to examine the potential of the institution to increase assets and liabilities using the current capital base . the key measurements included in this analysis are the banks ' common equity tier 1 capital , tier 1 capital , leverage and total capital ratios . at december 31 , 2018 and 2017 , our capital ratios , including our banks ' capital ratios , exceeded regulatory minimum capital requirements . from time to time we may be required to support the capital needs of our bank subsidiary . we believe we have various capital raising techniques available to us to provide for the capital needs of our bank , if necessary . additional information on capital is provided in note 14-regulatory matters to our audited consolidated financial statements . 44 off-balance sheet arrangements at december 31 , 2018 , we had $ 333.9 million of pre-approved but unused lines of credit and $ 12.2 million of standby letters of credit . these commitments generally have fixed expiration dates and many will expire without being drawn upon . the total commitment level does not necessarily represent future cash requirements . if needed to fund these outstanding commitments , the bank has the ability to liquidate federal funds sold or securities available-for-sale , or on a short-term basis to borrow and purchase federal funds from other financial institutions . additional information about our off-balance sheet risk exposure is presented in note 13—commitments and contingencies to our audited consolidated financial statements .

all forward-looking statements speak only as of the date of this report . the partnership does not undertake any obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise . although the partnership and ccc believe that their plans , intentions and expectations reflected in or suggested by the forward-looking statements made in this report are reasonable , the partnership and ccc can give no assurance that these plans , intentions or expectations will be achieved . future economic , political and industry trends that could potentially impact revenues and profitability are difficult to predict , as well as the risks and uncertainties including , but not limited to , changes in demand for leased containers , changes in global business conditions and their effect on world trade , changes within the global shipping industry , the financial strength of the shipping lines and other sub-lessees of the partnership 's containers , fluctuations in new container prices , changes in the costs of maintaining and repairing used containers , changes in competition , changes in the ability of the leasing company to maintain insurance on behalf of the partnership 's container fleet , as well as other risks detailed herein and from time to time in the partnership 's filings with the securities and exchange commission . 16 story_separator_special_tag comprising of storage and repositioning costs . these costs are sensitive to the quantity of off-hire containers as well as the frequency at which containers are re-delivered . legal and other expenses , including legal costs related to the recovery of containers and doubtful accounts , insurance and provisions for doubtful accounts . 18 at december 31 , 2005 , approximately 39 % of the original equipment remained in the partnership 's fleet , as compared to approximately 51 % at december 31 , 2004. the following table summarizes the composition of the partnership 's fleet ( based on container type ) at december 31 , 2005. replace_table_token_8_th replace_table_token_9_th replace_table_token_10_th the following table summarizes the partnership 's average utilization rates and average fleet size for each of the last three years . replace_table_token_11_th at the end of 2005 , the container leasing industry had completed a three year period that was one of the most favorable in its 35-year-plus history . industry observers report that global container trade grew by an estimated rate of 9 % , 11 % and 8 % , in 2005 , 2004 and 2003 , respectively . in comparison , global container trade grew by a modest 3.7 % during 2001 , a recession year . these favorable conditions contributed to a strong container leasing market , resulting in high levels of demand for existing containers and a decline in off-hire container inventories . during 2005 , demand for existing dry cargo containers eased from the levels experienced in 2004 when demand often exceeded supply , resulting in a more balanced leasing market . as a result , utilization of the partnership 's combined dry cargo container fleet declined to approximately 92 % at december 31 , 2005 when compared to 94 % and 85 % at december 31 , 2004 and 2003 , respectively , a very favorable level of utilization when compared to historical levels . forecasts for 2006 global container trade growth is estimated to be in the range of 7 % — 8 % , a substantial growth rate overall , but at a more moderate rate than in prior recent years . this is due to a number of factors , including the effects of increased crude oil prices on the global economy . during 2005 , high utilization levels contributed to low inventories of off-hire containers as shipping lines employed more leased containers to meet the growth in containerized trade . declining inventories have also contributed to an increase in the amount of proceeds realized on the sale of used containers , as fewer containers are available at non-factory locations to meet the demand of buyers . the inventory levels experienced during 2005 have generally resulted in substantial decreases in storage and other inventory-related operating expenses . 19 the partnership 's dry cargo container per-diem rates experienced modest declines during 2005 , as the lease market for older dry cargo containers remains competitive and , therefore , subject to significant pricing pressures . the partnership 's average 2005 dry cargo container per-diem rate decreased approximately 4 % in comparison to 2004. in contrast , the combined 2005 per-diem rental rate for the partnership 's fleet of refrigerated containers increased by 8 % in comparison to 2004. unlike dry cargo containers , the refrigerated containers are built for specific market demands . as such , the markets for the leasing of refrigerated containers are narrower than the market for dry cargo containers and are subject to different trends and fluctuations than the dry cargo container market . the price of a new 20-foot dry cargo container increased to a peak of $ 2,300 during the first nine months of 2005 and declined to approximately $ 1,500 by the end of december 31 , 2005. by the end of january 2006 , the price was as low as $ 1,450. this decline was due to reduced demand for new dry cargo containers , a corresponding buildup of new container inventories at chinese container factories and a recent decline in the price of corten steel and other raw materials . story_separator_special_tag the level of the partnership 's container disposals in subsequent periods , as well as the price of steel , new container prices and the current leasing market 's impact on sales prices for existing older containers such as those owned by the partnership , will also contribute to fluctuations in the net gain or loss on disposals . there were no reductions to the carrying value of container rental equipment due to impairment during 2005 , 2004 and 2003. year ended december 31 , 2004 compared to the year ended december 31 , 2003 net lease revenue was $ 2,192,040 for the year ended december 31 , 2004 compared to $ 1,967,600 for the prior year . the increase was due to a $ 494,049 decrease in rental equipment operating expenses partially offset a $ 264,024 decline in gross rental revenue from the year ended december 31 , 2003. gross rental revenue was impacted by the partnership 's smaller fleet size . the decrease in direct operating expense was attributable to the partnership 's higher combined utilization rate in 2004 , and its impact on activity based expenses such as storage , handling , and repair and maintenance expenses , as well as decreases in repositioning expenses and the provision for doubtful accounts . other components of net lease revenue , including management fees , and reimbursed administrative expenses , were lower by a combined $ 5,585 when compared to 2003 , which partially offset the decline in gross lease revenue . depreciation expense of $ 2,169,539 in 2004 declined by $ 381,874 when compared to 2003 a direct result of the partnership 's aging and declining fleet size . other general and administrative expenses amounted to $ 130,425 in 2004 , consistent with 2003. net loss on disposal of equipment for 2004 was $ 768,375 , as compared to a net loss of $ 693,649 for 2003. the change was a result of two primary factors : the partnership 's disposal of 1,607 containers in 2004 , as compared to 1,389 containers during 2003. these disposals resulted in a net loss of $ 464,046 during 2004 , compared to a net loss of $ 693,649 during 2003. the partnership disposed of additional containers during 2004 in response to its original investment objective , to realize the residual value of its containers after the expiration of their useful lives . the partnership believes that the net loss on container disposals in 2004 was a result of the volume of container disposals , in addition to other various factors , including the age , condition , suitability for continued leasing , as well as the geographical location of the containers when disposed . these factors will continue to influence the amount of sales proceeds received and the related gain or loss on container disposals . the december 1 , 2004 amendment of a term lease agreement with one lessee to include a bargain purchase option , in exchange for the lessee 's continued lease of these older containers and their eventual sale . as a result of the amendment , the partnership reclassified the term lease agreement as a sales-type lease , recorded a sales-type lease receivable and recognized the sale of the 532 on-hire containers that were subject to the amended term lease agreement . the difference between the present value of the future payments under this lease and $ 405,595 , the net book value of the containers at the time of the amendment , resulted in a net loss of $ 304,329. the sales-type lease expires march 31 , 2006 . 21 critical accounting policies container equipment – depreciable lives : the partnership 's container rental equipment is depreciated using the straight-line basis over a useful life of 15 years to a residual value of 10 % . the partnership and ccc evaluate the period of amortization and residual values to determine whether subsequent events and circumstances warrant revised estimates of useful lives and residual values . container equipment – valuation : the partnership and ccc review container rental equipment when changes in circumstances require consideration as to whether the carrying value of the equipment has become impaired , pursuant to guidance established in sfas no . 144 , “accounting for the impairment or disposal of long-lived assets” . the partnership and ccc consider assets to be impaired if the carrying value of the asset exceeds the future projected cash flows from related operations ( undiscounted and without interest charges ) . when impairment is deemed to exist , the assets are written down to fair value or the future projected cash flows from related operations . the partnership and ccc evaluate future cash flows and potential impairment of its fleet by container type rather than for each individual container . therefore , future losses could result for individual container dispositions due to various factors including age , condition , suitability for continued leasing , as well as geographic location of the containers where disposed . considerable judgment is required in estimating future cash flows from container rental equipment operations . accordingly , the estimates may not be indicative of the amounts that may be realized in future periods . as additional information becomes available in subsequent periods , recognition of an impairment of the container rental equipment carrying values may be necessary based upon changes in market and economic conditions . allowance for doubtful accounts : the leasing company continually tracks the partnership 's credit exposure to each of the sub-lessees of the partnership 's containers using specialist third-party credit information services and reports prepared by its local staff to assess credit quality . the leasing company 's credit committee meets quarterly to analyze the performance of existing customers and to recommend actions taken in order to minimize credit risk . the leasing company derives an allowance for doubtful accounts from specific amounts provided against known probable losses plus an additional amount based on historical loss

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liquidity and capital resources during the partnership 's first 10 years of operations , the partnership 's primary objective was to generate cash flow from operations for distribution to its limited partners . aside from the initial working capital reserve retained from the gross subscription proceeds ( equal to approximately 1 % of such proceeds ) , the partnership relied primarily on container rental receipts to meet this objective as well as to finance current operating needs . no credit lines are maintained to finance working capital . commencing in 2002 , the partnership 's 11th year of operations , the partnership began focusing its attention on the disposition of its fleet in accordance with another of its original investment objectives , realizing the residual value of its containers after the expiration of their economic useful lives , estimated to be between 12 to 15 years after placement in leased service . the partnership has completed its 13th year of operations and has entered its liquidation phase wherein ccc has now focused its attention on the retirement of the remaining equipment in the partnership 's container fleet . at december 31 , 2005 , approximately 39 % of the original equipment remained in the partnership 's fleet . ccc will take several factors into consideration when examining options for the timing of the disposal of the containers . these factors include the impact of a diminishing fleet size and current market conditions on the level of gross lease revenue , and fixed operating costs relative to this revenue . parallel to these considerations will be a projected increase in expenses for devoting significant resources to the additional reporting and compliance requirements of section 404 of the sarbanes oxley act of 2002 , which addresses a range of corporate governance , disclosure , and accounting issues . these costs may include increased accounting and administrative expenses for additional staffing and outside professional services by accountants and consultants .

the noncontrolled entities managed by american assets , inc. include the entities that owned solana beach towne centre and solana beach corporate centre , or the solana beach centre entities , and the entity that owned the fireman 's fund headquarters office property . the remaining property not managed by american assets , inc. is waikiki beach walk , which is managed by outrigger hotels & resorts . we refer to abw lewers llc and the waikiki beach walk-embassy suites™ , the entities that owned this non-american assets , inc. managed property , as the waikiki beach walk entities . 49 for the periods after january , 19 , 2011 , the date of the consummation of our initial public offering and the formation transactions , our operations have included the consolidated results of operations of the noncontrolled entities , excluding the fireman 's fund headquarters office property , which was not acquired by us . since our initial public offering and the formation transactions occurred on january 19 , 2011 , the results of operations and financial condition for the entities acquired by us in connection with our initial public offering and related formation transactions are not included in certain historical financial statements . more specifically , our results of operations and financial condition for the years ended december 31 , 2010 and 2009 reflect the results of operations and financial condition for our predecessor . our results of operations for the years ended december 31 , 2012 and 2011 reflect the results of operation and financial condition for our predecessor together with the entities we acquired at the time of our initial public offering , namely , the waikiki beach walk entities and the solana beach centre entities , as well as geary marketplace , city center bellevue , one beach street , first & main , lloyd district portfolio , and solana beach—highway 101 , each acquired subsequent to our initial public offering and discussed in more detail under “acquisitions and dispositions” . the results of operations for each of these acquisitions are included in our consolidated statements of operations only from the date of acquisition . additionally , in august 2011 , we sold valencia corporate center , and in december 2012 , we sold 160 king street . as such , we have reclassified our financial statements for all periods prior to the sales to reflect valencia corporate center and 160 king street as discontinued operations . formation transactions on january 19 , 2011 , concurrently with the completion of our initial public offering , we completed a series of formation transactions pursuant to which we acquired , through a series of merger and contribution transactions , 100 % of the ownership interests in the controlled entities , the waikiki beach walk entities and the solana beach centre entities ( including our predecessor 's ownership interest in these entities ) . we did not acquire our predecessor 's noncontrolling 25 % ownership interest in novato ff venture , llc , the entity that owns fireman 's fund headquarters . in the aggregate , these interests comprise our ownership of our property portfolio . to acquire the ownership interests in the entities that owned the properties included in our portfolio from their prior investors , we issued to such prior investors an aggregate of 7,030,084 shares of our common stock and 18,145,039 common units , with an aggregate value of $ 516.1 million , and we paid $ 6.1 million in cash to those prior investors that were non-accredited . cash amounts were provided from the net proceeds of our initial public offering . the acquisition of these ownership interests was effected substantially concurrently with the completion of our initial public offering . the net proceeds from our initial public offering were approximately $ 594.6 million ( after deducting the underwriting discount and commissions and expenses of our initial public offering and the formation transactions ) . we contributed the net proceeds of the offering to our operating partnership in exchange for common units . upon completion of our initial public offering , we entered into a $ 250.0 million revolving credit facility . in connection with our initial public offering , we repaid $ 342.0 million of indebtedness ( including $ 24.3 million of defeasance costs ) , paid $ 6.1 million in cash to those prior investors that were non-accredited , and paid $ 10.8 million for loan transfer and consent fees and credit facility origination fees . subsequently , we paid $ 7.6 million to fund tenant improvements and leasing commissions at the landmark at one market and $ 0.9 million for costs related to the renovation of solana beach towne centre . we utilized remaining net proceeds for general corporate purposes , including working capital , acquisitions , transfer taxes and paying distributions . since the completion of our initial public offering and consummation of the formation transactions , our operations have been carried on through our operating partnership and subsidiaries of our operating partnership , including our taxable reit subsidiary . consummation of the formation transactions enabled us to ( 1 ) consolidate the ownership of our property portfolio under our operating partnership ; ( 2 ) succeed to the property management business of american assets , inc. ; and ( 3 ) facilitate our initial public offering . as a result , we are a vertically integrated and self-administered reit providing substantial in-house expertise in asset management , property management , property development , leasing , tenant improvement construction , acquisitions , repositioning , redevelopment and financing . story_separator_special_tag 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 54 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 . if a tenant vacates its space prior to contractual termination of its lease or the lease is not renewed , the unamortized balance of any in-place lease value is written off to rental income and amortization expense . the value of the leases associated with below market lease renewal options that are likely to be exercised are amortized to rental income over the respective renewal periods . we make assumptions and estimates related to below market lease renewal options , which impact revenue in the period in which the renewal options are exercised and could result in significant increases to revenue if the renewal options are not exercised at which time the related below market lease liabilities would be written off as an increase to revenue . capitalized costs we capitalize certain costs related to the development and redevelopment of real estate including pre-construction costs , real estate taxes , insurance and construction costs and salaries and related costs of personnel directly involved . additionally , we capitalize interest costs related to development and significant redevelopment activities . capitalization of these costs begins when the activities and related expenditures commence and cease when the project is substantially complete and ready for its intended use , at which time the project is placed in service and depreciation commences . additionally , we make estimates as to the probability of certain development and redevelopment projects being completed . if we determine that the completion of development or redevelopment is no longer probable , we expense all capitalized costs which are not recoverable . certain external and internal costs directly related to the development and redevelopment of real estate , including pre-construction costs , real estate taxes , insurance , construction costs and salaries and related costs of personnel directly involved , are capitalized . we capitalize costs under development until construction is substantially complete and the property is held available for occupancy . the determination of when a development project is substantially complete and

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early extinguishment of debt . early extinguishment of debt includes $ 24.3 million in defeasance costs , $ 0.6 million of unamortized deferred loan fees and $ 0.9 million of unamortized debt fair value adjustments that were written off related to loans repaid at the time of our initial public offering . loan transfer and consent fees . loan transfer and consent fees relate to fees paid to lenders in order for the lenders to consent to the transfer of the existing loans at certain properties to the operating partnership as part of the formation transactions . gain on acquisition . the gain on acquisition for the year ended december 31 , 2011 relates to the gains recognized on the acquisition of the outside ownership interests in the solana beach centre entities and the waikiki beach walk entities . other income ( expense ) , net . other income ( expense ) , net decreased $ 0.8 million , or 397 % , to net expense of $ 0.6 million for the year ended december 31 , 2012 , compared to net income of $ 0.2 million for the year ended december 31 , 2011. other income ( expense ) , net is comprised of interest and investment income , acquisition related expenses , and income tax expense related to our taxable reit subsidiary , which operates the hotel portion of our mixed-use property . the decrease was mainly due to a reduction in investment income related to the sale of our gnma securities . discontinued operations .

highlights include : average daily occupancy of 96.5 % , 50 basis points higher than the year ended 2017 ; same store net operating income increased 3.1 % with 74.2 % net operating income margin ; and same store rent increases on renewals and new leases averaged 4.5 % and 1.5 % , respectively , for a weighted average increase of 3.0 % . our focus on efficient operations through productivity initiatives such as centralization of administrative tasks , optimization of economies of scale at the corporate level , and investment in more durable , longer-lived materials has helped us control operating expenses . these and other innovations contributed to limiting growth in controllable operating expense ( defined as property expenses less taxes , insurance and utility expenses ) compounding for the past decade at an annual rate of 0.1 % . for the year ended december 31 , 2018 , our real estate portfolio provided 72 % net operating income margins and 67 % free cash flow margins . redevelopment our second line of business is the redevelopment and limited development of apartment communities . through these activities , we expect to create value by repositioning communities within our portfolio . we measure the rate and quality of financial returns by nav creation , an important component of economic income , our primary measure of long-term financial performance . over the past five years , we have spent approximately $ 1.0 billion on redevelopment and development , resulting in estimated value creation of approximately $ 400.0 million . we also undertake limited ground-up development when warranted by risk-adjusted 19 investment returns , either directly or in connection with the redevelopment of an existing apartment community . when warranted , we rely on the expertise and credit of a third-party developer familiar with the local market to limit our exposure to construction risk . we invest to earn risk-adjusted returns in excess of those expected from the apartment communities sold in paired trades to fund the redevelopment or development . of these two activities , we favor redevelopment because it permits adjustment to the scope and timing of spending to align with changing market conditions and customer preferences . during the year ended december 31 , 2018 , we invested $ 175.9 million in redevelopment and development . in boulder , colorado , we have invested $ 68.9 million in the development of parc mosaic , a 226 -unit apartment home community . the site is two miles from the new google campus and is across the street from ball aerospace 's technology campus and foothills hospital . building in boulder is highly regulated and new supply is limited , notwithstanding higher enrollment at the university of colorado and increased employment generally . at the university of colorado anschutz medical campus , we exercised our option to acquire approximately two acres of land adjacent to our 21 fitzsimons apartment community , and broke ground on the development of the fremont , a 253 -apartment home community . we expect to invest approximately $ 87.0 million to construct the community , which is expected to be ready for occupancy in late 2020. we also commenced the next phase of redevelopment at our flamingo community , located in miami beach , bringing our potential net investment to $ 39.7 million . this phase includes extensive redevelopment of retail , leasing , and common areas , including major enhancements to the entryway . in center city , philadelphia , we completed the redevelopment of park towne place , and as of december 31 , 2018 , we had leased 95.6 % of the apartment homes at the community . this multi-year redevelopment of 940 apartment homes , amenities , and common area spaces , was executed on plan and leased-up in-line with expectations with expected free cash flow returns of greater than 9 % . in san jose , california we completed the redevelopment of saybrook pointe , a 324-apartment home , garden-style community . construction was completed on time and in-line with underwritten costs , and lease-up of the community finished ahead of schedule and at rates above underwriting , increasing the expected free cash flow return to greater than 14 % , a 100 basis point outperformance to underwriting . as of december 31 , 2018 , our total estimated net investment in redevelopment and development activities is $ 571.2 million , with a projected weighted average net operating income yield on these investments of 6.1 % , assuming untrended rents . as of december 31 , 2018 , $ 361.0 million of this total has been funded . during the year ended december 31 , 2018 , we leased 457 apartment homes at our redevelopment and development communities . at december 31 , 2018 , our exposure to lease-up at active redevelopment and development communities was approximately 366 apartment homes , of which 208 were being constructed at parc mosaic , and 158 were located in four other communities . additionally , we expect to acquire one ardmore in 2019 upon its completion as part of the philadelphia portfolio acquisition announced in april 2018. this acquisition will increase our exposure to lease-up risk by approximately 100 apartment homes . see below under the liquidity and capital resources – redevelopment/development heading for additional information regarding our redevelopment and development investment during the year ended december 31 , 2018 . portfolio management our portfolio of apartment communities is diversified across “ a , ” “ b , ” and “ c+ ” price points , averaging “ b/b+ ” in quality and is diversified across several of the largest markets in the u.s. we measure the quality of apartment communities in our real estate portfolio based on average rents of our apartment homes compared to local market average rents as reported by a third-party provider of commercial real estate performance and analysis . story_separator_special_tag renewal rents , which is the rent paid by an existing resident who renewed a lease compared to the rent paid prior to renewal , were up 4.5 % for the year ended december 31 , 2018 , and new lease rents , which is the rent paid by a new resident compared to the rent paid by the previous resident of the same apartment home , were up 1.5 % , resulting in a weighted average increase of 3.0 % . the increase in same store rental and other property revenues was partially offset by a $ 4.7 million , or 3.3 % , increase in property operating expenses , primarily due to increases in real estate taxes and repairs and maintenance costs . during the year ended 25 december 31 , 2018 compared to 2017 , controllable operating expenses , which exclude utility costs , real estate taxes and insurance , increased by $ 1.5 million , or 2.0 % . the proportionate property net operating income of other real estate communities increased by $ 44.2 million , or 31.4 % , for the year ended december 31 , 2018 compared to 2017 primarily due to : a $ 24.1 million increase in property net operating income due to the 2018 acquisition of the four philadelphia communities , bent tree apartments and avery row , as well as the stabilization of indigo ; an $ 11.0 million increase in property net operating income due to leasing activities at redevelopment and development communities , partially offset by decreases due to apartment homes taken out of service for redevelopment ; and higher property net operating income of $ 9.1 million from other communities , primarily the effect of our increased ownership interest in the palazzo communities from our june 2017 reacquisition of a 47 % limited partner interest in the related joint venture . as of december 31 , 2017 , as defined by our segment performance metrics , our real estate portfolio consisted of 90 same store apartment communities with 25,197 apartment homes and 32 other real estate communities with 8,845 apartment homes . as of december 31 , 2017 , our other real estate communities included : 15 apartment communities with 6,386 apartment homes in redevelopment or development ; 2 apartment communities with 578 apartment homes recently acquired ; and 15 apartment communities with 1,881 apartment homes that do not meet the definition of same store because they are either subject to agreements that limit the amount by which we may increase rents or have not reached or maintained a stabilized level of occupancy as of the beginning of a two-year comparable period , often due to a casualty event . our real estate segment results for the years ended december 31 , 2017 and 2016 , as presented below , are based on the apartment community classifications as of december 31 , 2017 , and exclude amounts related to apartment communities sold or classified as held for sale during 2018 . the results of operations for these communities are reflected in the comparable periods in the tables below . replace_table_token_6_th for the year ended december 31 , 2017 compared to 2016 , our real estate segment 's proportionate property net operating income increased $ 48.6 million , or 9.5 % . same store proportionate property net operating income increased by $ 15.5 million , or 4.0 % . this increase was primarily attributable to a $ 17.3 million , or 3.3 % , increase in rental and other property revenues due to higher average revenues of approximately $ 59 per effective home , comprised primarily of increases in rental rates . renewal rents , which is the rent paid by an existing resident who renewed a lease compared to the rent paid prior to renewal , were up 4.6 % for the year ended december 31 , 2017 , and new lease rents , which is the rent paid by a new resident compared to the rent paid by the previous resident of the same apartment home , were up 0.6 % , resulting in a weighted average increase of 2.5 % . the increase in same store rental and other property revenues was partially offset by a $ 1.8 million , or 1.3 % , increase in property operating expenses , primarily due to 26 increases in real estate taxes . during the year ended december 31 , 2017 compared to 2016 , controllable operating expenses , which exclude utility costs , real estate taxes and insurance , decreased by $ 1.6 million , or 2.1 % . the proportionate property net operating income of other real estate comm unities increased by $ 33.1 million , or 27.7 % , for the year ended december 31 , 2017 compared to 2016 primarily due to : redevelopment and lease-up activities during the year ended december 31 , 2017 , which helped contribute to incremental property net operating income of $ 20.9 million compared to 2016 ; and higher property net operating income of $ 12.0 million from other communities , including the effect of our increased ownership interest in the palazzo communities from our june 2017 reacquisition of the 47 % limited partner interest in the related joint venture . non-segment real estate operations operating income amounts not attributed to our real estate segment include offsite costs associated with property management , casualty losses , and the results of apartment communities sold or held for sale , reported in consolidated amounts , which we do not allocate to our real estate segment for purposes of evaluating segment performance , as described in note 12 to the consolidated financial statements in item 8. for the years ended december 31 , 2018 , 2017 and 2016 , casualty losses totaled $ 4.0 million , $ 8.2 million and $ 5.6 million , respectively . casualty losses during the year ended december 31 , 2018 included several claims , primarily

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liquidity our liquidity consists of cash balances and available capacity on our revolving line of credit . during the year ended december 31 , 2018 , we exercised our option to expand our revolving credit facility by $ 200.0 million , bringing the total borrowing capacity to $ 800.0 million . as of december 31 , 2018 , we had cash and restricted cash of $ 72.6 million and had the capacity to borrow up to $ 632.5 million on our revolving credit facility , after consideration of $ 7.1 million letters of credit backed by the facility . we use our credit facility primarily for working capital and other short-term purposes and to secure letters of credit . we manage our financial flexibility by maintaining an investment grade rating and holding apartment communities that are unencumbered by property debt . at december 31 , 2018 , we held unencumbered apartment communities with an estimated fair market value of approximately $ 2.7 billion , up 50 % from december 31 , 2017 . two credit rating agencies rate our creditworthiness , using different methodologies and ratios for assessing our credit , and both have rated our credit and outlook as bbb- ( stable ) , an investment grade rating . although some of the ratios they use are similar to those we use to measure our leverage , there are differences in our methods of calculation and therefore our leverage ratios disclosed above are not indicative of the ratios that may be calculated by these agencies .

65 our operations have historically consumed cash and are expected to continue to require cash , but at a declining rate . the company 's revenue has increased 14 % and 26 % for each of the past two fiscal years and is expected to continue to increase , allowing the company to rely less on its existing cash balance and proceeds from financing transactions . despite increased revenue , cash used in operations during fiscal year 2018 was $ 16 million compared to $ 13.8 million in 2017 , due to the company completing the build-out of its 's commercial infrastructure in 2018. as of the date of this report , we expect our commercial costs to remain approximately flat or to increase modesty as we continue to focus on revenue growth . our current asset position of $ 9.5 million plus the proceeds expected from ongoing product sales will be used to fund operations . we will access the capital markets to fund operations if and when needed , and to the extent it becomes probable that existing cash and other current assets may become exhausted . the timing and amount of capital that may be raised is dependent on market conditions and the terms and conditions upon which investors would require to provide such capital . there is no guarantee that capital will be available on terms that we consider to be in the best interests of the company and our stockholders , or at all . however , we have been successful is accessing the capital markets in the past and are confident in our ability to access the capital markets again , if needed . since the company does not have a cash balance as of june 30 , 2018 , sufficient to cover potential operating losses for the twelve months following the expected filing date of this annual report , asu 2014-15 , presentation of financial statements—going concern ( subtopic 205-40 ) requires us to report that there is an indication that substantial doubt about the company 's ability to continue as a going concern exists . if we are unable to raise adequate capital in the future when it is required , we can adjust our operating plans to reduce the magnitude of the capital need under our existing operating plan . some of the adjustments that could be made include delays of and reductions to product support programs , reductions in headcount , narrowing the scope of one or more of our commercialization programs , or reductions to our research and development programs . without sufficient operating capital , we could be required to relinquish rights to product candidates on less favorable terms than we would otherwise choose . this may lead to impairment or other charges , which could materially affect our balance sheet and operating results . we have incurred accumulated net losses since inception , and at june 30 , 2018 , we had an accumulated deficit of $ 79.3 million . our net loss declined to $ 10.2 million from $ 22.5 million for fiscal 2018 and 2017 , respectively . we used $ 16.0 million and $ 13.8 million in cash from operations during fiscal 2018 and 2017. results of operations—june 30 , 2018 compared to june 30 , 2017 results of operations for the year ended june 30 , 2018 ( “ fiscal 2018 ” ) and the year ended june 30 , 2017 ( “ fiscal 2017 ” ) reflected losses of approximately $ 10.2 million and $ 22.5 million , respectively . the decline in losses was driven by increasing revenue , and by non-operating gains resulting from the revaluation of derivative liability related to outstanding warrants and to the reduction of expected milestone payments due to the revaluation of contingent consideration due to gaap , primarily related to natesto and the abandonment of the fiera product offering . revenue product revenue we continue to generate material revenues from the commercialization of our products and have recently launched a new product , zolpimist , that competes in the $ 1.8 billion prescription sleep aid market . we recognized approximately $ 3.7 million and $ 3.2 million of net revenue from natesto , prostascint , primsol , mioxsys and fiera sales during fiscal 2018 and 2017 , respectively . the addition of zolpimist is expected to be additive to the growing base of revenue from natesto and mioxsys . since we have discontinued the non-strategic assets primsol , prostascint and fiera , we do not expect to recognize revenue from those products in fiscal year 2019. the majority of our fiscal year 2018 revenue came from natesto sales . revenue from natesto sales increased 155 % in fiscal 2018 compared to fiscal 2017 . 66 as is customary in the pharmaceutical industry , our gross product sales are subject to a variety of deductions in arriving at reported net product sales . provisions for these deductions are estimated and recorded concurrently with the recognition of gross revenue from product sales and include coupons , discounts , chargebacks , distributor fees , processing fees , allowances for returns and medicaid rebates . provision balances relating to estimated amounts payable to direct customers are netted against accounts receivable and balances relating to indirect customers are included in accounts payable and accrued liabilities . the provisions recorded to reduce gross product sales and net product sales are as follows : replace_table_token_5_th expenses cost of sales the cost of sales of $ 2.1 million and $ 1.4 million recognized for fiscal 2018 and fiscal 2017 , respectively , are related to the natesto , zolpimist , prostascint , primsol , fiera , and the mioxsys and redoxsys systems . story_separator_special_tag the increase in cost of sales for fiscal 2018 was due to an increase in product sales and the impairment of the awh inventory , which represented $ 0.8 million or 38 % of the cost of sales for fiscal 2018. we expect cost of sales to increase in the future due to and in line with growth in revenue from product sales . research and development research and development costs consist of clinical trials and sponsored research , sponsored research – related party and consultants and other . these costs relate solely to research and development without an allocation of general and administrative expenses and are summarized as follows : replace_table_token_6_th comparison of years ended june 30 , 2018 and 2017 research and development expenses decreased $ 1.2 million , or 87.5 % , in fiscal 2018 compared to fiscal 2017. the decrease was due primarily to focusing our resource commitment on our commercial products and our decision to abandon sales and development support of prostascint in fiscal 2018 , for which we reversed a previously accrued liability in the amount of $ 398,000 which reduced fiscal year 2018 research and development expenses . we anticipate research and development expense to increase in fiscal 2019 as we anticipate funding a study to further support the clinical application of our mioxsys system , and to fund further clinical studies for natesto to potentially support new claims and to comply with fda post-marketing study requirements . 67 sales , general and administrative sales , general and administrative expenses consist of labor costs , including personnel costs for employees in executive , commercial , business development and operational functions ; stock-based compensation ; patents and intellectual property ; professional fees including legal , auditing , accounting , investor relations , shareholder expense and printing and filing of sec reports ; occupancy , travel and other expenses including rent , governmental and regulatory compliance , insurance , and professional subscriptions ; and directors fees . these costs are summarized as follows : replace_table_token_7_th comparison of years ended june 30 , 2018 and 2017 sales , general and administrative costs remained approximately level in fiscal 2018 compared to fiscal 2017. the most significant expense was due to labor costs , patent costs , and occupancy , travel and other , which were related to increased labor rates , fda fees , and increased spend on marketing efforts . this increase was offset by stock-based compensation , compared to fiscal 2017 , due to a reduction in the fair value of the stock options and restricted stock that was issued to directors , executives and employees . we expect future selling , general and administrative expenses to remain consistent with historical spending rates . impairment of intangible assets the expense related to impairment of intangible assets was $ 1.9 million for fiscal 2018. the impairment was related to the discontinuation of the fiera product line due to lower than expected sales performance of the fiera products and the contract manufacturer no longer supporting the product . impairment of intangible assets was $ 1.3 million for fiscal 2017 , which was related to the impairment of the prostascint product which was discontinued in fiscal year 2018. amortization of intangible assets amortization expense for the remaining intangible assets was $ 1.6 million and $ 1.7 million for fiscal 2018 and fiscal 2017 , respectively . this expense is related to corresponding amortization of its finite-lived intangible assets . we expect this expense to remain flat for fiscal 2019. net cash used in operating activities during fiscal 2018 , our operating activities consumed $ 16.0 million of cash . our cash use was $ 5.8 million greater than our net loss , primarily due to non-cash gains such as derivative income and other gains which reduced our fiscal 2018 losses , offset by depreciation , amortization and accretion , and the expense related to the impairment of intangible assets which increased losses in fiscal 2018. increases in our prepaid expense and decreases in accounts payable and accrued liabilities balance increased cash use in 2018 while an increase in accrued compensation decreased cash use in 2018. during fiscal 2017 , our operating activities used $ 13.8 million in cash . the use of cash was approximately $ 8.7 million lower than the net loss due primarily to non-cash charges for asset impairment , stock-based compensation , issuance of restricted stock , depreciation , amortization and accretion , amortization of prepaid research and development - related party , common stock issued to executives , warrants issued to initial investors , and an increase in accounts payable . these charges were offset by a decrease in accrued compensation , accrued liabilities , and accounts receivable , a gain on the sale of an asset , and derivative income . net cash used in investing activities during fiscal 2018 , cash of $ 484,000 was used to acquire fixed and operating assets in addition to a deposit for office space and a royalty payment . during fiscal 2017 , cash was received through the sale of primsol , the sale of our common stock investment in acerus and the merger with nuelle , inc. cash was also used to make contractual payments for acquired products , and to purchase fixed assets . 68 story_separator_special_tag style= `` width : 33 % `` > 69 trt market dynamics several recent developments in the u.s. testosterone replacement therapy market may favorably impact natesto 's near and longer-term market position as an fda-approved treated with an established efficacy and safety profile and being actively marketed by a focused sales infrastructure . first , the market leading product androgel , has experienced diminished promotion over the last several quarters due to the product 's relative age and importance in the abbvie product portfolio . as such , there is limited field-based promotion and sampling to high prescribing physicians . also , eli lilly formally discontinued axiron in

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net cash from financing activities net cash of $ 22.7 million was provided by financing activities during fiscal 2018. the private placement completed in august 2017 contributed gross proceeds of $ 11.8 million , which was reduced by offering costs of $ 1.4 million . the march 2018 offering provided gross proceeds of $ 12.9 million , which was reduced by offering costs of $ 1.3 million . finally , we received aggregate proceeds of $ 0.7 million from the exercise of warrants by investors . net cash of $ 10.2 million provided by financing activities during fiscal 2017 was primarily related to our warrant tender offer of $ 2.2 million offset by issuance costs of $ 312,000 , our registered public offering of $ 8.6 million of common stock and warrants offset by cash issuance costs of $ 998,000 , and the issuance of common stock to lincoln park capital of $ 740,000 offset by issuance costs of $ 91,000. recent developments introduction of natesto patient reimbursement support services during the company 's fourth quarter , several factors contributed to accelerate natesto revenue growth and to position natesto for further growth . in the third quarter of 2018 , the company piloted an initiative aimed at improving patient access , increasing prescription fill rates , and improving net revenue per prescription . this initiative , called the natesto support program , introduced a third-party resource that assists patients and physician offices with the insurance approval process for natesto . the program was rolled out across all sales territories in the fourth quarter of 2018. in conjunction with the roll-out of this initiative , the company eliminated company funded $ 0 prescription vouchers .

our warehousing , distribution & manufacturing consolidation plan was developed to align our warehousing , distribution and manufacturing with our growth and manufacturing strategy . the plan was designed to create a better cost structure as well as improve distribution capabilities and customer service . in june of 2014 , the board of directors approved a modification of this plan to include the elimination of both carpet dyeing and yarn dyeing in our atmore , alabama facility . elimination of dyeing at this facility was designed to more fully accommodate our distribution and manufacturing realignment . accordingly , the dyeing operations in atmore were moved to our colormaster continuous dyeing facility , our calhoun wool skein dyeing operation and other outside dyeing processors . total expenses of the warehousing , distribution & manufacturing consolidation plan are anticipated to be approximately $ 6.5 million . expenses incurred in 2015 were $ 2.0 million and $ 6.1 million since initiation of the plan in 2014. we estimate additional spending primarily related to the movement of our saraland , alabama rug operation moving from a rented facility into a company-owned facility of approximately $ 406 thousand under this plan through early 2016. these expenses of the plan primarily consist of moving and relocating inventory and equipment , facility restoration , information technology expenses and expenses relating to conversion and realignment of equipment . we also incurred non-cash asset impairment charges of $ 1.1 million subsequent to the first quarter of 2014 related to manufacturing changes and equipment taken out of service in our facilities . on march 19 , 2014 , we acquired atlas carpet mills . as a part of the atlas acquisition , we discontinued operations at the atlas dyeing facility in los angeles and moved the carpet dyeing of their products to our susan street dyeing operation located in santa ana , california . we initiated an atlas integration plan to accommodate the dyeing move and address the modification of computer systems . the costs of these initiatives were $ 1.7 million . this plan was completed in the second quarter of 2015. in april 2015 , the company 's board of directors approved the corporate office consolidation plan , to cover the costs of consolidating three of the company 's existing leased divisional and corporate offices to a single leased facility located in dalton , georgia . the company paid a fee to terminate one of the leases , did not renew a second facility and vacated the third facility . related to the vacated facility , the company recorded the estimated costs related to the fulfillment of its contractual lease obligation and on-going facilities maintenance , net of an estimate of sub-lease expectations . costs related to the consolidation include the lease termination fee , contractual lease obligations and moving costs . expenses of this plan were $ 728 thousand in 2015 with estimated remaining costs to be approximately $ 60 thousand . 16 results of operations fiscal year ended december 26 , 2015 compared with fiscal year ended december 27 , 2014 replace_table_token_5_th net sales . net sales for the year ended december 26 , 2015 were $ 422.5 million compared with $ 406.6 million in the year-earlier period , an increase of 3.9 % for the year-over-year comparison . sales for the carpet industry were down slightly for annual 2015 compared with the prior year . our 2015 year-over-year carpet sales comparison reflected an increase of 4.5 % in net sales . sales of residential carpet were down 0.4 % and sales of commercial carpet increased 14.4 % . revenue from carpet yarn processing and carpet dyeing and finishing services decreased 11.9 % in 2015 compared with 2014. we believe our growth in both the residential and commercial sales were positively affected by the introduction of new and innovative product offerings . cost of sales . cost of sales , as a percentage of net sales , decreased 1.6 percentage points , as a percentage of net sales in 2015 compared with 2014. during the expansion and restructuring initiatives , we have experienced high training , quality and waste costs . these costs were offset by improvements in operating efficiencies and lower raw material costs . gross profit . gross profit , as a percentage of net sales , increased 1.6 percentage points in 2015 compared with 2014. the increase in gross profit as a percentage of net sales was attributable to the factors discussed above . selling and administrative expenses . selling and administrative expenses were $ 100.4 million in 2015 compared with $ 93.2 million in 2014 , or an increase of 0.9 % as a percentage of sales . our increase in selling and administrative expenses as a percentage of sales was primarily driven by the higher levels of investment in new products in our residential and commercial brands compared with the prior year . other operating expense , net . net other operating ( income ) expense was an expense of $ 872 thousand in 2015 compared with expense of $ 904 thousand in 2014. operating income ( loss ) . operations reflected operating income of $ 2.0 million in 2015 compared with an operating loss of $ 5.2 million in 2014. facility consolidation expenses of $ 2.9 million and $ 5.5 million were included in the 2015 and 2014 results , respectively . in addition , related asset impairment expenses of $ 1.1 million were included in the 2014 operating results . interest expense . interest expense increased $ 633 thousand in 2015 principally due to higher interest rates associated with previously locked in future interest rate swaps from 2015 until 2021 to fix a portion of the company 's revolving credit facility . story_separator_special_tag the securities and exchange commission requires management to identify its most critical accounting policies , defined as those that are both most important to the portrayal of our financial condition and operating results and the application of which requires our most difficult , subjective , and complex judgments . although our estimates have not differed materially from our experience , such estimates pertain to inherently uncertain matters that could result in material differences in subsequent periods . we believe application of the following accounting policies require significant judgments and estimates and represent our critical accounting policies . other significant accounting policies are discussed in note 1 to our consolidated financial statements . revenue recognition . revenues , including shipping and handling amounts , are recognized when the following criteria are met : there is persuasive evidence that a sales agreement exists , delivery has occurred or services have been rendered , the price to the buyer is fixed or determinable , and collection is reasonably assured . delivery is considered to have occurred when the customer takes title to products , which is generally on the date of shipment . at the time revenue is recognized , we record a provision for the estimated amount of future returns including product warranties and customer claims based primarily on historical experience and any known trends or conditions . 22 customer claims and product warranties . we provide product warranties related to manufacturing defects and specific performance standards for our products . we record reserves for the estimated costs of defective products and failure to meet applicable performance standards . the levels of reserves are established based primarily upon historical experience and our evaluation of pending claims . because our evaluations are based on historical experience and conditions at the time our financial statements are prepared , actual results could differ from the reserves in our consolidated financial statements . accounts receivable allowances . we provide allowances for expected cash discounts and doubtful accounts based upon historical experience and periodic evaluations of the financial condition of our customers . if the financial conditions of our customers were to significantly deteriorate , or other factors impair their ability to pay their debts , credit losses could differ from allowances recorded in our consolidated financial statements . inventories . inventories are stated at the lower of cost or market . cost is determined using the last-in , first-out method ( lifo ) , which generally matches current costs of inventory sold with current revenues , for substantially all inventories . reserves are also established to adjust inventories that are off-quality , aged or obsolete to their estimated net realizable value . additionally , rates of recoverability per unit of off-quality , aged or obsolete inventory are estimated based on historical rates of recoverability and other known conditions or circumstances that may affect future recoverability . actual results could differ from assumptions used to value our inventory . goodwill . goodwill is tested annually for impairment during the fourth quarter or earlier if significant events or substantive changes in circumstances occur that may indicate that goodwill may not be recoverable . the goodwill impairment tests are based on determining the fair value of the specified reporting units based on management judgments and assumptions using the discounted cash flows . the valuation approaches are subject to key judgments and assumptions that are sensitive to change such as judgments and assumptions about sales growth rates , operating margins and the weighted average cost of capital ( “ wacc ” ) . when developing these key judgments and assumptions , we consider economic , operational and market conditions that could impact the fair value of the reporting unit . however , estimates are inherently uncertain and represent only management 's reasonable expectations regarding future developments . these estimates and the judgments and assumptions upon which the estimates are based will , in all likelihood , differ in some respects from actual future results . should a significant or prolonged deterioration in economic conditions occur key judgments and assumptions could be impacted . contingent consideration . contingent consideration liabilities represent future amounts we may be required to pay in conjunction with various business combinations . the ultimate amount of future payments is based on incremental gross margin growth related to the contingent liability . we estimate the fair value of the contingent consideration liability by forecasting estimated cash payments based on incremental gross margin growth and discounting the associated cash payment amounts to their present values using a credit-risk-adjusted interest rate . we evaluate our estimates of the fair value of contingent consideration liabilities on a periodic basis . any changes in the fair value of contingent consideration liabilities are recorded through earnings . the total estimated fair value of contingent consideration liabilities was $ 584 thousand and $ 1.9 million at december 26 , 2015 and december 27 , 2014 , respectively , and was included in accrued expenses and other liabilities in our consolidated balance sheets . self-insured accruals . we estimate costs required to settle claims related to our self-insured medical , dental and workers ' compensation plans . these estimates include costs to settle known claims , as well as incurred and unreported claims . the estimated costs of known and unreported claims are based on historical experience . actual results could differ from assumptions used to estimate these accruals . income taxes . the company 's effective tax rate is based on its income , statutory tax rates and tax planning opportunities available in the jurisdictions in which it operates . tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities . deferred tax assets represent amounts available to reduce income taxes payable on taxable income in a future period . the company evaluates the recoverability of these future tax benefits by assessing the adequacy of future expected taxable income from all sources , including reversal of taxable

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liquidity and capital resources during the year ended december 26 , 2015 , cash provided by operations was $ 8.6 million . inventories increased $ 10.9 million which was offset by an increase in accounts payable and accrued expenses of $ 7.6 million . inventories were increased to improve service to our customers and to build inventories from a supplier that was going through a year-end software conversion . capital asset acquisitions for the year ended december 26 , 2015 were $ 12.2 million ; $ 6.8 million of cash used in investing activities , $ 3.3 million of equipment acquired under notes and capital leases , $ 1.9 million of previous deposits utilized for capital additions and $ 200 thousand for accrued purchases . depreciation and amortization for the year ended december 26 , 2015 were $ 14.1 million . we expect capital expenditures to be approximately $ 10.0 million in 2016 for capital expenditures while depreciation and amortization is expected to be approximately $ 13.5 million . planned capital expenditures in 2016 are primarily for new equipment . during the year ended december 26 , 2015 , cash used in financing activities was $ 2.0 million . in january 2015 , we entered into a ten-year $ 6.3 million mortgage note payable to finance an owned facility in saraland , alabama . we had additional proceeds of $ 1.0 million from equipment notes payable . these proceeds are offset by payments on notes payable and lease obligations of $ 9.7 million . we believe our operating cash flows , credit availability under our revolving credit facility and other sources of financing are adequate to finance our anticipated liquidity requirements . as of december 26 , 2015 , the unused borrowing availability under our revolving credit facility was $ 39.8 million . our revolving credit facility requires us to maintain a fixed charge coverage ratio of 1.1 to 1.0 during any period that borrowing availability is less than $ 16.5 million . as of the date hereof , our fixed coverage ratio was less than 1.1 to 1.0 , accordingly the unused availability accessible by us is the amount above $ 16.5 million .

under our collaboration with celgene , we are developing small molecule inhibitors directed to three other hmt targets , in addition to 76 pinometostat . we are responsible for all preclinical discovery work as well as phase 1 clinical development for all three targets . celgene has the option to license worldwide rights to inhibitors directed at two of the three targets , and the option to license ex-u.s. rights to inhibitors directed to the third target . we retain the rights to develop and commercialize inhibitors of the third target in the united states . beyond our two clinical stage programs and the partnered programs with gsk and celgene , we have also identified five novel epigenetic targets for which we are developing small molecule inhibitors in preclinical drug discovery . we own the global development and commercialization rights to these programs . all of our novel targets have been identified internally using our proprietary drug discovery platform , and all of our small molecule inhibitors have been discovered internally . we commenced active operations in early 2008 , and since inception , have incurred significant operating losses . as of december 31 , 2015 , our accumulated deficit totaled $ 243.5 million . as a clinical stage company , we expect to continue to incur significant expenses and operating losses over the next several years . our net losses may fluctuate significantly from quarter to quarter and year to year . we expect our expenses to increase in connection with our ongoing activities , including as we execute on the following clinical development plans for tazemetostat : continue to enroll adult patients into all arms of our ongoing international , registration-supporting five-arm phase 2 study in up to 150 patients with nhl , present interim data from the study at a medical conference in mid-2016 and present a second interim analysis at a medical conference in late 2016 ; continue to enroll adult patients into all arms of our ongoing international , registration-supporting phase 2 three-arm study in up to 90 patients with certain genetically-defined solid tumors , and present interim data from the study at a medical conference in late 2016 ; continue to enroll pediatric patients into our ongoing international phase 1 dose escalation and dose expansion study in approximately 40 patients with certain genetically-defined solid tumors ; present data from the food effect and drug-drug interaction clinical pharmacology sub-studies of the ongoing phase 1 study in relapsed or refractory nhl or advanced solid tumors at a medical conference in the first half of 2016 and present final data from the phase 1 study in the second half of 2016 ; initiate a phase 1b/2 study in combination with r-chop in front line elderly patients with dlbcl in the first half of 2016 ; enter into an arrangement with a collaboration partner for a phase 1b study in combination with either an anti-pd1 antibody or an anti-pdl1 antibody in patients with relapsed or refractory dlbcl in the second quarter of 2016 and initiate this study in mid-2016 ; and initiate a phase 2 study in relapsed or refractory patients with mesothelioma characterized by bap1 loss-of-function by the third quarter of 2016. since our inception and through december 31 , 2015 , we have raised an aggregate of $ 592.1 million to fund our operations , of which $ 201.6 million was non-equity funding through our collaboration agreements , $ 314.5 million was from the sale of common stock in our public offerings and $ 76.0 million was from the sale of redeemable convertible preferred stock . as of december 31 , 2015 , we had $ 208.3 million in cash and cash equivalents . in addition , in january 2016 , we raised an additional $ 130.1 million of net proceeds after underwriting discounts and commissions , but before direct and incremental costs of the offering , upon the sale of 15.3 million shares of our common stock in a public offering . collaborations refer to item . 1 , collaborations and note 9 , collaborations , of the notes to our consolidated financial statements in item 15 of this annual report on form 10-k for a description of the key terms of our arrangements with eisai , celgene and gsk , as well as the related accounting and revenue recognition considerations . 77 results of operations for the years ended december 31 , 2015 , 2014 and 2013 collaboration revenue the following is a comparison of collaboration revenue for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_4_th our revenue consists of collaboration revenue , including amounts recognized from deferred revenue related to upfront payments for licenses or options to obtain licenses in the future , research and development services revenue earned and milestone payments earned under collaboration and license agreements with our collaboration partners . the following table summarizes our collaboration revenue , by partner , for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_5_th collaboration revenues for the year ended december 31 , 2015 decreased $ 38.8 million as compared to the year ended december 31 , 2014 , primarily as a result of the completion of a significant portion of our performance obligations under our collaborations during 2014 and achievement of a $ 3.0 million milestone under our agreement with gsk during 2014. collaboration revenue decreased $ 27.1 million in the year ended december 31 , 2014 as compared to 2013 , primarily as a result of $ 35.0 million of milestone payments recognized in 2013 related to the celgene , gsk and eisai collaborations , partially offset by higher research revenues associated with the gsk agreement in 2014. in 2013 , we recognized milestone revenue of $ 25.0 million from celgene related to achieving a proof of concept milestone for pinometostat , $ 4.0 million for achievement of two preclinical milestones with gsk and $ 6.0 million from eisai for achieving a story_separator_special_tag in those circumstances where we apply our best estimate of selling price to determine the estimated selling price of a license to our proprietary technology , we consider market conditions as well as entity-specific factors , including those factors contemplated in negotiating the agreements as well as internally developed estimates that include assumptions related to the market opportunity , estimated development costs , probability of success and the time needed to commercialize a product candidate pursuant to the license . in validating our best estimate of selling price , we evaluate whether changes in the key assumptions used to determine our best estimate of selling price will have a significant effect on the allocation of arrangement consideration between deliverables . we recognize consideration allocated to an individual element when all other revenue recognition criteria are met for that element . our multiple-element revenue arrangements generally include the following : exclusive licenses . the deliverables under our collaboration agreements generally include exclusive licenses to discover , develop , manufacture and commercialize compounds with respect to one or more specified hmt targets . to account for this element of the arrangement , we evaluate whether the exclusive license has standalone value from the undelivered elements to the collaboration partner based on the consideration of the relevant facts and circumstances of each arrangement , including the research and development capabilities of the collaboration partner and other market participants . arrangement consideration allocated to licenses may be recognized upon delivery of the license if facts and circumstances indicate that the license has standalone value apart from the undelivered elements , which generally include research and development services . arrangement consideration allocated to licenses is deferred if facts and circumstances indicate that the delivered license does not have standalone value from the undelivered elements . 85 we have determined that some of our exclusive licenses lack standalone value apart from the related research and development services , and in those circumstances we recognize collaboration revenue from non-refundable exclusive license fees on a straight-line basis over the contracted or estimated period of performance , which is generally the period over which the research and development services are to be provided . research and development services . the deliverables under our collaboration and license agreements generally include deliverables related to research and development services to be performed on behalf of the collaboration partner . as the provision of research and development services is a part of our central operations , when we are principally responsible for the performance of these services under the agreements , we recognize revenue on a gross basis for research and development services as those services are performed . option arrangements . our arrangements may provide a collaborator with the right to select a target for licensing either at the inception of the arrangement or within an initial pre-defined selection period , which may , in certain cases , include the right of the collaborator to extend the selection period . under these agreements , fees may be due to us at the inception of the arrangement as an upfront fee or payment , upon the exercise of an option to acquire a license or upon extending the selection period as an extension fee or payment . the accounting for option arrangements is dependent on the nature of the options granted to the collaboration partner . options are considered substantive if , at the inception of the arrangement , we are at risk as to whether the collaboration partner will choose to exercise the options to secure exclusive licenses . factors that are considered in evaluating whether options are substantive include the overall objective of the arrangement , the benefit the collaborator might obtain from the arrangement without exercising the options , the cost to exercise the options relative to the total upfront consideration and the additional financial commitments or economic penalties imposed on the collaborator as a result of exercising the options . for arrangements under which the option to secure licenses is considered substantive , we do not consider the licenses to be deliverables at the inception of the arrangement . for arrangements where the option to secure licenses is not considered substantive , we consider the license to be a deliverable at the inception of the arrangement and , upon delivery of the license , would apply the multiple-element revenue arrangement criteria to the license and any other deliverables to determine the appropriate revenue recognition . none of the options to secure exclusive licenses included in our collaborative arrangements have been determined to be substantive . milestone revenue . our collaboration and license agreements generally include contingent milestone payments related to specified preclinical research and development milestones , clinical development milestones , regulatory milestones and sales-based milestones . preclinical research and development milestones are typically payable upon the selection of a compound candidate for the next stage of research and development . clinical development milestones are typically payable when a product candidate initiates or advances in clinical trial phases or achieves defined clinical events , such as proof-of-concept . regulatory milestones are typically payable upon submission for marketing approval with regulatory authorities , upon receipt of actual marketing approvals for a compound or for additional indications or upon the first commercial sale . sales-based milestones are typically payable when annual sales reach specified levels . at the inception of each arrangement that includes milestone payments , we evaluate whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone . this evaluation includes an assessment of whether : the consideration is commensurate with either the entity 's performance to achieve the milestone or the enhancement of the value of the delivered item ( s ) as a result of a specific outcome resulting from the entity 's performance to achieve the milestone ; the consideration relates solely to past performance ; and 86 the consideration is reasonable relative to all

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liquidity and capital resources through december 31 , 2015 , we have raised an aggregate of $ 592.1 million to fund our operations , of which $ 201.6 million was non-equity funding through our collaboration agreements , $ 314.5 million was from the sale of common stock in our public offerings and $ 76.0 million was from the sale of redeemable convertible preferred stock . as of december 31 , 2015 , we had $ 208.3 million in cash and cash equivalents . in addition , in january 2016 , we raised an additional $ 130.1 million of net proceeds after underwriting discounts and commissions , but before direct and incremental costs of the offering , upon the sale of 15,333,334 shares of our common stock in a public offering . as this event occurred in fiscal 2016 , it is not reflected in our december 31 , 2015 cash and cash equivalent balances . in addition to our existing cash and cash equivalents , we may receive research and development co-funding and are eligible to earn a significant amount of license and milestone payments under our collaboration agreements . our ability to earn these payments and the timing of earning these payments is dependent upon the outcome of our research and development activities and is uncertain at this time . funding requirements our primary uses of capital are , and we expect will continue to be , clinical trial costs , third party research and development services , compensation and related expenses , laboratory and related supplies , our potential future milestone payment obligations to eisai and roche under the amended eisai collaboration agreement and roche companion diagnostic agreement , legal and other regulatory expenses and general overhead costs . because our product candidates are in various stages of clinical and preclinical development and the outcome of these efforts is uncertain , we can not estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether , or when , we may achieve profitability .

the initial launch of the new commercialization strategy resulted in the following during 2015 : · grew lymphoseek sales by 142 % year over year , based on lymphoseek sales to navidea of $ 10.3 million for 2015 ; · ended the year at an annualized sales run rate for lymphoseek of over $ 15 million in revenue to navidea , which does not reflect the opportunity for additional growth in existing and expansion sales territories throughout 2016 ; and · achieved an increase of approximately 60 % in “ average daily doses sold ” from the end of 2014 through the end of 2015. we enter 2016 with positive momentum behind our new commercialization strategy . we expect our sales team 's strong contributions to continue to accelerate product revenues throughout the year . in addition , european sales revenues are expected to be generated from commercialization efforts with spepharm ag , an affiliate of norgine bv , to begin in the fourth quarter of 2016 . 36 in parallel , our r & d team is aggressively advancing our immunodiagnostics pipeline focused on significantly larger market opportunities including ra , which has a prevalence of approximately 3.8 million p atients in the u.s. and europe . the company continues to work toward a more focused development program using its manocept platform in immunodiagnostics , including the fda label expansion for lymphoseek into ra and ks . importantly , the costs of these development programs will be defrayed by nih grants awarded to the company in 2015 totaling over $ 3.8 million . in the near term , the company intends to : · meet with the fda before the end of march 2016 to share preclinical results on the intravenous route of administration ( ivroa ) and discuss and agree on the phase 1 and 2 clinical plan for our ra immunodiagnostic program . this is a follow-up meeting to the one that took place in may 2015 , where the company and the fda confirmed requirements for a preclinical submission package for the use of lymphoseek in ivroa ; · finalize preparations to initiate a phase 1 pilot trial evaluating subcutaneous injection of lymphoseek in active ra subjects in the first half of 2016. initiate a subsequent phase 1/2 registrational trial of iv-administered lymphoseek for the ra immunodiagnostic application during the second half of 2016 ; · expand patient enrollment in the fda/ema mandated pediatric trial for children with melanoma , rhabdomyosarcoma , or other solid tumors who are undergoing lymph node mapping and who meet special criteria for pediatric sentinel node biopsy . since the first patient was dosed in december 2015 , two new sites have been added including cincinnati children 's hospital medical center ; · enroll first patient at the md anderson cancer center in the company 's multi–center cervical cancer study ; · initiate patient enrollment in an investigator-initiated endometrial cancer study directed by dr. michael mchale at uc san diego health system ; and · expand patient enrollment in the cardiovascular immunodiagnostic study , an investigator-initiated study in collaboration with massachusetts general hospital . based on encouraging findings in the first patients dosed , we are very excited by the potential and are seeking to accelerate and expand this funded program using a protocol for ivroa . substantial progress on the manocept platform has resulted in several promising opportunities , including our r-nav venture which began in july 2014 , the formation of macrophage therapeutics , inc. in january 2015 , and macrophage therapeutics ' research collaboration agreement with bind therapeutics , inc. executed in june 2015 , which we believe may further expand the company 's pipeline . our progress in moving forward the manocept pipeline was made possible in large part by the may 2014 decision to refocus the company 's resources to better align the funding of our pipeline programs with the expected growth in lymphoseek revenue . this realignment has resulted in the near-term reduction of expenditures on the two neurological product candidates , nav4694 and nav5001 . in april 2015 , the company entered into an agreement with alseres to terminate the nav5001 sub-license agreement . the company is currently engaged in discussions related to the potential partnering or divestiture of nav4694 . our outlook following the u.s. approval of lymphoseek in march 2013 , the company undertook the initial stages of product launch in the u.s. with our commercialization partner , cardinal health , in may 2013. in october 2014 , we received approval from fda for a significantly expanded product label for lymphoseek . during the second quarter of 2015 , we successfully deployed navidea 's direct sales personnel as part of our effort to accelerate lymphoseek revenue growth in the remainder of 2015 and beyond . our strategy for increasing lymphoseek revenue focuses on a new brand strategy reflective of the expanded product label that allows the delivery of a compelling clinical value proposition message targeting the oncology treatment team including surgical oncologists and nuclear medicine physicians , focusing on areas where the concentration of cancer diagnosis occurs to increase the total number of hospitals using lymphoseek , and increasing the number of doses utilized per account , while continuing to evolve the brand . 37 our operating expenses in re cent years have been focused primarily on support of lymphoseek , our manocept platform , and nav4694 and nav5001 product development . we incurred approximately $ 12.8 million , $ 16.8 million and $ 23.7 million in total on research and development activities d uring the years ended december 31 , 2015 , 2014 and 2013 , respectively . story_separator_special_tag 2015 crg agreed to a reduction of that target and we were able to meet that reduced target , thereby complying with the covenant . as of the time of filing this report , it appears likely that we will need to draw on the platinum line of 40 credit on order to maintain compliance with the $ 5 million liquidity covenant of the crg loan agreement beginning in the se cond quarter of 2016 . our inability to meet the liquidity covenant would be an event of default under the crg loan agreement . in addition , if we are unable to reach the 2016 annual lymphoseek sales revenue target of $ 22.5 million , this would also be an e vent of default under the crg loan agreement ; however , potential shortfalls to this revenue covenant are curable by the company depositing 2.5 times the amount of the shortfall in a bank account controlled by crg . the events of default under the crg loan agreement also include a failure of platinum to perform its funding obligations und er the platinum loan agreement at any time as to which the company had negative ebitda for the most recent fiscal quarter , as a result either of platinum 's repudiation of it s obligations under the platinum loan agreement , or the occurrence of an insolvency event with respect to platinum . our ability to comply with these provisions may be affected by changes in our business condition or results of our operations , or other eve nts beyond our control . the breach of any of these covenants would result in a default under the crg loan agreement , permitting crg to accelerate the maturity of our indebtedness , increase the interest rate to the default rate of 18 % per annum , and invoke other remedies available to it under the loan agreement and the related security agreement , including sale of the assets securing the debt , which could raise substantial doubt about the company 's ability to continue as a going concern . such actions by cr g could materially adversely affect our operations , results of operations and financial condition , including causing us to substantially curtail our product development activities . see risk factors . in addition , the platinum loan agreement carries standard non-financial covenants typical for commercial loan agreements , many of which are similar to those contained in the crg loan agreement , that impose significant requirements on us . our ability to comply with these provisions may be affected by changes in our business condition or results of our operations , or other events beyond our control . the breach of any of these covenants would result in a default under the platinum loan agreement , permitting platinum to terminate our ability to obtain additional draws under the platinum loan agreement and accelerate the maturity of the debt , subject to the limitations of the subordination agreement with crg . such actions by platinum could materially adversely affect our operations , results of operations and financial condition , including causing us to substantially curtail our product development activities . as of the time of filing of this report , we are in compliance with all covenants under the platinum loan agreement . see risk factors . as of december 31 , 2015 , $ 27.3 million was still immediately available under the platinum credit facility , which was reaffirmed by platinum in march 2016. we believe that our current cash balance , our credit facility with platinum , our projected revenue derived from sales of lymphoseek , our ability to control expenses , the potential for partnership funding , the potential to access debt or royalty instruments , and the potential to access capital markets through our shelf registration ( though we have no current intention to raise additional equity capital using the shelf registration ) , provide us with adequate financial resources to continue to fund our business plan for the foreseeable future and enable us to reach cash flow breakeven from operations in the second half of 2016. operating activities . cash used in operations decreased $ 10.0 million to $ 19.1 million during 2015 compared to $ 29.1 million used in 2014. accounts and other receivables increased to $ 3.7 million at december 31 , 2015 from $ 894,000 at december 31 , 2014 , primarily due to increased receivables due from cardinal health resulting from the increase in sales of lymphoseek of $ 1.7 million coupled with $ 1.2 million of royalties due from devicor associated with the 2011 sale of the gds business . inventory levels decreased to $ 653,000 at december 31 , 2015 from $ 932,000 at december 31 , 2014 , primarily due to finished goods inventory sold and materials inventory consumed for process development , offset by materials and finished goods inventory produced . we expect inventory levels to increase during 2016 as we produce additional lymphoseek inventory to build our safety stock levels and meet increasing demand . prepaid expenses and other current assets decreased to $ 1.1 million at december 31 , 2015 from $ 1.3 million at december 31 , 2014 , primarily due the application of a prepaid deposit to a new lot of materials inventory , partially offset by incremental insurance premiums related to policy renewals . accounts payable increased to $ 1.8 million at december 31 , 2015 from $ 1.5 million at december 31 , 2014 , primarily due to net increased payables due to nav4694 , lymphoseek , investor relations , legal and professional services vendors , offset by net decreased payables due to regulatory , commercial , and medical education vendors . accrued liabilities and other current liabilities decreased to $ 3.0 million at december 31 , 2015 from $ 3.2 million at december 31 , 2014. decreased accruals for termination , legal and professional services , interest , and

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oxford debt in march 2014 , we executed a loan and security agreement ( the oxford loan agreement ) with oxford finance , llc ( oxford ) , providing for a loan to the company of $ 30 million . pursuant to the oxford loan agreement , we issued oxford : ( 1 ) term notes in the aggregate principal amount of $ 30 million , bearing interest at 8.5 % ( the oxford notes ) , and ( 2 ) series kk warrants to purchase an aggregate of 391,032 shares of our common stock at an exercise price of $ 1.918 per share , expiring in march 2021 ( the series kk warrants ) . we began making monthly payments of interest only on april 1 , 2014 , and monthly payments of principal and interest beginning april 1 , 2015. in may 2015 , in connection with the consummation of the crg loan agreement , the company repaid all 44 amounts outstanding under the oxford loan agreement . the payoff amount of $ 31 . 7 million included payments of $ 289,000 as a pre-payment fee and $ 2.4 million as an end-of-term final payment fee . the series kk warrants remained outstandi ng as of december 31 , 2015. gecc/midcap debt in june 2013 , we executed a loan and security agreement ( the gecc/midcap loan agreement ) with general electric capital corporation ( gecc ) and midcap financial sbic , lp ( midcap ) , pursuant to which we issued gecc and midcap : ( 1 ) term notes in the aggregate principal amount of $ 25,000,000 ( the gecc/midcap notes ) , and ( 2 ) series hh warrants to purchase an aggregate of 301,205 shares of our common stock at an exercise price of $ 2.49 per share , expiring in june 2023 ( the series hh warrants ) . in march 2014 , in connection with the consummation of the oxford loan agreement , we repaid all amounts outstanding under the gecc/midcap loan agreement upon the receipt by gecc/midcap of a payoff amount of $ 26.7 million , including $ 500,000 as a pre-payment fee and $ 1,000,000 as an end-of-term final payment fee .

we believe out-of-home advertising continues to be an attractive form of advertising , as our displays are always on , are always viewable and can not be turned off , skipped , blocked or fast-forwarded . further , out-of-home advertising can be an effective “ stand-alone ” medium , as well as an integral part of a campaign to reach audiences using multiple forms of media , including television , radio , print , online , mobile and social media advertising platforms . we provide our customers with a differentiated advertising solution at an attractive price point relative to other forms of advertising . in addition to leasing displays , we provide other value-added services to our customers , such as pre-campaign category research , consumer insights , creative design support , print production and post-campaign tracking and analytics , as well as use of a real-time mobile operations reporting system that facilitates proof of performance to customers for substantially all of our business . 40 u.s. media . our u.s. media segment generated 23 % of its revenues in the new york city metropolitan area in 2017 , 25 % in 2016 and 27 % in 2015 , and generated 16 % in the los angeles metropolitan area in each of 2017 and 2016 , and 15 % in 2015 . our u.s. media segment generated revenues of $ 1,406.5 million in 2017 , $ 1,393.8 million in 2016 and $ 1,344.3 million in 2015 , and operating income before depreciation , amortization , net ( gain ) loss on dispositions , stock-based compensation , restructuring charges and loss on real estate assets held for sale ( “ adjusted oibda ” ) of $ 478.1 million in 2017 , $ 473.8 million in 2016 and $ 451.1 million in 2015 . ( see the “ segment results of operations ” section of this md & a . ) other ( includes international and sports marketing ) . other generated revenues of $ 114.0 million in 2017 , $ 120.1 million in 2016 and $ 169.5 million in 2015 , and adjusted oibda of $ 8.4 million in 2017 , $ 17.8 million in 2016 , and $ 24.3 million in 2015 . economic environment our revenues and operating results are sensitive to fluctuations in advertising expenditures , general economic conditions and other external events beyond our control . business environment the outdoor advertising industry is fragmented , consisting of several companies operating on a national basis , as well as hundreds of smaller regional and local companies operating a limited number of displays in a single or a few local geographic markets . we compete with these companies for customers , structures and display locations . we also compete with other media , including online , mobile and social media advertising platforms and traditional platforms such as , broadcast and cable television , radio , print media and direct mail marketers . increasing the number of digital displays in our most heavily trafficked locations is an important element of our organic growth strategy , as digital displays have the potential to attract additional business from both new and existing customers . we believe digital displays are attractive to our customers because they allow for the development of richer and more visually engaging messages , provide our customers with the flexibility both to target audiences by time of day and to quickly launch new advertising campaigns , and eliminate or greatly reduce production costs . in addition , digital displays enable us to run multiple advertisements on each display . digital billboard displays generate approximately four times more revenue per display on average than traditional static billboard displays . digital billboard displays also incur , on average , approximately two to four times more costs , including higher variable costs associated with the increase in revenue than traditional static billboard displays . as a result , digital billboard displays generate higher profits and cash flows than traditional static billboard displays . the majority of our digital billboard displays were converted from traditional static billboard displays . in 2017 , we commenced deployment of state-of-the-art digital transit displays in connection with several transit franchises and are planning to increase deployments significantly over the coming years . once the digital transit displays have been deployed at scale , we expect that revenue generated on digital transit displays will be a multiple of the revenue generated on comparable static transit displays . we intend to incur significant equipment deployment costs and capital expenditures in the coming years to continue increasing the number of digital displays in our portfolio . in 2017 , we have built or converted 65 new digital billboard displays in the united states and 21 in canada . additionally , in 2017 , we entered into marketing arrangements to sell advertising on 49 digital billboard displays in the u.s. and 26 in canada . in 2017 , we have built , converted or replaced 238 digital transit and other displays in the united states . the following table sets forth information regarding our digital displays . replace_table_token_8_th ( a ) digital display amounts ( 1 ) include displays reserved for transit agency use and ( 2 ) exclude : ( i ) all displays under our multimedia rights agreements with colleges , universities and other educational institutions ; ( ii ) 1,650 metrocard vending machine digital screens ; and ( iii ) 317 in-train advertising displays which are scheduled to be taken out of service permanently . our revenues and profits may fluctuate due to seasonal advertising patterns and influences on advertising markets . typically , our revenues and profits are highest in the fourth quarter , during the holiday shopping season , and lowest in the first quarter , as advertisers cut back on spending following the holiday shopping season . 41 we have a diversified base of customers across various industries . story_separator_special_tag in constant dollars , billboard revenues decreased $ 8.7 million , or 1 % , in 2016 compared to 2015. total transit and other revenues increased $ 13.4 million , or 3 % , in 2016 compared to 2015 , driven by stronger market conditions in local advertising , the impact of an acquisition and the net effect of won and lost franchises in 2016 , partially offset by lower advertising revenue in the first quarter of 2016 from major sports entertainment events and the impact of the disposition . 47 expenses replace_table_token_14_th * calculation is not meaningful . operating expenses our operating expenses are composed of the following : billboard property lease expenses . these expenses reflect the cost of leasing the real property on which our billboards are mounted . these lease agreements have terms varying between one month and multiple years , and usually provide renewal options . rental expenses are comprised of a fixed monthly amount and under certain agreements , also include contingent rent , which varies based on the revenues we generate from the leased site . the fixed portion of property leases are generally paid in advance for periods ranging from one to twelve months and expensed evenly over the contract term . contingent rent is generally paid in arrears and is expensed as incurred when the related revenues are recognized . transit franchise expenses . these expenses reflect costs charged by municipalities and transit operators under transit advertising contracts and are generally calculated based on a percentage of the revenues we generate under the contract , with a minimum guarantee . the costs that are determined based on a percentage of revenues are expensed as incurred when the related revenues are recognized , and the minimum guarantee is expensed over the contract term . posting , maintenance and other site-related expenses . these expenses primarily reflect costs associated with posting and rotation , materials , repairs and maintenance , utilities and property taxes . replace_table_token_15_th billboard property lease expenses represented 35 % of billboard revenues in 2017 and 34 % in each of 2016 and 2015 . the increase in billboard property lease costs in 2017 compared to 2016 was primarily due to an increase in canada billboard property lease costs , primarily as a result of the impact of the transaction , and an increase in u.s. media segment billboard property lease costs , including a $ 1.5 million one-time true-up , partially offset by the impact of the disposition ( a decrease of $ 3.0 million compared to 2016 ) . excluding the impact of the disposition in 2016 , billboard property lease expenses increased 3 % in 2017 compared to 2016. the decrease in billboard property lease expenses in 2016 compared to 2015 was primarily due to the impact of the disposition ( a decrease of $ 12.2 million compared to 2015 ) and lost billboard leases in 2016 , partially offset by increases in billboard property lease expenses in our u.s. media segment . excluding the impact of the disposition in 2016 , billboard property lease expenses increased 2 % in 2016 compared to 2015. transit franchise expenses represented 63 % of transit revenues in each of 2017 , 2016 and 2015 . the increase in transit franchise expenses in 2017 compared to 2016 was primarily due to the increase in transit revenues , primarily from new 48 contracts ( primarily the mbta ) , partially offset by the impact of the disposition ( a decrease of $ 0.8 million compared to 2016 ) . the increase in transit franchise expenses in 2016 compared to 2015 was primarily due to the increase in transit revenues , partially offset by the impact of the disposition ( a decrease of $ 3.6 million compared to 2015 ) . billboard property lease and transit franchise expenses increased by $ 13.4 million in 2017 compared to 2016 . billboard property lease and transit franchise expenses decreased by $ 1.0 million in 2016 compared to 2015 . posting , maintenance and other expenses as a percentage of revenues were 15 % in each of 2017 and 2016 and 16 % in 2015 . posting , maintenance and other expenses increased $ 3.7 million , or 2 % , in 2017 compared to 2016 , primarily due to higher expenses related to our sports marketing operating segment , higher compensation and benefits-related costs , and the impact of hurricanes in the florida and texas markets , partially offset by the impact of the disposition ( a decrease of $ 5.0 million compared to 2016 ) . excluding the impact of the disposition , posting , maintenance and other expenses increased 4 % in 2017 compared to 2016. posting , maintenance and other expenses decreased $ 14.0 million , or 6 % , in 2016 compared to 2015 , principally due to the impact of the disposition ( a decrease of $ 17.1 million compared to 2015 ) . excluding the impact of the disposition , posting , maintenance and other expenses increased 1 % in 2016 compared to 2015. selling , general and administrative expenses ( “ sg & a ” ) sg & a expenses represented 17 % of revenues in each of 2017 , 2016 and 2015 . sg & a expenses decreased $ 3.1 million , or 1 % , in 2017 compared to 2016 , primarily due to lower professional fees and the impact of the disposition ( a decrease of $ 3.1 million compared to 2016 ) , partially offset by higher expenses related to our sports marketing operating segment . excluding the impact of the disposition , sg & a expenses in 2017 were comparable to 2016. sg & a expenses increased $ 6.5 million , or 3 % , in 2016 compared to 2015 , primarily due to increased sales and other compensation-related expenses and one-time professional fees in 2016 of $ 3.8 million associated with implementing

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debt debt , net , consists of the following : replace_table_token_22_th 58 replace_table_token_23_th on march 16 , 2017 , the company , along with its wholly-owned subsidiaries , outfront media capital llc ( “ finance llc ” ) and outfront media capital corporation ( together with finance llc , the “ borrowers ” ) , and other guarantor subsidiaries party thereto , entered into an amendment ( the “ amendment ” ) to its credit agreement and its related security agreement , each dated january 31 , 2014 ( together , and as amended , supplemented or otherwise modified , the “ credit agreement ” ) . the amendment provides for ( i ) the extension of the maturity date of the borrowers ' existing revolving credit facility ( the “ revolving credit facility ” ) from january 31 , 2019 , to march 16 , 2022 , ( ii ) the extension of the maturity date of the borrowers ' existing term loan ( the “ term loan ” and together with the revolving credit facility , the “ senior credit facilities ” ) from january 31 , 2021 , to march 16 , 2024 , ( iii ) an increase to the revolving credit facility by $ 5.0 million to $ 430.0 million , ( iv ) the incurrence of a $ 10.0 million incremental term loan primarily to cover transaction fees and expenses , which increases the outstanding principal balance of the term loan to $ 670.0 million , and ( v ) revisions to certain provisions of the credit agreement to , among other things , lower the interest rate floor for all loans to 0.0 % and update covenants for greater operational and financial flexibility to the company ( including incurrence of additional indebtedness ) , as well as include other ministerial changes to the credit agreement . the remaining terms of the credit agreement , as amended by the amendment , are substantially the same as the terms under the existing credit agreement , including with respect to events of default and loan acceleration . the letter of credit sublimit that is part of the revolving credit facility under the credit agreement remains at $ 100.0 million .

in addition , we anticipate that our expenses will increase significantly in connection with our ongoing activities , as we : continue our platform research and drug discovery and development efforts ; conduct clinical studies for our investigational medicines ; manufacture clinical study materials and develop large-scale manufacturing capabilities ; seek regulatory approval for our investigational medicines ; maintain , expand , and protect our intellectual property ; hire additional personnel to support our program development effort to obtain regulatory approval and secure additional facilities for operations ; and continue to operate as a public company . 213 we do not expect to generate revenue from the sale of potential mrna medicines unless and until we successfully complete clinical development and obtain regulatory approval for one or more of our investigational medicines . if we seek to obtain regulatory approval for and commercialize any of our investigational medicines , we expect to incur significant commercialization expenses . as a result , we will need substantial additional funding to support our continued operations and pursue our growth strategy . until we can generate significant revenue from sales of our medicines , if ever , we expect to finance our operations through a combination of public or private equity offerings , structured financings and debt financings , government funding arrangements , strategic alliances and marketing , distribution , and licensing arrangements . we may be unable to raise additional funds or enter into such other agreements on favorable terms , or at all . if we fail to raise capital or enter into such agreements as , and when , needed , we may have to significantly delay , scale back , or discontinue the development and commercialization of one or more of our programs . because of the numerous risks and uncertainties associated with pharmaceutical development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate revenues from the sale of our medicines , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce our operations . financial operations overview revenue to date , we have not generated any revenue from the sale of potential mrna medicines . our revenue has been primarily derived from strategic alliances with strategic collaborators and government-sponsored and private organizations to discover , develop , and commercialize potential mrna medicines . the following is a summary of revenue recognized for the years ended december 31 , 2019 , 2018 and 2017 ( in thousands ) : replace_table_token_8_th _ ( 1 ) includes collaboration revenue from a related party . total revenue for the years ended december 31 , 2019 , 2018 and 2017 was $ 60.2 million , $ 135.1 million and $ 205.8 million , respectively . cash received from strategic alliances was $ 22.9 million , $ 57.6 million and $ 43.1 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . the timing of revenue recognition is not directly correlated to the timing of cash receipts . total deferred revenue related to our strategic alliances as of december 31 , 2019 and 2018 was $ 202.3 million and $ 274.4 million , respectively . the following table summarizes collaboration revenue for the years ended december 31 , 2019 , 2018 and 2017 ( in thousands ) : replace_table_token_9_th 214 collaboration revenue for the years ended december 31 , 2019 , 2018 and 2017 was generated primarily from our strategic alliances with astrazeneca , merck , vertex and alexion . our arrangements with alexion were terminated in october 2017 and all rights to mrna researched , developed , or supplied as part of the programs with alexion reverted to us . grant revenue is generated primarily from contracts with darpa , barda , and gates foundation , to develop mrna medicines . for further information on our revenue recognition policies , see the section of this annual report on form 10-k titled “ critical accounting policies and significant judgments and estimates - revenue recognition . ” our ability to generate revenue from sales of mrna medicines and become profitable depends upon our ability to successfully develop and commercialize mrna medicines . for the foreseeable future , we do not expect to generate revenue from product sales . to the extent that existing or potential future strategic alliances generate revenue , our revenue may vary due to many uncertainties in the development of our mrna medicines under these strategic alliances and other factors . we expect to incur losses for the foreseeable future , and we expect these losses to increase as we continue our research and development efforts . we expect our programs to mature and advance to later stage clinical development , and we expect expenses to increase as we seek regulatory approvals for our investigational medicines and begin to commercialize any approved mrna medicines . research and development expenses the nature of our business and primary focus of our activities generate a significant amount of research and development costs . research and development expenses represent costs incurred by us for the following : cost to develop our platform ; discovery efforts leading to development candidates ; preclinical , nonclinical , and clinical development costs for our programs ; cost to develop our manufacturing technology and infrastructure ; and digital infrastructure costs . story_separator_special_tag we measure the transaction price based on the amount of consideration to which we expect to be entitled in exchange for transferring the promised goods and or services to the customer . we utilize either the expected value method or the most likely amount method to estimate the amount of variable consideration , depending on which method is expected to better predict the amount of consideration to which we will be entitled . amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved . with respect to arrangements that include payments for a development or regulatory milestone payment , we evaluate whether the associated event is considered probable of achievement and estimate the amount to be included in the transaction price using the most likely amount method . milestone payments that are not within our control or the licensee , such as those dependent upon receipt of regulatory approval , are not considered to be probable of achievement until the triggering event occurs . at the end of each reporting period , we re-evaluate the probability of achievement of each milestone and any related constraint , and if necessary , adjust our estimate of the overall transaction price . any such adjustments are recorded on a cumulative catch-up basis , which would affect revenue and net loss in the period of adjustment . for arrangements that include sales-based royalties , including milestone payments based upon the achievement of a certain level of product sales , wherein the license is deemed to be the sole or predominant item to which the payments relate , we recognize revenue upon the later of : ( i ) when the related sales occur or ( ii ) when the performance obligation to which some or all of the payment has been allocated has been satisfied ( or partially satisfied ) . consideration that would be received for optional goods and or services is excluded from the transaction price at contract inception . we generally allocate the transaction price to each performance obligation based on a relative standalone selling price basis . we develop assumptions that require judgment to determine the standalone selling price for each performance obligation in consideration of applicable market conditions and relevant entity-specific factors , including factors that were contemplated in negotiating the agreement with the customer and estimated research and development costs . however , in certain instances , we allocate variable consideration entirely to one or more performance obligation if the terms of the variable consideration relate to the satisfaction of the respective performance obligation and the amount allocated is consistent with the amount we would expect to receive for the satisfaction of the respective performance obligation . we recognize revenue based on the amount of the transaction price that is allocated to each respective performance obligation when or as the performance obligation is satisfied by transferring a promised good or service to the customer . for performance obligations that are satisfied at a point in time , we recognize revenue when control of the goods and or services is transferred to the customer . for 219 performance obligations that are satisfied over time , we recognize revenue by measuring the progress toward complete satisfaction of the performance obligation using a single method of measuring progress which depicts the performance in transferring control of the associated goods and or services to the customer . we generally use input methods to measure the progress toward the complete satisfaction of performance obligations satisfied over time . with respect to arrangements containing a license to our intellectual property that is determined to be distinct from the other performance obligations identified in the arrangement , we recognize revenue from amounts allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license . for licenses that are bundled with other promises , we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and , if over time , the appropriate method of measuring progress for purposes of recognizing revenue . significant management judgment is required in determining the level of effort required under an arrangement and the period over which we are expected to complete our performance obligations under an arrangement . we evaluate the measure of progress each reporting period and , if necessary , adjust the measure of performance and related revenue recognition . any such adjustments are recorded on a cumulative catch-up basis , which would affect revenue and net loss in the period of adjustment . research and development costs as part of the process of preparing our financial statements , we are required to estimate our accrued research and development expenses , a significant portion of which are clinical study expenses conducted by third-party service providers . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf , and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us in arrears for services performed or when contractual milestones are met . examples of estimated accrued research and development expenses include fees paid to : cros to conduct our clinical trials ; investigative sites in connection with clinical trials ; vendors for laboratory services , supplies , and distribution of materials in connection with clinical trials ; and vendors in connection with preclinical development activities . we base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant

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net cash used in operating activities in 2019 was $ 459.0 million and consisted of net loss of $ 514.0 million less non-cash adjustments of $ 108.7 million , plus a net change in assets and liabilities of $ 53.7 million . non-cash items primarily included stock-based compensation of $ 81.1 million , depreciation and amortization of $ 31.0 million , and amortization of investment premiums and discounts of $ 3.7 million . the net change in assets and liabilities was primarily due to a decrease in deferred revenue of $ 44.1 million , a decrease in accounts payable of $ 24.0 million , a decrease in other liabilities of $ 6.2 million , an increase in right-of-use assets , operating leases of $ 5.7 million and an decrease in accrued liabilities of $ 3.4 million , partially offset by an increase in operating lease liabilities , non-current of $ 12.6 million , a decrease in prepaid expenses and other assets of $ 9.8 million and a decrease in accounts receivable of $ 6.7 million . net cash used in operating activities in 2018 was $ 330.9 million and consisted of net loss of $ 384.7 million less non-cash adjustments of $ 96.5 million , plus a net change in assets and liabilities of $ 42.6 million . non-cash items primarily included stock-based compensation of $ 72.6 million and depreciation and amortization of $ 24.9 million .

the fund seeks to track changes , whether positive or negative , in the level of the dbiq optimum yield precious metals index excess return ( the “ index ” ) over time , plus the excess , if any , of the sum of the fund 's interest income from its holdings of united states treasury obligations ( “ treasury income ” ) , dividends from its holdings in money market mutual funds ( affiliated or otherwise ) ( “ money market income ” ) and dividends or distributions of capital gains from its holdings of t-bill etfs ( as defined below ) ( “ t-bill etf income ” ) over the expenses of the fund . the fund invests in futures contracts in an attempt to track its index . the index is intended to reflect the change in market value of the precious metals sector . the commodities comprising the index are gold and silver ( each an “ index commodity , ” and collectively , the “ index commodities ” ) . the fund may invest directly in united states treasury obligations . the fund may also gain exposure to united states treasury obligations through investments in exchange-traded funds ( “ etfs ” ) ( affiliated or otherwise ) that track indexes that measure the performance of united states treasury obligations with a maximum remaining maturity of up to 12 months ( “ t-bill etfs ” ) . the fund holds as collateral united states treasury obligations , money market mutual funds and t-bill etfs ( affiliated or otherwise ) , if any , for margin and or cash management purposes . while the fund 's performance will reflect the appreciation or depreciation of those holdings , the fund 's performance , whether positive or negative , will be driven primarily by its strategy of trading futures contracts with the aim of seeking to track the index . the fund pursues its investment objective by investing in a portfolio of exchange-traded commodity futures contracts that expire in a specific month and trade on a specific exchange ( the “ index contracts ” ) in the index commodities . the notional amounts of each index commodity included in the index are broadly in proportion to historic levels of the world 's production and stocks of the index commodities . the fund also holds united states treasury obligations and t-bill etfs , if any , for deposit with morgan stanley & co. llc , the fund 's commodity broker ( the “ commodity broker ” ) as margin , to the extent permissible under cftc rules and united states treasury obligations , cash , money market mutual funds and t-bill etfs ( affiliated or otherwise ) , if any , on deposit with the bank of new york mellon ( the “ custodian ” ) , for cash management purposes . the aggregate notional value of the commodity futures contracts owned by the fund is expected to approximate the aggregate net asset value ( “ nav ” ) of the fund , as opposed to the aggregate index value . the cftc and certain futures exchanges impose position limits on futures contracts , including on index contracts . as the fund approaches or reaches position limits with respect to an index commodity , the fund may commence investing in index contracts that reference other index commodities . in those circumstances , the fund may also trade in futures contracts based on commodities other than index commodities that the managing owner reasonably believes tend to exhibit trading prices that correlate with an index contract . the managing owner may determine to invest in other futures contracts if at any time it is impractical or inefficient to gain full or partial exposure to an index commodity through the use of index contracts . these other futures contracts may or may not be based on an index commodity . when they are not , the managing owner may seek to select futures contracts that it reasonably believes tend to exhibit trading prices that correlate with an index contract . the shares are intended to provide investment results that generally correspond to the changes , positive or negative , in the levels of the index over time . the value of the shares is expected to fluctuate in relation to changes in the value of the fund 's portfolio . the market price of the shares may not be identical to the nav per share , but these two valuations are expected to be very close . margin calls 22 “ initial ” or “ original ” margin is the minimum amount of funds that must be deposited by a futures trader with his commodity broker in order to initiate futures trading or to maintain an open position in futures contracts . “ maintenance ” margin is the amount ( generally less than initial margin ) to which a trader 's account may decline before he must deliver additional margin . a margin deposit is like a cash performance bond . it helps assure the futures trader 's performance of the futures contract that the trader purchases or sells . futures contracts are customarily bought and sold on margin that represents a very small percentage ( ranging upward from less than 2 % ) of the purchase price of the underlying commodity being traded . because of such low margins , price fluctuations occurring in the futures markets may create profits and losses that are greater , in relation to the amount invested , than are customary in other forms of investments . story_separator_special_tag rising commodity futures contracts prices for gold and silver futures contracts during the year ended december 31 , 2020 contributed to an overall 26.42 % increase in the level of the index and to a 26.89 % increase in the level of the dbiq-oy precious metals tr . no distributions were paid to shareholders during the year ended december 31 , 2020. therefore , the total return for the fund on a nav basis was +26.05 % . net income ( loss ) for the year ended december 31 , 2020 was $ 32.6 million , resulting from $ 0.7 million of income , net realized gains ( losses ) of $ 19.3 million , net change in unrealized gains ( losses ) of $ 13.7 million and operating expenses of $ 1.0 million . for the year ended december 31 , 2019 , the nav of each share increased from $ 36.29 per share to $ 41.69 per share . rising commodity futures contracts prices for gold and silver futures contracts during the year ended december 31 , 2019 contributed to an overall 14.65 % increase in the level of the index and to a 17.07 % increase in the level of the dbiq-oy precious metals tr . on december 31 , 2019 , the fund paid a distribution of $ 0.52530 for each general share and share to holders of record as of december 24 , 2018. therefore , the total return for the fund on a nav basis was +16.36 % . net income ( loss ) for the year ended december 31 , 2019 was $ 17.6 million , resulting from $ 2.8 million of income , net realized gains ( losses ) of $ 4.7 million , net change in unrealized gains ( losses ) of $ 11.1 million and operating expenses of $ 1.0 million . critical accounting policies the fund 's critical accounting policies are as follows : preparation of the financial statements and related disclosures in conformity with u.s. gaap requires the application of appropriate accounting rules and guidance , as well as the use of estimates , and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , revenue and expense and related disclosure of contingent assets and liabilities during the reporting period of the financial statements and accompanying notes . the fund 's application of these policies involves judgments and actual results may differ from the estimates used . there were no significant estimates used in the preparation of these financial statements . commodity futures contracts , united states treasury obligations , t-bill etfs and money market mutual funds are recorded on a trade date basis and at fair value in the financial statements , with changes in fair value , if any , reported in the statements of income and expenses . the use of fair value to measure financial instruments , with related unrealized gains or losses recognized in earnings in each period is fundamental to the fund 's financial statements . the fair value of a financial instrument 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 ( the exit price ) . united states treasury obligations are fair valued using an evaluated quote provided by an independent pricing service . futures contracts are valued at the final settlement price set by an exchange on which they are principally traded . investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day nav per share . investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded . financial accounting standards board ( “ fasb ” ) accounting standards codification for fair value measurement and disclosure guidance requires a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value . the objective of a fair value measurement is to determine the price 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 ( an exit price ) . the hierarchy gives the highest priority to unadjusted quoted prices for identical assets or liabilities ( level 1 measurements ) and the lowest priority to unobservable inputs ( level 3 measurements ) . assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement . see note 6 within the financial statements in item 8 for further information . securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith following procedures approved by the managing owner . issuer-specific events , market trends , bid/asked quotes of brokers and information providers and other data may be reviewed in the course of making a good faith determination of a security 's fair value . 28 realized gains ( losses ) from the sale or disposition of securities or derivatives are determined on a specific identification basis and recognized in the statements of income and expenses in the period in which the contract is closed or the sale or disposition occurs , respectively . interest income on united states treasury obligations is recognized on an accrual basis when earned . premiums and discounts are amortized or accreted over the life of the united states treasury obligations . dividend income ( net of withholding tax , if any ) is recorded on the ex-dividend date . off-balance sheet arrangements and contractual obligations in the normal course of its business , the fund is a party to financial instruments with off-balance sheet

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cash flows a primary cash flow activity of the fund is to raise capital from authorized participants through the issuance of shares . this cash is used to invest in united states treasury obligations , money market mutual funds and t-bill etfs , if any , and to meet margin requirements as a result of the positions taken in futures contracts to match the fluctuations of the index . 24 as of the date of this report , each of bank of america merrill lynch , bmo capital markets corp. , bnp paribas securities corp. , cantor fitzgerald & co. , citadel securities llc , citigroup global markets inc. , credit suisse securities ( usa ) llc , deutsche bank securities inc. , goldman sachs & co. , goldman sachs execution & clearing lp , interactive brokers llc , jefferies llc , jp morgan securities inc. , merrill lynch professional clearing corp. , morgan stanley & co. llc , nomura securities international inc. , rbc capital markets llc , sg americas securities llc , ubs securities llc , virtu americas llc and virtu financial capital markets llc has executed a participant agreement and are the only authorized participants . operating activities net cash flow provided by ( used in ) operating activities was $ 33.3 million and ( 14.1 ) million for the years ended december 31 , 2020 and 2019 , respectively . these amounts primarily include net income ( loss ) , net purchases and sales of money market mutual funds and net purchases and sales of united states treasury obligations and affiliated investments . the fund invests in futures contracts in an attempt to track its index .

medallion capital 's investments are typically in the form of secured debt instruments with fixed interest rates accompanied by warrants to purchase an equity interest for a nominal exercise price ( such warrants are included in equity investments on the consolidated balance sheets ) . interest income is earned on the debt instruments . we are a closed-end , management investment company under the 1940 act . we have elected to be treated as a bdc under the 1940 act . we have also elected to be treated for federal income tax purposes as a ric under subchapter m of the code . as a ric , we generally do not have to pay corporate-level federal income taxes on any net ordinary income or capital gains that we distribute to our shareholders as dividends if we meet certain source-of-income and asset diversification requirements . medallion bank is not a ric and must pay corporate-level us federal and state income taxes . our wholly-owned portfolio company , medallion bank , is a bank regulated by the fdic and the utah department of financial institutions which originates taxicab medallion , commercial , and consumer loans , raises deposits , and conducts other banking activities . medallion bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposit issued to its customers . to take advantage of this low cost of funds , we refer a portion of our taxicab medallion and commercial loans to medallion bank , which then originates these loans . however , the fdic restricts the amount of taxicab medallion loans that medallion bank may finance to three times tier 1 capital , or $ 382,536,000 as of december 31 , 2013. we earn referral fees for these activities . all of these servicing activities have been assigned to msc . as a non-investment company , medallion bank is not consolidated with the company . realized gains or losses on investments are recognized when the investments are sold or written off . the realized gains or losses represent the difference between the proceeds received from the disposition of portfolio assets , if any , and the cost of such portfolio assets . in addition , changes in unrealized appreciation or depreciation on investments are recorded and represent the net change in the estimated fair values of the portfolio assets at the end of the period as compared with their estimated fair values at the beginning of the period . generally , realized gains ( losses ) on investments and changes in unrealized appreciation ( depreciation ) on investments are inversely related . when an appreciated asset is sold to realize a gain , a decrease in the previously recorded unrealized appreciation occurs . conversely , when a loss previously recorded as unrealized depreciation is realized by the sale or other disposition of a depreciated portfolio asset , the reclassification of the loss from unrealized to realized causes a decrease in net unrealized depreciation and an increase in realized loss . 37 our investment in medallion bank , as a wholly owned portfolio investment , is also subject to quarterly assessments of fair value . we conduct a thorough valuation analysis as described previously , and also receive an opinion regarding the valuation from an independent third party to assist the board of directors in its determination of the fair value of medallion bank . we determine whether any factors give rise to a valuation different than recorded book value , including various regulatory restrictions that were established at medallion bank 's inception , by the fdic and state of utah , and also by additional regulatory restrictions , such as the prior moratorium imposed by the dodd-frank act on the acquisition of control of an industrial bank by a “commercial firm” ( a company whose gross revenues are primarily derived from non-financial activities ) which expired in july 2013. because of these restrictions and other factors , our board of directors has determined that medallion bank has little value beyond its recorded book value . as a result of this valuation process , we used medallion bank 's actual results of operations as the best estimate of changes in fair value , and recorded the results as a component of unrealized appreciation ( depreciation ) on investments , although changes in these restrictions and other applicable factors could change these conclusions in the future . for more information , see “risk factors—risks relating to our business and structure”—our investment portfolio is , and will continue to be , recorded at fair value as determined in good faith by our board of directors and , as a result , there is , and will continue to be , uncertainty as to the value of our portfolio investments which could adversely affect our net asset value” . 38 trends in investment portfolio our investment income is driven by the principal amount of and yields on our investment portfolio . to identify trends in the balances and yields , the following table illustrates our investments at fair value , grouped by medallion loans , commercial loans , equity investments , and investment securities , and also presents the portfolio information for medallion bank , at the dates indicated . replace_table_token_10_th ( 1 ) represents the weighted average interest or dividend rate of the respective portfolio as of the date indicated . ( 2 ) the weighted average interest rate for the entire managed loan portfolio ( medallion , commercial , and consumer loans ) was 8.05 % , 8.02 % , and 8.18 % at december 31 , 2013 , 2012 , and 2011 . ( 3 ) includes $ 814 for unrealized appreciation on medallion hamptons holdings as of december 31 , 2013 . story_separator_special_tag investment securities investment securities were 0 % of our total portfolio at december 31 , 2013 , 2012 , and 2011. investment securities were 2 % , 2 % , and 3 % of our total managed portfolio at december 31 , 2013 , 2012 , and 2011. the investment securities are primarily adjustable-rate mortgage-backed securities purchased by medallion bank to better utilize required cash liquidity . trend in interest expense our interest expense is driven by the interest rates payable on our short-term credit facilities with banks , bank certificates of deposit , fixed-rate , long-term debentures issued to the sba , and other short-term notes payable . we established a medallion lending relationship with dz bank in december 2008 , that provides for growth in the portfolio at generally lower rates than under prior facilities . in addition , medallion bank began raising brokered bank certificates of deposit during 2004 , which were at our lowest borrowing costs . as a result of medallion bank raising funds through certificates of deposit as previously noted , we were able to realign the ownership of some of our medallion loans and related assets to medallion bank allowing us and our subsidiaries to use cash generated through these transactions to retire debt with higher interest rates . in addition , medallion bank is able to bid on these deposits at a wide variety of maturity levels which allows for improved interest rate management strategies . our cost of funds is primarily driven by the rates paid on our various debt instruments and their relative mix , and changes in the levels of average borrowings outstanding . see note 4 to the consolidated financial statements for details on the terms of all outstanding debt . our debentures issued to the sba typically have terms of ten years . 45 we measure our borrowing costs as our aggregate interest expense for all of our interest-bearing liabilities divided by the average amount of such liabilities outstanding during the period . the following table shows the average borrowings and related borrowing costs for the years ended december 31 , 2013 , 2012 , and 2011. our average balances were flat reflecting the recent equity offerings , and decreased from 2011 reflecting the sourcing of more business to medallion bank , which also increased due to the growth in its consumer loans portfolio . the decrease in borrowing costs reflected the trend of decreasing interest rates in the economy , and the repricing of term borrowings . replace_table_token_17_th we will continue to seek sba funding to the extent it offers attractive rates . sba financing subjects its recipients to limits on the amount of secured bank debt they may incur . we use sba funding to fund loans that qualify under small business investment act ( sbia ) and sba regulations . we believe that financing operations primarily with short-term floating rate secured bank debt has generally decreased our interest expense , but has also increased our exposure to the risk of increases in market interest rates , which we mitigate with certain interest rate strategies . at december 31 , 2013 , 2012 , and 2011 , short-term adjustable rate debt constituted 68 % , 70 % , and 68 % of total debt , and was 22 % , 24 % , and 28 % on a fully managed basis including the borrowings of medallion bank . factors affecting net assets factors that affect our net assets include net realized gain or loss on investments and change in net unrealized appreciation or depreciation on investments . net realized gain or loss on investments is the difference between the proceeds derived upon sale or foreclosure of a loan or an equity investment and the cost basis of such loan or equity investment . change in net unrealized appreciation or depreciation on investments is the amount , if any , by which our estimate of the fair value of our investment portfolio is above or below the previously established fair value or the cost basis of the portfolio . under the 1940 act and the sbia , our loan portfolio and other investments must be recorded at fair value . unlike certain lending institutions , we are not permitted to establish reserves for loan losses , but adjust quarterly the valuation of the investment portfolio to reflect our estimate of the current value of the total investment portfolio . since no ready market exists for our investments , fair value is subject to our board of directors ' good faith determination . in determining such fair value , our board of directors considers factors such as the financial condition of our borrowers and the adequacy of their collateral . any change in the fair value of portfolio investments or other investments as determined by our board of directors is reflected in net unrealized depreciation or appreciation on investments and affects net increase in net assets resulting from operations , but has no impact on net investment income or distributable income . 46 our investment in medallion bank , as a wholly-owned portfolio investment , is also subject to quarterly assessments of fair value . we conduct a thorough valuation analysis as described previously , and also receive an opinion regarding the valuation from an independent third party to assist the board of directors in its determination of the fair value of medallion bank . we determine whether any factors give rise to valuation different than recorded book value , including various regulatory restrictions that were established at medallion bank 's inception , by the fdic and state of utah , and also by additional regulatory restrictions , such as the prior moratorium imposed by the dodd-frank act on the acquisition of control of an industrial bank by a “commercial firm” ( a company whose gross revenues are primarily derived from non-financial activities ) which expired in july 2013. because of these restrictions and other factors ,

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liquidity and capital resources our sources of liquidity are the revolving lines of credit with dz bank and with a variety of local and regional banking institutions , unfunded commitments to sell debentures to the sba , loan amortization and prepayments , private issuances of debt securities , and participations or sales of loans to third parties . as a ric , we are required to distribute at least 90 % of our investment company taxable income ; consequently , we have primarily relied upon external sources of funds to finance growth . trust iii 's $ 150,000,000 revolving line of credit with dz bank had $ 18,010,000 of availability , $ 72,500,000 was available under revolving credit agreements with commercial banks , and unfunded commitments from the sba were $ 2,500,000 , which was committed in january 2013. additionally , medallion bank , our wholly-owned , unconsolidated portfolio company has access to independent sources of funds for our business originated there , primarily through brokered certificates of deposit . at the current required capital levels , it is expected , although there can be no guarantee , that deposits of approximately $ 37,000,000 could be raised by medallion bank to fund future loan origination activities , and medallion bank also has $ 25,000,000 available under fed funds lines with several commercial banks . in addition , medallion bank , as a non-ric subsidiary of ours , is allowed to retain all earnings in the business to fund future growth . 51 the components of our debt were as follows at december 31 , 2013. see note 4 to the consolidated financial statements on page f-18 for details of the contractual terms of our borrowings . replace_table_token_19_th ( 1 ) weighted average contractual rate as of december 31 , 2013. our contractual obligations expire on or mature at various dates through september 2037. the following table shows all contractual obligations at december 31 , 2013. replace_table_token_20_th we value our portfolio at fair value as determined in good faith by the board of directors in accordance with our valuation policy .

as a result , the company recognized currency related losses of $ 474,000 during 2016. in 2015 , the company recognized other expense of only $ 12,000. income tax expense . income tax expense was $ 6,975,000 for twelve months of 2016 , compared to $ 7,603,000 for the same period in 2015 , decreasing by $ 628,000 ( 8.3 % ) , largely in correlation with the change in income before taxes . the company 's effective tax rate in 2016 approximates the 2015 rate and does not differ materially from expected statutory rates . - 19 - twelve-months ended december 31 , 2015 vs. december 31 , 2014 the company reported comparative results from operations for the twelve-month period ended december 31 , 2015 and 2014 as follows : replace_table_token_6_th net sales . the company 's sales for the full year of 2015 were $ 93,278,000 , ending $ 8,059,000 ( 9.5 % ) above 2014 sales of $ 85,219,000. the increase in net sales between periods was the mostly the result of an increase in unit volume . net sales during 2015 were also aided by a small increase in selling prices implemented in late 2014 to combat an anticipated rise in raw material costs from the company 's vendors . conversely , the company experienced a deflation in net sales due to an increase in sales deductions , largely related to promotional incentives , as customers were able to achieve higher growth tiers . gross profit . the company 's gross profit margins have increased between the two periods , being 61.3 % and 58.7 % for the twelve-months ended december 31 , 2015 and 2014 , respectively . the improvement resulted from the company 's ability to find various manufacturing related efficiencies , along with the sales price actions noted above to supersede an anticipated increase in the company 's core raw material costs . selling expenses . selling expenses consist primarily of employee salaries and associated overhead costs , commissions , and the cost of marketing programs such as advertising , trade shows and related communication costs , and freight . selling expense was $ 15,252,000 and $ 14,109,000 for the twelve-months ended december 31 , 2015 and 2014 , respectively , representing an increase of $ 1,143,000. although no particular item was the main contributor or represented a significant increase on its own , there were a few components that were higher than others and make up the majority of the difference . commissions and freight increased compared to last year , largely in relation with the increase in sales . advertising costs increased due to various campaigns , and the annual sales meeting was more expensive largely due to the increased size of the event associated with company 's 40 th anniversary . selling expense as a percentage of net sales was mostly in-line with the prior year , being 16.4 % for 2015 , and 16.6 % in 2014. general and administrative expenses . general and administrative expenses consist primarily of employee salaries , benefits for administrative , executive and finance personnel , legal and accounting , insurance , and corporate general and administrative services . general and administrative expenses were $ 15,707,000 and $ 12,351,000 for 2015 and 2014 , respectively , increasing $ 3,356,000 between periods . the majority of the change pertained to a $ 2,639,000 increase in legal and insurance related expenses primarily associated with product liability claims and coverage . while the overall pace of claims has softened , there were a few claims that required a heightened defense , which inflated the expense for the year . staffing related expenses also increased , mostly related to incentive compensation earned in connection with the strong profits generated during the year . as a percentage of sales , general and administrative expenses increased , being 16.8 % in 2015 and 14.5 % in 2014. engineering expense . engineering expenses consist of costs associated with the development of new products , and costs related to enhancements of existing products and manufacturing processes . engineering expenses have decreased $ 237,000 between periods , as they were $ 2,684,000 and $ 2,921,000 for the twelve-months ended december 31 , 2015 and 2014 , respectively . engineering expenses as a percentage of sales were 2.9 % in 2015 and 3.4 % in 2014. operating profit . reflecting all of the factors mentioned above , operating profits increased $ 2,858,000 or 13.8 % , ending with a profit of $ 23,503,000 for 2015 , compared to $ 20,645,000 in 2014. interest income . interest income is earned on cash investments , and interest expense is incurred at times when the company has debt amounts outstanding on its line of credit . there was $ 73,000 and $ 36,000 of interest income recorded during 2015 and 2014 . - 20 - other expense . other expense primarily consists of foreign currency exchange gains ( losses ) on transactions with our united kingdom subsidiaries . for the year , there was expense of $ 12,000 in 2015 , and $ 82,000 in 2014 , both largely the result of a weakened british pound . income tax expense . income tax expense was $ 7,603,000 in 2015 , compared to $ 6,994,000 for the same period in 2014 , increasing by $ 609,000 largely in correlation with the change in income before taxes . the company 's effective tax rate in 2015 was approximately 32 % of pretax income compared to 34 % in 2014. the rates in both years do not differ materially from expected statutory rates , based upon the jurisdictions in which the income was earned . commitments and contingencies see note 11 to the company 's financial statements for a detailed description of commitments and contingencies . story_separator_special_tag valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs . the standard creates a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows : level 1 inputs are quoted prices ( unadjusted ) in active markets for identical assets or liabilities ; level 2 inputs are inputs other than quoted prices included within level 1 that are observable for the asset or liability , either directly or indirectly ; and level 3 inputs are unobservable inputs that reflect the company 's own assumptions about the assumptions market participants would use in pricing the asset or liability . the company relies on its actively traded share value – a level 1 input – in determining the fair value of the reporting unit in its annual impairment test as described in the fasb asc topic 350 , intangibles - goodwill and other . - 22 - earnings per common share basic earnings per share have been computed using the weighted-average number of common shares outstanding . for the periods presented , there are no dilutive securities . consequently , basic and dilutive earnings per share are the same . currency translation assets and liabilities denominated in foreign currencies are translated into u.s. dollars at exchange rates prevailing on the balance sheet dates . the statements of operations are translated into u.s. dollars at average exchange rates for the period . adjustments resulting from the translation of financial statements are excluded from the determination of income and are accumulated in a separate component of shareholders ' equity . exchange gains and losses resulting from foreign currency transactions are included in the statements of operations ( other income ( expense ) ) in the period in which they occur . income taxes the company accounts for tax liabilities in accordance with asc topic 740 , income taxes . under this method the company recorded tax expense , related deferred taxes and tax benefits , and uncertainties in tax positions . 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 . the effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes the enactment date . a valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the company is able to realize the benefit , or that future deductibility is uncertain . also , in accordance with fasb asc topic 740 , the company had a reserve for uncertainties in tax positions of $ 0 at december 31 , 2016 , and $ 110,000 at december 31 , 2015. these reserves are reviewed each quarter . story_separator_special_tag serif ; margin : 0 ; text-indent : 0.5in `` > in july 2015 , the fasb issued asu 2015-11 , simplifying the measurement of inventory ( topic 330 ) . under this asu , inventory will be measured at the “ lower of cost and net realizable value ” and options that currently exist for “ market value ” will be eliminated . the asu defines net realizable value as the “ estimated selling prices in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . ” no other changes were made to the current guidance on inventory measurement . asu 2015-11 is effective for interim and annual periods beginning after december 15 , 2016. early application is permitted and should be applied prospectively . the company has evaluated the provisions of this statement , and concluded that the adoption of asu 2015-11 will not have a material impact on the company 's financial position or results of operations . in february 2016 , the fasb issued asu 2016-02 , leases ( topic 842 ) . under this asu , lessees are required to recognize right-of-use assets and lease liabilities for all leases not considered short-term leases . by definition , a short-term lease is one in which : ( a ) the lease term is 12 months or less and ( b ) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise . for short-term leases , lessees may elect an accounting policy by class of underlying asset under which right-of-use assets and lease liabilities are not recognized and lease payments are generally recognized as expense over the lease term on a straight-line basis . this change will result in lessees recognizing right-of-use assets and lease liabilities for most leases currently accounted for as operating leases under the legacy lease accounting guidance . asu 2016-02 is effective for interim and annual periods beginning after december 15 , 2018. early adoption is permitted . the company is evaluating the provisions of this statement , including which period to adopt , and has not determined what impact the adoption of asu 2016-02 will have on the company 's financial position or results of operations . - 24 - off-balance sheet obligations or arrangements none . tabular disclosure of contractual obligations and off-balance sheet arrangements contractual obligation and commercial commitments the company 's primary contractual obligations as of december 31 , 2016 are summarized in the following table and are more fully explained in notes to the consolidated financial statements . replace_table_token_7_th the company is obligated to make payments related to a deferred compensation plan , as detailed in note 11 , commitments and contingencies . the timing of all of these payments are currently not known as

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liquidity and capital resources historically , the company 's primary cash needs have been related to working capital items , which the company has largely funded through cash generated from operations . with regards to liquidity and capital resources , the company had a cash balance of $ 35,318,000 at december 31 , 2016 , and also has the full use of a $ 15,000,000 line of credit available with santander bank , as discussed in detail in note 5. at december 31 , 2015 , the company had cash of $ 30,152,000. operating activities cash provided by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities , such as those included in working capital . for 2016 , the company 's cash provided from operating activities was $ 14,758,000 , compared to $ 13,250,000 of cash provided during 2015 , thus increasing by $ 1,508,000 between periods . with regards to creating the generation of cash , it was recognized that the timing of accounts receivable cash collections was accelerated , and there was also a decrease in inventory purchases . these items were partially offset by the posting of security to proceed with further hearings related to the company 's 2010 pennsylvania claim , which is under appeal ( see note 11 , commitments and contingencies of the notes to the consolidated financial statements ) , and there was an increase in disbursements of sales incentives as more customers were able to achieve growth tiers in 2015 , enabling greater payouts in 2016. as a general trend ,the company tends to deplete cash early in the year , as significant payments are typically made for accrued promotional incentives , incentive compensation , and taxes .

while we sold the majority of our residential first lien mortgage loan originations to investors , we held a portion of these originations in our loan portfolio to diversify our loan mix . we continued to grow our mortgage banking business until shortly after our merger with first mariner in 2018 , at which time we determined to reduce our mortgage banking activities . this decision was shaped by our impressions of both the evolution of the mortgage banking industry and the characteristics of the returns associated with our original diversification strategy . for instance , we saw a growing need for both scale and technology investments as non-depository institutions began to dominate this space , which would require us to re-allocate our resources of both human and financial capital into a non-core business activity . in addition , despite management efforts to increase returns on mortgage originations through changes in mortgage banking management , processes and product array , we were not meeting our internal expectations . as a result , after also considering , among other factors , regulatory risks related to mortgage banking , the distraction of management from our core customer business , the need to allocate resources to a non-core business activity , and the adverse impact of our mortgage business on our efficiency ratio , we ultimately determined to exit our mortgage banking activities . after a ten-month period of negotiations with both internal and external parties , in december 2019 , we entered into an agreement to exit our mortgage banking activities which resulted in a positive return on the sale of the domain name ( vamortgage.com ) and no severance or lease termination costs , other than $ 288 thousand of exit costs associated with change in control and retention agreements . the exit of our mortgage banking activities is discussed in note 3 to the consolidated financial statements . on december 6 , 2018 , we entered into subordinated note purchase agreements with certain institutional accredited investors pursuant to which we sold and issued $ 25.0 million in aggregate principal amount of 6.00 % fixed-to-floating rate subordinated notes due december 6 , 2028 ( the “ notes ” ) . we used the net proceeds from this offering for general corporate purposes , to provide for continued growth and to supplement our regulatory capital ratios . on march 1 , 2018 , we completed our merger with first mariner bank , a maryland chartered trust company ( “ first mariner ” ) . at the effective time of the merger , first mariner merged with and into the bank , with the bank continuing as the surviving bank . at the effective time of the merger , each outstanding share of first mariner common stock and first mariner series a non-voting non-cumulative perpetual preferred stock issued and outstanding was cancelled and converted into the right to receive 1.6624 shares of our common stock with cash paid in lieu of fractional shares . the aggregate merger consideration of $ 173.8 million included $ 9.2 million of cash and 9,143,222 shares of our common stock , which was valued at approximately $ 164.6 million . in our merger with first mariner , we acquired 14 branches located in baltimore city and baltimore , harford , howard and anne arundel counties . first mariner had total assets with a fair value of $ 1.01 billion as of march 1 , 2018 , including $ 664.3 million of loans , net of purchase accounting adjustments . on february 1 , 2017 , we closed an underwritten public offering of 2,760,000 shares of our common stock , which included the exercise in full of the underwriters ' over-allotment option , at a public offering price of $ 15.00 per share . the amount of gross proceeds raised in the offering was approximately $ 41.4 million , after underwriting discounts and estimated expenses , and the amount of net proceeds raised in this offering was $ 38.4 million . we used the proceeds of the offering to pay off a $ 12.7 million loan to raymond james bank , n.a . and retained the remainder . this had a positive impact on our liquidity and capital position in 2018 and provided funds that allowed us to continue to grow our loans and investments . recent market conditions our financial performance generally , and in particular the ability of our borrowers to repay their loans , the value of collateral securing those loans , as well as demand for loans and other products and services we offer , is highly dependent on the business environment in our primary markets where we operate and in the united states as a whole . in early 2020 , an outbreak of a novel strain of coronavirus was identified in wuhan , china . the coronavirus has since spread within china and infections have been found in a number of countries around the world , including the united states . the coronavirus and its associated impacts on trade ( including supply chains and export levels ) , travel , employee productivity and other economic activities has had , and may continue to have , a destabilizing effect on financial markets and economic activity . the extent of the impact of the coronavirus on our operational and financial performance is currently uncertain and can not be predicted and will depend on certain developments , including , among others , the duration and spread of the outbreak , its impact on our customers , employees and vendors , and governmental , regulatory and private sector responses , which may be precautionary , to the coronavirus . story_separator_special_tag we did not sell any securities during 2017. at december 31 , 2019 , $ 1.5 million of our securities portfolio matures in one year or less compared to $ 38.9 million at december 31 , 2018. available for sale securities give us the capacity to fund future loan growth while maintaining an appropriate amount of securities to provide the required collateral under our repurchase agreements . our held to maturity securities balances were $ 7.8 million at december 31 , 2019 and $ 9.3 million at december 31 , 2018. , consisting of investments in corporate debentures . the $ 1.5 million decrease year over year was the result of a bond call initiated by the underlying issuer . 33 our available for sale securities portfolio contained 16 securities with unrealized losses of $ 166 thousand at december 31 , 2019 , and 31 securities with unrealized losses of $ 275 thousand at december 31 , 2018. changes in the fair value of these securities resulted primarily from interest rate fluctuations . we do not intend to sell these securities nor is it more likely than not that we would be required to sell these securities before their anticipated recovery , and we believe the collection of the investment and related interest is probable . based on this analysis , we do not consider any of the unrealized losses to be other than temporary impairment . there were no held to maturity securities in a loss position at december 31 , 2019 , and one at december 31 , 2018. note 5 to our consolidated financial statements provides more detail concerning the composition of our portfolio and our process for evaluating the portfolio for other-than-temporary impairment . portfolio maturities and yields the composition and maturities of the investment securities portfolio ( with respect to those securities that have a fixed maturity date ) at december 31 , 2019 is summarized in the following table . maturities are based on the final contractual payment dates , and do not reflect the impact of prepayments or early redemptions that may occur . as of december 31 , 2019 after one after five ( in thousands ) one year or less through five years through ten years after ten years total weighted weighted weighted weighted weighted amortized average amortized average amortized average amortized average amortized average cost yield cost yield cost yield cost yield cost yield u.s. government agencies $ 1,497 1.96 % $ 49,162 3.01 % $ 15,769 2.50 % $ - - % $ 66,428 2.87 % mortgage-backed - - 4 4.74 4,547 3.13 135,367 2.95 139,918 2.96 other investments - - - - 5,510 6.70 - - 5,510 6.70 $ 1,497 1.96 % $ 49,166 3.01 % $ 25,826 3.51 % $ 135,367 2.95 % $ 211,856 3.02 % held to maturity corporate debentures $ - - $ - - $ 7,750 5.79 $ - - $ 7,750 5.79 % nonmarketable equity securities at december 31 , 2019 and 2018 , we held an investment in stock of the federal home loan bank ( “ fhlb ” ) of $ 14.2 million and $ 11.8 million , respectively . this investment is required for continued fhlb membership and is based partially upon the amount of borrowings outstanding from the fhlb . this fhlb stock is carried at cost . loan and lease portfolio total loans and leases increased $ 95.8 million , or 5.8 % , to $ 1.74 billion at december 31 , 2019 from $ 1.65 billion at december 31 , 2018 , primarily as a result of organic growth . overall , residential real estate loans increased $ 38.9 million , commercial loans and leases increased $ 36.0 million , and commercial real estate loans increased $ 24.0 million in 2019 , from 2018 , as we continued to focus on the needs of small- and medium-sized businesses in our market area . within residential real estate , first lien mortgages increased $ 54.4 million , including $ 27.4 million purchased from a non-affiliated mortgage banking entity , which was partially offset by a $ 15.5 million decrease in residential-junior lien mortgages . the following table sets forth the composition of our loan portfolio at the dates indicated . replace_table_token_3_th 34 loan portfolio maturities the following table summarizes the scheduled repayments of our loan portfolio and sets forth the scheduled repayments of fixed and adjustable rate loans in our portfolio at december 31 , 2019. replace_table_token_4_th loans held for sale we sell the majority of the residential mortgage loans that we originate . outstanding balances for the loans held for sale portfolio increased $ 9.4 million to $ 30.7 million at december 31 , 2019 , from $ 21.3 million at december 31 , 2018. our mortgage loan origination for sale volume was $ 573.3 million in 2019 compared to $ 586.4 million in 2018. as previously mentioned , in december 2019 , we entered into an agreement to exit our mortgage banking activities , and we expect to have the majority of the residential first lien mortgage pipeline processed by the end of the first quarter of 2020. goodwill and other intangible assets goodwill represents the consideration paid in excess of the fair value of net assets acquired ( including identifiable intangibles ) in a business combination . we initially recorded $ 70.1 million of goodwill associated with the first mariner merger in 2018. based upon updated information the goodwill was adjusted downward in the first quarter of 2019 by $ 4.7 million to reflect adjustments to net deferred tax assets as detailed in note 2 of our consolidated financial statements , resulting in a decrease of our total goodwill at december 31 , 2019 to $ 65.9 million . our core deposit intangible represents the estimated value of long-term deposit relationships acquired in a business combination and is amortized over the estimated useful lives of the long-term deposits acquired . the unamortized balance of

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subordinated debt on december 6 , 2018 , the company entered into subordinated note purchase agreements with certain purchasers pursuant to which the company sold and issued $ 25.0 million in aggregate principal amount of 6.00 % fixed-to-floating rate subordinated notes due december 6 , 2028. the company used the net proceeds of this offering for general corporate purposes , to provide for continued growth and to supplement its regulatory capital ratios . the notes were structured to qualify initially as tier 2 capital for regulatory capital purposes and bear an initial interest rate of 6.00 % per annum from and including december 6 , 2018 , to but excluding december 6 , 2023 , with interest during this period payable semi-annually in arrears . from and including december 6 , 2023 , to but excluding the maturity date or early redemption date , the interest rate will reset quarterly to an annual floating rate equal to three-month libor , plus 302 basis points , with interest during this period payable quarterly in arrears . the notes are redeemable by the company at its option , in whole or in part , on or after december 6 , 2023 . 36 patapsco statutory trust i , a connecticut statutory business trust and an unconsolidated wholly-owned subsidiary of the company ( the “ trust ” ) , issued $ 5.0 million of capital trust pass-through securities to investors . the interest rate currently adjusts on a quarterly basis at the rate of the three-month libor plus 1.48 % . the trust purchased $ 5,155,000 of junior subordinated deferrable interest debentures from patapsco bancorp , a bank holding company that we acquired in 2015. the debentures are the sole asset of the trust and , in our acquisition of patapsco bancorp , we assumed its obligation to fully and unconditionally guaranteed the obligations of the trust under the capital securities . the capital securities are redeemable by us at par .