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overview we are a blank check company incorporated on may 19 , 2015 as a delaware corporation and formed for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or similar business combination with one or more businesses ( “ business combination ” ) . we intend to effectuate the business combination using cash from the proceeds of the company 's initial public offering ( the “ public offering ” ) that closed on august 4 , 2015 ( less redemptions on august 3 , 2017 ) and a sale of warrants in a private placement that occurred simultaneously with the completion of the public offering ( the “ private placement warrants ” ) , our capital stock , debt or a combination of cash , stock and debt . the issuance of additional shares of our stock in a business combination : ● may significantly dilute the equity interest of our stockholders ; ● may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded to our common stock ; ● could cause a change of control if a substantial number of shares of our common stock are issued , which may affect , among other things , our ability to use our net operating loss carryforwards , if any , and could result in the resignation or removal of our present officers and directors ; ● may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us ; and ● may result in a decrease in the prevailing market prices for our common stock and or warrants . similarly , if we issue debt securities , it could result in : ● a decrease in the prevailing market prices for our common stock and or warrants . ● default and foreclosure on our assets if our operating revenues after a business combination are insufficient to repay our debt obligations ; ● acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant ; ● our immediate payment of all principal and accrued interest , if any , if the debt security is payable on demand ; ● our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding ; ● our inability to pay dividends on our common stock ; ● using a substantial portion of our cash flow to pay principal and interest on our debt , which will reduce the funds available for dividends on our common stock if declared , expenses , capital expenditures , acquisitions and other general corporate purposes ; ● limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate ; ● increased vulnerability to adverse changes in general economic , industry and competitive conditions and adverse changes in government regulation ; and ● limitations on our ability to borrow additional amounts for expenses , capital expenditures , acquisitions , debt service requirements , execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt . 44 on january 11 , 2017 , the company entered into an agreement and plan of merger ( the “ sequel merger agreement ” ) , by and among the company , sequel acquisition , llc ( the “ mergersub ” ) , a wholly-owned subsidiary of the company , sequel youth and family services , llc ( “ sequel ” ) and other parties named thereto . pursuant to the sequel merger agreement , the company agreed to acquire the sequel business through a merger of mergersub with and into sequel , with sequel being the survivor in the merger ( the “ sequel business combination ” ) . on may 19 , 2017 , the company received notice from sequel that sequel terminated the sequel merger agreement since the transactions contemplated by the sequel merger agreement were not completed on or prior to may 15 , 2017 as required . on september 1 , 2017 , the company received a $ 2,500,000 fee for releasing a third party from a non-circumvention agreement with the company relating to the sequel business combination . in connection with the receipt of this payment by the company , the company paid down approximately $ 2,250,000 of accrued liabilities relating to that the sequel business combination , including the principal amount of the sponsor note of $ 1,200,000 together with approximately $ 57,000 of accrued interest . on august 3 , 2017 , the stockholders of the company approved an amendment to the company 's amended and restated certificate of incorporation , as amended , pursuant to an “ extension amendment , ” to extend the date by which the company must ( i ) consummate a business combination , ( ii ) cease its operations if it fails to complete such business combination , and ( iii ) redeem or repurchase 100 % of the company 's common stock included as part of the units sold in the company 's initial public offering that was consummated on august 4 , 2015 from february 5 , 2018 to november 6 , 2017 ( or february 5 , 2018 if the company has executed a definitive agreement for a business combination by november 6 , 2017 ) or such earlier date asdetermined by the board . story_separator_special_tag in connection with the receipt of this payment by the company , the company paid down approximately $ 2,250,000 of accrued liabilities relating to that business combination , including the sponsor note for $ 1,200,000 together with approximately $ 57,000 of accrued interest the provision for income taxes for the year ended december 31 , 2017 reflects the federal income taxes on income from the trust account , net of expenses that are currently deductible . story_separator_special_tag serif ; margin : 0pt 0 `` > the preparation of financial statements and related disclosures in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and income and expenses during the periods reported . actual results could materially differ from those estimates . the company has identified the following as its critical accounting policies : emerging growth company section 102 ( b ) ( 1 ) of the jobs act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies ( that is , those that have not had a securities act registration statement declared effective or do not have a class of securities registered under the exchange act ) are required to comply with the new or revised financial accounting standards . the jobs act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable . the company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies , the company , as an emerging growth company , can adopt the new or revised standard at the time private companies adopt the new or revised standard . 47 net income ( loss ) per common share the company complies with the accounting and disclosure requirements in asc topic 260 , “ earnings per share . ” net income ( loss ) per common share is computed by dividing net income ( loss ) by the weighted average number of common shares outstanding for the period . shares of common stock subject to possible redemption at december 31 , 2017 have been excluded from the calculation of basic income per share for the year ended december 31 , 2017 since such shares , if redeemed , only participate in their pro rata share of the trust account . for the year ended december 31 , 2017 , the fully diluted calculation adds back the shares subject to redemption in computing fully diluted shares outstanding as such shares are dilutive in that year , the company has not considered the effect of warrants sold in the public offering and the concurrent private placement to purchase 14,170,000 shares of common stock in the calculation of diluted income ( loss ) per share , since the exercise of the warrants into shares of common stock is contingent upon the occurrence of future events . for the year ended december 31 , 2017 , the fully diluted calculation adds back the shares subject to redemption as such shares are dilutive in that year . financial instruments the fair value of the company 's assets and liabilities , which qualify as financial instruments under fasb asc 820 , “ fair value measurements and disclosures , ” approximates the carrying amounts represented in the accompanying balance sheets . income taxes the company follows the asset and liability method of accounting for income taxes under fasb asc 740 , “ income taxes . ” deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements 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 of a change in tax rates is recognized in income in the period that included the enactment date . valuation allowances are established , when necessary , to reduce deferred tax assets to the amount expected to be realized . the company 's currently taxable income consists of interest income on the trust account net of taxes paid . the company 's costs are generally considered start-up costs and are not currently deductible . during the year ended december 31 , 2017 , the company recorded income tax expense of approximately $ 406,000 primarily related to interest income earned on the trust account net of franchise taxes paid . the company 's effective tax rate for the year ended december 31 , 2017 was 34 % , which does not differ significantly from the expected income tax rate . on december 22 , 2017 , the tax cut and jobs act was enacted into law resulting in a reduction in the federal corporate income tax rate from 35 % to 21 % for years beginning in 2018. at december 31 , 2017 and 2016 , the company has a deferred tax asset of approximately $ 310,000 ( reflecting a reduction of approximately $ 210,000 resulting from the lower rate under which those deferred taxes would be expected to be recovered or settled ) and $ 225,000 , respectively , related to net operating loss carryforwards ( which begin to expire in 2035 ) and start-up costs . management has determined that a full valuation allowance of the deferred tax asset is appropriate at this time . redeemable common stock all of the shares of common stock sold as part of the units in the public offering contain a redemption feature

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liquidity and capital resources on august 4 , 2015 , we consummated the public offering of an aggregate of 15,525,000 units ( including the full exercise of the underwriters ' over-allotment option ) at a price of $ 10.00 per unit generating gross proceeds of approximately $ 155,250,000 before underwriting discounts and expenses . simultaneously with the consummation of the public offering , we consummated the private placement of 12,815,000 private placement warrants , each exercisable to purchase one-half of one share of our common stock at $ 5.75 per half share ( $ 11.50 per whole share ) , to the sponsor , at a price of $ 0.50 per private placement warrant , generating gross proceeds , before expenses , of approximately $ 6,408,000. we received net proceeds from the public offering and the sale of the private placement warrants of approximately $ 156,550,000 , net of the non-deferred portion of the underwriting commissions of $ 4,658,000 and offering costs and other expenses of approximately $ 450,000 . $ 155,250,000 of the proceeds from the public offering and the concurrent private placement were deposited into the trust account and are not available to us for operations ( other than amounts identified for payment of taxes ) . until the consummation of the public offering , the company 's only sources of liquidity were the initial purchase of founder shares for $ 25,000 by the sponsor , and a total of $ 225,000 loaned by the sponsor against the issuance of an unsecured promissory note . these loans were non-interest bearing and were paid in full on august 4 , 2015 in connection with the closing of the public offering . on january 12 , 2017 , the company issued a promissory note to the sponsor ( the “ sponsor note ” ) .

in myelofibrosis , bms is conducting a phase 2 clinical trial in patients with myelofibrosis-associated anemia , and initial results from this trial were presented in december 2019 at the 61st american society of hematology annual meeting and exposition showing that luspatercept-aamt improved anemia in patients receiving and not receiving rbc transfusions , with more profound effects in patients treated with ruxolitinib , a small molecule jak inhibitor . based on these data , we and bms announced plans to initiate by the end of 2020 the phase 3 independence study in patients with myelofibrosis-associated anemia who are being treated with jak inhibitor therapy and require rbc transfusions . if approved in the united states and europe , we believe that there is an annual peak sales opportunity for reblozyl in excess of $ 2 billion in lower-risk mds and beta-thalassemia , and upon successful development and approval in the united states and europe , an additional $ 1 billion in myelofibrosis and other future development opportunities . we and bms are evaluating luspatercept-aamt for the treatment of anemia in potential new indications that could provide additional sales opportunities . bms is responsible for paying 100 % of the development costs for all clinical trials for luspatercept-aamt . we may receive a maximum of $ 125.0 million for remaining potential regulatory and commercial milestone payments . we have a co-promotion 54 right in north america and our commercialization costs provided in the commercialization plan and budget approved by the joint commercialization committee , or jcc , are entirely funded by bms . activities that we elect to conduct outside of the approved development or commercialization budgets to support reblozyl are at our own expense . we are eligible to receive tiered royalty payments from bms on net sales of reblozyl in the low-to-mid 20 % range . pulmonary we are actively developing our lead pulmonary program , sotatercept , for the treatment of patients with pulmonary arterial hypertension , or pah . sotatercept is generally partnered with bms , but we retain the exclusive rights to fund , develop , and lead the global commercialization of sotatercept in pulmonary hypertension , which we refer to as the ph field , and that includes pah . pah is a rare and chronic , rapidly progressing disorder characterized by the constriction of small pulmonary arteries , resulting in abnormally high blood pressure in the pulmonary arteries . in january 2020 , we announced that the pulsar phase 2 clinical trial of sotatercept for the treatment of patients with pah met its primary and key secondary endpoints , as well as other secondary endpoints . the 18-month extension period of the pulsar trial is ongoing . we are also currently enrolling an exploratory study called spectra to provide us with greater understanding of sotatercept 's potential impact on pah , with preliminary results expected in 2020. if sotatercept is commercialized to treat pah and we recognize such revenue , then we will owe bms a royalty in the low 20 % range on global net sales . in certain circumstances , bms may recognize revenue related to the commercialization of sotatercept in pah , and in this scenario we will be eligible to receive a royalty from bms such that the economic position of the parties is equivalent to the scenario in which we recognize such revenue . neuromuscular we are independently developing our wholly-owned neuromuscular candidate , ace-083 . ace-083 is designed for the treatment of focal muscle disorders . we are currently conducting a phase 2 clinical trial with ace-083 in patients with charcot-marie-tooth disease , or cmt , and an extension study for eligible cmt patients who have completed treatment in the phase 2 clinical trial with ace-083 . we previously announced results from part 1 of this phase 2 clinical trial showing increases in mean total and contractile muscle volume , and reductions in fat fraction . the results also showed that ace-083 was generally well tolerated . enrollment is complete in part 2 of this trial and we expect to announce topline results from part 2 in the first quarter of 2020. in september 2019 , we announced that ace-083 did not achieve functional secondary endpoints in part 2 of a phase 2 clinical trial in patients with facioscapulohumeral muscular dystrophy , or fshd , and we are discontinuing development of ace-083 in fshd . funding and expense as of december 31 , 2019 , our operations have been funded primarily by $ 105.1 million in equity investments from venture investors , $ 773.8 million from public investors , $ 154.1 million in equity investments from our collaboration partners and $ 356.7 million in upfront payments , milestones , and net research and development payments from our collaboration partners . we estimate that we have spent approximately $ 154.0 million , $ 103.9 million , and $ 89.7 million , on research and development for the years ended december 31 , 2019 , 2018 , and 2017 , respectively . we expect to continue to incur significant expenses and increasing operating losses over at least the next several years . we expect our expenses will increase substantially in connection with our ongoing activities , as we : conduct clinical trials for sotatercept in the ph field , ace-083 or any future therapeutic candidates ; continue our preclinical studies and potential clinical development efforts of our existing preclinical therapeutic candidates ; continue research activities for the discovery of new therapeutic candidates ; manufacture therapeutic candidates for our preclinical studies and clinical trials , and potentially for commercialization ; establish and maintain a sales , marketing and distribution infrastructure to commercialize any products for which we have or may obtain regulatory approval ; acquire or in-license other therapeutic candidates and patents ; seek regulatory approval for our therapeutic candidates ; and attract and retain skilled personnel . story_separator_special_tag stock-based compensation we account for our stock-based awards in accordance with asc topic 718 , compensation—stock compensation , or asc 718 , which requires all stock-based payments to employees , including grants of employee stock options , modifications to existing stock options , and restricted stock unit awards , to be recognized in the statements of operations and comprehensive income ( loss ) based on their fair values . we recognize the compensation cost of awards subject to service-based vesting conditions over the requisite service period , which is generally equal to the vesting term . for awards subject to both 59 performance and service-based vesting conditions , we recognize compensation cost using an accelerated recognition method when it is probable that the performance condition will be achieved . if achievement of the performance condition is not probable , but the award will vest based on the service condition , we recognize the expense over the requisite service period . forfeitures are recognized as they occur . we estimate the fair value of our stock-based awards to employees and non-employees using the black-scholes option pricing model , which requires the input of highly subjective assumptions , including ( 1 ) the expected volatility of our stock , ( 2 ) the expected term of the award , ( 3 ) the risk-free interest rate and ( 4 ) expected dividends . we have estimated our volatility by using a blend of our stock price history , for the length of time we have market data for our stock and the historical volatility of similar public companies for the expected term of each grant . due to the lack of a public market for our common stock prior to the completion of our initial public offering in september 2013 , and resulting lack of company-specific historical and implied volatility data , we have based our estimate of expected volatility on the historical volatility of a group of similar publicly traded companies . for these analyses , we have selected companies with characteristics that we believe are comparable to ours , including enterprise value , risk profiles , position within the industry , and with historical share price information sufficient to meet the expected life of the stock-based awards . we compute the historical volatility data using the daily closing prices for the selected companies ' shares during the equivalent period as the calculated expected term of our stock-based awards . as of september 2019 , we had sufficient company-specific historical volatility data to begin estimating our stock 's expected volatility by using our own stock 's data rather than a blended rate for most awards . we have estimated the expected life of our employee stock options using the `` simplified `` method , whereby , the expected life equals the average of the vesting term and the original contractual term of the option . the risk-free interest rates for periods within the expected life of the option are based on the u.s. treasury yield curve in effect during the period the options were granted . stock-based compensation totaled approximately $ 23.0 million , $ 24.6 million and $ 28.2 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . we expect the impact of our stock-based compensation expense for stock-based awards granted to employees and non-employees to grow in future periods due to the potential increases in the value of our common stock and headcount . results of operations comparison of the years ended december 31 , 2019 and 2018 replace_table_token_5_th revenue . we recognized revenue of $ 74.0 million in the year ended december 31 , 2019 , compared to $ 14.0 million in the year ended december 31 , 2018 . all of the revenue in both periods was derived from the bms agreements . this increase in revenue of $ 60.0 million was primarily due to the recognition of milestones from bms ( then celgene ) for the acceptance of the bla and validation of the maa for reblozyl , as well as the approval of the bla for reblozyl . 60 research and development expenses . research and development expenses were $ 154.0 million in the year ended december 31 , 2019 , compared to $ 103.9 million in the year ended december 31 , 2018 . this $ 50.1 million increase is primarily related to growth in order to support our wholly-owned therapeutic candidates and preclinical programs and includes : an increase in personnel and facilities-related expense of $ 6.0 million related to increased headcount to support our growth ; an increase in external clinical trial expense of $ 8.7 million related to our ongoing clinical trials ; an increase in toxicology expense of $ 6.7 million related to the advancement of our clinical and preclinical programs ; an increase in contract manufacturing and drug supply expense of $ 11.1 million related to our ongoing clinical and preclinical programs ; an increase in in-licensing expense related to payments that were made in connection with achievements of milestones in 2019 totaling $ 3.6 million ; an increase of $ 10.0 million in relation to the execution of the license and collaboration agreement with fulcrum therapeutics , as discussed further in note 10 to the financial statements in this annual report on form 10-k ; and an increase in miscellaneous research expense and professional fees of $ 4.0 million . selling , general and administrative expenses . selling , general and administrative expenses were $ 56.5 million in the year ended december 31 , 2019 , compared to $ 34.5 million in the year ended december 31 , 2018 . this $ 22.0 million increase was primarily due to the following factors : an increase in selling expense of $ 5.1 million in preparation for the launch of reblozyl , our first commercial product approved by the fda on november 8 , 2019 ; an increase in personnel and facilities-related expense

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cash flows the following table sets forth the primary sources and uses of cash for each of the years set forth below : replace_table_token_7_th operating activities . net cash used in operating activities was $ 93.8 million for the year ended december 31 , 2019 , compared to $ 94.7 million and $ 76.5 million for the years ended december 31 , 2018 and 2017 , respectively . net cash used in operating activities has decreased over this three-year period as a result of $ 60.0 million of milestone payments received in 2019 , offset by increased operating expenses over the same period . the increase in operating expenses consists of increased expenses related to headcount and facilities , increased external expenses for clinical and preclinical activities , contract manufacturing , consulting , and other external expenses to support our wholly-owned therapeutic programs , as well as expenses for commercial activities in advance of and in conjunction with the commercial launch of reblozyl . the change in net cash used in operating activities primarily consists of our net losses adjusted for non-cash items and changes in components of operating assets and liabilities as follows : for the year ended december 31 , 2019 , a net loss of $ 124.9 million adjusted for non-cash items including : stock-based compensation expense of $ 23.0 million and depreciation and amortization expense of $ 3.9 million , and a net increase of $ 4.0 million due to changes in operating assets and liabilities . the significant items in the change in operating assets and liabilities include an increase in accrued expenses of $ 6.3 million and an increase in collaboration receivable of $ 1.5 million . for the year ended december 31 , 2018 , a net loss of $ 118.9 million adjusted for non-cash items including : stock-based compensation expense of $ 24.6 million , depreciation and amortization expense of $ 3.7 million , and a net decrease of $ 4.6 million due to changes in operating assets and liabilities .

these additional six schools joined our transitional schools segment to be managed through their teach-out date to ensure that students are afforded the reasonable opportunity to complete their course of study before the campuses are ultimately closed . these campuses were selected based on various considerations , including enrollment , financial viability and employment opportunities for graduates in the local market . with these moves , we believe we now have the core campuses upon which we will stabilize our organization and return to growth . we anticipate that we will incur operating losses for all the campuses within the transitional schools segment of approximately $ 70.0 million for the year ending december 31 , 2014 , which includes an estimate for the remaining lease obligations charge that will be recorded once we exit each location . as of december 31 , 2013 , we have 30 campuses within the transitional schools segment , 20 of which are scheduled to complete their teach-out during 2014. the estimated operating losses associated with the 20 campus closures in 2014 is approximately $ 36.0 million , with the losses more heavily weighted in the first half of the year . our university schools group , which includes both ctu and aiu , reported operating income of $ 57.9 million for 2013 while revenue decreased approximately 13 % as compared to the prior year . new student enrollments declined 19 % for 2013 from the prior year and total student enrollment decreased 9 % . we believe that the current state of the economy and the uncertainty surrounding job prospects continues to impact many students ' decision to return to school and incur debt . we continue to analyze and implement operational changes to improve our student intake process , including new marketing campaigns and enhancements to our websites . these efforts are beginning to yield results as we are seeing positive trends in new student enrollments , with 58 year-over-year declines growing smaller as we progressed through 2013. in addition , we are working to expand our pricing strategies with the objective of providing students with varying alternatives to completing their course of studies in an affordable and efficient manner . we are targeting to introduce these expanded offerings during 2014. during 2013 , our career schools reported a 21 % decrease in revenue as compared to the prior year and collectively reported an operating loss of $ 162.2 million . despite the overall operating loss , our career schools continue to show signs of stabilization . overall new student enrollments were down 7 % for 2013 as compared to the prior year . student applications showed positive improvement in all three career schools segments as compared to the prior year and health education 's and design & technology 's student retention rates increased as compared to the prior year . new student enrollments continue to be impacted by challenging market conditions as well as a decline in the effectiveness of our processes to enroll a new student once they have applied to one of our institutions , particularly within our culinary arts segment . we are making progress establishing more effective enrollment processes to address this operational inefficiency . the leadership team within career schools continues to evaluate and focus on new student intake initiatives , new programs and reengineering efforts to make changes to enhance critical operations and academic processes across our career schools . finally , the 2013 results include a $ 72.2 million non-cash charge related to establishing a valuation allowance against a portion of the company 's deferred tax assets . in assessing the need for a valuation allowance , we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets . if , based on the weight of available evidence , we determine it is more likely than not the deferred tax assets will not be realized within a period of time , we record a valuation allowance . a significant piece of objective negative evidence evaluated is the cumulative loss incurred over the three-year period ended december 31 , 2013. such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth . as a result of our assessment , as of december 31 , 2013 , a valuation allowance of $ 72.2 million has been recorded in order to measure only the portion of the deferred tax asset that more likely than not will be realized . the amount of the deferred tax asset considered realizable , however , could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased , if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth . we will continue to evaluate our valuation allowance in future years for any change in circumstances that causes a change in judgment about the realizability of the deferred tax asset . legal and regulatory updates during 2013 we made progress in resolving a number of our regulatory and legal concerns . we reached an agreement with the new york attorney general 's office for $ 10.5 million and also settled the shareholder derivative and securities litigation which is expected to be primarily funded through insurance proceeds . on january 24 , 2014 , we accepted a mediator 's proposal to settle multiple individual lawsuits which are part of the vasquez matter and recorded an accrual for $ 15.5 million based on our estimate of the liability . story_separator_special_tag this decline was driven by approximately 25 % fewer students enrolled within our institutions as of the beginning of the year and approximately 22 % fewer new student enrollments across our institutions in 2013 as compared to 2012. excluding the impact of transitional schools , whose revenues were down $ 95.0 million as compared to the prior year , we had approximately 15 % fewer new student enrollments in 2013 when compared to 2012. in addition , our institutions implemented certain operational changes during 2013 that have , in the short-term , negatively impacted our new student enrollments , including certain programs which we had established to enable students to assess their readiness to commit to enrolling in college-level courses . finally , we have experienced certain operational execution issues related to student intake and orientation that have negatively impacted the rate at which students are converted from prospective applicants to new enrollments . the company is actively addressing these issues . we expect , however , that these changes will positively impact student outcomes as enrolled students have more awareness of the tools and rigor of the educational program that they are enrolled in . educational services and facilities expense the decrease in educational services and facilities expense as compared to the prior year is primarily driven by lower academic costs , most notably faculty and bookstore costs . the decrease in faculty and bookstore costs is caused by a combination of factors , including lower student enrollment across all of our institutions , our initiative to implement self-published textbooks and procurement renegotiations for books and supplies . we continue to closely monitor the variable costs while maintaining optimal student-teacher ratios . as a percentage of revenue , educational services and facilities expense increased slightly as compared to the prior year primarily due to fixed costs , most notably occupancy costs . general and administrative expense general and administrative expenses have decreased as compared to the prior year mainly due to lower admissions and advertising expenses . admission costs have decreased primarily in salary and related expenses due to headcount reductions made in response to decreasing enrollments as well as transitional schools no longer enrolling new students . the lower advertising expense is substantially related to the transitional schools segment which was partially offset with increased advertising spending within our career schools segments in certain marketing channels to generate additional new student lead volume . in addition , severance and related costs of $ 6.2 million and $ 14.0 million were recorded for the years ended december 31 , 2013 and 2012 , respectively , primarily within general and administrative expense as a result of the reduction in force to reorganize our campus and corporate functions to common operating structures and to better align with the current student enrollment and school closure announcements carried out late 2012 and 2013. administrative expense was negatively impacted by $ 15.5 million and $ 10.5 million of expenses related to the pending settlement and settlement of legal matters , recorded within culinary arts and primarily health education , respectively . the prior year administrative expense included a $ 19.0 million insurance recovery recorded within corporate and other related to the settlement of claims under certain insurance policies . excluding these significant unusual items , administrative expenses declined over $ 48.0 million as compared to the prior year . 63 bad debt expense incurred by each of our segments during the years ended december 31 , 2013 , 2012 and 2011 was as follows ( dollars in thousands ) : replace_table_token_12_th the decrease in bad debt expense is primarily as a result of the decreasing total student enrollments across our segments . within our university segments , bad debt expense as a percent of total revenue increased due to an increased amount of in-school payment plans , resulting from an overall reduction in pell grants available to students as a result of changes in eligibility requirements . goodwill and asset impairment during 2013 , trade name impairment charges were recorded for the le cordon bleu ( $ 13.0 million ) and the sanford-brown ( $ 1.7 million ) trade names . $ 2.7 million of asset impairment charges were recorded for certain long-lived assets to reflect their fair value as of december 31 , 2013. in addition , $ 2.6 million of asset impairment charges related to our campus closure actions were recorded within transitional schools , and $ 2.7 million of asset impairment charges primarily related to decisions to exit certain facilities to optimize existing real estate were recorded . the 2012 goodwill and asset impairment expense of $ 125.5 million consist primarily of $ 41.3 million and $ 40.8 million of goodwill impairment charges recorded within our health education and design & technology reporting units , respectively , $ 28.5 million of asset impairment charges related to our campus closure actions , primarily recorded within transitional schools , and trade name impairments of $ 8.1 million and $ 3.5 million , recorded within culinary arts and health education , respectively . see note 8 “property and equipment” and note 10 “goodwill and other intangible assets” of the notes to our consolidated financial statements for additional information . operating loss the $ 214.7 million operating loss for the current year resulted principally from the decline in revenues across all of our segments being partially offset by lower operating expenses . initiatives to align expenses with the declining student enrollment , changes in marketing strategies and implementation of efficiencies in our support functions continue to partially offset the impact of declining revenues and deleveraging of the business . in addition , the $ 26.0 million of expenses related to legal settlements and $ 22.7 million of trade name and asset impairment charges negatively impacted our 2013 operating results . the prior year operating loss of $ 197.0 million included $ 125.5 million of goodwill and asset impairment charges partially offset with an insurance recovery

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sources and uses of cash operating cash flows during the years ended december 31 , 2013 and 2012 , net cash flows used in operating activities totaled $ 85.8 million and $ 16.8 million , respectively . 76 our primary source of cash flows from operating activities is tuition collected from our students . our students derive the ability to pay tuition costs through the use of a variety of funding sources , including , among others , federal loan and grant programs , state grant programs , private loans and grants , school payment plans , private and institutional scholarships and cash payments . for the years ended december 31 , 2013 , 2012 and 2011 , approximately 78 % , 80 % , and 83 % , respectively , of our schools ' cash receipts from tuition payments came from title iv program funding . for further discussion of title iv program funding and alternative private loan funding sources for our students , see “student financial aid” in item 1 , “business , ” of this report . our primary uses of cash to support our operating activities include , among other things , cash paid and benefits provided to our employees for services , to vendors for products and services , to lessors for rents and operating costs related to leased facilities , to suppliers for textbooks and other school supplies , and to federal , state and local governments for income and other taxes . during 2013 , we recorded a net gain on sale of $ 123.2 million from the sales of our international segment in the fourth quarter of 2013 ( gain on sale of $ 130.1 million reported within discontinued operations ) and aiu london in the second quarter of 2013 ( loss on sale of $ 6.9 million reported within continuing operations ) . included in the net gain on sale was $ 10.0 million of cumulative translation losses resulting from the effects of foreign currency on the balance sheets of both the international segment schools and aiu london .

— deposits totaled $ 4,841,912 at december 31 , 2013 , an increase of $ 1,380,691 , or 39.89 % , from december 31 , 2012. deposits acquired from first m & f totaled $ 1,301,130 at december 31 , 2013. management 's strategy to build and maintain a stable source of funding through core deposits , driven by noninterest-bearing deposits , has allowed for certain higher costing time deposits to mature or expire without renewal , some of which have been replaced with noninterest-bearing deposits and other lower costing deposits . deposits from our de novo locations also contributed $ 137,564 in deposits year over year . a historical look at key performance indicators is presented below . replace_table_token_10_th 33 critical accounting policies our financial statements are prepared using accounting estimates for various accounts . wherever feasible , we utilize third-party information to provide management with estimates . although independent third parties are engaged to assist us in the estimation process , management evaluates the results , challenges assumptions used and considers other factors which could impact these estimates . we monitor the status of proposed and newly issued accounting standards to evaluate the impact on our financial condition and results of operations . our accounting policies , including the impact of newly issued accounting standards , are discussed in further detail in note a , “ significant accounting policies , ” in the notes to consolidated financial statements in item 8 , financial statements and supplementary data . the following discussion presents some of the more significant estimates used in preparing our financial statements . allowance for loan losses the accounting policy most important to the presentation of our financial statements relates to the allowance for loan losses and the related provision for loan losses . the allowance for loan losses is available to absorb probable credit losses inherent in the entire loan portfolio . the appropriate level of the allowance is based on an ongoing analysis of the loan portfolio and represents an amount that management deems adequate to provide for inherent losses , including collective impairment as recognized under the financial accounting standards board accounting standards codification topic ( “ asc ” ) 450 , “ contingencies ” ( “ asc 450 ” ) . collective impairment is calculated based on loans grouped by grade . another component of the allowance is losses on loans assessed as impaired under asc 310 , “ receivables ” ( “ asc 310 ” ) . the balance of the loans determined to be impaired under asc 310 and the related allowance is included in management 's estimation and analysis of the allowance for loan losses . the determination of the appropriate level of the allowance is sensitive to a variety of internal factors , primarily historical loss ratios and assigned risk ratings , and external factors , primarily the economic environment . additionally , the estimate of the allowance required to absorb credit losses in the entire portfolio may change due to shifts in the mix and level of loan balances outstanding and in prevailing economic conditions , as evidenced by changes in real estate demand and values , interest rates , unemployment rates and energy costs . while no one factor is dominant , each could cause actual loan losses to differ materially from originally estimated amounts . for a discussion of other considerations in establishing the allowance for loan losses and our loan policies and procedures for addressing credit risk , please refer to the disclosures in this item under the heading “ risk management – credit risk and allowance for loan losses . ” certain loans acquired in acquisitions or mergers are accounted for under asc 310-30 , “ loans and debt securities acquired with deteriorated credit quality ” ( “ asc 310-30 ” ) . asc 310-30 prohibits the carryover of an allowance for loan losses for loans acquired in which the acquirer concludes that it will not collect the contractual amount . as a result , these loans are carried at values which represent management 's estimate of the future cash flows of these loans . increases in expected cash flows to be collected from the contractual cash flows are required to be recognized as an adjustment of the loan 's yield over its remaining life , while decreases in expected cash flows are required to be recognized as an impairment . a more detailed discussion of loans accounted for under asc 310-30 , which were acquired in connection with our mergers with first m & f in 2013 , capital bancorp , inc. ( “ capital ” ) in 2007 and with heritage financial holding corporation ( “ heritage ” ) in 2005 and our acquisitions of crescent and american trust in fdic-assisted transactions in 2010 and 2011 , respectively , is set forth below under the heading “ risk management – credit risk and allowance for loan losses ” and in note d , “ loans and the allowance for loan losses , ” in the notes to consolidated financial statements in item 8 , financial statements and supplementary data . other-than-temporary-impairment on investment securities on a quarterly basis , we evaluate our investment portfolio for other-than-temporary-impairment ( “ otti ” ) in accordance with asc 320 , “ investments – debt and equity securities . ” an investment security is considered impaired if the fair value of the security is less than its cost or amortized cost basis . when impairment of an equity security is considered to be other-than-temporary , the security is written down to its fair value and an impairment loss is recorded in earnings . when impairment of a debt security is considered to be other-than-temporary , the security is written down to its fair value . story_separator_special_tag the balance of our investment portfolio at december 31 , 2012 declined $ 122,264 to $ 674,077 compared to $ 796,341 at december 31 , 2011. during 2012 , we purchased $ 287,384 in investment securities . mortgage-backed securities and cmos , in the aggregate , comprised 52.10 % of the purchases . u.s. government agency securities and municipal securities accounted for 40.49 % and 6.32 % , respectively , of total securities purchased in 2012. the carrying value of securities sold during 2012 totaled $ 124,156 , consisting solely of mortgage-backed securities . maturities and calls of securities during 2012 totaled $ 282,985 . 37 loans loans , excluding mortgage loans held for sale , are the company 's most significant earning asset , comprising 67.54 % , 67.25 % and 61.43 % of total assets at december 31 , 2013 , 2012 and 2011 , respectively . the table below sets forth the balance of loans outstanding by loan type at december 31 : replace_table_token_12_th the following table presents the percentage of loans , by category , to total loans at december 31 for the last five years : replace_table_token_13_th loan concentrations are considered to exist when there are amounts loaned to a number of borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other conditions . at december 31 , 2013 , there were no concentrations of loans exceeding 10 % of total loans other than loans disclosed in the table above . loans secured by real estate represented 85.55 % , 86.67 % , 86.89 % , 86.93 % and 84.97 % of the company 's total loan portfolio at december 31 , 2013 , 2012 , 2011 , 2010 and 2009 , respectively . the following table provides further details of the types of loans in the company 's loan portfolio secured by real estate at december 31 : replace_table_token_14_th total loans at december 31 , 2013 were $ 3,881,018 , an increase of $ 1,070,765 from $ 2,810,253 at december 31 , 2012 . loans acquired from first m & f totaled $ 813,543 at december 31 , 2013. loans covered under loss-share agreements with the fdic ( referred to as “ covered loans ” ) were $ 181,674 at december 31 , 2013 , a decrease of $ 55,414 , compared to $ 237,088 at december 38 31 , 2012 . for covered loans , the fdic will reimburse the bank 80 % of the losses incurred on these loans . management intends to continue the company 's aggressive efforts to bring those covered loans that are commercial in nature to resolution and thus the balance of covered loans is expected to continue to decline . the loss-share agreements applicable to this portfolio provides reimbursement for five years from the acquisition date . the following table provides a breakdown of covered loans at december 31 : replace_table_token_15_th loans not covered under a loss-share agreement at december 31 , 2013 were $ 3,699,344 , compared to $ 2,573,165 at december 31 , 2012 . the acquisition of first m & f increased not covered loans by $ 813,543 at december 31 , 2013. excluding the loans acquired from first m & f , not covered loans increased $ 312,636. the increase in loans not covered under loss-share agreements was attributable to growth in owner and non-owner occupied commercial real estate loans and commercial loans , as well as loan production generated by our de novo expansion . loans from our de novo locations in columbus and starkville , mississippi , tuscaloosa and montgomery , alabama and maryville , bristol , jonesborough and johnson city , tennessee contributed $ 141,298 of the total increase in loans from december 31 , 2012. during 2013 , loans in our mississippi , tennessee and alabama markets , excluding the contribution from the first m & f operations , increased $ 29,513 , $ 165,586 and $ 39,255 , respectively . loans in our georgia markets not covered under loss-share agreements increased $ 47,175 from december 31 , 2012 . 39 the following table provides a breakdown of loans not covered under a loss-share agreement at december 31 : replace_table_token_16_th mortgage loans held for sale mortgage loans held for sale were $ 33,440 at december 31 , 2013 compared to $ 34,845 at december 31 , 2012 . originations of mortgage loans to be sold totaled $ 619,526 in 2013 , $ 588,454 in 2012 and $ 433,845 in 2011 . mortgage rates in the latter half of 2011 declined to historic lows and remained at these historically low levels throughout the first quarter of 2013 , which prompted a significant increase in refinancings and , thus mortgage originations during this time period . beginning in the second quarter of 2013 and continuing through the remainder of the year , mortgage rates increased from the historically low levels . the increase in mortgage rates could result in lower future mortgage originations as refinancings decrease . mortgage loans to be sold are sold either on a “ best efforts ” basis or under a mandatory delivery sales agreement . under a “ best efforts ” sales agreement , residential real estate originations are locked in at a contractual rate with third party private investors or directly with government sponsored agencies , and the company is obligated to sell the mortgages to such investors only if the mortgages are closed and funded . the risk we assume is conditioned upon loan underwriting and market conditions in the national mortgage market . under a mandatory delivery sales agreement , the company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price and delivery date . penalties are paid to the investor if we fail to satisfy the contract . gains and losses are realized at the time consideration is received and all other criteria for sales treatment have

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liquidity and capital resources liquidity management is the ability to meet the cash flow requirements of customers who may be either depositors wishing to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs . core deposits , which are deposits excluding time deposits and public fund deposits , are a major source of funds used by renasant bank to meet cash flow needs . maintaining the ability to acquire these funds as needed in a variety of markets is the key to assuring renasant bank 's liquidity . management continually monitors the liquidity and non-core dependency ratios to ensure compliance with targets established by the asset/liability management committee ( `` alco '' ) . our investment portfolio is another alternative for meeting liquidity needs . these assets generally have readily available markets that offer conversions to cash as needed . within the next twelve months the securities portfolio is forecasted to generate cash flow through principal payments and maturities equal to 10.92 % of the carrying value of the total securities portfolio . securities within our investment portfolio are also used to secure certain deposit types and short-term borrowings . at december 31 , 2013 , securities 55 with a carrying value of $ 608,401 were pledged to secure government , public , trust , and other deposits and as collateral for short-term borrowings and derivative instruments as compared to $ 327,368 at december 31 , 2012 . other sources available for meeting liquidity needs include federal funds purchased and advances from the fhlb . interest is charged at the prevailing market rate on federal funds purchased and fhlb advances . the balance of outstanding federal funds purchased at december 31 , 2013 was $ 222. there were no outstanding federal funds purchased on december 31 , 2012 .

the reduction of the u.s. federal corporate tax rate under the tax act is expected to reduce the effective tax rate for the year ended december 29 , 2018 by an estimated 13 % , as compared to what the effective tax rate would have been in the absence of tax reform , after taking into account the impact of the federal deduction of state income taxes . in 2016 , we launched an initiative to centralize certain field procurement and replenishment activities . we expect the procurement actions to be completed in 2018 , with realization of benefits in product costs and logistics savings resulting from more effective management of procurement and replenishment activities . however , the expected savings may be offset by increases in inbound freight resulting from capacity and rate challenges being experienced in the u.s. outlook with favorable trends in consumer confidence and the unemployment rate , we expect positive industry growth in 2018. general economic trends and conditions , including demographic changes , inflation , deflation , consumer confidence , and disposable income , coupled with changing tastes and preferences , influence the amount that consumers spend on food-away-from-home , which can affect our customers and , in turn , our sales . on balance , we believe that these general trends will support positive real growth in food-away-from-home consumption and the growth of foodservice industry sales , particularly in our target customer types . we expect competitive pressures to remain high and a moderation of year over year inflation in 2018. given that a large portion of our business is based on markups over cost , sudden inflation or prolonged deflation can negatively impact our sales and gross profit . we expect sales to our independent restaurant customers , which generally have higher margins , to continue to be an increasing proportion of our sales mix . favorable customer mix , additional volume from acquisitions , as well as other sourcing initiatives , will also continue to contribute to our ability to expand our margins . additionally , we believe our investments in a common technology platform , efficient transactional and operational model , e-commerce and analytic tools that support our team-based selling approach , coupled with product innovation , have enabled us to leverage our costs , maintain our sales , and differentiate ourselves from our competitors . our strategy includes continued focus on executing our growth strategies , adding value for and differentiating ourselves with our customers , and driving continued operational improvement in the business . 31 results of operations the following table presents selected consolidated results of operations of our business for the last three fiscal years : replace_table_token_9_th ( * ) amounts may not add due to rounding . ( 1 ) ebitda , adjusted ebitda , and adjusted net income are non-gaap measures used by management to measure operating performance . ebitda is defined as net income ( loss ) , plus interest expense—net , income tax ( benefit ) provision , and depreciation and amortization . adjusted ebitda is defined as ebitda adjusted for 1 ) sponsor fees ; 2 ) restructuring ( benefit ) charges and tangible asset impairments ; 3 ) share-based compensation expense ; 4 ) the non-cash impact of lifo reserve adjustments ; 5 ) loss on extinguishment of debt ; 6 ) pension settlements ; 7 ) business transformation costs ; 8 ) acquisition-related costs ; 9 ) acquisition termination fees—net ; and 10 ) other gains , losses , or charges as specified in usf 's debt agreements . adjusted net income is defined as net income ( loss ) excluding the items used to calculate adjusted ebitda listed above and further adjusted for the tax effect of the exclusions and discrete tax items . ebitda , adjusted ebitda , and adjusted net income as presented in this annual report are supplemental measures of our performance that are not required by—or presented in accordance with—gaap . they are not measurements of our performance under gaap and should not be considered as alternatives to net income ( loss ) or any other performance measures derived in accordance with gaap . 32 free cash flow is defined as cash flows provided by operati ng activities less capital expenditures . free cash flow is used by management as a supplemental measure of our liquidity . we believe that free cash flow is a useful financial metric to assess our ability to pursue business opportunities and investments . fr ee cash flow is not a measure of our liquidity under gaap and should not be considered as an alternative to cash flows provided by operating activities . see additional information for the use of these measures and “ non-gaap reconciliations ” in “ item 6. selected financial data ” . fiscal years ended december 30 , 2017 and december 31 , 2016 highlights case volume increased 2.9 % . independent restaurant case volume increased 5.2 % . net sales increased $ 1,228 million , or 5.4 % , to $ 24,147 million . operating income increased $ 160 million , or 38.6 % , to $ 574 million . as a percentage of net sales , operating income increased to 2.4 % in 2017 , compared to 1.8 % in 2016. net income increased $ 234 million to $ 444 million in 2017 , compared to $ 210 million in 2016. adjusted ebitda increased $ 86 million , or 8.8 % , to $ 1,058 million . as a percentage of net sales , adjusted ebitda increased to 4.4 % in 2017 , compared to 4.2 % in 2016. net sales total case growth in 2017 was 2.9 % . the increase reflected growth with independent restaurants , healthcare , and hospitality , partially offset by declines in education . organic case volume increased 1.7 % and reflected similar customer growth trends and some planned exits from national chains . story_separator_special_tag loss on extinguishment of debt as discussed in note 11 , debt , to our consolidated financial statements , we incurred a $ 54 million loss on extinguishment of debt in 2016. approximately $ 42 million of the loss related to the june 2016 debt redemption and refinancing . the remaining $ 12 million resulted from the defeasance of the cmbs fixed facility . income taxes the determination of our overall effective tax rate requires the use of estimates . the effective tax rate reflects the income earned and taxed in various united states federal and state jurisdictions based on enacted tax law , permanent differences between book and tax items , tax credits and our change in relative income in each jurisdiction . we released the valuation allowance against our federal net deferred tax assets and certain of our state net deferred tax assets in 2016 , as we determined it was more likely than not the deferred tax assets would be realized . we maintained a valuation allowance on certain state net operating loss and tax credit carryforwards expected to expire unutilized as a result of insufficient forecasted taxable income in the carryforward period or the utilization of which is subject to limitation . the decision to release the valuation allowance was made after management considered all available evidence , both positive and negative , including but not limited to , historical operating results , cumulative income in recent years , forecasted earnings , and a reduction of uncertainty regarding forecasted earnings as a result of developments in certain customer and strategic initiatives during 2016. the effective tax rate for 2016 and 2015 of ( 60 ) % and 13 % , respectively , varied from the 35 % federal statutory rate , primarily as a result of a change in the valuation allowance . during 2016 and 2015 , the valuation allowance decreased $ 128 million and $ 48 million , respectively . the decrease in the valuation allowance for 2016 was primarily the result of the year to date pre-tax income and the partial release of the valuation allowance . the decrease in the valuation allowance for 2015 was primarily the result of the year to date ordinary income , partially offset by an increase in the valuation allowance due to an increase in deferred tax liabilities related to indefinite-lived intangibles . the year to date ordinary income for 2015 was impacted by the $ 288 million net termination fee 37 received pursuant to the terminated acquisi tion agreement . see note 20 , income taxes , to our consolidated financial statements for a reconciliation of our effective tax rates to the statutory rate . net income our net income was $ 210 million in 2016 , compared to $ 168 million in 2015. the increase in net income was primarily due to the relevant factors discussed above . story_separator_special_tag beyond our control . every quarter , we review rating agency changes for all of the lenders that have a continuing obligation to provide us with funding . we are not aware of any facts that indicate our lenders will not be able to comply with the contractual terms of their agreements with us . we continue to monitor the credit markets generally and the strength of our lender counterparties . from time to time , we repurchase or otherwise retire our debt and take other steps to reduce our debt or otherwise improve our leverage . these actions may include open market repurchases , negotiated repurchases , and other retirements of outstanding debt . the amount of debt that may be repurchased or otherwise retired , if any , will depend on market conditions , our debt trading levels , our cash position , and other considerations . our credit facilities , loan agreements , and indentures contain customary covenants . these include , among other things , covenants that restrict usf 's ability to incur certain additional indebtedness , create or permit liens on assets , pay dividends , or engage in mergers or consolidations . as of december 30 , 2017 , usf had $ 751 million of restricted payment capacity under these covenants , and approximately $ 2,001 million of its net assets were restricted after taking into consideration the net deferred tax assets and intercompany balances that eliminate in consolidation . certain debt agreements also contain customary events of default . those include , without limitation , the failure to pay interest or principal when it is due under the agreements , cross default provisions , the failure of representations and warranties contained in the agreements to be true , and certain insolvency events . if a default event occurs and continues , the principal amounts outstanding , together with all unpaid interest and other amounts owed , may be declared immediately due and payable by the lenders . were such an event to occur , we would be forced to seek new financing that may not be on as favorable terms as our current facilities . our ability to refinance our indebtedness on favorable terms , or at all , is directly affected by the current economic and financial conditions . in addition , our ability to incur secured indebtedness ( which may enable us to achieve more favorable terms than the incurrence of unsecured indebtedness ) depends in part on the value of our assets . this , in turn , relies on the strength of our cash flows , results of operations , economic and market conditions and other factors . as of december 30 , 2017 , we were in compliance with all of our debt covenants . 39 cash flows for the last three fiscal years , the following table presents condensed highlights from our consolidated statements of cash flows : replace_table_token_10_th ( * ) amounts may not add due to rounding . operating activities cash flows provided by operating activities increased $ 192 million to

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liquidity and capital resources our operations and strategic objectives require continuing capital investment . our resources include cash provided by operations , as well as access to capital from bank borrowings , various types of debt , and other financing arrangements . terms used but not defined in this discussion are defined in the detailed description of our indebtedness in note 11 , debt , to our consolidated financial statements . indebtedness our significant debt facilities have scheduled debt maturities primarily during the next seven years , and a substantial portion of our liquidity needs arise from debt service requirements , the ongoing costs of operations , working capital , and capital expenditures . as of december 30 , 2017 , the aggregate carrying value of our indebtedness was $ 3,757 million , net of $ 16 million of unamortized deferred financing costs . our primary financing sources for working capital and capital expenditures are cash from operations , the abl facility , and the 2012 abs facility . as of december 30 , 2017 , we had aggregate commitments for additional borrowings under the abl facility and the 2012 abs facility of $ 1,028 million , of which $ 922 million was available based on our borrowing base , all of which is secured . the abl facility provides for loans of up to $ 1,300 million , with its capacity limited by borrowing base calculations . as of december 30 , 2017 , we had outstanding borrowings of $ 80 million and had issued letters of credit totaling $ 412 million under the abl facility . there was available capacity on the abl facility of $ 807 million at december 30 , 2017 , based on the borrowing base calculation . the maximum capacity under the 2012 abs facility is $ 800 million , with its capacity limited by borrowing base calculations . borrowings under the 2012 abs facility were $ 580 million at december 30 , 2017. at our option , we can request additional 2012 abs facility borrowings up to the maximum commitment , provided sufficient eligible receivables are available as collateral .

our segments at december 31 , 2018 , we had two operating segments : consumer and insurance ; and acquisitions and servicing . the remaining components ( which we refer to as “ other ” ) consist of our non-originating legacy operations , which primarily include our liquidating real estate loan portfolio and our liquidating retail sales finance portfolio . see note 22 of the notes to the consolidated financial statements included in this report for more information about our segments . how we assess our business performance we closely monitor the primary drivers of pretax operating income , which consist of the following : net interest income we track the spread between the interest income earned on our finance receivables and the interest expense incurred on our debt , and continually monitor the components of our yield and our cost of funds . net credit losses the credit quality of our loans is driven by our underwriting philosophy , which considers the prospective customer 's household budget , his or her willingness and capacity to repay , and the underlying collateral on the loan . we closely analyze credit performance because the profitability of our loan portfolio is directly connected to net credit losses . we define net credit losses as gross charge-offs minus recoveries in the portfolio . additionally , because delinquencies are an early indicator of future net credit losses , we analyze delinquency trends , adjusting for seasonality , to determine whether or not our loans are performing in line with our original estimates . we also monitor recovery rates because of their contribution to the reduction in the severity of our charge-offs . operating expenses we assess our operational efficiency using various metrics and conduct extensive analysis to determine whether fluctuations in cost and expense levels indicate operational trends that need to be addressed . our operating expense analysis also includes a review of origination and servicing costs to assist us in managing overall profitability . because loan volume and portfolio size determine the magnitude of the impact of each of the above factors on our earnings , we also closely monitor origination volume and annual percentage rate . 45 recent developments and outlook recent developments apollo-värde transaction on january 3 , 2018 , the apollo-värde group entered into a share purchase agreement with sfh and the company to acquire from sfh 54,937,500 shares of our common stock representing the entire holdings of our stock beneficially owned by fortress . the apollo-värde transaction closed on june 25 , 2018 for an aggregate purchase price of approximately $ 1.4 billion in cash . as disclosed in note 21 of the notes to the consolidated financial statements in this report , certain executives of the company had previously been granted incentive units that only provide benefits ( in the form of distributions ) if sfh were to make distributions to one or more of its common members that exceed specified amounts . in connection with the apollo-värde transaction , certain executive officers who were holders of sfh incentive units received a distribution of approximately $ 106 million in the aggregate from sfh as a result of their ownership interests in sfh . although the distribution was not made by the company or its subsidiaries , in accordance with asc topic 710 , compensation-general , we recorded non-cash incentive compensation expense of approximately $ 106 million , with an equal and offsetting increase to additional paid-in-capital . the impact to the company was non-cash , equity neutral and not tax deductible . aig share sale transaction on february 21 , 2018 , omh entered into an underwriting agreement among omh , sfh and morgan stanley & co. llc as underwriter in connection with the sale by sfh of 4,179,678 shares of its common stock . these shares were beneficially owned by aig and represented the entire holdings of our common stock beneficially owned by aig . in connection with this sale of our common stock by sfh , certain executive officers who are holders of sfh incentive units , as described above , received a distribution of approximately $ 4 million in the first quarter of 2018. consistent with the accounting for distribution from the apollo-värde transaction described above , the company recognized non-cash incentive compensation expense of approximately $ 4 million , with an equal and offsetting increase to additional paid-in-capital . the impact to the company was non-cash , equity neutral and not tax deductible . appointment of new member of the board of directors , president , and chief executive officer at omh on july 13 , 2018 , we announced that our company 's board of directors had appointed douglas h. shulman as the company 's president and chief executive officer . mr. shulman succeeds jay n. levine who remains chairman of the board . on september 8 , 2018 , mr. shulman began his first day of employment and was also appointed to the company 's board of directors . cost synergies from the onemain acquisition and the lendmark sale as of december 31 , 2018 , we had incurred approximately $ 293 million of total acquisition-related transaction and integration expenses ( $ 54 million incurred during 2018 ) from the onemain acquisition and the lendmark sale . as part of our integration efforts in connection with the onemain acquisition , on may 29 , 2018 , the company entered into a share purchase agreement to sell all of the issued and outstanding shares of its former insurance subsidiary , yosemite . story_separator_special_tag see notes 2 and 7 of the notes to the consolidated financial statements included in this report for more information regarding the real estate loan sales . 52 acquisition-related transaction and integration expenses incurred as a result of the onemain acquisition and the lendmark sale include ( i ) compensation and employee benefit costs , such as retention awards and severance costs , ( ii ) accelerated amortization of acquired software assets , ( iii ) rebranding to the onemain brand , ( iv ) branch infrastructure and other fixed asset integration costs , ( v ) information technology costs , such as internal platform development , software upgrades and licenses , and technology termination costs , ( vi ) legal fees and project management costs , ( vii ) system conversions , including human capital management , marketing , risk , and finance functions , and ( viii ) other costs and fees directly related to the onemain acquisition and integration . 53 segment results see note 22 of the notes to the consolidated financial statements included in this report for ( i ) a description of our segments , ( ii ) reconciliations of segment totals to consolidated financial statement amounts and ( iii ) methodologies used to allocate revenues and expenses to each segment . consumer and insurance adjusted pretax income and selected financial statistics for consumer and insurance ( which are reported on an adjusted segment accounting basis ) were as follows : replace_table_token_6_th ( a ) see “ glossary ” at the beginning of this report for formulas and definitions of our key performance ratios . ( b ) includes personal loans held for sale in 2016 in connection with the lendmark sale . 54 comparison of adjusted pretax income for 2018 and 2017 interest income increased $ 372 million or 11 % in 2018 when compared to 2017 primarily due to continued growth in our loan portfolio . interest expense increased $ 79 million or 10 % in 2018 when compared to 2017 primarily due to the increase in average debt balances consistent with the growth in our loan portfolio and our strategic shifting of our funding to a more proportional mix of secured and unsecured debt . see notes 12 and 13 of the notes to the consolidated financial statements included in this report for further information on our long-term debt , securitization transactions and our conduit facilities . provision for finance receivable losses increased $ 84 million in 2018 when compared to 2017 primarily driven by the growth in our loan portfolio and the proportional growth in loans classified as tdrs . this increase was partially offset by $ 12 million in the 2017 provision attributable to the hurricanes harvey and irma . the level of allowance for finance receivable losses as a percentage of net finance receivables has decreased from 2017 due to the continued change in portfolio mix to more secured personal loans , and improvement in the effectiveness of our collections . other revenues decreased $ 7 million or 1 % in 2018 when compared to 2017 primarily due to a decrease in investment revenue of $ 17 million primarily driven by lower realized gains on the sale of investment securities in 2018 offset by an increase in insurance revenues of $ 9 million during 2018 from higher insurance productivity . other expenses increased $ 57 million or 4 % in 2018 when compared to 2017 primarily reflecting our initiatives to reinvest in the business and growth in our operations . comparison of adjusted pretax income for 2017 and 2016 interest income decreased $ 23 million in 2017 when compared to 2016 due to the net of the following : interest income on finance receivables held for sale decreased $ 56 million in 2017 due to the transfer of our personal loans to finance receivables held for sale in 2015 that were sold in the lendmark sale in may of 2016. finance charges increased $ 33 million primarily due to the net of the following : average net receivables held for investment increased primarily due to the continued growth in our personal loan portfolio . yield on finance receivables held for investment decreased primarily due to the continued shift of the portfolio towards secured personal loans and direct auto customers who tend to have loans with lower yields and lower charge offs relative to our unsecured personal loans . interest expense increased $ 27 million in 2017 when compared to 2016 primarily due to an increase in the utilization of financing from unsecured notes which generally have higher interest rates relative to our other indebtedness . provision for finance receivable losses increased $ 52 million in 2017 when compared to 2016 primarily due to ( i ) the growth in our personal loan portfolio during the past 12 months , ( ii ) continued alignment and enhancement of our collection practices which resulted in an increase in the loans now classified as tdr and ( iii ) the estimated impacts of hurricanes harvey and irma . based on information available at the time , we estimated the impact to net charge-offs attributable to these hurricanes to be $ 12 million and increased our provision for finance receivable losses accordingly . other revenues decreased $ 39 million in 2017 when compared to 2016 primarily due to ( i ) a decrease in insurance revenues of $ 29 million during 2017 primarily due to lower volume of loans with insurance products sold and a decrease in revenue from runoff business and ( ii ) a decrease in investment revenue of $ 20 million primarily due to lower realized gains on securities sold and reinvestments into lower yielding assets . this decrease was offset by an increase in fee revenues of $ 10 million from home and auto membership plans sold in 2017 . 55 other expenses decreased $ 117 million in 2017 when compared to 2016 due to the net of

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liquidity and capital resources sources of funds we finance the majority of our operating liquidity and capital needs through a combination of cash flows from operations , securitization debt , borrowings from conduit facilities , unsecured debt and equity , and may also utilize other corporate debt facilities in the future . as a holding company , all of the funds generated from our operations are earned by our operating subsidiaries . redemption of omfh 2019 notes on december 8 , 2017 , omfh issued a notice of redemption to redeem all $ 700 million outstanding principal amount of omfh 's 6.75 % senior notes due 2019 at a redemption price equal to 103.375 % , plus accrued and unpaid interest to the redemption date . the notes were redeemed on january 8 , 2018. in connection with the redemption , we recognized approximately $ 1 million of net loss on repurchases and repayments of debt for the twelve months ended december 31 , 2018 . redemption of omfh 2021 notes on march 19 , 2018 , omfh provided notice of redemption to redeem $ 400 million in aggregate principal amount of omfh notes due 2021 at a redemption price in cash equal to the sum of ( i ) 103.625 % of the principal amount of the notes and ( ii ) any accrued and unpaid interest to the redemption date on the principal amount .

reimbursable expenses and non-controlling interests are pass-through items for which we earn no margin . reimbursable expenses consist of amounts we incur on behalf of our customers in performing our fee-based services , but we pass such costs 27 directly on to our customers without any additional markup . non-controlling interests represent the earnings of lenders one , wholesale one and residential investor one , consolidated entities not owned by altisource , and are included in revenue and reduced from net income to arrive at net income attributable to altisource . we have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . altisource 's vision and growth initiatives altisource provides a suite of mortgage , real estate and consumer debt services , leveraging our technology platform and global operations . altisource is focused on becoming the premier provider of real estate and mortgage marketplaces and related services to a broad and diversified customer base . within the real estate and mortgage markets , we facilitate transactions and provide products , solutions and services related to home sales , home purchases , home rentals , home maintenance , mortgage origination and mortgage servicing . strategically , we are focused on ( 1 ) our four key business initiatives , ( 2 ) continuing to strengthen our compliance management system and ( 3 ) maintaining strong performance and relationships with our strategic customers . each of our four key business initiatives position altisource to grow and diversify our customer and revenue base . we believe these initiatives address very large markets and directly leverage our core competencies and distinct competitive advantages . our four strategic growth initiatives and a brief description of each are as follows : mortgage market : 1. continue to grow our servicer solutions business ( the products , services and technologies typically used or licensed by loan servicers ) : we are focused on growing our servicer solutions business by expanding services purchased by our existing customer base and attracting new customers . even as delinquencies return to historical norms , we believe there is a very large addressable market for the services we provide , as well as a strong and increasing customer focus on regulatory compliance and operational quality . we are one of only a few service providers with a comprehensive offering of services and technologies on a national scale . we believe we are well positioned to gain market share as customers consolidate to larger , full-service vendors and continue to outsource services that have historically been performed in-house . 2. continue to grow our origination solutions business ( the products , services and technologies typically used or licensed by participants in the loan origination market ) : we are focused on building an industry leading , integrated origination services platform that provides end-to-end solutions ( products , services and technology ) to our customers . we plan to grow our origination solutions business by expanding our product offerings to our existing client base and actively adding new customers . we are leveraging our enterprise wide sales organization to offer our origination services to larger bank and non-bank originators and correspondents and plan to expand our middle market sales organization to address other prospects . we believe we are well positioned to gain market share as customers consolidate to larger full-service vendors and by offering our existing customers ( e.g . , the members of lenders one , the customers of mortgage builder and castleline and our preferred vendors and partners ) an attractive suite of products and services that meet their growing needs . real estate market : 3. continue to grow owners.com , our consumer real estate offering ( the products , services and technologies typically used by self-directed home buyers and sellers ) : owners.com provides self-directed consumers with a full suite of real estate services from which to choose . we are focused on growing owners.com by building brand awareness , driving customer engagement and increasing consumer adoption of our buy side brokerage services . with a growing segment of the population demonstrating a desire to engage in self-directed transactions , we believe owners.com is well positioned to become a market leader . 4. continue to grow our real estate investor solutions business ( the products , services and technologies typically used by participants in residential real estate investments ) : we are focused on growing our real estate investor solutions business by supporting the growth of our existing customers , expanding services purchased by our existing customer base and attracting new customers . with our national real estate brokerage operation , vendor network , property management and renovation footprint , existing customer base and growing suite of technologies , we believe we are well positioned to grow . 28 share repurchase plan on may 20 , 2015 , our shareholders approved a new share repurchase program , which replaced the previous share repurchase program . under the new program , we are authorized to purchase up to 3.0 million shares of our common stock , based on a limit of 15 % of the outstanding shares of common stock on the date of approval at a minimum price of $ 1.00 per share and a maximum price of $ 500.00 per share . this is in addition to amounts previously purchased under prior programs . story_separator_special_tag these losses are composed of an estimated $ 55.7 million impairment of goodwill , $ 11.9 million impairment of intangible assets from the 2013 homeward and rescap fee-based business acquisitions and $ 4.1 million impairment of software assets included in premises and equipment . in 2014 , as a result of the adjustment in the fair value of the equator contingent consideration described below and based on our goodwill assessment in 2014 , we determined that the equator goodwill was impaired and recorded an impairment loss of $ 37.5 million for the year ended december 31 , 2014 . we recognized gains on the change in the fair value of equator earn out liability of $ 7.6 million and $ 37.9 million for the years ended december 31 , 2015 and 2014 , respectively ( no comparative amount in 2013 ) . the liability for contingent consideration is reflected at fair value and adjusted each reporting period with the change in fair value recognized in earnings . in 2015 , we reached an agreement with the former owners of equator to extinguish any liability for the equator earn out . in connection with this settlement , we reduced the liability for the equator earn out to $ 0 and recognized a $ 7.6 million increase in earnings . during 2014 , the fair value of the contingent consideration related to the equator acquisition was reduced by $ 37.9 million with a 33 corresponding increase in earnings based on management 's revised estimates that expected earnings of equator will be lower than projected at the time of acquisition . income from operations decreased to $ 79.1 million , representing 8 % of service revenue , for the year ended december 31 , 2015 compared to $ 170.5 million , representing 18 % of service revenue , for the year ended december 31 , 2014 and $ 162.1 million , representing 24 % of service revenue , for the year ended december 31 , 2013 . the decrease in operating income margin is primarily driven by the non-cash impairment losses , lower gross profit margins and increases in sg & a , partially offset by gains on the change in fair value of equator earn out liability , as discussed above . other income ( expense ) , net other income ( expense ) , net principally includes interest expense , interest income , loss on the sale of hlss equity securities , net of dividends received , and gains on the early extinguishment of debt . interest expense for the year ended december 31 , 2015 was $ 28.2 million , an increase of $ 4.8 million compared to the year ended december 31 , 2014 , resulting from the additional $ 200.0 million senior secured term loan borrowings on august 1 , 2014 , partially offset by lower interest expense associated with the 2015 repurchases of a portion of our senior secured term loan with an aggregate par value of $ 49.0 million . interest expense for the year ended december 31 , 2014 was $ 23.4 million , an increase of $ 3.1 million compared to the year ended december 31 , 2013 , resulting from the additional $ 200.0 million senior secured term loan borrowings on august 1 , 2014 , and the additional $ 200.0 million senior secured term loan borrowings on may 7 , 2013 , partially offset by lower interest rates from the senior secured term loan refinancing on december 9 , 2013. we recognized interest income of $ 0.1 million for each of the years ended december 31 , 2015 and 2014 . additionally , we recognized interest income of $ 0.9 million for the year ended december 31 , 2013 , primarily from a $ 75.0 million loan to ocwen , which was repaid in february 2013. during 2015 , we repurchased portions of our senior secured term loan with an aggregate par value of $ 49.0 million at a weighted average discount of 10.3 % , resulting in net gains totaling $ 3.8 million on the early extinguishment of debt ( no comparative amounts for 2014 and 2013 ) . during march 2015 , we purchased 1.6 million shares of hlss common stock in the open market for $ 30.0 million . on april 6 , 2015 , hlss completed the sale of substantially all of its assets and adopted a plan of complete liquidation and dissolution . during 2015 , we received liquidating dividends and other dividends from hlss totaling $ 20.4 million and sold all of our 1.6 million shares of hlss common stock in the open market for $ 7.7 million . as a result of these transactions , we recognized a net loss of $ 1.9 million for the year ended december 31 , 2015 ( no comparative amounts for 2014 and 2013 ) in connection with our investment in hlss . income tax provision we recognized an income tax provision of $ 8.3 million , $ 10.2 million and $ 8.5 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . our effective tax rate was 15.6 % , 6.9 % and 6.0 % for the years ended december 31 , 2015 , 2014 and 2013 , respectively . the effective tax rate in all three periods differs from the luxembourg statutory tax rate of 29.2 % primarily due to the effect of certain deductions allowed in luxembourg pursuant to a tax ruling , which expires in 2019 unless extended or renewed , the mix of income and losses with varying tax rates in multiple taxing jurisdictions and the recognition of research and development tax credits . the higher 2015 effective tax rate is driven by impairment losses which resulted in a change in the jurisdictional mix of income . the impairment losses are related to assets owned by a subsidiary with a lower effective tax rate . our consolidated effective

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cash flows from investing activities cash flows from investing activities included capital expenditures of $ 36.2 million , $ 64.8 million and $ 34.1 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively , primarily related to facility build-outs , investments in it infrastructure , 45 the equator integration and the development of certain software applications . capital expenditures were higher in 2014 compared to 2013 primarily as a result of increased facility build-outs and office relocations to support growth . on october 9 , 2015 , we acquired the acquired rentrange and investability businesses for $ 24.8 million . the purchase price was composed of $ 17.5 million in cash and $ 7.3 million of restricted common stock of the company . on july 17 , 2015 , we acquired castleline for $ 33.4 million . this was composed of $ 11.2 million of cash at closing , excluding cash balances acquired of $ 1.1 million . additionally , the acquisition includes $ 10.5 million of cash that is payable over four years from the acquisition date and $ 14.4 million of restricted common stock of the company . of the cash payable following acquisition , $ 3.8 million is contingent on certain future employment conditions of certain of the sellers , and therefore excluded from the purchase price . during 2015 , we purchased 1.6 million shares of hlss common stock in the open market for $ 30.0 million . also during 2015 , we received liquidating dividends and other dividends from hlss totaling $ 20.4 million and we sold all of our 1.6 million shares of hlss common stock in the open market for $ 7.7 million . on november 21 , 2014 , we acquired owners for $ 19.8 million plus contingent consideration of up to $ 7.0 million . on september 12 , 2014 , we acquired mortgage builder for $ 14.9 million , net of acquired cash of $ 0.7 million , and contingent consideration of up to $ 7.0 million .

this was partially offset by improved gross margin in our organic business through disciplined pricing and management of our increasing minimum wage for labor , health benefits , and payroll taxes . selling , general and administrative ( `` sg & a `` ) expenses as a percentage of revenue decreased to 18.4 % for the year ended december 25 , 2015 from 19.6 % for the same period in 2014 , primarily due to seaton 's lower cost of doing business as a percent of sales . the acquired service lines offer workforce solutions as an integrated partner with our customers , which are delivered through highly centralized operations in chicago , illinois with support from on-site and virtual employee teams . we do not operate a branch network to service these customers and accordingly these services utilize a more flexible centralized support structure resulting in lower sg & a as a percent of sales . sg & a increased by $ 70.2 million to $ 496.0 million for the year ended december 25 , 2015 , compared to the same period in 2014 . the increase is primarily related to a full year of expenses related to the acquired operations of seaton of approximately $ 55.8 page - 17 million . we completed the acquisition of seaton on the first business day of our third quarter of 2014. the integration of seaton was completed during 2015. the remaining increase is primarily related to variable costs on organic revenue growth and other investments to enable continued growth . depreciation and amortization increased $ 12.4 million for the year ended december 25 , 2015 , due to a full year of amortization of intangible assets acquired in connection with the seaton acquisition compared to half a year of amortization expense in 2014. income from operations grew to $ 97.8 million for the year ended december 25 , 2015 , or an increase of 19.7 % compared to $ 81.7 million for the same period in 2014. the improved performance reflects solid revenue growth , disciplined pricing , and effective cost control partially offset by investments made in sales and recruiting resources as well as start-up costs for on-site customers and new recruitment process outsourcing customers . the benefit of those investments will be fully realized in 2016. net income increased to $ 71.2 million , or $ 1.71 per diluted share , for the year ended december 25 , 2015 , compared to $ 65.7 million , or $ 1.59 per diluted share , for the same period in 2014 . the increase was driven primarily by net income from acquired operations and organic growth . we believe we are in a strong financial position to fund working capital needs for growth opportunities . as of december 25 , 2015 , we had cash and cash equivalents of $ 29.8 million and $ 77.3 million available under the revolving credit facility . results of operations total company results the following table presents selected financial data ( in thousands , except percentages and per share amounts ) : replace_table_token_5_th our year-over-year trends are significantly impacted by the acquisition of seaton . seaton was acquired effective the first day of our fiscal third quarter in 2014 and , accordingly , is included in only twenty-six of the fifty-two weeks ended december 26 , 2014 , as compared to the entire year ended december 25 , 2015 . the seaton acquisition added new services and capabilities to better meet our objective of providing our customers with the talent and flexible workforce solutions they need to enhance their business performance . these service lines have dedicated customer on-site and virtual teams which leverage highly centralized support services for recruiting and delivering services to meet the specialized needs of each customer . since these service lines do not operate a branch network , they can function more flexibly . the performance of the seaton acquisition in the first year of operations has delivered on our expectations for revenue and income from operations and continues to deliver organic revenue growth . page - 18 effective december 1 , 2015 , we acquired simos , a leading provider of on-premise workforce management solutions . simos customers include fortune 500 companies in consumer goods , retail , online commerce , and food packaging and distribution . simos specializes in helping clients streamline warehouse/distribution operations to meet the growing demand for online commerce and supply chain solutions . they are also experts in providing scalable solutions for pick and pack and shipping requirements . their unique productivity model incorporates fixed price-per-unit solutions to drive client value . additionally , their continuous analysis and improvement of processes and incentive pay drives workforce efficiency and reduces costs , lowers risk of injury and damage , and improves productivity and service levels . simos broadens our on-premise staffing footprint with an additional 37 sites across 11 states . revenue from services revenue from services was as follows ( in thousands , except percentages ) : replace_table_token_6_th fiscal 2015 as compared to fiscal 2014 revenue grew to $ 2,695.7 million for fiscal 2015 , a 24.0 % increase compared to the same period in the prior year primarily due to the acquisitions of seaton in the prior year and simos in the current year . the year ended december 25 , 2015 included a full year of revenue for seaton of $ 810.8 million compared to $ 394.4 million from the date of acquisition through our year ended december 26 , 2014 , contributing 18.1 % of our revenue growth , or 15.8 % excluding organic revenue growth . the year ended december 25 , 2015 included one month of simos revenue of $ 22.2 million or 1.0 % of our revenue growth over the prior year . organic revenue growth for the year ended december 25 , 2015 was 7.2 % . story_separator_special_tag managed service provider solutions provide customers with improved quality and spend management of their contingent labor vendors . the complementary service lines are operating segments , which are aggregated and reported as managed services . revenue from services and income from operations associated with our segments were as follows ( in thousands , except percentages ) : replace_table_token_13_th page - 23 staffing services revenue grew to $ 2,591.2 million for fiscal 2015 , a 21.9 % increase compared to the same period in the prior year , primarily due to the acquisitions of seaton in the prior year and simos in the current year . the year ended december 25 , 2015 included a full year of revenue for seaton of $ 705.1 million compared to $ 346.3 million from the date of acquisition through our year ended december 26 , 2014 , or 15.9 % of our revenue growth . the year ended december 25 , 2015 included one month of simos revenue of $ 22.2 million or 1.0 % of our revenue growth over the prior year . organic revenue growth for the year ended december 25 , 2015 was 4.7 % . the organic revenue growth was driven by widespread improvement across most of our staffing service lines , geographies , and the industries we serve . the construction industry saw considerable growth driven by improving momentum in both residential and commercial construction as well as green energy projects . rapid growth in online commerce resulted in considerable growth in warehousing and distribution . demand by the transportation industry for our driver workforce solutions continues to see double digit growth.we saw improving trends with small to medium sized customers and continued growth with our national customers . the positive trends are partially offset by continued pressure on the manufacturing industry , which continues to face a challenging export market . income from operations as a percent of revenue decreased slightly to 6.4 % the year ended december 25 , 2015 , compared to 6.5 % for the same period in 2014 . the decrease is primarily related to investments made in start-up costs for on-site customers and other investments to enable continued growth.we expect the the benefit of those investments to be fully realized in 2016. for the fiscal year ended 2015 , one customer , amazon , represented 13.1 % and 13.7 % of total company and the staffing services reportable segment revenues , respectively . for the fiscal years ended 2014 and 2013 , no single customer represented more than 10 % of total company . for fiscal year ended 2014 , no single customer represented more than 10 % of total staffing services reportable segment revenues . managed services managed service revenue and income from operations for the year ended december 25 , 2015 , include a full year of results for seaton compared to partial year results from the acquisition date of june 30 , 2014 through december 26 , 2014. income from operations as a percent of revenue decreased slightly to 11.8 % for the year ended december 25 , 2015 , compared to 12.3 % for the same period in 2014 . the decrease is primarily related to investments made in start-up costs for new recruitment process outsourcing customers . for the fiscal year ended 2015 , two customers represented 10.6 % and 10.2 % of our managed services reportable segment revenues , respectively . for the fiscal year ended 2014 , no single customer represented more than 10 % of managed services reportable segment revenues . future outlook we have limited visibility into future demand for our services . however , we believe there is value in providing highlights of our expectations for the financial performance of our recent acquisitions as well as continued organic growth . producing strong organic revenue and gross profit growth to further leverage our cost structure and generate increasing operating income as a percentage of revenue continues to be our top priority . we expect revenue growth of approximately 16 % for fiscal 2016 as compared to fiscal 2015 , comprised of the following : effective december 1 , 2015 , we acquired simos , a leading provider of on-premise workforce management solutions . the acquired operations expand and complement our staff management | smx on-premise services . we expect simos to produce annual revenue of approximately $ 185 million , or 5.6 % of total revenue growth , and operating income of approximately $ 9 million for fiscal 2016. effective january 4 , 2016 , we acquired aon hewitt 's rpo business , a leading provider of recruitment process outsourcing services . the acquired operations expand and complement our peoplescout services and will be fully integrated with this service line in 2016. we expect the acquired rpo business of aon hewitt to produce annual revenue of approximately $ 65 million , or 2.4 % of total revenue growth , and operating income of approximately $ 10 million for fiscal 2016. we expect total organic revenue growth of approximately 8 % for fiscal 2016 as compared to the prior year . the organic revenue growth expectation of 8 % is comparable to that achieved in fiscal 2015 of 7.2 % . our expectations for fiscal 2016 are less than the peak revenue growth of approximately 14 % for the fourth quarter of 2015 as compared to the prior year . revenue growth slowed toward the end of the fourth quarter of 2015. this slowing , which was especially pronounced page - 24 for our national customer base and retail industry , continued into january of 2016. we remain optimistic for fiscal 2016 with continued demand for our specialized workforce solutions in an increasingly tight labor market . we also expect demand to fluctuate in choppy patterns , as it has since emerging from the recession in 2010. providing our customers with a scalable workforce is a key value proposition of our business model and we

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net cash provided by operating activities decreased $ 38.5 million in 2014 as compared to 2013 , primarily due to : an increase in net income of $ 20.8 million , primarily due to the acquisition of seaton . an increase in accounts receivable of $ 73.4 million , primarily due to revenue growth related to the acquisition of seaton . demand for staff management on-premise services is significantly higher during the fourth quarter in connection with manufacturing and distributing for the holiday season . historically , legacy trueblue accounts receivable peaked in the third quarter and de-leveraged in the fourth quarter . an increase in deferred taxes of $ 16.5 million , primarily due to nondeductible intangibles acquired in connection with the acquisition of seaton . cash flows from investing activities our cash flows from investing activities were as follows ( in thousands ) : replace_table_token_15_th fiscal 2015 compared to fiscal 2014 net cash used in investing activities decreased $ 213.4 million in 2015 as compared to 2014 : cash used in investing activities of $ 67.5 million in 2015 was for the acquisition of simos . in the prior year , we acquired seaton for $ 305.9 million . restricted cash and investments consist primarily of collateral that has been provided or pledged to insurance carriers and state workers ' compensation programs . changes in restricted cash , cash equivalents , and investments increased to $ 20.6 million for the year ended december 25 , 2015 compared to $ 14.8 million for the same period in the prior year . this increase in cash used in investing activities was primarily due to an increase in collateral requirements paid to our workers ' compensation insurance providers due to both organic growth in operations and acquisitions . fiscal 2014 compared to fiscal 2013 net cash used in investing activities increased $ 193.2 million in 2014 as compared to 2013. page - 26 cash used in investing activities increased primarily due to the acquisition of seaton for $ 305.9 million .

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

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

​ we intend to generate profits based on increased sales of our solutions to new and existing customers , including by the continued conversion of free trials into paid users . we currently anticipate that at some point in the future we will be able to increase revenues at a greater rate than increases in our operating expenses . however , there can be no assurance 62 that we will achieve or maintain profitability on a consistent basis , that we will increase our sales to new and existing customers , or that our operating expenses will increase at a lower rate than our revenue may grow . ​ key factors affecting our performance ​ expansion within existing customers . our business model relies on rapidly and efficiently landing new customers and expanding our relationship with these customers over time . we have designed our apps for ease-of-use and with strong integrations between apps to encourage broad adoption within organizations . as customers gain awareness of our solutions and as their data integration and integrity requirements evolve , they may recognize additional use cases for our software and expand their use of our solutions accordingly , and our growth strategy is dependent on our ability to demonstrate the value of these additional apps to our customers . we believe this provides us with substantial operating leverage because the costs of additional sales within existing customers are significantly less than costs of sales to new customers . our future revenue growth and profitability rely on customers continuing to expand user and app adoption within their organizations . ​ adoption of modern data technologies . we believe our cloud and big data integration capabilities are a key competitive differentiator and driver of new customer adoptions . we expect that as organizations adopt and scale out deployments of modern data technologies such as cloud data warehouses , machine learning , and big data processing , they will continue to use talend to facilitate the integration of these big data technologies within their it environments . the continued shift to cloud is driving rapid growth in cloud integration . the adoption and usage of talend cloud and talend stitch data loader drives demand for other talend data fabric apps . the continued adoption of big data technologies , and our ability to differentiate between our app offerings and those of our competitors , in both functionality and pricing , is critical to our continued revenue growth . ​ average subscription contract duration . we primarily sell annual contracts , although we have some contracts that extend for multiple years . the average contract duration impacts our cash flows because we bill and collect payment for the full term in advance . for the twelve-month periods ended december 31 , 2019 and 2018 , subscription sales , excluding monthly contracts , each had an average pre-billed duration of 1.1 years . ​ open source strategy . our open source strategy consists of fostering a community of users and developers and selling commercial versions of our solutions . our open source developer community helps lower our research and development costs by contributing components and connectors , testing beta versions of our apps , identifying enhancements and providing free advice to other community members . to evaluate our open source strategy , we periodically review data points such as the volume of downloads of our open source apps , the number of open source users that are members of our open source community and the approximate number of leads that are generated from users of our open source apps . given that our open source users register with us voluntarily , we do not use a conversion rate to evaluate our strategy . we believe the continued adoption of open source software by organizations as well as the vitality of our open source community is a critical part of our performance . ​ investment in sales and marketing . we continue to focus on long-term growth and expect to continue to invest aggressively in sales and marketing to grow our customer base and expand within existing customers . we also expect to increase investments in sales and marketing in markets outside of france and the united states . as we continue to focus on new customer acquisition , we will need to devote additional time and effort to the new customer sales cycle , which requires more time , education and effort than expanding our relationship with existing customers . any investments that we make in sales and marketing will occur in advance of our experiencing benefits from such investments , as new sales hires take time to fully ramp . the success of these efforts will also be affected by our ability to hire and retain sales personnel , and attrition of these employees may slow our efforts . as a result , it may be difficult for us to determine if we are efficiently allocating our resources in these areas . increasing new customer bookings , particularly among small and medium businesses and large enterprise customers , is key to our growth strategy , and we also anticipate continuing to invest in expanding our international operations and increasing sales of talend big data . ​ integration and talend cloud . sales to large enterprise customers have reflected larger deal sizes and have been one of the principal drivers of our revenue growth . however , sales to large enterprise customers involve risks that may not be present with sales to smaller customers , including increased competition from companies that traditionally target larger enterprise customers and a longer sales cycle . these factors result in less visibility and create difficulties in assessing deal cyclicality for these customers . ​ 63 foreign currency exchange risk . story_separator_special_tag ​ we plan to continue to invest in sales and marketing by expanding our global promotional activities , building brand awareness , attracting new customers and sponsoring additional marketing events . the timing of these events , such as our annual sales kickoff , will affect our sales and marketing costs in a particular quarter . we also plan to invest in training and retention of our sales team . ​ research and development . research and development expenses consist primarily of salaries and related expenses , including share-based payment expense , contractor software development costs and related overhead , as well as amortization of acquired developed technology , less any research and development subsidies . we continue to focus our research and development efforts on building new products , adding new features and services , increasing functionality and enhancing our integration cloud infrastructure . ​ we expect that research and development expenses will increase in absolute dollars as we invest in building the necessary employee and system infrastructure required to enhance existing and support development of new , technologies and the integration of acquired businesses and technologies . ​ general and administrative . general and administrative expenses consist of salaries and related expenses , including share-based payment expense for finance , legal , human resources and management information systems personnel , as well as external legal , accounting and other professional fees , other corporate expenses and related overhead . ​ we will continue to incur additional expenses associated with being a publicly traded company , including higher legal , corporate insurance and accounting costs as well as costs of achieving and maintaining compliance with other public company regulations . we expect that general and administrative expenses will increase as we invest in our infrastructure and we incur additional employee related costs and professional fees related to the growth of our business . ​ 68 results of operations ​ the following tables summarize our consolidated statements of operations for the fiscal years ended december 31 , 2019 , 2018 and 2017 ( in thousands ) , and as a percentage of our revenue for those periods . the period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods . ​ replace_table_token_8_th ( 1 ) amounts include share-based payment and amortization of acquired intangibles expense , as follows ( in thousands ) : ​ replace_table_token_9_th ​ 69 replace_table_token_10_th ​ revenue ​ replace_table_token_11_th ​ revenue – 2019 compared to 2018 ​ total revenue increased $ 42.1 million , or 20 % , in the year ended december 31 , 2019 compared to the year ended december 31 , 2018. growth in total revenue was attributable to increased demand for our products from both new and existing customers . the growth in total revenue was attributable primarily to the sale of subscriptions and to a lesser extent the growth of professional services revenue . ​ subscription revenue increased $ 40.7 million , or 23 % , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. the increase in subscription revenue was primarily attributable to greater demand for talend cloud and to a lesser extent the acquisition of stitch . ​ in the near term , we expect our subscription revenue growth to be negatively impacted by overall economic conditions in europe , which contributed to a slower sequential increase in arr as of december 31 , 2019 compared to prior periods . ​ professional services revenue grew by $ 1.4 million , or 5 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. the increase in professional services revenue was mainly due to increased demand from north american customers . ​ revenue – 2018 compared to 2017 ​ total revenue increased $ 57.2 million , or 38 % , in the year ended december 31 , 2018 compared to the year ended december 31 , 2017. growth in total revenue was attributable to increased demand for our products from both new and existing customers . the growth in total revenue was attributable primarily to the sale of subscriptions and to a lesser extent the growth of professional services revenue . 70 subscription revenue increased $ 50.5 million , or 40 % , for the year ended december 31 , 2018 compared to the year ended december 31 , 2017. the increase in subscription revenue was primarily attributable to strong demand for talend cloud and talend big data integration . revenue from talend cloud grew by over 100 % in the year ended december 31 , 2018 compared to the prior period . the adoption of asc 606 contributed to the increase in subscription revenue of approximately $ 6.0 million , as we recognized the license element of our subscription arrangements upfront , upon delivery of the license key . ​ professional services revenue grew by $ 6.7 million , or 30 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017. the increase in professional services revenue was mainly due to increased demand from north american customers . ​ subscription revenues by geography were as follows for the years ended december 31 , 2019 , 2018 and 2017 : : ​ replace_table_token_12_th ​ cost of revenue ​ replace_table_token_13_th ​ cost of revenue – 2019 compared to 2018 ​ total cost of revenue increased $ 11.4 million , or 23 % , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. the increase was primarily as a result of increased cost of subscription revenue and to a lesser extent an increase in cost of professional service revenue . ​ cost of subscription revenue increased $ 9.2 million , or 40 % , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. the increase was

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liquidity and capital resources ​ replace_table_token_19_th ​ through december 31 , 2019 , we have financed our operations primarily through cash received from customers for subscriptions of our software and professional services , as well as equity and equity-linked financings . in september 2019 , we received net proceeds , after deducting discounts and commission to the initial purchasers and issuance expenses , of $ 147.5 million from the issuance of our 2024 notes . in connection with the issuance of our 2024 notes , we terminated our secured revolving credit facility . as of december 31 , 2019 , we had $ 177.1 million of cash and cash equivalents . we believe that our current cash and cash equivalents will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months . ​ our future capital requirements will depend on many factors , including our growth rate , the timing and extent of our spending to support our operating expenses . in the event that additional financing is required from outside sources , we may not be able to raise such financing on terms acceptable to us or at all . if we are unable to raise additional capital when desired , our business , results of operations and financial condition would be adversely affected .

these forward-looking statements include statements of management 's plans and objectives for our future operations and statements of future economic performance , information regarding our expansion and possible results from expansion , our expected growth , our capital budget and future capital requirements , the availability of funds and our ability to meet future capital needs , the realization of our deferred tax assets , and the assumptions described in this report underlying such forward-looking statements . actual results and developments could differ materially from those expressed in or implied by such statements due to a number of factors , including , without limitation , those described in the context of such forward-looking statements , our expansion and acquisition strategy , our ability to achieve operating efficiencies , industry pricing and technology trends , evolving industry standards , regulatory matters , general economic and business conditions , the strength and financial resources of our competitors , our ability to find and retain skilled personnel , the political and economic climate in which we conduct operations and the risk factors described from time to time in our other documents and reports filed with the securities and exchange commission ( the `` commission `` ) . additional factors that could cause actual results to differ materially from the forward-looking statements include , but are not limited to : 1 ) our ability to successfully develop , manufacture and deliver our products on a timely basis and in the prescribed condition ; 2 ) our ability to compete effectively with other companies in the same industry ; 3 ) our ability to raise sufficient capital in order to effectuate our business plan ; and 4 ) our ability to retain our key executives . critical accounting policies our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . on an on-going basis , we evaluate our estimates and judgments , including those related to revenue , receivable , inventory , and accrued expenses . we base our estimates on historical experience , known trends and events and various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . changes in estimates are recorded in the period in which they become known . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition in accordance with the asc topic 605 , “ revenue recognition ” , the company recognizes revenue when persuasive evidence of an arrangement exists , transfer of title has occurred or services have been rendered , the selling price is fixed or determinable and collectability is reasonably assured . the company 's revenue is principally derived from three primary sources : sales of energy saving flow control equipment , provision of energy project management and sub-contracting services , and provision of energy-saving reconstruction projects . 35 ( a ) sale of products the company derives a majority of its revenues from the sale of energy saving flow control equipment . generally , the energy saving flow control equipment is manufactured and configured to customer requirements . the company typically produces the energy saving flow control equipment for customers during a period from one to six months . when the company completes the production in accordance with the customer 's specification , the customer is required to inspect the finished products for quality and suitability , to its full satisfaction , then the company makes delivery to the customer the company recognizes revenue from the sale of such finished products upon delivery to the customers , when the title and risk of loss are fully transferred to the customers . the company records its revenues , net of value added taxes ( “ vat ” ) . the company is subject to vat which is levied on the majority of the products at the rate of 17 % on the invoiced value of sales . as of december 31 , 2012 and 2011 , there were no refunds regarding our products . ( b ) service revenue service revenue is derived from energy-saving technical services , project management or sub-contracting services that are not an element of the arrangement for the sale of products . these services are generally billed on a time-cost plus basis , for the period of service which is generally from two to three months . revenue is recognized , net of business taxes when the service is rendered and accepted by the customers . ( c ) interest income interest income is recognized on a time apportionment basis , taking into account the principal amounts outstanding and the interest rates applicable . accounts receivable and allowance for doubtful accounts accounts receivable are recorded at the invoiced amount , do not bear interest and are due within the contractual payment terms , generally 30 to 90 days from shipment . credit is extended based on evaluation of a customer 's financial condition , the customer 's credit-worthiness and their payment history . accounts receivable outstanding longer than the contractual payment terms are considered past due . story_separator_special_tag sales and marketing expenses the total sales and marketing expenses were $ 196,033 and $ 101,586 , or 2.1 % and 0.68 % of total revenues , for the years ended december 31 , 2012 and 2011 , respectively . the increase in sales and marketing is due to the increase in exploring more business opportunities for the company . general and administrative expenses general and administrative expenses were $ 1,082,702 and $ 1,352,565 , or 11.68 % and 9.06 % of total revenue , for the year ended december 31 , 2012 and 2011 , respectively . the general and administrative expenses decreased by $ 269,863 or 19,95 % . the decrease in general and administrative expenses was primarily due to a decrease in legal and professional fees and investor relations fees . income from operations as a result of the foregoing , our income from operations was $ 2,717,928 or 18.21 % of total revenues , for the year ended december 31 , 2011 , as compared to $ 566,335 or 6.11 % of total revenues , for the year ended december 31 , 2012 , a decrease of $ 2,151,593 or 79.16 % . other income ( expenses ) for the year ended december 31 , 2012 , interest income was $ 33,002 as compared to $ 5,838 for the year ended december 31 , 2011 , an increase of $ 27,164 as compared to last year . in 2012 , interest expense was $ 468,031 , an increase of $ 92,258 as compared to $ 375,773 for the year ended december 31 , 2011. the increase of interest was due to the increase of financings derived from the commercial banks in china . i ncome tax expenses for the years ended december 31 , 2012 and 2011 , income tax expenses were $ 43,272 and $ 301,533 respectively . the decrease of income tax expenses was due to the decrease in taxable income . the new income tax rate was 25 % from 2012 onwards . as of december 31 , 2012 , the company 's operations in the united states of america incurred $ 2,662,958 of cumulative net operating losses , which can be carried forward to offset future taxable income . the net operating loss carry forwards begin to expire in 2032 , if unutilized . the company has provided for a full valuation allowance against the deferred tax assets of $ 905,046 on the expected future tax benefits from the net operating loss carried forwards as the management believes it is more likely than not that these assets will not be realized in the future . 42 net income as a result of the foregoing , we recorded net income of $ 88,034 , a 0.95 % profit margin on revenue for the year ended december 31 , 2012 , as compared to net income of $ 2,046,460 , a 13.71 % profit margin on revenues , for the year ended december 31 , 2011. the net income for the year ended december 31 , 2012 decreased by $ 1,958,426 , a decrease of 95.70 % , compared to the year ended december 31 , 2011. the decrease in net income was mainly due to the decrease in revenues . story_separator_special_tag serif ; margin : 0pt 0 ; text-align : justify `` > in march , 2012 , the company obtained a short-term bank borrowing of $ 1,562,061 ( equivalent to rmb10 , 000,000 ) from a commercial bank in china , with interest rate at 1.3 times of the bank of china benchmark lending rate , due 26 march 2013 , payable monthly , which is guaranteed by its vendor . this bank borrowing was repaid by $ 390,516 ( equivalent to rmb 2,500,000 ) in december , 2012. in december 2012 , the company obtained another short-term bank borrowing of $ 315,814 ( equivalent to rmb 2,500,000 ) , from a commercial bank in china , bank of jilin , due 30 june 2013 , with interest rate at 1.2 times of the bank of china benchmark lending rate , which is guaranteed by a guarantee company in shenyang city , the prc . in december , 2011 , the company obtained a bank note of $ 3,148,466 ( equivalent to rmb 20,000,000 ) from a commercial bank in china , bank of jilin , due 15 december 2012. only $ 2,533,156 ( equivalent to rmb 16,350,000 ) was drawn down in 2011 , payable quarterly , with interest rate at 1.4 times of the bank of china benchmark lending rate . the remaining $ 565,505 ( equivalent to rmb 3,650,000 ) was drawn down in 2012. this is guaranteed by mr. gang li and a guarantee company in shenyang city , the prc . this bank borrowing was repaid fully in 15 december , 2012. in november 2011 , the company obtained a bank note of $ 3,148,466 ( equivalent to rmb 20,000,000 ) from a commercial bank in china , bank of liaoyang , due may 2012. this was collateralized by restricted cash of $ 1,574,233 ( equivalent to rmb 10,000,000 ) and guaranteed by a third party . the bank note was issued to settle the accounts payable and there was no cash proceeds for the bank note . this bank borrowing was repaid in may 2012 . 45 in august 2012 , the company obtained a bank note of $ 1,578,205 ( equivalent to rmb 10,000,000 ) from a commercial bank in china , bank of liaoyang , due february 2012. this was collateralized by restricted cash of $ 789,102 ( equivalent to rmb 5,000,000 ) and guaranteed by a third party . the bank note was issued to settle the accounts payable and there was no cash proceeds for the bank note . as of december 31 , 2011 , the amount due to a related party of $ 431,682 represented a temporary advance made by

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liquidity and capital resources operating activities for the year ended december 31 , 2012 , net cash provided by operating activities was $ 4,559,248. this was primarily attributable to our net income of $ 88,034 , adjusted by non-cash items of depreciation and amortization of $ 842,050 , reversal of allowance for doubtful account of $ 28,956 , and non-cash interest expenses of $ 19,728. the increase in cash flow in 2012 were due primarily to the decrease in accounts receivable by $ 3,844,641 , the increase in inventories by $ 620,685 , decrease in prepayments and other receivables by $ 494,695 , increase in accounts payable by $ 268,686 , decrease in income tax payable by $ 131,671 and decrease in other payables and accrued liabilities by $ 275,186. the decrease in accounts and retention receivable of $ 3,844,641 for the year ended december 31 , 2012 are mainly due to the active monitoring of accounts receivable with aging above 1 year and those accounting for about 15 % of the total accounts receivable . thus there is no significant credit risk . the company will consider an allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to make required payments . the company 's accounts receivable aging was as follows : replace_table_token_3_th 43 most of our customers make payments in accordance with the agreed payment terms in a timely manner . in rare cases , we may offer extended payment terms to certain customers for equipment sales . these customers are usually large state-owned corporations with good credit ratings . at the end of each period , we evaluate the structure and collectability of accounts receivable and for those receivables that are past due or not being paid according to the payment terms . we take appropriate actions to exhaust all means of collection , including seeking legal resolution in a court of law , for our collection efforts .

we have won new military issue programs which will begin shipping in fiscal 2015. we are also growing in the military exchange retail space , and see growing interest in our unique ability to provide made-in-america products on our vertical manufacturing platform . we are very pleased with our new junkfood store on the iconic abbot kinney boulevard in venice , california . it is meeting our financial expectations and has attracted numerous national retailers who are able to witness the most effective ways to merchandise junkfood products . some of these visits are already leading to new retail programs for junkfood for fiscal year 2015. sales of salt life products grew nicely during the year and we further expanded the geographic footprint of the brand . our acquisition of salt life in august 2013 changed our status from a licensee to brand owner . this allowed us to further expand the product line and make long-term investments in point of sale fixtures , marketing , and the building of social media touch points . our licensed salt life restaurant in st. augustine is exceeding expectations by virtue of the high number of consumers who have the opportunity to experience the salt life brand as they patronize the restaurant . while there is a good revenue stream from royalties , we are most pleased that the restaurants have become an effective marketing tool for salt life 's exciting lifestyle products . we have a number of new salt life marketing initiatives underway . we have additional brand ambassadors , who are primarily west-coast based , and have recently engaged a digital media firm to launch a salt life you-tube channel and implement other digital strategies . we believe our brands are gaining consumer awareness driven by our branded retail shops , e-commerce sites , in-store shops , and expanded consumer marketing initiatives . likewise , we expect sales growth in our basics segment driven by our unique service and distribution models supported by a modern and efficient manufacturing platform . all of our business units are now taking advantage of our vertical manufacturing structure to some degree , thereby lowering production cost and improving our operating efficiencies . the initiatives we have implemented over the past months should position us well to improve our overall profitability and allow us to build market share in a competitive environment . earnings guidance while we will continue to refrain from providing revenue and earnings guidance , we believe that our accomplishments during fiscal 2014 and the benefits from the strategic initiatives should allow delta apparel to experience top line growth and to be decisively profitable in 2015. results of operations overview while our products performed well at retail this year , continuing sluggishness in the economy and an unusually harsh winter had a negative impact on the entire apparel industry . the lingering effects of management changes and related issues at several of our large customers presented additional challenges as well . net sales for the fiscal year ended september 27 , 2014 , were $ 452.9 million versus $ 483.0 million in the prior twelve months . gross margins declined 280 basis points in fiscal year 2014. this decline was driven from a tougher retail environment with pressures on pricing as well as higher input costs that were not passed along in higher prices . in our fiscal fourth quarter , we initiated certain strategic initiatives to improve net profitability . we streamlined our administrative workforce and , with minor exceptions , completed the planned headcount reductions , effectively delayering our management structure and streamlining decision-making and information flow , as well as reducing duplicative and excess fixed cost . we also began a comprehensive rationalization analysis of our manufacturing operations , product lines and sales channels intended to refocus our capital and other resources on the areas we believe are strategic to our business . we continue to maintain a sharp focus on lowering our product cost and improving our supply chain , while staying aligned with the needs of our customers . we have moved certain production into our lower-cost facilities and anticipate further efforts of this nature as we progress through fiscal year 2015. we are currently in the process of implementing new information systems that should also further streamline our operations and better support our customer needs . during the fourth quarter of fiscal year 2014 , we recorded a total of $ 4.0 million in expense associated with the strategic initiatives . 18 net income for the fiscal year 2014 , adjusted for the $ 4.0 million pre-tax impact of strategic initiatives , was $ 1.5 million , or $ 0.19 per diluted share , compared with net income in the prior year of $ 6.2 million , or $ 0.74 per diluted share . without adjustment for the impact of our strategic initiatives , we experienced a net loss for the year of $ 1.0 million , or $ 0.12 per diluted share . we are reclassifying our art gun business from our branded segment to our basics segment to better reflect that business 's current operating characteristics . this change is included within our fiscal 2014 results and corresponding comparisons to prior periods . branded segment sales in the branded segment declined 10.0 % from the same period last year to $ 187.0 million in fiscal year 2014. salt life continued its strong sales growth , up nearly 26 % for the year , driven from its new product lines and an increase in retail door count . this was offset by sales declines in the other branded business units . the reduced sales and lower gross margins resulting from the soft retail environment , coupled with the fixed cost structure of the business and impairment charges taken on certain information technology assets , led to lower operating margins in fiscal year 2014 compared to the prior period . story_separator_special_tag ( b ) we excluded deferred income tax liabilities of $ 7.7 million from the contractual cash obligations table because we believe inclusion would not be meaningful . refer to note 9 - income taxes to our consolidated financial statements for more information on our deferred income tax liabilities . deferred income tax liabilities are calculated based on temporary differences between tax bases of assets and liabilities and their respective book bases , which will result in taxable amounts in future years when the liabilities are settled at their reported financial statement amounts . the results of these calculations do not have a direct connection with the amount of cash taxes to be paid in any future periods and therefore would not relate to liquidity needs . as a result , including deferred income tax liabilities as payments due by period in the schedule could be misleading . off-balance sheet arrangements as of september 27 , 2014 , we did not have any off-balance sheet arrangements that were material to our financial condition , results of operations or cash flows as defined by item 303 ( a ) ( 4 ) of regulation s-k promulgated by the sec other than the letters of credit , operating leases , and purchase obligations described above . we have entered into derivative interest rate contracts as described and included below in “ quantitative and qualitative disclosures about market risk ” in item 7a of this report . dividends and purchases of our own shares we are allowed to make cash dividends and stock repurchases if ( i ) as of the date of the payment or repurchase and after giving effect to the payment or repurchase , we have availability on that date of not less than $ 18.125 million and average availability for the 30-day period immediately preceding that date of not less than $ 18.125 million ; and ( ii ) the aggregate amount of dividends and stock repurchases after may 27 , 2011 , does not exceed $ 19 million plus 50 % of our cumulative net income ( as defined in the amended loan agreement ) from the first day of fiscal year 2012 to the date of determination . at september 27 , 2014 , september 28 , 2013 , and june 29 , 2013 , there was $ 8.2 million , $ 9.9 million and $ 11.6 million , respectively , of retained earnings free of restrictions to make cash dividends or stock repurchases . our board of directors did not declare , nor were any dividends paid , during fiscal years 2014 , the transition period ended september 28 , 2013 , or fiscal year 2013. any future cash dividend payments will depend upon our earnings , financial condition , capital requirements , compliance with loan covenants and other relevant factors . as of june 30 , 2012 , our board of directors had authorized management to use up to $ 20.0 million to repurchase stock in open market transactions under our stock repurchase program . on january 23 , 2013 , the board of directors authorized an additional $ 10.0 million for share repurchases , bringing the aggregate total authorized to $ 30.0 million . during fiscal years 2014 , the transition period ended september 28 , 2013 , and fiscal years 2013 and 2012 , we purchased 78,674 shares , 129,348 shares , 544,576 shares , and 168,120 shares , respectively , of our common stock for a total cost of $ 1.2 million , $ 2.1 million , $ 7.8 million , and $ 2.6 million , respectively . as of september 27 , 2014 , we have purchased 2,122,246 shares of common stock for an aggregate of $ 25.3 million since the inception of the stock repurchase program . all purchases were made at the discretion of management and pursuant to the safe harbor provisions of sec rule 10b-18 . as of september 27 , 2014 , $ 4.7 million remained available for future purchases under our stock repurchase program , which does not have an expiration date . 23 critical accounting policies the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which were prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . the preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . we base our estimates and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . our most critical accounting estimates , discussed below , pertain to revenue recognition , accounts receivable and related reserves , inventory and related reserves , the carrying value of goodwill , and the accounting for income taxes . note 2 to our consolidated financial statements includes a summary of the significant accounting policies or methods used in the preparation of our consolidated financial statements . revenue recognition revenues from product sales are recognized when ownership is transferred to the customer , which includes not only the passage of title , but also the transfer of the risk of loss related to the product . at this point , the sales price is fixed and determinable , and we are reasonably assured of the collectibility of the sale . the majority of our sales are shipped fob shipping point and revenue is therefore recognized when the goods are shipped to the customer . for sales that are shipped fob destination point ,

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liquidity and capital resources credit facility and other financial obligations on may 27 , 2011 , delta apparel , soffe ( successor by merger to tcx , llc ) , junkfood , to the game and art gun entered into a fourth amended and restated loan and security agreement ( the “ amended loan agreement ” ) with the financial institutions named in the amended loan agreement as lenders , wells fargo bank , national association , as administrative agent , bank of america , n.a. , as syndication agent , wells fargo capital finance , llc , as sole lead arranger , and wells fargo capital finance , llc and merrill lynch , pierce , fenner & smith incorporated , as joint bookrunners . pursuant to the amended loan agreement , the line of credit under our u.s. revolving credit facility is $ 145 million ( subject to borrowing base limitations ) , and matures on may 27 , 2017. provided that no event of default exists , we have the option to increase the maximum credit available under the facility to $ 200 million ( subject to borrowing base limitations ) , conditioned upon the agent 's ability to secure additional commitments and customary closing conditions . at september 27 , 2014 , we had $ 96.2 million outstanding under our u.s. revolving credit facility at an average interest rate of 2.6 % , and had the ability to borrow an additional $ 38.8 million .

the month-by-month asps ( excluding the asps of digital photo paper ) for the 24 month period ended december 31 , 2014 : 28 corrugating medium paper revenue from corrugating medium paper amounted to $ 96,496,414 ( 71.98 % of total offset printing paper and corrugating medium paper revenue ) for the year ended december 31 , 2014 , representing an increase of $ 15,600,388 , or 19.28 % , from $ 80,896,026 in 2013. we sold 265,132 tonnes of corrugating medium paper in the year ended december 31 , 2014 as compared to 217,136 tonnes for 2013 , representing a 22.10 % increase in the quantities sold . as explained above , the increase is mainly attributable the launch of the operation of our pm1 production line , which produced $ 10,420,384 of light-weight cmp sold in 2014. asp for regular cmp slightly decreased from $ 373/tonne in 2013 to $ 363/tonne in 2014 , representing a 2.68 % decrease . also , our pm6 production line produced an additional 19,770 tonnes , or 9.10 % , of regular cmp that were sold for $ 5,180,004 in 2014. the pm6 production line 's utilization rates for the year ended december 31 , 2014 and 2013 were 65.81 % and 60.32 % , respectively . our month-over-month asp for regular cmp was mostly stable at approximately $ 370/tonne in both 2014 and 2013. the asp for regular cmp for 2014 was $ 363/tonne , representing $ 10 , or 2.68 % , decrease compared to $ 373/tonne for 2013. we believe that the decrease was a result of the slowdown of china 's economic growth starting in the end of 2011 and an over-supply in the chinese paper industry . in the fourth quarter of 2014 , asp for regular cmp recovered to $ 370/tonne from $ 355/tonne , representing an increase of $ 15 , or 4.23 % . we consider this recovery in regular cmp asp as a sign for the lifting of the downward pressure in the chinese packaging paper industry . the asp for light-weight cmp was $ 369/tonne for the period from may through the end of 2014 , slightly higher than the asp of $ 363/tonne for the regular cmp . as described under the heading “ industry consolidation ” in “ business ” section , the government has been requiring outdated paper facilities to close since 2010 and is expected to continue to strictly reinforce the mandatory closure of outdated capacity in the next few years . as a result , we estimate that the average selling prices for corrugating medium paper and other packaging paper will remain relatively stable in 2015 as a result of elimination of outdated paper capacities and the paper industry will witness increased competition and higher standards for environmental protection measures . we launched the pm6 production line in december 2011 and have been improving its output capacity in the past few years . the pm6 production line has a designated capacity of 360,000 tonnes/year . the utilization rates for 2014 and 2013 were 65.81 % and 60.32 % , respectively , representing an increase of 5.49 % . we produced and sold an additional 19,770 tonnes of regular cmp with the pm6 production line in 2014 than in 2013. we expect to see an increased utilization rate in 2015. quantities of sold cmp that was produced by the pm6 production line from january 2013 to december 2014 are as follows : offset printing paper revenue from offset printing paper amounted to $ 37,563,949 ( 28.02 % of total offset printing paper and corrugating medium paper revenue ) for the year ended december 31 , 2014 , which represents a decrease of $ 2,287,658 , or 5.74 % , from $ 39,851,607 in 2013. we sold 54,774 tonnes of offset printing paper in the year ended december 31 , 2014 compared to 58,609 tonnes in 2013 , a decrease of 3,835 tonnes , or 6.54 % . the decline in quantities produced and sold in 2014 was mainly caused by the mandatory suspension of production during the apec summit from october 30 through november 12 , 2014. in the first nine months of 2014 , we sold 42,664 tonnes of offset printing paper compared to 43,140 tonnes for the same period in 2013 , a slight decrease of 476 tonnes , or 1.10 % ; in the last three months of 2014 , due to the discussed production suspension , we sold 12,110 tonnes of offset printing paper compared to 15,469 tonnes for the same period in 2013 , a decrease of 3,359 tonnes , or 21.71 % . the asp for offset printing paper saw a marginal increase of $ 6/tonne , or 0.88 % , from $ 680/tonne in 2013 to $ 686/tonne in 2014. we estimate that the regional market of offset printing paper will be relatively stable and the asp will not experience a significant change in 2015 . 29 revenue of digital photo paper revenue generated from selling digital photo paper was $ 2,981,084 ( 2.18 % of total revenue ) for the year ended december 31 , 2014 , a decrease of $ 1,988,913 , or 40.02 % , from $ 4,969,997 ( 3.95 % of total revenue ) for the year ended december 31 , 2013. the quantity of digital photo paper sold was 763 tonnes for the year ended december 31 , 2014 , a decrease of 521 tonnes , or 40.58 % , from 1,284 tonnes for the year ended december 31 , 2013. when comparing to the year ended december 31 , 2013 , the asp of our digital photo paper in 2014 slightly increased from $ 3,871/tonne to $ 3,907/tonne , representing a year-over-year change of 0.93 % . story_separator_special_tag the sale was consummated on august 15 , 2014 with a gain on disposal of approximately $ 203,620 recognized for the year ended december 31 , 2014. accounts payable and notes payable accounts payable and notes payable was $ 16,113,744 as of december 31 , 2014 , an increase of $ 10,278,957 , or 176.17 % , from $ 5,834,787 as of december 31 , 2013. accounts payable was nil as of december 31 , 2014 , and was $ 926,571 as of december 31 , 2013. we have been relying on the bank and commercial acceptance notes issued under our credit facilities with bank of hebei , commercial bank of the city of zhangjiakou ( the “ cbcz bank ” ) and shanghai pudong development bank ( “ spd bank ” ) to make most of our raw materials payments to our vendors . our notes payable to bank of hebei , cbcz bank and spd bank were $ 16,113,744 and $ 4,908,216 as of december 31 , 2014 and december 31 , 2013 , respectively . 35 liquidity and capital resources overview as of december 31 , 2014 , we had a net working capital deficit of $ 17,915,286 , an increase of $ 15,495,891 from the net working capital deficit of $ 2,419,395 at december 31 , 2013 , primarily due to a substantial increase in short-term bank loans and notes payable to finance construction-in-progress of our capital expenditures projects . total current assets as of december 31 , 2014 amounted to $ 26,554,862. substantially all cash and cash equivalents are cash deposits in bank accounts . restricted cash of $ 8,873,999 was included in our current assets as of december 31 , 2014 and was deposited at bank of hebei , cbcz bank and spd bank for purpose of securing the bank and commercial acceptance notes issued by these banks that are due between january 7 , 2015 and april 23 , 2015. we have been reporting higher balances in current liabilities on our balance sheet since we entered into a three-year sale-leaseback financing on june 16 , 2013 ( see details below ) , which features a three-year fully amortization schedule with periodic principal payments every six months . essentially all proceeds of the sale-leaseback were used to finance the construction cost of the wei county tissue paper expansion project ( see below ) . current liabilities as of december 31 , 2014 totaled $ 44,470,148 , an increase of $ 16,097,425 over the december 31 , 2013 balance of $ 28,372,723 and included the current portion of the capital lease in the amount of $ 12,258,488. we have also been using bank and commercial acceptance notes , which are typical 6-to-12 month notes , to guarantee the payments to our vendors . the notes payable was stated at $ 16,113,744 as of december 31 , 2014 , representing an $ 11,205,528 , or 228.30 % , increase from the balance of $ 4,908,216 as of december 31 , 2013. most of our current short-term bank loans are either revolving or term loans . we expect to renew the loans with the banks on similar terms at or before maturity . all of our short-term loans ( with the exception of the notes payables , which carry no interest but require a certain portion of the credit facilities to be deposited at the issuing banks ) feature interest-only monthly payments with a balloon payment for the entire principal upon the maturity of the loan . in addition to the quarterly interest payments , the long term loans from credit union require semi-annual principal repayment with one large balloon payment upon maturity . the cnftfl lease financing requires quarterly payments of interest and every six months payments of principal , ranging from approximately $ 4.4 million to approximately $ 63,000 during the entire three-year term . efforts to mitigate the net working capital deficit amounts due to related parties were $ 3,376,120 as of december 31 , 2014 , including rent payable due to a related party of $ 227,900 ( see “ relocation of facilities and sale of headquarters compound real properties ” below ) , loan from our chairman and chief executive officer mr. zhenyong liu of $ 2,386,978 and accrued interest payable included in other payables and accrued liabilities of $ 761,242 to mr. liu ( see “ moratorium on interest for related party loan collection ” below ) . excluding the related party payables , the net working capital deficit as of december 31 , 2014 was $ 14,539,166. moratorium of interest for related party loan collection on march 25 , 2014 , our chairman and chief executive officer , mr. zhenyong liu , agreed in writing to permit the company to continue to postpone the repayment of the accrued interest on his loan to orient paper hb until the company 's financial statements show a satisfactory working capital level . the accrued interest owned to mr. liu was approximately $ 761,242 , which was recorded in other payables and accrued liabilities as part of the currently liabilities in the condensed financial statement as of december 31 , 2014. registered direct offering on august 27 , 2014 , we entered into a definitive agreement with an institutional investor for a registered direct placement of $ 2,500,000 of shares of common stock at a price of $ 1.60 per share . in addition , we issued to the investor warrants to purchase up to 781,250 shares of common stock . the warrants have an exercise price of $ 1.70 per share and are exercisable for five years following issuance . we received net proceeds of $ 2,311,002 on september 3 , 2014 , when the offering closed . our loan-to-equity ratio was 37.05 % as of december 31 , 2014. our debt-asset ratio was 27.04 % as of december 31 , 2014. according to a search conducted by www.chinadiaoyan.com , the industry average

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cash and cash equivalents our cash and cash equivalents as of december 31 , 2014 was $ 3,891,473 , an increase of $ 760,310 from $ 3,131,163 as of december 31 , 2013. the increase of cash and cash equivalents for the year ended december 31 , 2014 was attributable to a number of factors including : i. net cash provided by operating activities net cash provided by operating activities was $ 32,313,173 for the year ended december 31 , 2014 , an increase of $ 2,391,232 , or 7.99 % , from $ 29,921,941 for the year ended december 31 , 2013. the net income of the year ended december 31 , 2014 was $ 11,706,360 , representing a decrease of $ 1,308,288 , or 10.05 % , from $ 13,014,648 for the year ended december 31 , 2013. nevertheless , changes in various asset and liability account balances during the year ended december 31 , 2014 also contributed to the net change in cash generated from operating activities . chief among such changes is the additional notes payable ( in the forms of bank acceptance note or commercial acceptance note , unique ways for commercial banks in china to guarantee the accounts payable payment for an extended term , usually 6 to 12 months ) in the amount of $ 11,163,003 that we issued with the guarantee from bank of hebei , cbcz bank and spd bank during the year ended december 31 , 2014. there was also a decrease of $ 4,257,805 in the ending inventory balance as of december 31 , 2014 ( as an increase to net cash for cash flow purposes ) .

competitive pressures also may limit our ability to quickly raise prices in response to rising costs . we expect minimal cost decreases for raw materials in the market place during 2013 and are currently locked into our supply and prices for a majority of our most significant commodities ( excluding , among others , maple syrup ) through 2013 at a cost decrease of approximately $ 1.0 million . during fiscal 2012 , we had cost increases ( net of cost savings ) for raw materials of less than 2 % of cost of goods sold , which were more than offset by our sales price increases . to the extent we are unable to avoid or offset present and future cost increases by locking in our costs , implementing cost saving measures or increasing prices to our customers , our operating results could be materially adversely affected . in addition , should input costs begin to further decline , customers may look for price reductions in situations where we have locked into purchases at higher costs . consolidation in the retail trade and consequent inventory reductions : as the retail grocery trade continues to consolidate and our retail customers grow larger and become more sophisticated , our retail customers may demand lower pricing and increased promotional programs . these customers are also reducing their inventories and increasing their emphasis on private label products . changing customer preferences : consumers in the market categories in which we compete frequently change their taste preferences , dietary habits and product packaging preferences . consumer concern regarding food safety , quality and health : the food industry is subject to consumer concerns regarding the safety and quality of certain food products . if consumers in our principal markets lose confidence in the safety and quality of our food products , even as a result of a product liability claim or a product recall by a food industry competitor , our business could be adversely affected . fluctuations in currency exchange rates : we purchase the majority of our maple syrup requirements from suppliers located in québec , canada . any weakening of the u.s. dollar against the canadian dollar , could significantly increase our costs relating to the production of our maple syrup products to the extent we have not purchased canadian dollars in advance of any such weakening of the u.s. dollar . to confront these challenges , we continue to take steps to build the value of our brands , to improve our existing portfolio of products with new product and marketing initiatives , to reduce costs through improved productivity , to address consumer concerns about food safety , quality and health and to favorably manage currency fluctuations . critical accounting policies ; use of estimates the preparation of financial statements in accordance with accounting principles generally accepted in the united states requires our management to make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . some of the more significant estimates and assumptions made by management involve trade and consumer promotion expenses ; allowances for excess , obsolete and unsaleable inventories ; pension benefits ; acquisition accounting allocations ; the recoverability of goodwill , other intangible assets , property , plant and equipment , and deferred tax assets ; the determination of the useful life of customer relationship intangibles ; and the accounting for share-based compensation expense . actual results could differ significantly from these estimates and assumptions . 30 our significant accounting policies are described more fully in note 2 to our consolidated financial statements included elsewhere in this report . we believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements . trade and consumer promotion expenses we offer various sales incentive programs to customers and consumers , such as price discounts , in-store display incentives , slotting fees and coupons . the recognition of expense for these programs involves the use of judgment related to performance and redemption estimates . estimates are made based on historical experience and other factors . actual expenses may differ if the level of redemption rates and performance vary from our estimates . inventories inventories are stated at the lower of cost or market . cost is determined using the first in , first out and average cost methods . inventories have been reduced by an allowance for excess , obsolete and unsaleable inventories . the allowance is an estimate based on our management 's review of inventories on hand compared to estimated future usage and sales . long-lived assets long-lived assets , such as property , plant and equipment , and intangibles with estimated useful lives are depreciated or amortized over their respective estimated useful lives to their estimated residual values , and 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 estimated undiscounted future cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated undiscounted future cash flows , an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset . recoverability of assets held for sale is measured by a comparison of the carrying amount of an asset or asset group to their fair value less estimated costs to sell . estimating future cash flows and calculating fair value of assets requires significant estimates and assumptions by management . story_separator_special_tag net cash provided by financing activities was reduced by $ 130.0 million due to the repayment of all term loan borrowings under our prior credit agreement , $ 38.2 million of dividend payments , $ 16.3 million for the payment of deferred financing costs , $ 3.7 million for the repurchase of common stock and $ 2.2 million for the payment of tax withholding on behalf of employees for net share settlement of share-based compensation . for fiscal 2010 , net cash used in financing activities includes $ 320.3 million in payments for the repurchase and redemption of $ 69.5 million principal amount of our 12 % senior subordinated notes and $ 240.0 million principal amount of our 8 % senior notes , $ 32.3 million of dividend payments , $ 8.2 million of deferred financing costs and $ 1.5 million for the payment of tax withholding on behalf of 37 employees for net share settlement of share-based compensation . net cash used in financing activities was reduced by net proceeds of $ 347.4 million from the issuance of our 7.625 % senior notes and $ 0.3 million of excess tax benefits from share-based compensation . cash income tax payments . based on a number of factors , including our trademark , goodwill and other intangible assets amortization for tax purposes from our prior acquisitions , we realized a significant reduction in cash taxes in fiscal 2012 , 2011 and 2010 as compared to our tax expense for financial reporting purposes . we believe that we will realize a benefit to our cash taxes payable from amortization of our trademarks , goodwill and other intangible assets for the taxable years 2013 through 2027. if there is a change in u.s. federal tax policy that reduces any of these available deductions or results in an increase in our corporate tax rate , our cash taxes payable may increase further , which could significantly reduce our future cash and impact our ability to make interest and dividend payments . dividend policy for a discussion of our dividend policy , see the information set forth under the heading `` dividend policy `` in part ii , item 5 of this report . acquisitions our liquidity and capital resources have been significantly impacted by acquisitions and may be impacted in the foreseeable future by additional acquisitions . as discussed elsewhere in this report , as part of our growth strategy we plan to expand our brand portfolio with disciplined acquisitions of complementary brands . we have historically financed acquisitions with borrowings and cash flows from operating activities . as a result , our interest expense has in the past increased as a result of additional indebtedness we have incurred in connection with acquisitions , including in connection with the culver specialty brands acquisition , and will increase with any additional indebtedness we may incur to finance future acquisitions . the impact of future acquisitions , whether financed with additional indebtedness or otherwise , may have a material impact on our liquidity . debt senior secured credit agreement . on december 12 , 2012 , we amended and restated our credit agreement dated as of november 30 , 2011. the amendment , among other things , reduced the interest rate payable on the tranche b term loans by 0.5 percentage points , fixed the maximum permissible consolidated leverage ratio at 6.0 to 1.0 and increased the maximum size of any potential incremental term loan facility to an unlimited amount provided that certain conditions are met , including our senior secured leverage ratio being less than or equal to 4.0 to 1.0 after giving effect to borrowings under the incremental term loan facility . at december 29 , 2012 , there were $ 144.4 million of tranche a term loans , $ 223.3 million of tranche b term loans and $ 25.0 million of revolving loans outstanding . at december 29 , 2012 , the available borrowing capacity under our revolving credit facility , net of outstanding letters of credit of $ 0.5 million , was $ 174.5 million . the credit agreement is secured by substantially all of our and our domestic subsidiaries ' assets except our and our domestic subsidiaries ' real property . the tranche a term loans are subject to principal amortization at the following rates : 5 % in the first year , 10 % in the second year and 15 % in each of the third and fourth years . the balance of all borrowings under the tranche a term loan facility are due and payable at maturity on november 30 , 2016. the tranche b term loans are subject to principal amortization at the rate of 1 % annually with the balance due at maturity on november 30 , 2018. the revolving credit facility matures on november 30 , 2016 . 38 interest under the revolving credit facility , including any outstanding letters of credit , and under the tranche a term loan facility , is determined based on alternative rates that we may choose in accordance with the credit agreement , including a base rate per annum plus an applicable margin ranging from 1.50 % to 2.00 % , and libor plus an applicable margin ranging from 2.50 % to 3.00 % , in each case depending on our consolidated leverage ratio . interest under the tranche b term loan facility is determined based on alternative rates that we may choose in accordance with the credit agreement , including a base rate per annum plus an applicable margin of 2.00 % , and libor plus an applicable margin of 3.00 % , in each case subject to a 1.0 % libor floor . for further information regarding our senior secured credit agreement , including a description of optional and mandatory prepayment terms and financial and restrictive covenants , see note 6 , `` long-term debt `` to our consolidated financial statements in part ii , item 8 of

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loss on extinguishment of debt . loss on extinguishment of debt includes costs relating to the retirement of indebtedness , including any repurchase premium and write-off of deferred debt financing costs and unamortized discount . fiscal 2012 compared to fiscal 2011 net sales . net sales increased $ 89.9 million or 16.5 % to $ 633.8 million for fiscal 2012 from $ 543.9 million for fiscal 2011. net sales of the culver specialty brands , which we acquired at the end of november 2011 , contributed $ 81.0 million to the overall increase , and net sales of the new york style and old london brands , which we acquired at the end of october 2012 , contributed $ 8.4 million to the overall increase . net sales for our base business increased $ 0.5 million , attributable to sales price increases of $ 13.1 million offset by a unit volume decline of $ 12.6 million . net sales of our ortega , las palmas , maple grove farms of vermont , b & m and ac'cent products increased by $ 3.8 million , $ 1.8 million , $ 1.2 million , $ 1.0 million and $ 0.9 million or 2.9 % , 5.2 % , 1.6 % , 4.8 % and 4.8 % , respectively . these increases were offset by a reduction in net sales of b & g , cream of wheat , don pepino and underwood products of $ 4.2 million , $ 2.5 million , $ 0.8 million and $ 0.7 million or 12.7 % , 3.8 % , 5.2 % and 3.3 % , respectively . in the aggregate , net sales for all other brands remained consistent . gross profit . gross profit increased $ 45.6 million or 25.6 % to $ 223.3 million in fiscal 2012 from $ 177.8 million in fiscal 2011. gross profit expressed as a percentage of net sales increased 2.5 percentage points to 35.2 % for fiscal 2012 from 32.7 % in fiscal 2011 , attributable to a sales mix shift to 34 higher margin products ( primarily due to the culver specialty brands acquisition ) and pricing gains of $ 13.1 million , partially offset by commodity and packaging cost increases . selling , general and administrative expenses .

under the terms of the merger agreement , upon completion of the merger , ( i ) each share of then-outstanding common stock of innovate/protect , par value $ 0.0001 per share ( “ innovate/protect common stock ” ) ( other than shares held by us , innovate/protect or any of our and their subsidiaries , which will be cancelled at the completion of the merger ) will be automatically converted into the right to receive the number of shares of our common stock , par value $ 0.01 per share ( “ vringo common stock ” ) equal to the common stock exchange ratio ( as defined below ) and ( ii ) each share of then-outstanding series a convertible preferred stock of innovate/protect , par value $ 0.0001 per share ( total 6,968 shares outstanding ) ( “ innovate/protect series a stock ” and together with the innovate/protect common stock , “ innovate/protect capital stock ” ) ( other than shares held by us , innovate/protect or any of our and their subsidiaries , which will be cancelled at the completion of the merger ) will be automatically converted into the right to receive the same number of shares of vringo series a convertible preferred stock ( “ vringo preferred stock ” ) , which 6,968 shares shall be convertible into an aggregate of 21,026,637 shares of vringo common stock . the vringo preferred stock will have the powers , designations , preferences and other rights as will be set forth in a certificate of designations , preferences and rights of series a convertible preferred stock to be filed by us prior to closing . the common stock exchange ratio initially is 3.0176 , subject to adjustment as set forth in the merger agreement . in addition , at the effective time of the merger , vringo will issue to the holders of innovate/protect capital stock and the holder of innovate/protect 's issued and outstanding warrant ( on a pro rata as-converted basis ) an aggregate of 15,959,838 warrants to purchase an aggregate of 15,959,838 shares of vringo common stock with an exercise price of $ 1.76 per share . the issued and outstanding warrant to purchase innovate/protect common stock shall be exchanged for 250,000 shares of vringo common stock and 850,000 warrants to purchase 850,000 shares of vringo common stock with an exercise price of $ 1.76 per share . in addition , at the effective time of the merger , each outstanding and unexercised option to purchase innovate/protect common stock ( each a “ innovate/protect stock option ” ) , whether vested or unvested will be converted into and become an option to purchase vringo common stock and we will assume such innovate/protect stock option in accordance with the terms of the innovate/protect 2011 equity incentive plan . after the effective time of the merger , ( a ) each innovate/protect stock option assumed by us may be exercised solely for shares of vringo common stock and ( b ) the number of shares of vringo common stock and the exercise price subject to each innovate/protect stock option assumed by us shall be determined by the common stock exchange ratio . immediately following the completion of the merger , the former stockholders of innovate/protect are expected to own approximately 55.41 % of the outstanding common stock of the combined company , and our current stockholders are expected to own approximately 44.59 % of the outstanding common stock of the combined company . on a fully diluted basis , the former stockholders of innovate/protect are expected to own approximately 67.55 % of the outstanding common stock of the combined company , and our current stockholders are expected to own approximately 32.45 % of the outstanding common stock of the combined company . we have expended significant effort and management attention on the proposed transaction . there is no assurance that the transaction contemplated by the merger agreement will be consummated . if the transaction is not consummated for any reason , our business and operations , as well as the market price of our stock and warrants may be adversely affected . we are currently evaluating the effect of the proposed merger on our financial statements . we believe such effect will be material . 15 as of december 31 , 2011 , we had approximately $ 1.2 million in cash and cash equivalents . we believe that current cash levels will be sufficient to support our activity into the fourth quarter of 2012. the continuation of our business , as a going concern is dependent upon the successful consummation of our merger with innovate/protect , or similar merger or acquisition , financing , and upon the further development of our products . there can be no assurance , however , that any such opportunities will materialize . all of our audited consolidated financial statements since inception have contained a “ going concern ” reference by our auditors , expressing substantial doubt about our ability to continue as a going concern . our financial statements were prepared using principles applicable to a going concern , which contemplate the realizations of assets and liquidation of liabilities in the normal course of business for the foreseeable future , and do not include any adjustments to reflect the possible effects on the recoverability and classification of assets , or the amounts and classification of liabilities that may result if we are not able to continue as a going concern . revenue we recognize revenue from monthly subscription from carriers , development projects and content sales when all the conditions for revenue recognition are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) collection of the fee is probable , ( iii ) the sales price is fixed and determinable and ( iv ) delivery has occurred or services have been rendered . story_separator_special_tag during 2010 , we recorded non-operating expense , net in the amount of $ 3.4 million , primarily due to the recording of the bridge notes , issued on december 29 , 2009 , at their residual value at the closing of bridge financing , pursuant to which we recorded additional interest costs for the bridge notes of $ 1.1 million . in addition , as a result of the conversion of the bridge notes we recorded an additional interest expense of approximately $ 1.1 million on account of the beneficial conversion feature from the loan and an additional $ 0.1 million on account of the additional special bridge warrants issued to investors in the bridge financing , in addition to the original 795,200 such warrants issued upon the closing of bridge financing . additional interest expense on account of the loan amortization of $ 0.3 million in addition to the interest expense recorded for the venture loan was also recorded in this period . in connection with the granting of the lead investor warrants we recorded additional interest expense of $ 1.3 million . we also recorded approximately $ 0.1 million of interest expense for bridge notes and approximately $ 0.4 million of interest expense for the venture loan . in addition , we recorded $ 1.0 million income in connection with the adjustment of the fair value of the special bridge warrants and conversion warrants . during 2009 , we recorded non-operating expenses primarily in connection with interest on venture loan . in addition , we recorded a loss of $ 0.18 million on extinguished debt from the modification of the terms of the venture loan in december 2009. from inception through december 31 , 2011 , non-operating expense totaled approximately $ 5.2 million . this amount included : income from interest on deposits of $ 0.2 million , interest expense on venture loan of $ 1.6 million , $ 0.1 million of debt extinguishment expense related to the series b convertible preferred stock , $ 0.2 million of debt extinguishment expenses as a result of the loan modification agreement with svb/gold hill , $ 1.0 million of additional interest expense as a result of the conversion of the convertible loan , $ 0.3 million of warrant amortization and $ 1.1 million of additional interest expense from the bridge notes , $ 1.3 million as additional interest expense for warrants granted to lead investors of the bridge financing , $ 1.0 million income in connection with the settlement of the venture loan , and non-operating income of $ 0.6 million for the adjustment of the fair value of the special bridge warrants and the conversion warrants , and $ 1.3 million expense recorded in connection with amortization of discount on convertible notes . 19 we expect that our non-operating expenses will remain high and volatile , as we continue to fund our operations through additional financing . in particular , non-operating expenses will be affected by the adjustments to fair value of our derivative instruments . fair value of these derivative instruments depends on variety of assumptions , such as estimations regarding triggering of down-round protection and estimated future share price . an estimated increase in the price of our common stock increases the value of the warrants and thus results in a loss on our statement of operations . in addition , high estimated probability of a down round protection , increases the value of the warrants and again results in a loss on our statement of operations . also see note 11 to the accompanying financial statements . taxes on income replace_table_token_9_th during the year ended december 31 , 2011 , we recorded income tax expense in the total amount of $ 90 thousand , which reflects an increase of $ 55 thousand compared to tax expense of $ 35 thousand recorded in the year ended december 31 , 2010. in addition , income tax expense recorded during the year ended december 31 , 2010 , which reflects a decrease of $ 38 thousand compared to tax expense of $ 73 thousand recorded in the year ended december 31 , 2009. taxes on income are mainly due to taxable profits generated by our subsidiary , as a result of the intercompany cost plus agreement between us and the subsidiary , whereby the subsidiary performs development and other services for us and is reimbursed for its expenses plus 8 % . in addition , during the year ended december 31 , 2011 and 2010 , we recorded income tax expense of $ 35 thousand and $ 5 thousand , respectively , in connection with tax withheld at source by our partner in malaysia , which we do not expect to be reclaimed . from inception through december 31 , 2011 , income tax expense totaled $ 119 thousand . we expect tax expense to increase as our business grows and as our subsidiary continues to profit from the cost plus agreement . story_separator_special_tag amount of $ 2.5 million , plus , receipt of proceeds from december 2011 financing in the total amount of $ 0.85 million , on the other . see also notes 8 , 9 and 11 , to the accompanying financial statements . during the year ended december 31 , 2010 , net cash provided by financing activities totaled $ 8.5 million , which relates to the net proceeds received as a result of our ipo , partially offset by repayment of principal on the venture loan , in the total amount of $ 0.8 million . during the year ended december 31 , 2009 , net cash provided by financing activities totaled $ 2.2 million , which relates to issuance of bridge notes , in the total amount of $ 2.98 million , partially offset by repayment of principal on the venture loan , in the total amount of $ 0.8 million . until we reach profitability , we expect we will continue

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liquidity and capital resources as of december 31 , 2011 , we had a cash balance of $ 1.2 million and $ 1million in net working capital . the decrease of $ 4.2 million in our cash balance from december 31 , 2010 , was mainly due to cash used by us in our business operations ( $ 5.4million ) and venture loan repayment ( $ 2.1 million ) , offset by the receipt of the funds from the convertible notes ( $ 2.5 million ) and the december 2011 financing ( $ 0.85 million ) . as of december 31 , 2011 , our total deficit in stockholders ' equity was $ 1.2 million , mainly due to continued operating deficits from inception to date , and partially due to the classification of the special bridge warrants and the conversion warrants as derivative liabilities rather than equity securities . during february 2012 , approximately 90 % of the then outstanding special bridge and conversion warrants , previously classified as a long-term liability , were exercised for an aggregate amount of $ 3.6 million . in addition , as part of the transaction , certain holders of the exercised warrants were granted with additional warrants to purchase approximately 2.66 million of our shares . according to a preliminary estimation , the total effect , including the offsetting impact of classification of some of above-mentioned warrants as a long-term liability ( see note 17 to the accompanying financial statements ) , is an increase of approximately $ 4.1 million in our total stockholder 's equity .

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

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

the increase in net income of $ 4.6 million for the twelve months ended december 31 , 2015 compared to the twelve months ended december 31 , 2014 was primarily due to an $ 8.5 million increase in net interest income and a $ 3.0 million increase in noninterest income . this was partially offset by a $ 2.6 million increase in income tax expense , a $ 2.6 million increase in noninterest expense and a $ 1.6 million increase in provision for loan losses . during the twelve months ended december 31 , 2016 , return on average assets was 0.74 % , compared to 0.81 % for the twelve months ended december 31 , 2015 and 0.50 % for the twelve months ended december 31 , 2014 . during the twelve months ended december 31 , 2016 , return on average shareholders ' equity was 9.74 % , compared to 8.89 % for the twelve months ended december 31 , 2015 and 4.61 % for the twelve months ended december 31 , 2014 . 25 consolidated average balance sheets and net interest income analyses for the periods presented , the following tables provide the average balances of interest-earning assets and interest-bearing liabilities and the related yields and cost of funds . the tables do not reflect any effect of income taxes . balances are based on the average of daily balances . nonaccrual loans are included in average loan balances . replace_table_token_5_th 1 yield on total interest-earning assets minus cost of total interest-bearing liabilities 2 net interest income divided by average interest-earning assets 26 rate/volume analysis the following table illustrates the impact of changes in the volume of interest-earning assets and interest-bearing liabilities and interest rates on net interest income for the periods indicated . the change in interest not due solely to volume or rate has been allocated in proportion to the absolute dollar amounts of the change in each . rate/volume analysis of net interest income twelve months ended december 31 , 2016 vs. december 31 , 2015 due to changes in twelve months ended december 31 , 2015 vs. december 31 , 2014 due to changes in ( amounts in thousands ) volume rate net volume rate net interest income loans , including loans held-for-sale $ 12,438 $ ( 433 ) $ 12,005 $ 9,624 $ ( 450 ) $ 9,174 securities – taxable 3,325 273 3,598 417 275 692 securities – non-taxable 1,562 ( 18 ) 1,544 258 ( 4 ) 254 other earning assets 264 41 305 ( 71 ) 183 112 total 17,589 ( 137 ) 17,452 10,228 4 10,232 interest expense interest-bearing deposits 5,290 1,808 7,098 1,390 ( 288 ) 1,102 other borrowed funds 705 713 1,418 1,571 ( 907 ) 664 total 5,995 2,521 8,516 2,961 ( 1,195 ) 1,766 increase ( decrease ) in net interest income $ 11,594 $ ( 2,658 ) $ 8,936 $ 7,267 $ 1,199 $ 8,466 2016 v. 2015 net interest income for the twelve months ended december 31 , 2016 was $ 39.7 million , an increase of $ 8.9 million , or 29.1 % , compared to $ 30.8 million for the twelve months ended december 31 , 2015 . the increase in net interest income was the result of a $ 17.5 million , or 42.1 % , increase in total interest income to $ 58.9 million for the twelve months ended december 31 , 2016 compared to $ 41.4 million for the twelve months ended december 31 , 2015 . the increase in total interest income was partially offset by an $ 8.5 million , or 79.6 % , increase in total interest expense to $ 19.2 million for the twelve months ended december 31 , 2016 compared to $ 10.7 million for the twelve months ended december 31 , 2015 . the increase in total interest income was due primarily to an increase in interest earned on loans resulting from an increase of $ 290.7 million , or 34.0 % , in the average balance of loans , including loans held-for-sale , as well as an increase in interest earned on securities resulting from an increase of $ 198.7 million , or 109.3 % , in the average balance of securities for the twelve months ended december 31 , 2016 compared to the twelve months ended december 31 , 2015 . the increase in total interest income was also due to a 19 basis point ( “ bp ” ) increase in the yield earned on the securities portfolio , partially offset by a decline in the yield earned on loans , including loans held-for-sale , of 5 bps . the increase in total interest expense was driven primarily by an increase in interest expense related to interest-bearing deposits as a result of a $ 448.7 million , or 53.5 % , increase in the average balance of interest-bearing deposits for the twelve months ended december 31 , 2016 compared to the twelve months ended december 31 , 2015 , and an increase of 19 bps in the cost of funds related to these deposits . interest expense related to other borrowed funds also contributed to the increase in total interest expense , due to a $ 43.7 million , or 31.3 % , increase in the average balance of other borrowed funds for the twelve months ended december 31 , 2016 compared to the twelve months ended december 31 , 2015 , and an increase of 44 bps in the cost of other borrowed funds . net interest margin was 2.49 % for the twelve months ended december 31 , 2016 compared to 2.85 % for the twelve months ended december 31 , 2015 . the decrease in net interest margin was primarily due to a 22 bp increase in the cost of interest-bearing liabilities and a 15 bp decrease in the yield on interest-earning assets . story_separator_special_tag the company has the ability and intent to hold all investment securities with identified impairments resulting from interest rate changes to the earlier of the forecasted recovery or the maturity of the underlying investment security . as of december 31 , 2016 , the company did not have any investment securities of a single issuer that exceeded 10 % of shareholders ' equity . the term `` issuer `` excludes the u.s. government and its sponsored agencies and corporations . the following tables present the amortized cost and approximate fair value of the company 's investment securities portfolio by security type as of the end of the last five years . replace_table_token_15_th 34 replace_table_token_16_th the approximate fair value of investment securities available-for-sale increased $ 243.0 million , or 113.7 % , to $ 456.7 million as of december 31 , 2016 compared to $ 213.7 million as of december 31 , 2015 . the increase was due primarily to increases of $ 118.6 million in mortgage-backed securities , $ 70.4 million in municipal securities , $ 54.1 million in u.s. government-sponsored agencies and $ 0.2 million in asset-backed securities , partially offset by a decrease of $ 0.3 million in corporate securities . the increases were primarily a result of investment purchases during the twelve months ended december 31 , 2016 , as the company deployed funds generated through deposit growth to further diversify the securities portfolio and enhance net interest income , while supporting liquidity and interest rate risk management . as of december 31 , 2016 , the company had securities with an amortized cost basis of $ 16.7 million designated as held-to-maturity , reflecting additional investment purchases made during 2016. investment maturities the following table summarizes the contractual maturity schedule of the company 's investment securities at their amortized cost and their weighted average yields at december 31 , 2016 . replace_table_token_17_th _ 1 a $ 3.0 million investment security has been excluded from this table because the security does not have a maturity date . 35 deposits the following table presents the composition of the company 's deposit base as of the end of the last five years . replace_table_token_18_th total deposits increased $ 506.8 million , or 53.0 % , to $ 1.5 billion as of december 31 , 2016 as compared to $ 956.1 million as of december 31 , 2015 . during 2016 , the company determined to enhance both balance sheet liquidity and asset sensitivity through strategies to increase term deposit funding , resulting in growth in certificates of deposit of $ 494.1 million , or 105.0 % . the increase in total deposits was also supplemented by growth in interest-bearing demand deposits , noninterest-bearing deposits and savings accounts . the following tables present contractual interest rates paid on time deposits , their scheduled maturities , and the scheduled maturities for time deposits $ 100,000 or greater . time deposits replace_table_token_19_th time deposit maturities at december 31 , 2016 replace_table_token_20_th 36 time deposit maturities of $ 100,000 or greater replace_table_token_21_th federal home loan bank advances although deposits are the primary source of funds for our lending and investment activities and for general business purposes , we may use short term advances from the fhlb to manage liquidity needs and longer term advances to supplement balance sheet growth and manage interest rate risk . the following table is a summary of fhlb borrowings for the periods indicated . replace_table_token_22_th story_separator_special_tag for financial measures determined in accordance with gaap , nor are they necessarily comparable to non-gaap performance measures that may be presented by other companies . reconciliations of these non-gaap financial measures to the most directly comparable gaap financial measures are included in the following table . replace_table_token_23_th critical accounting policies and estimates allowance for loan losses . we believe the allowance for loan losses is the critical accounting policy that requires the most significant judgments and assumptions used in the preparation of our consolidated financial statements . an estimate of potential losses inherent in the loan portfolio is determined and an allowance for those losses is established by considering factors including historical loss rates , expected cash flows , and estimated collateral values . the allowance for loan losses represents management 's best estimate of losses inherent in the existing loan portfolio . the allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off , net of recoveries . management evaluates the allowance for loan losses quarterly . if the underlying assumptions later prove to be inaccurate based on subsequent loss evaluations , the allowance for loan losses is adjusted . 39 management estimates the appropriate level of allowance for loan losses by separately evaluating impaired and non-impaired loans . a specific allowance is assigned to an impaired loan when expected cash flows or collateral do not justify the carrying amount of the loan . the methodology used to assign an allowance to a non-impaired loan is more subjective . generally , the allowance assigned to non-impaired loans is determined by applying historical loss rates to existing loans with similar risk characteristics , adjusted for qualitative factors including changes in economic conditions , changes in underwriting standards , and changes in concentrations of credit risk , and changes in industry conditions . because the economic and business climate in any given industry or market , and its impact on any given borrower , can change rapidly , the risk profile of the loan portfolio is periodically assessed and adjusted when appropriate . notwithstanding these procedures , there still exists the possibility that the assessment could prove to be significantly incorrect and that an immediate adjustment to the allowance for loan losses would be required . investments in debt and equity securities . we classify investments in debt and equity securities as available-for-sale in accordance with accounting standards codification , or asc , topic 320 , “ accounting for certain investments in

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liquidity and capital resources while the company believes it has sufficient liquidity and capital resources to meet its cash and capital expenditure requirements for at least the next twelve months , including any cash dividends it may pay , the company intends to continue pursuing its growth strategy , which may require additional capital . if the company is unable to secure such capital at favorable terms , its ability to execute its growth strategy could be adversely affected . liquidity management is the process used by the company to manage the continuing flow of funds necessary to meet its financial commitments on a timely basis and at a reasonable cost while also maintaining safe and sound operations . liquidity , represented by cash and investment securities , is a product of the company 's operating , investing and financing activities . the primary sources of funds are deposits , principal and interest payments on loans and investment securities , maturing loans and investment securities , access to wholesale funding sources and collateralized borrowings . while scheduled payments and maturities of loans and investment securities are relatively predictable sources of funds , deposit flows are greatly influenced by interest rates , general economic conditions and competition . therefore , the company supplements deposit growth and enhances interest rate risk management through borrowings , which are generally advances from the fhlb . the company maintains cash and investment securities that qualify as liquid assets to maintain adequate liquidity to ensure safe and sound operations and meet its financial commitments . at december 31 , 2016 , on a consolidated basis , the company had $ 496.4 million in cash and cash equivalents , interest-bearing time deposits and investment securities available-for-sale and $ 27.1 million in loans held-for-sale that were generally available for its cash needs . the company can also generate funds from wholesale funding sources and collateralized borrowings .

including the effect of our foreign currency hedges , net sales for 2013 were negatively impacted by $ 60.1 million , as compared to 2012 , principally as a result of a weaker japanese yen and euro versus the u.s. dollar . during 2013 , our net sales were positively affected by higher sales volumes of bananas and non-tropical fruit principally sourced from independent growers in costa rica , ecuador , colombia and mexico and by higher sales volume of fresh-cut products in north america and the middle east that resulted from an expanded customer base and improved demand for our products . also positively affecting our net sales were our expansion into new markets in the middle east . our net sales growth in recent years has been achieved primarily through increased sales volume in existing markets of other fresh produce , primarily pineapples , fresh-cut products and non-tropical fruit and favorable pricing on our del monte gold ® extra sweet pineapple combined with increased sales volume and per unit sales prices of bananas in existing and new markets . our net sales growth in recent years has also been attributable to a broadening of our product line with the expansion of our fresh-cut produce business , specifically increased sales to the foodservice sector and convenience stores combined with our expansion into new markets . we expect our net sales growth to continue to be driven by increased sales volumes across all of our segments . in the middle east , we expect to continue 27 to increase our net sales of our fresh produce and prepared food product offerings as a result of our expansion in various markets in the region such as turkey , saudi arabia and other regional markets . we also expect to increase our sales by developing new products in the prepared food segment , targeting the convenience store and foodservice trade in selected european and middle east markets and to continue to expand our sales of beverage products in the middle east , european and sub-sahara african markets . cost of products sold cost of products sold is principally composed of two elements , product and logistics costs . product cost for our produce is primarily composed of cultivation ( the cost of growing crops ) , harvesting , packaging , labor , depreciation and farm administration . product cost for produce obtained from independent growers is composed of procurement and packaging costs . logistics costs include land and sea transportation and expenses related to port facilities and distribution centers . sea transportation cost is the most significant component of logistics costs and is comprised of the cost of vessel operating expenses and chartering refrigerated vessels . vessel operating expenses for our owned vessels include operations , maintenance , depreciation , insurance , fuel ( the cost of which is subject to commodity price fluctuations ) , and port charges . for chartered vessels , operating expenses include the cost of chartering the vessels , fuel and port charges . variations in containerboard prices , which affect the cost of boxes and other packaging materials , and fuel prices can have a significant impact on our product cost and our profit margins . also , variations in the production yields , fertilizers and other input costs and the cost to procure products from independent growers can have a significant impact on our costs . containerboard , plastic , resin and fuel prices have historically been volatile . during 2012 , cost of fuel increased by 8 % , mostly offset by an 8 % decrease in containerboard prices , with negligible effect on our cost of products sold . also included in 2012 , were $ 0.7 million in inventory write-offs related to our previously discontinued pineapple and melon operations in brazil and $ 0.4 million in inventory write-offs and clean-up costs and a credit of $ ( 0.2 ) million for insurance reimbursements related to floods in costa rica . during 2013 , cost of fuel decreased 7 % , containerboard increased 4 % and fertilizer decreased 13 % resulting in a reduction of cost of product sold of approximately $ 10.8 million . also included in 2013 , were $ 1.4 million in inventory write-off due to adverse weather conditions in chile and $ 0.1 million inventory write-off related to the shut-down of a watermelon farm in costa rica . in general , changes in our volume of products sold can have a disproportionate effect on our gross profit . within any particular year , a significant portion of our cost of products sold is fixed , both with respect to our operations and with respect to the cost of produce purchased from independent growers from whom we have agreed to purchase all the products they produce . accordingly , higher volumes produced on company-owned farms directly reduce the average per-box cost , while lower volumes directly increase the average per-box cost . in addition , because the volume that will actually be produced on our farms and by independent growers in any given year depends on a variety of factors , including weather , that are beyond our control or the control of our independent growers , it is difficult to predict volumes and per-box costs . since our financial reporting currency is the u.s. dollar , our costs are affected by fluctuations in the value of the currency in which we have significant operations versus the dollar , with lower costs resulting from a strong u.s. dollar . during 2013 , cost of products sold was positively impacted by approximately $ 16.1 million as compared with 2012 due to a stronger u.s. dollar versus the various currencies in which we have significant operations . story_separator_special_tag fruit operations in the united kingdom related to the other fresh produce segment ; $ 0.2 million in contract termination costs in the united kingdom principally related to the banana segment ; $ 0.1 million in asset impairment in chile due to adverse weather conditions related to the other fresh produce segment ; $ 0.8 million in severance expense due to restructuring in our cameroon banana operations ; $ 0.2 million in severance expense due to restructuring of our sales office in france related to the prepared food segment ; $ ( 2.5 ) million in credits due to the gain on sale of a previously impaired under-utilized facility in the united kingdom principally related to the banana segment ; a net credit of $ ( 0.2 ) million related to over-accrued exit activity in hawaii related to the other fresh produce segment . asset impairment and other charges ( credits ) for 2012 were as follows : $ 2.8 million in asset impairments and contract termination charges related to under-utilized distribution centers and office space in the united kingdom primarily related to the banana segment ; $ 2.6 million in asset impairments and severance charges related to the closure of a fresh-cut prepared salad facility in the united kingdom in other fresh produce segment ; $ ( 1.7 ) million net gain on the sale of previously impaired melon assets in guatemala related to the other fresh produce segment ; $ ( 1.4 ) million in insurance proceeds related to floods which occurred in 2010 in our guatemala operations related to the banana segment ; 33 $ 0.7 million in net charges as a result of floods in our costa rica operations , comprised of $ 1.3 million in asset impairments less $ ( 0.6 ) million of insurance proceeds related to the banana segment ; $ 0.5 million in other costs related to our previous closure of hawaii operations related to the other fresh produce segment ; and $ ( 0.2 ) million credit for the reversal of over-accrued costs in our previous closure of costa rica melon operation related to the other fresh produce segment . operating ( loss ) income operating loss in 2013 was $ ( 28.1 ) million compared with an operating income of $ 161.4 million in 2012 , a decrease of $ 189.5 million . the decrease in operating income is attributable to lower gross profit , higher selling general and administrative expenses , a loss on disposal of property , plant and equipment and higher asset impairments and other charges , net . interest expense interest expense was $ 2.9 million in 2013 as compared with $ 3.0 million in 2012 , a decrease of $ 0.1 million . the lower interest expense in 2013 was due principally to lower interest rates , partially offset by higher average debt balances . other ( income ) expense , net other ( income ) expense , net was income of $ 13.6 million in 2013 compared with an expense of $ 1.9 million in 2012. during 2013 , we recorded a gain of $ 16.6 million related to a favorable judgment awarded in litigation and lower foreign exchange losses , partially offset by $ 1.6 million in financial charges as a result of an unfavorable court ruling related to value added tax reporting in south america . included in other ( income ) expense , net during 2012 was $ 2.6 million of foreign exchange losses , which resulted from converting argentine pesos to u.s. dollars . provision for income taxes provision for income taxes was $ 17.2 million in 2013 compared with $ 12.2 million in 2012 , an increase of $ 5.0 million . the increase in the provision for income taxes for 2013 is primarily due to $ 9.7 million in tax credits recorded in 2012 as compared with $ 0.3 million in net tax credits recorded during 2013. the 2012 tax credits were primarily for the reversals of uncertain tax positions due to a lapse in the statute of limitations and settlement of tax audits and litigation and changes in tax rates in certain foreign jurisdictions . partially offsetting the higher levels of tax credits during 2012 was lower taxable income in certain jurisdictions in 2013 . 2012 compared with 2011 net sales net sales in 2012 were $ 3,421.2 million compared with $ 3,589.7 million in 2011 . the increase in net sales of $ 168.5 million was primarily attributable to higher net sales of bananas and other fresh produce , partially offset by lower net sales of prepared foods . net sales in the banana segment decreased by $ 108.5 million principally due to lower sales in europe , the middle east and asia , partially offset by higher sales in north america . ◦ europe banana net sales decreased primarily due to lower sales volumes in germany and the united kingdom as a result of our decision not to enter into unprofitable banana sales contracts with certain large retailers , partially offset by net sales increases in southern europe and higher per unit sales prices . ◦ middle east banana net sales decreased principally due to lower sales volumes , a result of reduced shipments from central america into secondary middle east markets combined with lower purchases from independent growers in the philippines , partially offset by higher per unit sales prices . ◦ asia banana net sales decreased principally due to lower sales volumes as a result of reduced purchases from independent growers combined with lower per unit sales prices due to higher industry volumes in the japan and korea markets principally as a result of restricted shipments to china . 34 ◦ north america banana net sales increased primarily due to a 5 % increase in sales volumes that resulted from increased shipments from costa rica , partially offset by lower per unit sales prices . the lower per unit sales prices in north

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net cash used in investing activities was $ 161.9 million for 2013 , $ 72.4 million for 2012 and $ 74.7 million for 2011 . net cash used in investing activities for 2013 consisted of $ 159.5 million in capital expenditures and $ 20.6 million in purchase of businesses , partially offset by $ 10.4 million in proceeds from sales of property , plant and equipment and $ 7.8 million in proceeds from sale of securities available for sale . our capital expenditures totaled $ 159.5 million in 2013 , consisting primarily of approximately $ 49.6 million for expansion and improvements to production facilities in costa rica , guatemala , the philippines and chile related to the banana and other fresh produce segments ; $ 39.3 million for expansion of our tomato and vegetable assets in north america related to the other fresh produce segment ; $ 16.8 million principally for improvements and expansion of production facilities in kenya , greece and jordan related to the prepared food segment ; $ 32.7 million principally for new distributions centers in canada and france and improvements and expansion to distribution centers in the united states and the middle east principally related to the banana and other fresh produce segment and $ 8.3 million for expansion of our fresh-cut production facilities primarily in north america related to the other fresh produce segment . during 2013 , capital expenditures also included approximately $ 9.7 million for the acquisition of two refrigerated vessels and related shipping equipment and $ 3.1 million for information technology systems . the purchase of businesses of $ 20.6 million consisted of the purchase of a pineapple farm in costa rica and a banana farm in the philippines . net cash used for investing activities for 2012 consisted primarily of capital expenditures of $ 79.7 million , purchase of securities available for sale of $ 11.0

excluding the impact of foreign currency translation , sales were up 16 about 4 percent compared to 2014. the growth was driven by strong sales of groundwater pumping equipment in turkey . water systems sales in the asia pacific region were 8 percent of consolidated sales and grew by about 7 percent compared to the prior year . acquisition related sales during 2015 increased sales by about 9 percent in asia pacific . foreign currency translation rate changes decreased sales in 2015 in the asia pacific region by about 5 percent . excluding acquisitions and foreign currency translation sales grew by about 3 percent during 2015. the asia pacific region experienced strong year over year growth in southeast asia and korea . these sales increases were partially offset by smaller declines in sales in australia , japan and china . water systems sales in europe were about 7 percent of consolidated sales and decreased by about 20 percent compared to the prior year . foreign currency translation rate changes decreased sales by about 21 percent compared to sales in 2014. excluding foreign currency translation , european sales grew by about 1 percent during 2015. net sales-fueling systems fueling systems sales which represented 23 percent of consolidated sales were $ 217.3 million in 2015 , a decrease of $ 5.9 million or about 3 percent versus 2014. the incremental impact of sales from acquired businesses was $ 0.5 million . foreign currency translation rate changes decreased sales $ 11.0 million or about 5 percent compared to sales in 2014. the sales change in 2015 , excluding acquisitions and foreign currency translation , was an increase of $ 4.6 million or about 2 percent . fueling systems sales in the u.s. and canada grew by about 6 percent in 2015 compared to the prior year with sales growth coming from most product lines , especially in piping . fueling systems revenues declined in india and china due to the timing of tender awards made in india and the ongoing reduction in state owned oil company procurements in china . sales also declined in europe principally due to a 42 percent decline in the sale of storage tanks that support north sea oil production . cost of sales cost of sales as a percent of net sales for 2015 and 2014 was 67.8 percent and 67.1 percent , respectively . correspondingly , the gross profit margin decreased to 32.2 percent from 32.9 percent , a 70 basis point decline . the gross profit margin decrease was primarily due to fixed costs deleverage on lower sales and higher raw material costs . direct materials as a percentage of sales was 46.9 percent up 50 basis points compared to 46.4 percent last year . this increase in direct materials was partially offset by lower labor and burden costs . the company 's consolidated gross profit was $ 297.6 million for 2015 , down $ 46.8 million or 14 percent from 2014. selling , general and administrative ( “ sg & a ” ) selling , general , and administrative ( sg & a ) expenses were $ 204.3 million in 2015 and decreased by $ 23.4 million or about 10 percent in 2015 compared to last year . in 2015 , increases in sg & a attributable to acquisitions were about $ 6 million or about 3 percent . additional year over year changes in sg & a costs were decreases in the year primarily due to lower marketing and selling related expenses , as well as lower costs for incentive compensation . approximately half of the lower sg & a expenses was related to foreign exchange . restructuring expenses restructuring expenses for 2015 were $ 3.0 million and reduced diluted earnings per share by approximately $ 0.04. restructuring expenses in 2015 included severance and pension costs , equipment relocation expenses , asset write-downs and primarily related to the closure of the wittlich , germany facility and other manufacturing realignment activities in europe and brazil . there were $ 16.6 million of restructuring expenses in 2014 and reduced diluted earnings per share by approximately $ 0.24. restructuring expenses in 2014 included severance costs , equipment relocation expenses , and asset write-downs primarily related to the closure of the wittlich , germany facility and other european manufacturing realignment activities . operating income operating income was $ 90.4 million in 2015 , down $ 9.7 million from $ 100.1 million in 2014 . 17 replace_table_token_8_th there were specific items in 2015 and 2014 that impacted operating income that were not operational in nature . in 2015 they were as follows : there were $ 3.0 million of restructuring charges . restructuring expenses in 2015 were $ 0.6 million in severance cost , $ 0.6 million in pension cost , $ 0.6 million expenses related to equipment transfers and freight costs , $ 0.1 million in asset write-offs and $ 1.1 million in other relocation costs primarily related to the closure of the wittlich , germany facility and other manufacturing realignment activities in europe and brazil . $ 1.2 million related to executive transition . $ 0.7 million related to business realignment cost , primarily severance , in targeted fixed cost reduction actions . $ 0.2 million in other miscellaneous costs related to closed acquisitions . in 2014 they were as follows : there were $ 16.6 million of restructuring charges . restructuring expenses in 2014 were $ 14.7 million in severance cost , $ 1.7 million expenses related to equipment transfers , freight and other relocation costs and $ 0.2 million in asset write-offs primarily related to the transfer of production activities from germany to the czech republic and other continued manufacturing realignments . $ 3.2 million in other miscellaneous costs related to closed and pending acquisitions and $ 0.2 million in legal fees incurred by franklin fueling systems . $ 2.5 million related to executive transition . $ 1.8 million of software write-offs . story_separator_special_tag the company believes presenting these matters in this way gives our investors and management a more accurate picture of the actual operational performance of the company . the non-gaap adjustments are for restructuring expenses , reported separately on the income statement , as well as certain legal matters and acquisition related items which are included in sga on the income statement . the differences between these non-gaap financial measures and the most comparable gaap measures are reconciled in the following tables : 23 replace_table_token_14_th operating income-water systems water systems operating income , after non-gaap adjustments , was $ 123.7 million in 2014 , a decrease of 9 percent versus 2013. the 2014 operating income margin after non-gaap adjustments was 15.0 percent and decreased by 260 basis points compared to the 17.6 percent of net sales in 2013. the change in profitability was primarily the result of higher global raw material costs , higher marketing and selling costs in the u.s. and canada commercial business , and the continued sales mix shift to surface pumping equipment away from groundwater pumping equipment . contributing to both the sales mix shift to surface pumping equipment and the higher material costs , pioneer branded mobile pumping equipment sales have had a surge in demand during the year and the company has temporarily outsourced certain operations to meet the increased demand . operating income-fueling systems fueling systems operating income after non-gaap adjustments was $ 51.7 million in 2014 compared to $ 42.3 million after non-gaap adjustments in 2013 , an increase of 22 percent . the 2014 operating income margin after non-gaap adjustments was 23.2 percent and increased by 200 basis points compared to the 21.2 percent of net sales in 2013. this increased profitability was primarily due to fixed costs leverage on higher sales . operating income-other operating income-other is composed primarily of unallocated general and administrative expenses . general and administrative expenses were higher due to $ 2.5 million of cost included in non-gaap adjustments related to executive transition . interest expense interest expense for 2014 and 2013 was $ 10.7 million and $ 10.6 million , respectively . other income or expense other income or expense was a gain of $ 1.3 million in 2014. included in other income or expense in 2014 was interest income of $ 2.0 million , primarily derived from the investment of cash balances in short-term securities . other income or expense was a gain of $ 1.7 million in 2013. included in other income or expense in 2013 was interest income of $ 1.8 million , primarily 24 derived from the investment of cash balances in short-term securities . foreign exchange foreign currency-based transactions produced a loss for 2014 of $ 1.0 million , primarily due to the canadian dollar , australian dollar , turkish lira , and south african rand relative to the u.s. dollar , none of which individually were significant . foreign currency-based transactions produced a loss for 2013 of $ 3.3 million , primarily due to the turkish lira , the euro , south african rand , brazilian real and canadian dollar relative to the u.s. dollar , none of which individually were significant . income taxes the provision for income taxes in 2014 and 2013 was $ 18.9 million and $ 28.9 million , respectively . the tax rate for 2014 was 21.0 percent and 2013 was 25.9 percent . the tax rate declined in 2014 from the tax rate for 2013 primarily due to a reversal of deferred tax liabilities associated with earnings of certain foreign subsidiaries which have been realigned within the company 's organization . the realignment of certain foreign entities results in their unremitted earnings being indefinitely reinvested . the effective tax rate differs from the statutory rate primarily due to the indefinite reinvestment of foreign earnings taxed at rates below the u.s. statutory rate as well as recognition of foreign tax credits . the company has the ability to indefinitely reinvest these foreign earnings based on the earnings and cash projections of its other operations as well as cash on hand and available credit . net income net income for 2014 was $ 70.9 million compared to 2013 net income of $ 82.7 million . net income attributable to franklin electric co. , inc. for 2014 was $ 69.8 million , or $ 1.41 per diluted share , compared to 2013 net income attributable to franklin electric co. , inc. of $ 82.0 million or $ 1.68 per diluted share . net income attributable to franklin electric co. , inc. after non-gaap adjustments for 2014 was $ 84.3 million , or $ 1.76 per diluted share , compared to 2013 net income attributable to franklin electric co. , inc. after non-gaap adjustments of $ 82.9 million or $ 1.72 per diluted share . there were specific items in 2014 and 2013 that impacted net income attributable to franklin electric co. , inc. that were not operational in nature . the company refers to these items as “ non-gaap adjustments ” for purposes of presenting the non-gaap financial measures of net income attributable to franklin electric co. , inc. and adjusted eps . the company believes this information helps investors understand underlying trends in the company 's business more easily . the differences between these non-gaap financial measures and the most comparable gaap measures are reconciled in the following tables : replace_table_token_15_th 25 replace_table_token_16_th story_separator_special_tag new product launches , and higher than normal seasonal inventory build . receivable balances were elevated at 2014 year-end due to higher sales , especially in some emerging markets , along with extended credit terms in certain markets . operationally , the company generally experiences a higher working capital investment in the second and third quarters of each year as a result of stronger seasonal activity in the building , agricultural , and other industries in the northern hemisphere . to the extent the company potentially grows further in the southern hemisphere

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capital resources and liquidity overview the company 's primary sources of liquidity are cash on hand , cash flows from operations , revolving credit agreement , and long-term debt funds available . on may 27 , 2015 , the company entered into an uncommitted and unsecured private shelf agreement with nyl investors llc , an affiliate of new york life ( the `` new york life agreement '' ) for $ 150.0 million maximum aggregate principal borrowing capacity and the company authorized the issuance of $ 75.0 million of floating rate senior notes due may 27 , 2025. these senior notes have a floating interest rate of one-month usd libor plus a spread of 1.35 percent with interest-only payments due on a monthly basis . as of january 2 , 2016 , there was $ 75.0 million remaining borrowing capacity under the new york life agreement . on december 31 , 2012 , the company , allen county , indiana and certain institutional investors entered into a bond purchase and loan agreement . under the agreement , allen county , indiana issued a series of project bonds entitled “ taxable economic development bonds , series 2012 ( franklin electric co. , inc . project ) . '' the aggregate principal amount of the project bonds that were issued , authenticated , and are now outstanding thereunder was limited to $ 25.0 million . the company then borrowed the proceeds under the project bonds through the issuance of project notes to finance the cost of acquisition , construction , installation and equipping of the new global corporate headquarters and engineering center . these project notes ( tax increment financing debt ) bear interest at 3.6 percent per annum . interest and principal balance of the project notes are due and payable by the company directly to the institutional investors in aggregate semi-annual installments commencing on july 10 , 2013 , and concluding on january 10 , 2033. on may 5 , 2015 , the company entered into amendment no . 1 to the bond purchase and loan agreement . this amendment provided for debt repayment guarantees from certain company subsidiaries and waived certain non-financial covenants related to subsidiary guarantees .

38 some of these investments historically have also included , and may in the future include , joint ventures with private equity investors for the purpose of making investments in operating retailers with significant embedded value in their real estate assets . maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth . significant developments during 2016 investments during the year ended december 31 , 2016 ( `` 2016 `` ) , within our core and fund portfolios we acquired 22 properties aggregating $ 864.3 million as follows : in our core portfolio we acquired nine consolidated properties with an aggregate purchase price of $ 519.6 million and two unconsolidated properties with an aggregate purchase price of $ 107.4 million ( note 4 ) . in fund iv we acquired 11 consolidated properties with an aggregate purchase price of $ 237.3 million ( note 2 ) . in addition to our real estate investments we : issued one core note receivable and three fund iv notes receivable aggregating $ 47.5 million , which were collateralized by four mixed-use real estate properties ( note 3 ) ; restructured a $ 30.9 million core mezzanine loan and replaced it with a new $ 153.4 million loan , which was made to our partners in the brandywine portfolio ( note 4 ) ; and obtained through our operating partnership an additional 8.3 % interest in fund ii from a limited partner for $ 18.4 million ( note 10 ) . dispositions of real estate during 2016 , within our fund portfolio we sold two properties for an aggregate sales price of $ 211.6 million and recognized aggregate gains of $ 94.6 million as follows : fund iii sold two consolidated properties with an aggregate sales price of $ 153.8 million and recognized an aggregate gain on disposition of properties of $ 82.0 million ( note 2 ) . one of these properties was a 65 % interest in the cortlandt town center , for which the remaining 35 % interest was carried as an unconsolidated investment after the sale . subsequently , fund iii sold the remaining 35 % interest in the cortlandt town center for $ 57.8 million , for which the gain was $ 36.0 million and our pro rata share was $ 12.6 million and was recognized within equity in earnings of unconsolidated affiliates on the consolidated statement of income ( note 4 ) . capital raised during 2016 , we issued approximately 12.9 million shares of our common stock to raise net proceeds of $ 452.4 million . of these issuances , 4.5 million shares were issued under our at-the-market equity program , 4.8 million shares were issued in a follow-on public offering and 3.6 million shares were issued in a forward sale agreement ( note 10 ) . during 2016 , we also issued common and preferred op units aggregating $ 31.4 million to a third party to acquire real estate ( note 10 ) . financings during 2016 , we obtained $ 150.0 million of new unsecured term loans in our core portfolio . in addition , we obtained or assumed 14 new consolidated mortgages aggregating $ 252.9 million ( note 7 ) . development activity during 2016 , fund iv acquired two properties in development . fund ii also placed a portion of its city point project into service with an accumulated cost of $ 187.4 million ( note 2 ) . 39 change in management on june 27 , 2016 , john gottfried assumed the role of chief financial officer of acadia realty trust . results of operations see note 12 in the notes to consolidated financial statements for an overview of our three reportable segments . during the year ended december 31 , 2016 , we revised how we allocate general and administrative and income tax expenses among our segments . all prior periods presented have been revised to conform to this new presentation . a discussion of the significant variances and primary factors contributing thereto within the results of operations for the years ended december 31 , 2016 , 2015 and 2014 are addressed below : comparison of the year ended december 31 , 2016 ( `` 2016 `` ) to the year ended december 31 , 2015 ( `` 2015 `` ) replace_table_token_19_th rental income in the core portfolio decreased $ 1.0 million primarily as a resul t of a $ 9.3 million decrease due to the change in control of the brandywine portfolio ( note 4 ) offset by property acquisitions in 2015 and 2016 ( `` 2016 core acquisitions `` ) . rental income in the funds decreased $ 5.0 million primarily as a result of a decrease of $ 12.7 million relating to property dispositions in 2015 and 2016 ( `` 2016 fund dispositions `` ) . these decreases were offset by additional rental income of $ 4.3 million related to property acquisitions in 2015 and 2016 ( `` 2016 fund acquisitions `` ) . expense reimbursements in the funds decreased $ 4.2 million primarily due to the 2016 fund dispositions and a decrease in property operating expenses during 2016. the $ 1.0 million increase in other income in the core portfolio relates to termination income received at a property . replace_table_token_20_th t he $ 8.4 million increase in depreciation and amortization in the core portfolio was primarily attributable to the 2016 core acquisitions . unallocated general and administrative increased $ 10.2 million due to the acceleration of equity-based compensation awards related to retirements in 2016 totaling $ 4.2 million as well as increased compensation expense of $ 4.7 million , which included $ 3.9 million related to the program ( note 13 ) . the remaining $ 1.3 million relates to an increase in other professional fees . story_separator_special_tag such are not determinable at this time . accordingly , the above table does not include rents for this lease beyond 2031 . ( b ) in conjunction with the development of our core portfolio and fund properties , we have entered into construction commitments with general contractors . we intend to fund these requirements with existing liquidity . 49 off-balance sheet arrangements we have the following investments made through joint ventures for the purpose of investing in operating properties . we account for these investments using the equity method of accounting . as such , our financial statements reflect our investment and our share of income and loss from , but not the individual assets and liabilities , of these joint ventures . see note 4 in the notes to consolidated financial statements , for a discussion of our unconsolidated investments . the operating partnership 's pro-rata share of unconsolidated debt related to those investments is as follows ( dollars in millions ) : replace_table_token_30_th in addition , we have arranged for the provision of one separate letter of credit in connection with certain leases and investments . as of december 31 , 2016 there was no outstanding balance under the letters of credit . if the letters of credit were fully drawn , the maximum amount of our exposure would be $ 2.5 million . one of our unconsolidated affiliates is a party to an interest rate libor swap with a notional value of $ 20.9 million , which effectively fixes the interest rate at 3.49 % and matures in june 2023. our pro-rata share of the fair value of such affiliate 's derivative assets totaled $ 0.2 million as of december 31 , 2016 . historical cash flow cash flows for 2016 compared to 2015 the following table compares the historical cash flow for the year ended december 31 , 2016 with the cash flow for the year ended december 31 , 2015 ( dollars in millions ) : replace_table_token_31_th operating activities our operating activities provided $ 1.8 million less cash during 2016 , primarily due to ( i ) $ 7.8 million of lease payments relating to 991 madison avenue during 2016 , and ( ii ) additional distributions from the mervyns i & ii portfolios during 2015. these items were partially offset by additional cash flow from 2016 acquisitions . 50 investing activities during 2016 , our investing activities used an additional $ 256.5 million of cash , primarily for ( i ) an additional $ 156.9 million used for the acquisition of real estate , ( ii ) $ 108.9 million of additional cash used for the issuance of notes receivable , ( iii ) $ 47.9 million more cash used in investments and advances to unconsolidated affiliates , and ( iii ) $ 32.3 million less cash received from the disposition of properties , including unconsolidated affiliates . these items were partially offset by ( i ) $ 42.8 million more cash received from return of capital from unconsolidated affiliates ( ii ) $ 26.8 million more cash received from repayments of notes receivable and ( iii ) $ 14.9 million less cash used for development and property improvement costs , financing activities our financing activities provided $ 402.1 million more cash during 2016 , primarily from ( i ) $ 386.9 million more cash received from the issuance of common shares and ( ii ) an increase of $ 259.6 million from capital contributions from noncontrolling interests . these items were partially offset by ( i ) a decrease of $ 210.7 million of cash provided from net borrowings , ( ii ) distributions to noncontrolling interests increased $ 21.4 million , ( iii ) $ 7.3 million more cash used for deferred financing and other costs , and ( iv ) an additional $ 5.0 million of cash used to pay dividends to common shareholders . cash flows for 2015 compared to 2014 replace_table_token_32_th operating activities our operating activities provided $ 31.1 million of additional cash during 2015 , primarily from ( i ) an increase in cash flow from core and fund property acquisitions and ( ii ) an increase in cash flow from our structured financing portfolio . investing activities during 2015 , our investing activities used an additional $ 86.0 million of cash , primarily for ( i ) an additional $ 94.1 million was used for the acquisition of real estate , ( ii ) $ 62.5 million less cash was collected from the return of capital from unconsolidated affiliates , ( iii ) $ 28.5 million more was used for development and property improvement costs , ( iv ) $ 17.3 million of additional cash was issued for notes receivable , ( v ) $ 14.3 million less cash received from the disposition of properties , including unconsolidated affiliates , and ( vi ) $ 4.3 million more was used for deferred leasing costs . these items were partially offset by $ 132.8 million less cash used in investments and advances to unconsolidated affiliates . financing activities our financing activities provided $ 228.3 million less cash during 2015 , primarily from ( i ) $ 294.2 million less cash received from the issuance of common shares , ( ii ) cash provided from net borrowings decreased $ 16.4 million , ( iii ) an additional $ 33.1 million of cash was used to pay dividends to common shareholders , and ( iv ) capital contributions from noncontrolling interests decreased $ 22.5 million . these items were partially offset by $ 136.7 million of less cash distributed to noncontrolling interests . critical accounting policies management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities

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liquidity and capital resources uses of liquidity and cash requirements our principal uses of liquidity are ( i ) distributions to our shareholders and op unit holders , ( ii ) investments which include the funding of our capital committed to the funds and property acquisitions and development/re-tenanting activities within our core portfolio , ( iii ) distributions to our fund investors and ( iv ) debt service and loan repayments . distributions in order to qualify as a reit for federal income tax purposes , we must currently distribute at least 90 % of our taxable income to our shareholders . for the year ended december 31 , 2016 , we paid dividends and distributions on our common shares , common op units and preferred op units totaling $ 98.7 million . this amount included an $ 18.8 million special dividend that was paid in january 2016 , which related to the operating partnership 's share of cash proceeds from property dispositions during 2015. the balance of the distribution was funded from the operating partnership 's share of operating cash flow . distributions of $ 78.3 million were made to noncontrolling interests in fund iii during the year ended december 31 , 2016. this resulted from proceeds related to the financing of 640 broadway and dispositions of cortlandt town center and heritage shops as discussed in note 2 and note 4 . investments in real estate during the year ended december 31 , 2016 , within our core and fund portfolios we acquired 22 properties aggregating $ 864.3 million as follows : ( i ) in our core portfolio we acquired nine consolidated properties with an aggregate purchase price of $ 519.6 million and two unconsolidated properties with an aggregate purchase price of $ 107.4 million ( note 4 ) and ( ii ) in fund iv we acquired 11 consolidated properties with an aggregate purchase price of $ 237.3 million ( note 2 ) . capital commitments during 2016 , we made capital contributions of $ 58.4 million to the funds in connection with acquisitions and development costs . capital contributed will be used by the funds to acquire and operate real estate assets .

we continue to believe that an active acquisition program supports our long-term strategic goals and we intend to look to acquisitions to strengthen our competitive position , expand our customer base and augment our considerable research and development programs . through such efforts we aim to accelerate innovation , improve earnings and increase overall stockholder value . critical accounting policies and estimates the following discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in conformity with accounting principles generally accepted in the united states . our preparation of these consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets and liabilities , 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 . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . as a result , actual results may differ from such estimates . our senior management has reviewed these critical accounting policies and related disclosures with the audit committee of our board of directors . the following summarizes our critical accounting policies and significant estimates used in preparing our consolidated financial statements : revenue recognition . we recognize revenue upon shipment of products when title and risk of loss passes , and when terms are fixed and collection is probable . in cases where product installation services are essential to the functionality of the equipment , we defer the portion of revenue for the sale attributable to installation until we have completed the installation . when terms of sale include subjective customer acceptance criteria , we defer revenue until we have achieved the acceptance criteria . concurrent with the shipment of a product , we accrue estimated product return reserves and warranty expenses . critical judgments made by management related to revenue recognition include the determination of whether or not customer acceptance criteria are perfunctory or inconsequential . the determination of whether or not the customer acceptance terms are perfunctory or inconsequential impacts the amount and timing of the revenue that we recognize . critical judgments also include estimates of warranty reserves , which are established based on historical experience and knowledge of the product . we recognize revenues from separate service maintenance contracts ratably over the term of the contracts . for services that are not derived from specific maintenance contracts , we recognize service revenues as we perform the services . deferred revenue for such services arises from payments received from customers for services not yet performed . we record billed shipping and handling fees as revenue and the associated costs as cost of goods sold . on occasion , we receive advances from customers that are amortized against future customer payments pursuant to the underlying agreements . such advances are classified in the consolidated balance sheets as either a current or long-term liability dependent upon when we estimate the corresponding amortization to occur . allowance for doubtful accounts . the allowance for doubtful accounts involves estimates based on management 's judgment , review of individual receivables and analysis of historical bad debts . we monitor collections and payments from our customers and we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we also assess current economic trends that might impact the level of credit losses in the future . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances could be required . inventory . inventory is stated at the lower of cost or market . cost is determined on the first-in , first-out method . we write down inventory for slow-moving and obsolete inventory based on assessments of future demands , market conditions and customers who may be experiencing financial difficulties . if these factors were to become less favorable than those projected , additional inventory write-downs could be required . 40 property and equipment . property and equipment are stated at cost less accumulated depreciation and amortization . depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets . amortization of leasehold improvements is calculated on the straight-line basis over the shorter of the useful life of the asset or the lease term . leased capital assets are included in property and equipment . amortization of property and equipment under capital leases is included with depreciation expense . income taxes . our annual tax rate is based on our income , statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate . tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities . significant judgment is required in determining our tax expense and in evaluating our tax positions including evaluating uncertainties . we review our tax positions quarterly and adjust the balances as new information becomes available . deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years . such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities , as well as from net operating loss and tax credit carryforwards . we evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources , including reversal of taxable temporary differences , forecasted operating earnings and available tax planning strategies . these sources of income inherently rely on estimates . to provide insight , we use our historical experience and our short and long-range business forecasts . story_separator_special_tag of this amount , $ 0.2 million was recorded within our healthcare division , $ 0.3 million was recorded within our security division , and $ 0.9 million was recorded within our corporate holding company segment . during fiscal 2011 , we incurred total restructuring and other charges of $ 3.4 million with $ 2.2 million related to headcount reductions and $ 1.2 million related to a debt restructuring charge from the early termination of a credit facility which was replaced with a new credit facility . fiscal 2011 compared with fiscal 2010. during fiscal 2011 , we incurred $ 3.4 million of restructuring and other charges , of which $ 2.2 million related to headcount reductions and $ 1.2 million related to a debt restructuring charge from the early termination of a credit facility , which we replaced with a new credit facility . see note 6 to the consolidated financial statements for further discussion . of this $ 3.4 million of restructuring costs , $ 1.5 million was recorded within our healthcare division , $ 0.6 million was recorded within our security division , and 45 $ 1.3 million was recorded within our corporate holding company segment . during fiscal 2010 , we incurred total restructuring and other charges of $ 2.9 million related to headcount reductions , costs associated with the closure of certain facilities and a non-recurring litigation charge . interest expense and other income , net replace_table_token_10_th fiscal 2012 compared with fiscal 2011. in fiscal 2012 , the $ 2.9 million increase in interest expense and other income , net was primarily due to higher utilization of the letters-of-credit facility and a loss related to the performance of a foreign currency forward contract , which was not treated as a cash flow hedge , partially offset by lower levels of outstanding debt during fiscal 2012. fiscal 2011 compared with fiscal 2010. in fiscal 2011 , a $ 0.7 million reduction in interest expense and other income , net , resulted from reduced average debt levels outstanding and a reduction in the liability for contingent acquisition consideration that was recorded as other income during the year . provision for income taxes the effective tax rate for a particular period varies depending on a number of factors including ( i ) the mix of income earned in various tax jurisdictions , each of which applies a unique range of income tax rates and income tax credits , ( ii ) changes in previously established valuation allowances for deferred tax assets ( changes are based upon our current analysis of the likelihood that these deferred tax assets will be realized ) , ( iii ) the level of non-deductible expenses and ( iv ) tax holidays granted to certain of our international subsidiaries . fiscal 2012 compared with fiscal 2011. in fiscal 2012 , our income tax expense was $ 16.4 million , compared to an income tax expense of $ 13.3 million for fiscal 2011. the effective income tax rate for fiscal 2012 decreased to 26.5 % , from 28.5 % for fiscal 2011. in fiscal 2012 , the effective tax rate was reduced by 2.3 % from the one-time utilization of a tax loss carry-forward that had previously been offset by a valuation allowance . fiscal 2011 compared with fiscal 2010. in fiscal 2011 , our income tax expense was $ 13.3 million , compared to an income tax expense of $ 11.4 million for fiscal 2010. the effective income tax rate for fiscal 2011 decreased to 28.5 % , from 32.7 % for fiscal 2010. the largest driver of this 4.2 % decrease in our income tax rate is the jurisdictions where taxable income was recognized . in fiscal 2011 , a higher percentage of income was recognized in foreign jurisdictions with low tax rates and where we benefit from special tax exemptions . story_separator_special_tag increase in cash used for the acquisition of intangible and other assets . cash provided by ( used in ) financing activities the changes in cash flows from financing activities primarily relate to ( i ) borrowings and payments under debt obligations ; ( ii ) the issuance of and or repurchase of common stock and ( iii ) employee stock plan activities . fiscal 2012 compared with fiscal 2011. net cash used in financing activities was $ 1.7 million in fiscal 2012 , compared to $ 15.9 million used in fiscal 2011. in fiscal 2012 we used $ 6.4 million in cash to repurchase shares of our common stock under our stock repurchase program and settle tax obligations arising out of our stock plans as compared to $ 2.2 million to repurchase treasury shares during fiscal 2011. these payments were partially offset by the receipt of $ 4.9 million in proceeds from the exercise of stock options and the purchase of stock under our employee stock purchase plan in fiscal 2012 , compared to $ 19.6 million in fiscal 2011. fiscal 2011 compared with fiscal 2010. net cash used in financing activities was $ 15.9 million in fiscal 2011 , compared to net cash of $ 3.0 million used in fiscal 2010. in fiscal 2011 , we repaid a $ 32.6 million term loan that was outstanding under our former credit facility as well as a capital lease obligation of $ 0.7 million , as 48 compared to fiscal 2010 when we paid down $ 12.0 million of scheduled debt and capital leases and reduced our bank lines of credit by $ 4.0 million . these payments were partially offset by the receipt of $ 19.6 million in proceeds from the exercise of stock options and the purchase of stock under our employee stock purchase plan in fiscal 2011 , compared to $ 13.0 million in fiscal 2010. in addition , in fiscal 2011 we used $ 2.2 million in cash to repurchase 58,396 shares of our common stock under our common stock repurchase program , but did not

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liquidity and capital resources over the past several years we have financed our business primarily through cash flow from operations and by utilizing our credit facilities . cash and cash equivalents totaled $ 91.5 million at june 30 , 2012 , an increase of $ 35.9 million , or 65 % , from $ 55.6 million at june 30 , 2011. in fiscal 2013 significant capital spending is expected to be incurred in preparation for a large turnkey security screening solution agreement . such spending is expected 46 to be funded by existing cash balances , cash flow from operations or our existing credit facility . the changes in our working capital and cash and cash equivalent balances are described below . replace_table_token_11_th working capital fiscal 2012 compared with fiscal 2011. working capital increased by $ 78.2 million , or 32 % , during fiscal 2012 primarily due to : ( i ) a $ 100.0 million customer advance , partially offset by a $ 50.9 million use of cash for capital expenditures , both related to a large turnkey screening solutions customer ; ( ii ) a $ 25.5 million increase in inventory , mainly in our security division , to support future order fulfillment ; ( iii ) a $ 20.2 million increase in accounts receivable driven in part by our 21 % revenue growth , and ( iv ) a $ 10.0 million decrease in accounts payable due to timing of payments . these increases to working capital were partially offset by : ( i ) a $ 5.8 million decrease in prepaid expenses and other current assets ; ( ii ) a $ 4.6 million increase in other accrued expenses and other current liabilities ; ( iii ) a $ 4.2 million increase in deferred revenue , and ( iv ) a $ 3.0 million increase in accrued warranties .

the hercules loan agreement was amended in august 2016 to , among other things , extend the period during which we could have drawn the additional tranche of $ 8.5 million to march 31 , 2017 and extended the period during which we make interest-only payments until january 31 , 2017. the hercules loan agreement was further amended in may 2017 to extend the period during which we could have drawn the additional tranche of $ 8.5 million to january 31 , 2018. the period during which the additional tranche of $ 8.5 million may be drawn has expired and therefore the $ 8.5 million can no longer be drawn by us . 103 on february 1 , 2017 , we began making principal payments with respect to the hercules loan agreement . the final payment under the hercules loan agreement was made on december 1 , 2018 and we had no outstanding borrowings under the hercules loan agreement as of december 31 , 2018. in january 2016 , we closed an underwritten public offering of 5,511,812 shares of common stock at a public offering price of $ 6.35 per share . in february 2016 , the underwriters of the public offering of common stock exercised in full their option to purchase an additional 826,771 shares of common stock at the public offering price of $ 6.35 per share , less underwriting discounts and commissions . a total of 6,338,583 shares of common stock were sold in the public offering , resulting in total net proceeds of approximately $ 37.5 million . in august 2017 , we completed an underwritten public offering of 5,333,334 shares of common stock at a public offering price of $ 3.75 per share . proceeds from our august 2017 public offering , net of underwriting discounts , commissions and other offering costs , were approximately $ 18.5 million . we have not generated any revenue and have never been profitable for any year . our net loss was $ 19.8 million , $ 28.3 million and $ 28.7 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . we expect to incur increased expenses and increasing operating losses for the foreseeable future as we seek the approval of our nda for twirla , which include conducting the wear study of twirla and xulane suggested by the fda and preparing for an anticipated advisory committee meeting , complete the qualification and validation of our commercial manufacturing process , initiate pre-launch commercial activities , commercially launch twirla , if approved , advance our other potential product candidates and expand our research and development programs . substantially all of our resources are currently dedicated to developing and seeking regulatory approval for twirla . going concern we believe that our cash and cash equivalents as of december 31 , 2018 along with the proceeds from our private placement completed in march 2019 , will be sufficient to meet our projected operating requirements into the fourth quarter of 2019. we will require additional capital to fund our operating needs for the remainder of the fourth quarter of 2019 and beyond including , among other items , the resumption and completion of our commercial plan for twirla , which primarily includes the validation of our commercial manufacturing process and the commercial launch of twirla , if approved , and advancing the development of our other potential product candidates . pursuant to the receipt of the 2017 crl , and the delay in the approval timeline for twirla , our ability to continue operations for the remainder of the fourth quarter of 2019 and beyond will depend on our ability to obtain additional funding , as to which no assurances can be given . based upon the foregoing , management has concluded that there is substantial doubt about our ability to continue as a going concern . there can be no assurance that any financing by us can be realized , or if realized , what the terms of any such financing may be , or that any amount that we are able to raise will be adequate . as of december 31 , 2018 , we had cash and cash equivalents of $ 7.8 million . in march 2019 , we completed a private placement of approximately 8.4 million shares of our common stock resulting in gross proceeds of approximately $ 7.8 million . our future success depends on our ability to raise additional capital and or implement various strategic alternatives . we continue to analyze strategic and financing alternatives , potential asset sales as well as mergers and acquisitions . we can not be certain that these initiatives or raising additional capital , whether through selling additional debt or equity securities or obtaining a line of credit or other loan , will be available to us or , if available , will be on terms acceptable to us . if we issue additional securities to raise funds , whether through the issuance of equity or convertible debt securities , or any combination thereof , these securities may have rights , preferences , or privileges senior to those of our common stock , and our current stockholders will experience dilution . debt 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 104 expenditures or declaring dividends . if we raise additional funds through collaborations , strategic alliances or licensing arrangements with pharmaceutical partners , we may have to relinquish valuable rights to our technologies , future revenue streams , research programs or product candidates , including twirla , or grant licenses on terms that may not be favorable to us . story_separator_special_tag costs related to the qualification , validation and manufacture of twirla will be recorded as research and development expenses until we receive approval of our nda for twirla ; a decrease in clinical development expenses of $ 1.1 million for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017. this decrease primarily relates to the completion of the close-out activities associated with our secure clinical trial during 2017. there were no external costs related to the secure clinical trial incurred during the year ended december 31 , 2018 ; and a decrease in regulatory expenses of $ 0.8 million for the year ended december 31 , 2017 as compared to the year ended december 31 , 2018. this decrease primarily relates to reduction of regulatory activity during the year ended december 31 , 2018 as compared the year ended december 31 , 2017. regulatory expenses for the year ended december 31 , 2017 included external costs associated with the preparation of our nda resubmission and response to the fda 's crl received by us in february 2013. general and administrative expenses . general and administrative expenses decreased by 3.7 million , or 29 % , from $ 12.4 million for the year ended december 31 , 2017 to $ 8.7 million for the year ended december 31 , 2018. this decrease in general and administrative expense was primarily due to the following : a decrease in commercial development expense of $ 3.2 million for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017. this decrease relates to the suspension 110 of our pre-commercialization activities such as brand building , advocacy and consulting as a result of the receipt of the 2017 crl ; a decrease in professional fees expense of $ 0.8 million for the year ended december 31 , 2018 compared to the year ended december 31 , 2017. this decrease is primarily the result of a reduction in the use of consultants and lower legal and patent-related costs ; and an increase in personnel costs of $ 0.7 million for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , which partially offsets the decreases discussed above . this increase relates to the addition of personnel during the second half of 2017 to help prepare for launch of twirla , if approved . restructuring costs . in june 2018 , we announced a reduction in our workforce , which resulted in the termination of several employees primarily from our commercial and clinical teams , representing approximately thirty percent of our employees . this workforce reduction , along with other reductions in planned operating expenses was designed to preserve cash while we pursued formal dispute resolution with the fda for twirla and as we determine the regulatory path forward for the resubmission of our nda for twirla . in addition , in june 2018 , we also announced that we had adopted a retention plan to provide ( i ) cash retention payments to be made to all remaining employees in order to induce such employees to remain employed by us through december 31 , 2018 and ( ii ) stock option grants to all remaining employees in order to induce such employees to remain employed by us through december 31 , 2019. restructuring costs of $ 1.0 million for the year ended december 31 , 2018 represent $ 0.4 million of severance-related costs and $ 0.6 million of costs related to the accrual of the retention bonus . interest income . interest income comprises interest income earned on cash and cash equivalents . interest expense . interest expense is primarily attributable to our term loan with hercules for the years ended december 31 , 2018 and 2017. interest expense also includes the amortization of the discount associated with allocating value to the common stock warrants issued to hercules , the amortization of the deferred financing costs associated with the term loan and the accrual of the final payment due to hercules . interest expense decreased by $ 0.8 million , or 42 % from $ 1.9 million for the year ended december 31 , 2017 to $ 1.1 million for the year ended december 31 , 2018. this decrease is primarily the result of a decrease in the principal outstanding under our term loan with hercules for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017. the term loan with hercules was paid off on december 1 , 2018 and accordingly , we expect no interest expense with respect to the hercules loan in 2019. change in fair value of warrants . certain of our warrants to purchase shares of our common stock are recorded at fair value and are subject to re-measurement at each balance sheet date . these liabilities are re-measured at each balance sheet date with the corresponding charge to earnings recorded within change in fair value of warrant liability . the fair value of the common stock warrants with non-standard anti-dilution provisions are determined using the black-scholes option pricing model which incorporates a number of assumptions and judgments to estimate the fair value of these warrants including the fair value per share of the underlying stock , the remaining contractual term of the warrants , risk-free interest rate , expected dividend yield , credit spread and expected volatility of the price of the underlying stock . during the year ended december 31 , 2018 , we reported income of $ 29 thousand related to the decrease in the fair value of the warrants as compared to income of $ 143 thousand for the year ended december 31 , 2017. benefit from income taxes . for the year ended december 31 , 2018 , we received $ 0.5 million from the sale of new jersey state net operating loss carryovers , or nols ,

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liquidity and capital resources on may 29 , 2014 , we completed our initial public offering whereby we sold 9,166,667 shares of common stock , at a public offering price of $ 6.00 per share , before underwriting discounts and expenses . the aggregate net proceeds received by us from the offering were $ 49.7 million . in january 2015 , we completed a private placement of approximately 3.4 million shares of common stock at $ 5.85 per share . proceeds from our private placement , net of commissions and other offering costs , were $ 19.3 million . in february 2015 , we entered into a loan and security agreement with hercules technology growth capital , inc. or hercules , for a term loan of up to $ 25.0 million . a first tranche of $ 16.5 million was funded upon execution of the loan agreement , approximately $ 15.5 million of which was used to repay our existing term loan . the hercules loan agreement was amended in august 2016 to , among other things , extend the period during which we can draw the second tranche of $ 8.5 million to march 31 , 2017 and extend the period during which we make interest-only payments to january 31 , 2017. the hercules loan agreement was further amended in may 2017 to extend the period during which we could have drawn the additional tranche of $ 8.5 million to january 31 , 2018. the period during which the additional tranche of $ 8.5 million may be drawn has expired and therefore the $ 8.5 million can no longer be drawn by us . on february 1 , 2017 , we began making principal payments with respect to the hercules loan . our debt under the hercules loan agreement was fully paid off on december 1 , 2018. in january 2016 , we closed an underwritten public offering of 5,511,812 shares of common stock at a public offering price of $ 6.35 per share .

we are analyzing the data set from this trial and will determine the next steps in our program following completion of this analysis . we are also pursuing clinical development of lumateperone for the treatment of additional cns diseases and disorders . at the lowest doses , lumateperone has been demonstrated to act primarily as a potent 5-ht2a serotonin receptor antagonist . as the dose is increased , additional benefits are derived from the engagement of additional drug targets , including modest dopamine receptor modulation and modest inhibition of serotonin transporters . we believe that combined interactions at these receptors may provide additional benefits above and beyond selective 5-ht2a antagonism for treating agitation , aggression and sleep disturbances in diseases that include dementia , ad , huntington 's disease and autism spectrum disorders , while avoiding many of the side effects associated with more robust dopamine receptor antagonism . as the dose of lumateperone is further increased , leading to moderate dopamine receptor modulation , inhibition of serotonin transporters , and indirect glutamate modulation , these actions complement the complete blockade of 5-ht2a serotonin receptors . at a dose of 60 mg , iti-007 has been shown effective in treating the symptoms associated with schizophrenia , and we believe this higher dose range will be useful for the treatment of bipolar disorder , depressive disorders and other neuropsychiatric diseases . within the iti-007 portfolio , we are also developing a long-acting injectable formulation to provide more treatment options to patients suffering from mental illness . given the encouraging tolerability data to date with oral lumateperone , we believe that a long-acting injectable option , in particular , may lend itself to being an important formulation choice for patients . given the potential utility for lumateperone and follow-on compounds to treat these additional indications , we may investigate , either on our own or with a partner , agitation , aggression and sleep disturbances in additional diseases that include autism spectrum disorders , depressive disorder , intermittent explosive disorder , non-motor symptoms and motor complications associated with parkinson 's disease , and post-traumatic stress disorder . we hold exclusive , worldwide commercialization rights to lumateperone and a family of compounds from bristol-myers squibb company pursuant to an exclusive license . we have a second major program called iti-002 that has yielded a portfolio of compounds that selectively inhibits the enzyme phosphodiesterase type 1 , or pde1 . iti-214 is our lead compound in this program . we believe iti-214 is the first compound in its class to successfully advance into phase 1 clinical trials . we intend to pursue the development of our pde program , including iti-214 for the treatment of several cns and non-cns conditions , including cardiovascular disease . following the positive safety and tolerability results in our phase 1 program , we initiated our development program for iti-214 for parkinson 's disease and commenced patient enrollment in the third quarter of 2017 in a phase 1/2 clinical trial of iti-214 in patients with parkinson 's disease to evaluate safety and tolerability in this patient population , as well as motor and non-motor exploratory endpoints . in the fourth quarter of 2018 , we announced that the phase 1/2 clinical trial of iti-214 has been completed and topline results demonstrated iti-214 was generally well-tolerated with a favorable safety profile and clinical signs consistent with improvements in motor symptoms and dyskinesias . in addition , in the first quarter of 2018 , the investigational new drug application , or ind , went into effect for iti-214 for the treatment of heart failure . we have initiated clinical conduct of the first clinical study in this program , a randomized , double-blind , placebo-controlled study of escalating single doses of iti-214 to evaluate safety and hemodynamic effects in patients with systolic heart failure . our pipeline also includes preclinical programs that are focused on advancing drugs for the treatment of schizophrenia , parkinson 's disease , ad and other neuropsychiatric and neurodegenerative disorders . we are also investigating the development of treatments for disease modification of neurodegenerative disorders and non-cns diseases , including our iti-333 development program . iti-333 is designed as a potential treatment for 65 substance use disorders , pain and psychiatric comorbidities including depression and anxiety . there is a pressing need to develop new drugs to treat opioid addiction and safe , effective , non-addictive treatments to manage pain . we believe the potential exists for iti-333 to address these challenges . preclinical safety studies with iti-333 are currently ongoing and we expect to initiate a clinical program in 2019. results of operations the following discussion summarizes the key factors our management believes are necessary for an understanding of our financial statements . revenues we have not generated any revenue from product sales to date and we do not expect to generate revenues from product sales until at least the fourth quarter of 2019 , if ever . we had no revenues for the year ended december 31 , 2018 , and our revenues for the year ended december 31 , 2017 were from a government grant . we have received and may continue to receive grants from u.s. government agencies and foundations . we do not expect any revenues that we may generate in the next several years to be significant enough to fund our operations . expenses the process of researching and developing drugs for human use is lengthy , unpredictable and subject to many risks . we are unable with certainty to estimate either the costs or the timelines in which those costs will be incurred . the clinical development of lumateperone for the treatment of schizophrenia and for the treatment of bipolar depression consumes and , together with our anticipated clinical development programs for depressive disorders and iti-214 , will continue to consume a large portion of our current , as well as projected , resources . story_separator_special_tag 70 general and administrative expenses general and administrative expenses decreased for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 by approximately $ 1.1 million , or 4.4 % , primarily due to a decrease of approximately $ 1.5 million of marketing and consulting costs in 2017 compared to 2016 , offset by higher capital tax expense in 2017. salaries , bonuses , share based compensation and related benefit costs for our executive , finance and administrative functions for the years ended december 31 , 2017 and 2016 were approximately 62 % and 61 % , respectively , of our total general and administrative costs . our other general and administrative expenses include patent costs and other professional fees and , to a lesser extent , general office-related overhead . interest income interest income has increased to approximately $ 4.0 million from $ 2.9 million for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016. this increase is primarily a result of higher than average cash balances and rising interest rates in 2017 as compared to 2016. the higher balances in 2017 were primarily due to the net offering proceeds of $ 162.1 million that we received in october 2017 and is offset partially by the $ 80.5 million of cash and investments utilized in 2017. income taxes in september 2016 , we licensed certain intellectual property rights to its wholly-owned subsidiary , iti limited , which was formed in the third quarter of 2016. although the license of intellectual property rights did not result in any gain or loss in the consolidated statements of operations , the transaction generated taxable net income in the u.s in 2016. we utilized a portion of our available federal and state net operating loss carryforwards to offset the majority of this net income but incurred approximately $ 1.1 million of alternative minimum tax related to intercompany transactions that were treated as tax expense in our consolidated statement of operations in 2016. in december 2017 the tax cuts and jobs act law was passed which will allow the company to receive a refund in future periods for these taxes paid . the company therefore recognized a benefit of approximately $ 1.1 million for these taxes in december 2017. story_separator_special_tag warrants , rights , purchase contracts and or units from time to time and at prices and on terms that we may determine . after the public offering in october 2017 , approximately $ 178 million of securities remain available for issuance under this shelf registration statement . this registration statement will remain in effect for up to three years from the date it was declared effective . we can not be sure that future funding will be available to us when we need it on terms that are acceptable to us , or at all . we sell securities and incur debt when the terms of such transactions are deemed favorable to us and as necessary to fund our current and projected cash needs . the amount of funding we raise through sales of our common stock or other securities depends on many factors , including , but not limited to , the status and progress of our product development programs , projected cash needs , availability of funding from other sources , our stock price and the status of the capital markets . due to the volatile nature of the financial markets , equity and debt financing may be difficult to obtain . in addition , any unfavorable development or delay in the progress of our lumateperone program could have a material adverse impact on our ability to raise additional capital . to the extent that we raise additional capital through the sale of equity or convertible debt securities , the ownership interest of our existing stockholders will be diluted , and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders . debt financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , such as incurring debt , making capital expenditures or declaring dividends . if we raise additional funds through government or other third-party funding , marketing and distribution arrangements or other 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 to grant licenses on terms that may not be favorable to us . if adequate funds are not available to us on a timely basis , we may be required to : ( 1 ) delay , limit , reduce or terminate pre-clinical studies , clinical trials or other clinical development activities for one or more of our product candidates , including our lead product candidate lumateperone , iti-214 , and our other pre-clinical stage product candidates ; ( 2 ) delay , limit , reduce or terminate our discovery research or pre-clinical development activities ; or ( 3 ) enter into licenses or other arrangements with third parties on terms that may be unfavorable to us or sell , license or relinquish rights to develop or commercialize our product candidates , technologies or intellectual property at an earlier stage of development and on less favorable terms than we would otherwise agree . our cash is maintained in checking accounts , money market accounts , money market mutual funds , u.s. government agency securities , certificates of deposit , commercial paper , corporate notes and corporate bonds at major financial institutions . due to the current low interest rates available for these instruments , we are earning limited interest income . we do not expect interest income to be a significant source of funding over the next several quarters . our investment portfolio has not been adversely impacted by the problems in the credit

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liquidity and capital resources through december 31 , 2018 , we provided funds for our operations by obtaining approximately $ 880.3 million of cash primarily through public and private offerings of our common stock and other securities , grants from government agencies and foundations and payments received under the terminated takeda license agreement . we do not believe that grant revenue will be a significant source of funding in the near future . on october 2 , 2017 , we completed a public offering of 9,677,419 shares of our common stock for aggregate gross proceeds of approximately $ 150 million and net proceeds of approximately $ 140.6 million . on october 5 , 2017 , the underwriters exercised in full their option to purchase an additional 1,451,613 shares . all of the shares in the offering were sold by the company , with gross proceeds to the company of approximately $ 172 million from the offering of an aggregate of 11,129,032 shares and net proceeds of approximately $ 162 million , after deducting underwriting discounts , commissions and estimated offering expenses . as of december 31 , 2018 , we had a total of approximately $ 347.5 million in cash and cash equivalents and available-for-sale investment securities , and approximately $ 36.3 million of short-term liabilities consisting entirely of liabilities from operations . in the year ended december 31 , 2018 , we spent approximately $ 125.7 million in cash for operations and equipment , not including $ 7.1 million of interest income . we reduced working capital by approximately $ 135.9 million for the year ended december 31 , 2018. this use of cash was primarily for conducting clinical trials and non-clinical testing , including manufacturing related activities and funding recurring operating expenses . 71 for the year 2019 , subject to the timing of nda approval , clinical trial conduct , regulatory activities , precommercial , manufacturing , and other development activities , we expect to spend between $ 225 million and $ 240 million .

in addition , the growth in our fee-generating aum during the last year has primarily been in our credit segment . the average management fee rate for these new credit products is at market rates for such products and in certain cases is below our historical rates . also , due to the complexity of these new product offerings , the company has incurred and will continue to incur additional costs associated with managing these products . to date , these additional costs have been offset by realized economies of scale and ongoing cost management . as of december 31 , 2013 , approximately 96 % of our total aum was in funds with a contractual life at inception of seven years or more , and 7 % of our total aum was in permanent capital vehicles with unlimited duration . as of december 31 , 2013 , we had total aum of $ 161.2 billion across all of our businesses . on december 31 , 2013 , apollo investment fund viii , l.p. ( `` fund viii `` ) held a final closing raising a total of $ 17.5 billion in third-party capital and approximately $ 880 million of additional capital from apollo and affiliated investors , and as of december 31 , 2013 , fund viii had $ 18.2 billion of uncalled commitments , or `` dry powder , `` remaining . additionally , fund vii held a final closing in december 2008 , raising a total of $ 14.7 billion , and as of december 31 , 2013 , fund vii had $ 3.4 billion of uncalled commitments remaining . we have consistently produced attractive long-term investment returns in our private equity funds , generating a 39 % gross irr and a 26 % net irr on a compound annual basis from inception through december 31 , 2013 . for further detail related to fund performance metrics across all of our businesses , see “ —the historical investment performance of our funds . ” - 63 - 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 30.21 % of the class a shares outstanding and 11.91 % of the economic interests in the apollo operating group . the class a shares held by investors other than the strategic investors represent 31.23 % of the total voting power of our shares entitled to vote and 27.51 % 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 68.77 % 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 53.42 % 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 60.58 % of the limited partner interests in each apollo operating group entity . the aog units held by holdings are exchangeable for class a shares . our managing partners , through their interests in brh and holdings , beneficially own 53.42 % of the aog units . our contributing partners , through their ownership interests in holdings , beneficially own 7.16 % of the aog units . ( 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 39.42 % 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 . - 64 - 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 . fluctuations in equity prices , which may be volatile , can significantly impact the valuation of our funds ' portfolio companies and related income we may recognize . story_separator_special_tag we believe that eni is helpful for an understanding of our business and that investors should review the same supplemental financial measure that management uses to analyze our segment performance . this measure supplements and should be considered in addition to and not in lieu of the results of operations discussed below in “ —overview of results of operations ” that have been prepared in accordance with u.s. gaap . the following summarizes the adjustments to eni that reconcile eni to the net income ( loss ) attributable to apollo global management , llc determined in accordance with u.s. gaap : inclusion of the impact of rsus granted in connection with the 2007 private placement and non-cash equity-based compensation expense comprising amortization of aog units . management assesses our performance based on management fees , advisory and transaction fees , and carried interest income generated by the business and excludes the impact of non-cash charges related to rsus granted in connection with the 2007 private placement and amortization of aog units because these non-cash charges are not viewed as part of our core operations . the aog units were fully amortized as of june , 2013. inclusion of the impact of income taxes as we do not take income taxes into consideration when evaluating the performance of our segments or when determining compensation for our employees . additionally , income taxes at the segment level ( which exclude apo corp. 's corporate taxes ) are not meaningful , as the majority of the entities included in our segments operate as partnerships and therefore are only subject to new york city unincorporated business taxes and foreign taxes when applicable . inclusion of amortization of intangible assets associated with the 2007 reorganization and subsequent acquisitions as these non-cash charges are not viewed as part of our core operations . carried interest income , management fees and other revenues from apollo funds are reflected on an unconsolidated basis . as such , eni excludes the non-controlling interests in consolidated funds , which remain consolidated in our consolidated financial statements . management views the business as an alternative investment management firm and therefore assesses performance using the combined total of carried interest income and management fees from each of our funds . one exception is the non-controlling interest related to certain individuals who receive an allocation of income from certain of our credit management companies , which is deducted from eni to better reflect the performance attributable to shareholders . eni may not be comparable to similarly titled measures used by other companies and is not a measure of performance calculated in accordance with u.s. gaap . we use eni as a measure of operating performance , not as a measure of liquidity . eni - 69 - should not be considered in isolation or as a substitute for operating income , net income , operating cash flows , investing and financing activities , or other income or cash flow statement data prepared in accordance with u.s. gaap . the use of eni without consideration of related u.s. gaap measures is not adequate due to the adjustments described above . management compensates for these limitations by using eni as a supplemental measure to u.s. gaap results , to provide a more complete understanding of our performance as management measures it . a reconciliation of eni to our u.s. gaap net income ( loss ) attributable to apollo global management , llc can be found in the notes to our consolidated financial statements . operating metrics we monitor certain operating metrics that are common to the alternative investment management industry . these operating metrics include assets under management , private equity dollars invested and uncalled private equity commitments . assets under management assets under management , or aum , refers to the investments we manage or with respect to which we have control , including capital we have the right to call from our investors pursuant to their capital commitments to various funds . our aum equals the sum of : ( i ) the fair value of our private equity investments plus the capital that we are entitled to call from our investors pursuant to the terms of their capital commitments ; ( ii ) the nav , of our credit funds , other than certain clos and cdos , which have a fee generating basis other than the mark-to-market value of the underlying assets , plus used or available leverage and or capital commitments ; ( iii ) the gross asset value or net asset value of our real estate entities and the structured portfolio company investments included within the funds we manage , which includes the leverage used by such structured portfolio companies ; ( iv ) the incremental value associated with the reinsurance investments of the portfolio company assets we manage ; and ( v ) the fair value of any other investments that we manage plus unused credit facilities , including capital commitments for investments that may require pre-qualification before investment plus any other capital commitments available for investment that are not otherwise included in the clauses above . our aum measure includes assets under management for which we charge either no or nominal fees . our definition of aum is not based on any definition of assets under management contained in our operating agreement or in any of our apollo fund management agreements . we consider multiple factors for determining what should be included in our definition of aum . such factors include but are not limited to ( 1 ) our ability to influence the investment decisions for existing and available assets ; ( 2 ) our ability to generate income from the underlying assets in our funds ; and ( 3 ) the aum measures that we believe are used by other investment managers . given the differences in the investment strategies and structures among other alternative investment managers , our calculation of aum may differ from

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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 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 ; and distributing cash flow to investors . - 116 - 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_40_th ( 1 ) includes the effect of interest rate swaps . additionally the 2013 amh credit facilities provide for a $ 500 million revolving credit facility , which was undrawn as of december 31 , 2013. see note 14 of our consolidated financial statements for information regarding the company 's debt arrangements . we determine whether to make capital commitments to our funds in excess of our minimum required amounts based on a variety of factors , including estimates regarding our liquidity resources over the estimated time period during which commitments will have to be funded , estimates regarding the amounts of capital that may be appropriate for other funds that we are in the process of raising or are considering raising , and our general working capital requirements . cash flows significant amounts from our consolidated statements of cash flows for the years ended december 31 , 2013 , 2012 and 2011 are summarized and discussed within the table and corresponding commentary below : replace_table_token_41_th operating activities net cash provided by operating activities was $ 1,025.4

if production continues to outpace demand , we may continue to utilize temporary curtailments to manage inventory levels . 36 our ability to supply tons to our customers on a timely basis continues to be a fundamental element of our sales strategy . we utilize our geographic location , which is an advantage relative to other producers , as well as our strong distribution system , to effectively position product closer to our customers . the specific timing of when farmers apply potash remains highly weather dependent and varies across the numerous growing regions within the u.s. the timing of potash sales is significantly influenced by the marketing programs of potash producers , as well as storage volumes closer to the farm gate . the combination of these items results in variability in potash sales and shipments , thereby increasing volatility of sales volumes from quarter to quarter and season to season . trio ® prices and demand . sales volumes for trio ® decreased 19,000 tons for the year ended december 31 , 2015 , as compared to the same period in 2014. trio ® demand was also negatively impacted by the overall softness in the fertilizer market . our average net realized sales price for trio ® was $ 364 per ton in the year ended december , 31 2015 , an increase from $ 349 per ton in the year ended december 31 , 2014. we expect to see downward price pressure on the overall potassium markets in 2016 ; however , trio ® pricing has historically demonstrated more resiliency than the potash pricing due to trio ® 's unique nutrient make up and application to high-value crops . we continue to focus our efforts on maximizing our returns in the granular- and premium- domestic markets . strategic rationalization of assets . we are taking actions to expand our trio ® production through the transition of our east facility to a trio ® -only facility . this transition , which we expect will be complete in mid-2016 , will remove our highest-cost potash production from our portfolio and allow us to grow trio ® production . we expect the transition will allow us to replace east 's potash tons with trio ® tons over time . following the transition of east to a trio ® -only facility , west will be our only conventional potash mine and our highest cost production facility . we are performing a strategic review to determine the long term viability of this facility given the current and expected potash pricing environment . as we continue to rationalize assets , we expect to evaluate the underlying assumptions , including remaining asset lives , on the recoverability of our assets and these evaluations could result in accelerated depreciation or asset impairment charges in the future . in connection with our analysis of the recoverability of our long lived assets , due to the significant decrease in potash prices during the second half of 2015 , in the fourth quarter of 2015 , we recognized impairment charges of $ 324 million related to our east and west conventional mining facilities , and our north facility in new mexico due to the continued decline in potash prices noted during this period . costs associated with abnormal production . we routinely evaluate our production levels and costs to determine if any costs are associated with abnormal production , as described under generally accepted accounting principles . the assessment of normal production levels is judgmental and unique to each quarter . during the third quarter of 2015 , we received an order issued by the mine safety and health administration ( “ msha ” ) relating to maintenance issues and salt build-up in the ore hoisting shaft at our west mine . upon issuance of the order , we suspended production at the west mine for 15 days while we took corrective actions to resolve the issues . as a result , potash production from our west mine was abnormally low during this period . in addition , although production resumed in mid-september , we continued to perform incremental maintenance on the ore hoisting shaft through the remainder of 2015 , during which time production at the west mine was temporarily suspended . during 2015 , we temporarily suspended potash production at our east facility for a total of eleven days as we performed four separate plant tests relating to developing our plans to transition our east facility to trio ® -only production . as a result of the temporary suspensions of production , we determined that approximately $ 7.5 million and $ 2.9 million of production costs at our west and east facilities , respectively , would have been allocated to additional potash tons produced , assuming we had been operating at normal production rates . accordingly , these costs were excluded from our inventory values and instead directly expensed as period production costs . we compare actual production levels relative to what we estimated could have been produced if we had not incurred the temporary production suspensions and lower operating rates in order to determine the abnormal cost adjustment . we expect to perform additional testing in early 2016 at our east facility prior to its transition to a trio ® -only facility in mid-2016 . weather impact . our solar facilities experienced a below average evaporation season in 2014 , which negatively impacted 2015 production rates at all facilities . in addition , in 2015 , we experienced a below average evaporation season , and as a result , fewer potash crystals were formed in our evaporation ponds for harvesting during the harvest season that began in the fall of 2015 and will continue into early 2016. therefore , we expect lower production from these facilities in 2016 as compared to 2015 and are evaluating cost reduction opportunities at our solar facilities during the evaporative season . 37 cash conservation and covenant compliance . story_separator_special_tag as of december 31 , 2013 , our estimate of our blended state tax rate increased , resulting in an increase of the value of the deferred tax asset by net $ 0.9 million to reflect changes in business conditions in concert with changes in apportionment rules of the states in which we operate , and a decrease in the state tax rate for the state of new mexico . results of operations for the years ended december 31 , 2015 , and 2014 net sales net sales of potash decreased $ 104.5 million , or 34 % , from $ 303.7 million for the year ended december 31 , 2014 , to $ 199.2 million for the year ended december 31 , 2015 . this decrease was primarily the result of a 36 % decrease in sales volumes of potash at an essentially flat average net realized sales price . sales volumes in 2015 decreased over those realized in 2014 due primarily to lower demand and the decreased purchasing of potash as north american supply pressured sales prices , particularly in the second half of 2015. net sales of trio ® decreased from $ 63.5 million for the year ended december 31 , 2014 , to $ 59.3 million for the year ended december 31 , 2015 , due to a 10 % decrease in the volume of sales , partially offset by the average net realized sales price of trio ® increased $ 15 per ton . we continued to see solid demand for our trio ® product , particularly the granular-sized and premium-sized products ; however , the margin opportunity for standard-sized trio ® was pressured in 2015. as a result , we continue to focus on converting standard-sized product to premium-sized product for sale in the domestic market . cost of goods sold the following table presents our cost of goods sold for potash and trio ® for the subject periods : replace_table_token_15_th ( 1 ) depreciation and depletion expense for potash was $ 45.4 million and $ 63.0 million in 2015 and 2014 , respectively , which equates to $ 77 and $ 69 on a per-ton basis . ( 2 ) depreciation and depletion expense for trio ® was $ 9.5 million and $ 10.7 million in 2015 and 2014 , respectively , which equates to $ 58 and $ 59 on a per-ton basis . total cost of goods sold of potash , which includes royalties and depreciation , depletion and amortization , decreased as we experienced lower sales volumes in 2015 compared to 2014. our cash operating costs per ton for 2015 increased compared to 2014 , due to lower production at our east , west and wendover facilities , partially offset by increased production at our hb mine and costs associated with the start-up of our hb plant in 2014. as noted above , we recorded lower-of-cost-or-market inventory adjustments , and costs associated with abnormal production and other costs , during 2015 of $ 31.8 million and $ 10.4 million , respectively , which are excluded from our cost of goods sold . total cost of goods sold of trio ® decreased on lower sales volumes in 2015 as compared to 2014. production of langbeinite remained flat compared with 2014. in total , our cost of goods sold decreased $ 86.1 million , or 28 % , from $ 303.9 million in 2014 to $ 217.8 million in 2015 , as a result of fewer tons of potash sold in 2015 . as a percentage of sales , cost of goods sold increased as our per ton production costs increased resulting from increased contract labor costs , maintenance , and professional services during the year ended december 31 , 2015 . on a comparative basis , and within our production costs , depreciation and depletion increased $ 5.3 million , or 7.1 % , during 2015 primarily as a result of the accelerated depreciation of assets that will be taken out of service as a result of the transitioning of our east facility to trio ® -only . we expect this transition to be completed in mid-2016 . going forward , on a 44 year-over-year basis , we expect depreciation expense to decrease significantly as a result of the impairment charges recognized in the fourth quarter of 2015. lower-of-cost-or-market inventory adjustments during the years ended december 31 , 2015 and 2014 , we recorded charges of approximately $ 31.8 million and $ 8.2 million , respectively , as a result of routine assessments of the lower of weighted average cost or estimated net realizable value on our finished goods product inventory . the $ 31.8 million of lower-of-cost-or-market adjustments recorded during the year ended december 31 , 2015 , related to our potash inventories from our conventional facilities , and resulted from our higher production costs per ton and overall lower potash pricing . of the $ 8.2 million of lower-of-cost-or-market adjustments recorded during the year ended december 31 , 2014 , $ 4.0 million related to the start-up activities of our hb mine and $ 4.2 million related to inventory from our conventional facilities . costs associated with abnormal production and other as discussed above , because of the temporary suspensions of production during 2015 , we determined that approximately $ 7.5 million and $ 2.9 million of production costs at our west and east facilities , respectively , would have been allocated to additional tons produced , assuming we had been operating at normal production rates . accordingly , these costs were excluded from our inventory values and instead expensed in 2015 as period production costs . we compare actual production relative to what we estimated could have been produced if we had not incurred the temporary production suspensions and lower operating rates in order to determine the abnormal cost adjustment . selling and administrative expense selling and administrative expenses remained flat at $ 27.5 million in 2015 compared

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liquidity and capital resources as of december 31 , 2015 , we had cash , cash equivalents , and investments of $ 63.6 million . this amount was made up of the following : $ 9.1 million in cash ; $ 0.3 million in cash equivalent investments , consisting of money market accounts with banking institutions that we believe are financially sound ; and $ 50.5 million and $ 3.8 million invested in short and long-term investments , respectively . our operations have been and are expected to be primarily funded from cash on hand and cash generated by operations . we will continue to monitor our future sources and uses of cash and anticipate that we will make adjustments to our capital allocation strategies when , and if , determined by our board of directors . we also have the ability to borrow under 47 our unsecured credit facility , to the extent available and subject to the limitations described below under the heading “ unsecured credit facility. ” we may use our credit facility as a source of liquidity for operating activities and to give us additional flexibility to finance , among other things , our capital investments and possible repayments of debt . the following summarizes our cash flow activity for the years ended december 31 , 2015 , 2014 , and 2013 : replace_table_token_17_th operating activities total cash provided by operating activities for the year ended december 31 , 2015 , was $ 22.7 million , a decrease of $ 104.8 million compared with the year ended december 31 , 2014 . the primary driver of this decrease was lower sales volumes at a flat average net realized sales price for potash , as discussed previously , which resulted in a net loss . total cash provided by operating activities increased by $ 62.6 million in 2014 compared to 2013 . the primary driver of this increase was higher sales volumes at a lower average net realized sales price for potash which , together , resulted in lower net income .

however , these individuals will be reimbursed by us for any out-of-pocket expenses incurred in connection with activities on our behalf , story_separator_special_tag the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report . certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties . overview we are a blank check company incorporated as a delaware corporation and formed for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or similar business combination with one or more businesses . we have not selected any specific business combination target . we intend to effectuate our initial business combination using cash from the proceeds of the initial public offering and the private placements of the sponsor warrants , director warrants and forward purchase units , our capital stock , debt or a combination of cash , stock and debt . our initial business combination will be a negotiated transaction , not a hostile takeover . the issuance of additional shares of our stock in a business combination , including the forward purchase securities : may significantly dilute the equity interest of investors ; may subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded our common stock ; 49 could cause a change in control if a substantial number of shares of our common stock is issued , which may affect , among other things , our ability to use net operating loss carry forwards , if any , and could result in the resignation or removal of our present directors and officers ; may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us ; and may adversely affect prevailing market prices for our shares of class a common stock and or redeemable warrants . similarly , if we issue debt instruments or otherwise incur significant indebtedness , it could result in : default and foreclosure on our assets if our operating revenues after our initial business combination are insufficient to repay our debt obligations ; acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant ; our immediate payment of all principal and accrued interest , if any , if the debt security is payable on demand ; our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding ; our inability to pay dividends on our common stock ; using a substantial portion of our cash flow to pay principal and interest on our debt , which will reduce the funds available for dividends on our common stock if declared , our ability to pay expenses , make capital expenditures and acquisitions , and fund other general corporate purposes ; limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate ; increased vulnerability to adverse changes in general economic , industry and competitive conditions and adverse changes in government regulation ; limitations on our ability to borrow additional amounts for expenses , capital expenditures , acquisitions , debt service requirements , and execution of our strategy ; and other purposes and other disadvantages compared to our competitors who have less debt . we expect to continue to incur costs in the pursuit of our acquisition plans . we can not assure you that our plans to complete our initial business combination will be successful . results of operations all activities through december 31 , 2020 were related to the company 's organizational activities , preparation for the company 's initial public offering , and subsequently , identifying a target company for a business combination . we will not generate any operating revenues until after completion of our initial business combination . we generate non-operating income in the form of interest and dividends on cash and cash equivalents , and marketable securities held in the trust account . we incur ongoing expenses as a result of being a public company for legal , financial reporting , accounting and auditing compliance , as well as for due diligence expenses . for the period from may 4 , 2020 ( inception ) through december 31 , 2020 , we had a net loss of $ 1,430,298 , which consisted of legal , insurance , research , franchise tax and other expenses totaling $ 2,833,025 and a provision for income taxes of $ 289,155 , offset by interest and dividends earned on marketable securities held in the trust account and operating account of $ 1,509,419 , and an unrealized gains on marketable securities held in the trust account of $ 182,463. story_separator_special_tag events . accordingly , at december 31 , 2020 , 198,270,991 shares of class a common stock subject to possible redemption are presented at redemption value as temporary equity , outside of the stockholders ' equity section of the company 's balance sheet . net income / ( loss ) per common share we apply the two-class method of calculating earnings per share . common stock subject to possible redemption which is not currently redeemable and is not redeemable at fair value , have been excluded from the calculation of basic income / ( loss ) per common share since such shares , if redeemed , only participate in their pro-rata share of the trust account earnings . our net income / ( loss ) is adjusted for the portion of story_separator_special_tag however , these individuals will be reimbursed by us for any out-of-pocket expenses incurred in connection with activities on our behalf , story_separator_special_tag the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report . certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties . overview we are a blank check company incorporated as a delaware corporation and formed for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or similar business combination with one or more businesses . we have not selected any specific business combination target . we intend to effectuate our initial business combination using cash from the proceeds of the initial public offering and the private placements of the sponsor warrants , director warrants and forward purchase units , our capital stock , debt or a combination of cash , stock and debt . our initial business combination will be a negotiated transaction , not a hostile takeover . the issuance of additional shares of our stock in a business combination , including the forward purchase securities : may significantly dilute the equity interest of investors ; may subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded our common stock ; 49 could cause a change in control if a substantial number of shares of our common stock is issued , which may affect , among other things , our ability to use net operating loss carry forwards , if any , and could result in the resignation or removal of our present directors and officers ; may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us ; and may adversely affect prevailing market prices for our shares of class a common stock and or redeemable warrants . similarly , if we issue debt instruments or otherwise incur significant indebtedness , it could result in : default and foreclosure on our assets if our operating revenues after our initial business combination are insufficient to repay our debt obligations ; acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant ; our immediate payment of all principal and accrued interest , if any , if the debt security is payable on demand ; our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding ; our inability to pay dividends on our common stock ; using a substantial portion of our cash flow to pay principal and interest on our debt , which will reduce the funds available for dividends on our common stock if declared , our ability to pay expenses , make capital expenditures and acquisitions , and fund other general corporate purposes ; limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate ; increased vulnerability to adverse changes in general economic , industry and competitive conditions and adverse changes in government regulation ; limitations on our ability to borrow additional amounts for expenses , capital expenditures , acquisitions , debt service requirements , and execution of our strategy ; and other purposes and other disadvantages compared to our competitors who have less debt . we expect to continue to incur costs in the pursuit of our acquisition plans . we can not assure you that our plans to complete our initial business combination will be successful . results of operations all activities through december 31 , 2020 were related to the company 's organizational activities , preparation for the company 's initial public offering , and subsequently , identifying a target company for a business combination . we will not generate any operating revenues until after completion of our initial business combination . we generate non-operating income in the form of interest and dividends on cash and cash equivalents , and marketable securities held in the trust account . we incur ongoing expenses as a result of being a public company for legal , financial reporting , accounting and auditing compliance , as well as for due diligence expenses . for the period from may 4 , 2020 ( inception ) through december 31 , 2020 , we had a net loss of $ 1,430,298 , which consisted of legal , insurance , research , franchise tax and other expenses totaling $ 2,833,025 and a provision for income taxes of $ 289,155 , offset by interest and dividends earned on marketable securities held in the trust account and operating account of $ 1,509,419 , and an unrealized gains on marketable securities held in the trust account of $ 182,463. story_separator_special_tag events . accordingly , at december 31 , 2020 , 198,270,991 shares of class a common stock subject to possible redemption are presented at redemption value as temporary equity , outside of the stockholders ' equity section of the company 's balance sheet . net income / ( loss ) per common share we apply the two-class method of calculating earnings per share . common stock subject to possible redemption which is not currently redeemable and is not redeemable at fair value , have been excluded from the calculation of basic income / ( loss ) per common share since such shares , if redeemed , only participate in their pro-rata share of the trust account earnings . our net income / ( loss ) is adjusted for the portion of

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liquidity and capital resources our liquidity needs had been satisfied prior to the consummation of the initial public offering through a capital contribution of $ 25,000 by our sponsor in exchange for 100 shares of class b common stock , and interest bearing loans of $ 1,121,120 from our sponsor under an unsecured promissory note covering expenses related to the initial public offering . the loan was repaid in full on july 24 , 2020 , inclusive of interest . on july 24 , 2020 , we consummated the initial public offering of 200,000,000 units , at $ 20.00 per unit , generating gross proceeds of $ 4,000,000,000. simultaneously with the closing of the initial public offering , we consummated a $ 67,837,500 sale of sponsor warrants and director warrants in private placements . 50 following the initial public offering and the private placements of sponsor warrants and director warrants , a total of $ 4,000,000,000 was placed into the trust account . we incurred $ 94,623,187 in offering costs , including $ 35,000,000 of underwriting fees , $ 56,250,000 of deferred underwriting fees and $ 3,373,187 of other offering costs . the per share amount to be distributed to public stockholders who properly redeem their public shares will not be reduced by the deferred underwriting fees ( further discussed below ) . as of december 31 , 2020 , we had an unrestricted cash balance of $ 25,348,287 in the operating account , held outside the trust account to fund our ongoing expenses , as well as cash and marketable securities held in the trust account of $ 4,001,690,454. interest and dividend income earned on the balance in the trust account will be used by us to pay taxes on such income . during the period from may 4 , 2020 ( inception ) through december 31 , 2020 , we did not withdraw any interest or dividends earned on the trust account .

the exercise of the over-allotment option brings the total number of shares of common stock sold by us in connection with our february offering to 6,388,888 shares and the total net proceeds received in connection with the february offering to approximately $ 80 million , after deducting underwriting discounts and estimated offering expenses . series a convertible preferred stock beginning in the first quarter of 2020 , we issued an aggregate of 60,000 shares of our series a convertible preferred stock , or series a preferred stock , for an aggregate purchase price of $ 6,000,000. in may 2020 , we completed our offering of series a preferred with the issuance of an additional 40,000 shares of series a preferred for an aggregate purchase price of $ 4,000,000. all outstanding shares of series a preferred stock automatically converted immediately prior to the closing of our ipo into 1,373,038 shares of common stock at a conversion price of $ 7.72 per share . acquisition of trigrow on january 22 , 2020 we completed the acquisition of all outstanding shares of trigrow . trigrow is an integrator and exclusive distributor of our premium indoor grow solutions for the indoor controlled agriculture marketplace . as part of the acquisition , we received trigrow 's 75 % interest in agrify brands , llc ( formerly trigrow brands , llc ) , a licensor of an established portfolio of consumer brands that utilize our grow technology . the license of these brands is ancillary to the sale of our avfus and provides a means to differentiate customers ' products in the marketplace . it is not a material aspect of our business and we have not realized any royalty income . accordingly , we are currently evaluating whether to continue this legacy business from an operational standpoint , as well as from a legal and regulatory perspective . in consideration of trigrow 's shares , we issued to trigrow 's shareholders 595,552 shares of common stock . in addition , the closing conditions included the assumption of trigrow 's outstanding obligation to invest $ 1,140,000 ( the “ funding amount ” ) in a form of a so called “ profit interest ” investment in cci finance , llc ( “ cci ” ) . we included this investment as part of the consideration for the acquisition . we satisfied this obligation and made payment of the funding amount on january 24 , 2020 pursuant to a profits interest agreement with cci . under the profits interest agreement , in return for our investment of the funding amount , cci is obligated to share with us 28.5 % of the net revenue generated from its equipment lease agreement with its customer , payable at least annually by cci to us . the revenue sharing percentage is reduced from 28.5 % to 20 % once we have received payments equaling an 18 % internal rate of return on the funding amount ( the “ preferred return ” ) prior to the fifth anniversary of the agreement . the revenue sharing terminates upon the later of five years , or our attainment of the preferred return . to date , no revenue has been generated and shared with us under this agreement . assuming a five-year payback , the annual payments required to reach the preferred return would be $ 364,500. assuming a seven-year payback , the annual payments required to reach the preferred return would be $ 299,000. as part of the acquisition of trigrow , we made available 121,539 shares of our common stock for issuance to certain executives of trigrow upon trigrow 's and or our receipt of $ 10,000,000 of accumulative purchase orders for trigrow and or our equipment , products , and services , for the period from november 21 , 2019 through june 30 , 2020 as a result of the efforts of the trigrow executives . such shares of common stock are to be distributed by us in our sole discretion to certain executives responsible for achievement of such milestone . we concluded that the earn-out , if materialized , will be considered as post combination services . additionally , we concluded that the value associated with the earn-out to be de minimis . no earn-out was earned through june 30 , 2020 . 51 the purchase price for trigrow was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition dates , with the remaining unallocated purchase prices recorded as goodwill . the fair value assigned to identifiable intangible assets acquired was determined primarily by using the income approach , which discounts expected future cash flows to present value using estimates and assumptions determined by our management . transaction and related costs , consisting primarily of professional fees , directly related to the acquisition , totaled $ 45,000 for the year ended december 31 , 2020. all transaction and related costs were expensed as incurred and are included in selling , general and administrative expenses . the purchase price allocation for the business combination has been prepared on a preliminary basis and changes to those allocations may occur as additional information becomes available during the respective measurement period ( up to one year from the acquisition date ) . fair value still under review include values assigned to identifiable intangible assets and goodwill . the following table sets forth the components and the allocation of the purchase price for the business combination : replace_table_token_3_th brand rights and customer relationships were assigned estimated useful lives of ten years and nine years , respectively , the weighted average of which is approximately 9.5 years . story_separator_special_tag we have payment terms with our customers of one year or less and has elected the practical expedient applicable to such contracts not to consider the time value of money . sales , value add , and other taxes we collect concurrent with revenue-producing activities are excluded from revenue . contract balances — we receive payment from customers based on specified terms that are generally less than 30 days from the satisfaction of performance obligations . there are no contract assets related to performance under the contract . the difference in the opening and closing balances of our deferred revenue primarily results from the timing difference between our performance and the customer 's payment . we fulfil our obligations under a contract with a customer by transferring products and services in exchange for consideration from the customer . accounts receivable are recorded when the customer has been billed or the right to consideration is unconditional . we recognize deferred revenue when we have received consideration or an amount of consideration is due from the customer and we have a future obligation to transfer certain proprietary products . we generally provide a one-year warranty on its products for materials and workmanship but may provide multiple year warranties as negotiated , and will pass on the warranties from its vendors , if any , which generally covers this one-year period . in accordance with asc 450-20-25 , we accrue for product warranties when the loss is probable and can be reasonably estimated . at december 31 , 2020 , we had no product warranty accrual our de minimis historical financial warranty experience . accounting for business combinations we allocated the purchase price of acquired company to the tangible and intangible assets acquired , including in-process research and development assets , and liabilities assumed , based upon their estimated fair values at the acquisition date . these fair values are typically estimated with assistance from independent valuation specialists . the purchase price allocation process requires us to make significant estimates and assumptions , especially at the acquisition date with respect to intangible assets , contractual support obligations assumed , contingent consideration arrangements , and pre-acquisition contingencies . 57 although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate , they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain . examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to : ● future expected cash flows from software license sales , support agreements , consulting contracts , other customer contracts , and acquired developed technologies ; ● expected costs to develop in-process research and development into commercially viable products and estimated cash flows from the projects when completed ; ● the acquired company 's brand and competitive position , as well as assumptions about the period of time the acquired brand will continue to be used in the combined company 's product portfolio ; ● cost of capital and discount rates ; and ● estimating the useful lives of acquired assets as well as the pattern or manner in which the assets will amortize . the fair value assigned to identifiable intangible assets acquired during the year ended december 31 , 2020 , was determined primarily by using the income approach , which discounts expected future cash flows to present value using estimates and assumptions determined by our management . income taxes we account for income taxes pursuant to the provisions of asc topic 740 , “ income taxes , ” which requires , among other things , an asset and liability approach to calculating deferred income taxes . the asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities . a valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized . we follow the provisions of asc 740-10-25-5 , “ basic recognition threshold . ” when tax returns are filed , it is highly certain that some positions taken would be sustained upon examination by the taxing authorities , while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained . in accordance with the guidance of asc 740-10-25-6 , the benefit of a tax position is recognized in the consolidated financial statements in the period during which , based on all available evidence , management believes it is more likely than not that the position will be sustained upon examination , including the resolution of appeals or litigation processes , if any . tax positions taken are not offset or aggregated with other positions . tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority . the portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination . we believe our tax positions are all highly certain of being upheld upon examination . as such , we have not recorded a liability for unrecognized tax benefits . 58 we recognize the benefit of a tax position when it is effectively settled . asc 740-10-25-10 , “ basic recognition threshold ” provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits

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cashflows the following table presents the major components of net cash flows from and used in operating , investing and financing activities for the years ended december 31 , 2020 , and 2019 : replace_table_token_9_th 64 cashflow from operating activities for the year ended december 31 , 2020 , we incurred a net loss of $ 21,617,000 , which includes non-cash expenses of $ 5,618,000 related to extinguishment of notes payable , $ 2,924,000 due to change in fair value of derivative liabilities , $ 407,000 related to depreciation and amortization , $ 1,921,000 in connection with the issuance of stock options , non-cash interest expenses of $ 447,000 related to the issuance of notes payable , provision of $ 54,000 for doubtful accounts and $ 120,000 from the disposal of fixed assets , partially offset by loss attributed to non-controlling interest in the amount of $ 22,000. net cash was reduced by a $ 3,709,000 increase in accounts receivable , a $ 2,941,000 increase in prepaid inventory due to demand forecast , a $ 2,249,000 decrease in deferred revenue , partially offset by $ 4,780,000 increase in accrued expenses , a $ 12,000 decrease in prepaid expenses , and a $ 527,000 decrease in accounts payable . for the year ended december 31 , 2019 , we incurred a net loss of $ 3,042,000 , which includes non-cash expenses of $ 10,000 related to depreciation and amortization , and $ 109,000 in connection with issuance of stock options .

we also believe that an active acquisition program is an important element of our corporate strategy as it strengthens our competitive position , enhances the products and services that we can offer to customers , expands our customer base , provides greater scale to accelerate innovation , grows our revenues and earnings and increases stockholder value . in recent years , we have invested billions of dollars to acquire a number of companies , products , services and technologies that add to , are complementary to , or have otherwise enhanced our existing offerings . we expect to continue to acquire companies , products , services and technologies to further our corporate strategy . 38 we are organized into three businesses—software , hardware systems and services—which are further divided into certain operating segments . prior to our acquisition of sun microsystems , inc. ( sun ) in january 2010 , we did not have a hardware systems business or related operating segments . each of our businesses and operating segments has unique characteristics and faces different opportunities and challenges . although we report our actual results in u.s. dollars , we conduct a significant number of transactions in currencies other than u.s. dollars . therefore , we present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations . an overview of our three businesses and related operating segments follows . software business our software business , which represented 70 % , 68 % and 77 % of our total revenues in fiscal 2012 , 2011 and 2010 , respectively , is comprised of two operating segments : ( 1 ) new software licenses and ( 2 ) software license updates and product support . on a constant currency basis , we expect that our software business ' total revenues generally will continue to increase due to continued demand for our software products and software license updates and product support offerings , including the high percentage of customers that renew their software license updates and product support contracts and due to our acquisitions , which should allow us to grow our profits and continue to make investments in research and development . new software licenses : we license our database and middleware as well as our applications software and provide subscription-based access to select oracle software applications and software platforms through a cloud-based it environment to businesses of many sizes , government agencies , educational institutions and resellers . the growth in new software license revenues that we report is affected by the strength of general economic and business conditions , governmental budgetary constraints , the competitive position of our software products , our acquisitions and foreign currency fluctuations . the substantial majority of our new software license business is also characterized by long sales cycles . the timing of a few large software license transactions can substantially affect our quarterly new software license revenues . since our new software license revenues in a particular quarter can be difficult to predict as a result of the timing of a few large software license transactions , we believe that analysis of new software license revenues on a trailing 4-quarter period ( as provided in our quarterly reports on form 10-q ) provides additional visibility into the underlying performance of our new software license business . new software license revenues represented 27 % , 26 % and 28 % of our total revenues in fiscal 2012 , 2011 and 2010 , respectively . the proportion of our new software license revenues relative to our total revenues was affected by our entry into the hardware systems business as a result of our acquisition of sun in the third quarter of fiscal 2010. our new software license segment 's margins have historically trended upward over the course of the four quarters within a particular fiscal year due to the historical upward trend of our new software license revenues over those quarterly periods and because the majority of our costs for this segment are predominantly fixed in the short-term . however , our new software license segment 's margins have been and will continue to be affected by fair value adjustments relating to the cloud software subscription obligations that we assumed in business combinations ( described further below ) and by the amortization of intangible assets associated with companies and technologies that we have acquired . we recorded adjustments to reduce obligations under our assumed cloud software subscription offerings in business combinations to their estimated fair values at the acquisition dates . as a result , as required by business combination accounting rules , we did not recognize cloud software subscription revenues as a part of our new software licenses revenues that would have been otherwise recorded as revenues by the acquired businesses as independent entities in the amount of $ 22 million in fiscal 2012. to the extent underlying cloud software subscription contracts are renewed with us following an acquisition , we will recognize the revenues for the full value of the cloud software subscription contracts over the contract periods . software license updates and product support : customers that purchase software license updates and product support are granted rights to unspecified product upgrades and maintenance releases issued during the support period , as well as technical support assistance . substantially all of our customers renew their software license updates and product support contracts annually . the growth of software license updates and product support revenues is primarily influenced by three factors : ( 1 ) the percentage of our support contract customer base that renews its support contracts , ( 2 ) the amount of new support contracts sold in connection 39 with the sale of new software licenses and ( 3 ) the amount of support contracts assumed from companies we have acquired . story_separator_special_tag for software license arrangements that do not require significant modification or customization of the underlying software , we recognize new software license revenues when : ( 1 ) we enter into a legally binding arrangement with a customer for the license of software ; ( 2 ) we deliver the products ; ( 3 ) the sale price is fixed or determinable and free of contingencies or significant uncertainties ; and ( 4 ) collection is probable . revenues that are not recognized at the time of sale because the foregoing conditions are not met , are recognized when those conditions are subsequently met . substantially all of our software license arrangements do not include acceptance provisions . however , if acceptance provisions exist as part of public policy , for example , in agreements with government entities where acceptance periods are required by law , or within previously executed terms and conditions that are referenced in the current agreement and are short-term in nature , we generally recognize revenues upon delivery provided the acceptance terms are perfunctory and all other revenue recognition criteria have been met . if acceptance provisions are not perfunctory ( for example , acceptance provisions that are long-term in nature or are not included as standard terms of an arrangement ) , revenues are recognized upon the earlier of receipt of written customer acceptance or expiration of the acceptance period . the vast majority of our software license arrangements include software license updates and product support contracts , which are entered into at the customer 's option and are recognized ratably over the term of the arrangement , typically one year . software license updates provide customers with rights to unspecified software product upgrades , maintenance releases and patches released during the term of the support period . product support includes internet access to technical content , as well as internet and telephone access to technical support personnel . software license updates and product support contracts are generally priced as a percentage of the net new software license fees . substantially all of our customers renew their software license updates and product support contracts annually . revenue recognition for multiple-element arrangements — software products and software related services ( software arrangements ) we often enter into arrangements with customers that purchase both software related products and software related services from us at the same time , or within close proximity of one another ( referred to as software related multiple-element arrangements ) . such software related multiple-element arrangements include the sale of our software products , software license updates and product support contracts and other software related services whereby software license delivery is followed by the subsequent or contemporaneous delivery of the other elements . for those software related multiple-element arrangements , we have applied the residual method to determine the amount of software license revenues to be recognized pursuant to asc 985-605. under the residual method , if fair value exists for undelivered elements in a multiple-element arrangement , such fair value of the undelivered elements is deferred with the remaining portion of the arrangement consideration recognized upon delivery of the software license or services arrangement . we allocate the fair value of each element of a software related multiple-element arrangement based upon its fair value as determined by our vendor specific objective evidence ( vsoe—described further below ) , with any remaining amount allocated to the software license . revenue recognition for hardware systems products , hardware systems related services and cloud software subscription offerings ( nonsoftware elements ) revenues from the sale of hardware systems products represent amounts earned primarily from the sale of computer servers and storage products . our revenue recognition policy for these nonsoftware deliverables and 44 other nonsoftware deliverables including hardware systems related services and cloud software subscription offerings is based upon the accounting guidance contained in asc 605 , revenue recognition , and we exercise judgment and use estimates in connection with the determination of the amount of hardware systems products , hardware systems related services revenues and cloud software subscription revenues to be recognized in each accounting period . revenues from the sales of our nonsoftware elements are recognized when : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) we deliver the products and passage of the title to the buyer occurs ; ( 3 ) the sale price is fixed or determinable ; and ( 4 ) collection is reasonably assured . revenues that are not recognized at the time of sale because the foregoing conditions are not met are recognized when those conditions are subsequently met . when applicable , we reduce revenues for estimated returns or certain other incentive programs where we have the ability to sufficiently estimate the effects of these items . where an arrangement is subject to acceptance criteria and the acceptance provisions are not perfunctory ( for example , acceptance provisions that are long-term in nature or are not included as standard terms of an arrangement ) , revenues are recognized upon the earlier of receipt of written customer acceptance or expiration of the acceptance period . our hardware systems support offerings generally provide customers with software updates for the software components that are essential to the functionality of our server and storage products and can also include product repairs , maintenance services and technical support services . hardware systems support contracts are generally priced as a percentage of the net hardware systems products fees . hardware systems support contracts are entered into at the customer 's option and are recognized ratably over the contractual term of the arrangements , which are typically one year . our cloud software subscription offerings generally provide customers access to certain of our software within a cloud-based it environment that we manage and offer to customers on a subscription basis . revenues for our cloud software subscription offerings are recognized ratably over the contract term commencing with the

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cash flows from financing activities : the changes in cash flows from financing activities primarily relate to borrowings and payments under debt facilities as well as stock repurchases , dividend payments and proceeds from stock option exercises . fiscal 2012 compared to fiscal 2011 : we used net cash for financing activities in fiscal 2012 of $ 6.1 billion in comparison to net cash provided by financing activities in fiscal 2011 of $ 516 million primarily due to our increase in common stock repurchases in fiscal 2012 ( see discussion in “working capital” above and note 13 of notes to consolidated financial statements included elsewhere in this annual report for additional information ) , a reduction in the amount of debt that we issued in fiscal 2012 ( $ 1.7 billion of short-term borrowings pursuant to a revolving credit facility in may 2012 in comparison to $ 3.25 billion of long-term senior notes in july 2010 and $ 1.15 billion of borrowings pursuant to revolving credit facilities in may 2011 ) , and a decrease in proceeds from stock option exercises during fiscal 2012 , in each case in comparison to fiscal 2011. these unfavorable impacts to our financing cash flows during fiscal 2012 were partially offset by a decrease in cash used for debt related repayments during fiscal 2012 ( $ 1.15 billion of short-term borrowings pursuant to our revolving credit facilities and $ 255 million of rightnow 's legacy convertible notes were repaid in february 2012 in comparison to fiscal 2011 repayments of $ 2.25 billion of senior notes and $ 881 million of commercial paper notes ) . 70 fiscal 2011 compared to fiscal 2010 : net cash provided by financing activities in fiscal 2011 decreased due to a reduction in the amount of debt that we issued in fiscal 2011 ( $ 1.15 billion borrowed pursuant to our revolving credit facilities and $ 3.25 billion of long-term senior notes issued ) in comparison to fiscal 2010 ( $ 4.5 billion of long-term senior notes and $ 2.8 billion of commercial paper notes issued ) .

in all of our locations , nortech employees and contractors have been working diligently to take precautions to ensure a clean and safe environment . we are also working closely with our suppliers and customers to ensure that we are taking every feasible step to minimize disruption and to continue to deliver the products our customers ' need . as of the date of this filing , covid-19 has not had a significant impact on our business . although we currently expect that any future disruptive impact of covid-19 on our business to be temporary , this situation continues to evolve rapidly and therefore we can not predict the extent of which covid-19 's impact on nortech . we expect and are seeing that covid-19 ( and reactions to it ) are having and will have negative global financial consequences and heightened uncertainty , which may directly or indirectly negatively impact the operation of our supply chain , our liquidity and capital resources , and our workforce availability , any of which could have a material adverse effect on our business , financial condition , results of operations or cash flows . 16 critical accounting policies and estimates our significant accounting policies and estimates are summarized in “ notes to consolidated financial statements ” . some of the accounting policies require us to exercise significant judgment in selecting the appropriate assumptions for calculating financial estimates . such judgments are subject to an inherent degree of uncertainty . these judgments are based on historical experience , known trends in the industry , terms of existing contracts and other information from outside sources , as appropriate . actual results may differ from these estimates under different assumptions and conditions . certain of the most critical estimates that require significant judgment are as follows : revenue recognition our revenue is comprised of product , engineering services and repair services . all revenue is recognized when the company satisfies its performance obligation ( s ) under the contract by transferring the promised product or service to our customer either when ( or as ) our customer obtains control of the product or service , with the majority of our revenue being recognized over time including goods produced under contract manufacturing agreements and services revenue . a performance obligation is a promise in a contract to transfer a distinct product or service to a customer . a contract 's transaction price is allocated to each distinct performance obligation . the majority of our contracts have a single performance obligation . revenue is recorded net of returns , allowances and customer discounts . our net sales for services were less than 10 % of our total sales for all periods presented , and accordingly , are included in net sales in the condensed consolidated statements of operations and comprehensive income . sales , value add , and other taxes collected from customers and remitted to governmental authorities are accounted for on a net ( excluded from revenues ) basis . shipping and handling costs charged to our customers are included in net sales , while the corresponding shipping expenses are included in cost of goods sold . goodwill and other intangible assets in accordance with asc 350 , goodwill and other intangible assets , goodwill is not amortized but is required to be reviewed for impairment at least annually or when events or circumstances indicate that carrying value may exceed fair value . we test impairment annually as of october 1st . in testing goodwill for impairment we perform a quantitative or qualitative impairment test , including computing the fair value of the reporting unit and comparing that value to its carrying value . if the fair value is less than its carrying value , then the goodwill is determined to be impaired . in the event that goodwill is impaired , an impairment charge to earnings would become necessary . to the extent the carrying amount of goodwill exceeds the implied goodwill , the difference is the amount of the goodwill impairment . prior to completing the quantitative analysis described above , we have the option to perform a qualitative assessment of goodwill for impairment to determine whether it is more likely than not ( a likelihood of more than 50 % ) that the fair value of a reporting unit is less than its carrying amount , including goodwill and other intangible assets . if we conclude the fair value is more likely than not less than the carrying value , we perform the quantitative analysis . otherwise , no further testing is needed . in our annual impairment test in 2019 , we performed a qualitative analysis of goodwill for as described above . based on the analysis , we determined that it was more likely than not that the fair value exceeds the carrying amount and therefore , a quantitative analysis was not necessary . in our annual impairment test in 2018 , we performed a quantitative analysis using discounted cash flows and market approach which is based on the guideline public company method . discounted cash flow models include assumptions related to our product revenue , gross margins , operating margins and other assumptions . there was no impairment of goodwill recorded in 2018 or 2019. long - lived asset s impairment we evaluate long-lived assets , primarily property and equipment , whenever current events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable . recoverability for assets to be held and used is based on our projection of the undiscounted future operating cash flows of the underlying assets . story_separator_special_tag to the extent such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amounts of related assets , a charge might be required to reduce the carrying amount to equal estimated fair value . we determined there was a triggering event during the fourth quarter of 2018 and determined the undiscounted cash flows exceeded the carrying amounts of long-lived assets . we did not have a triggering event in 2019 . 17 allowance for doubtful accounts when evaluating the adequacy of the allowance for doubtful accounts , we analyze accounts receivable , historical write-offs of bad debts , customer concentrations , customer credit-worthiness , current economic trends and changes in customer payment terms . we maintain an allowance for doubtful accounts at an amount estimated to be sufficient to provide adequate protection against losses resulting from collecting less than full payment on outstanding accounts receivable . an amount of judgment is required when assessing the ability to realize accounts receivable , including assessing the probability of collection and the current credit-worthiness of each customer . if the financial condition of our customers was to deteriorate , resulting in an impairment of their ability to make payments , an additional provision for uncollectible accounts may be required . we believe the reserve is adequate for any exposure to loss in the december 31 , 2019 accounts receivable . at december 31 , 2019 , our allowance for doubtful accounts was $ 0.3 million . inventory reserves inventory reserves are maintained for the estimated value of the inventory that may have a lower value than stated or quantities in excess of future production needs . we have an evaluation process to assess the value of the inventory that is slow moving , excess or obsolete on a quarterly basis . we evaluate our inventory based on current usage and the latest forecasts of product demand and production requirements from our customers . we believe the total reserve at december 31 , 2019 of $ 1.5 million is adequate . operating results the following table presents our statements of operations data as percentages of total net sales for the years indicated : replace_table_token_4_th net s ales our net sales in 2019 were $ 116.3 million , compared to $ 113.4 million in 2018 , an increase of $ 2.9 million or 2.6 % . net sales results were varied by markets . the medical market increased by $ 12.6 million or 25.2 % with medical devices accounting for 140 % of the increase while medical component products decreased 40 % . the industrial market decreased by $ 9.6 million or 21.3 % in 2019 as compared to 2018. net sales from the aerospace and defense markets decreased by $ 0.1 million or 0.6 % in 2019 as compared to 2018 . 18 net sales by our major ems industry markets for the years ended december 31 , 2019 and 2018 were as follows : replace_table_token_5_th net sales by timing of transfer of goods and services for year ended december 31 , 2019 and 2018 are as follows ( in millions ) : replace_table_token_6_th replace_table_token_7_th backlog our 90-day backlog at december 31 , 2019 was $ 27.3 million , compared to $ 27.4 million at the end of 2018. our aerospace and defense customers 90-day backlog increased 16.7 % compared to the prior year end , along with an increase of 2.0 % for our medical customers over the prior year . these increases were offset by a decrease of 19.4 % in our industrial customers 90-day backlog compared to the prior year end . 19 90-day backlog by our major ems industry markets are as follows : replace_table_token_8_th our 90-day backlog varies due to order size , manufacturing delays , inventory programs , contract terms and conditions and changes in timing of customer delivery schedules and releases . these variables cause inconsistencies in comparing the backlog from one period to the next . our total shipment backlog was $ 50.1 million at december 31 , 2019 compared to $ 47.1 million at the end of december 31 , 2018. gross profit our gross profit as a percentage of net sales was 10.8 % and 11.7 % for the years ended december 31 , 2019 and 2018 , respectively . the decline in gross profit in the year to date comparison was driven by product mix and operational inefficiencies due to component shortages . selling selling expenses were $ 2.7 million , or 2.3 % of net sales , for the year ended december 31 , 2019 and $ 3.6 million , or 3.2 % of net sales , for the year ended december 31 , 2018. the decrease is due to lower sales incentives and timing of events . general and administrative general and administrative expenses were $ 9.6 million , or 8.3 % of net sales , for the year ended december 31 , 2019 and $ 8.4 million , or 7.4 % of net sales , for the year ended 2018. the increase was due to additional spend related to our recently implemented erp system and one-time expenditures to improve operations . income from operations our income from operations for the 2019 fiscal year was $ 0.2 million , a decrease of $ 1.0 million from the 2018 fiscal year of $ 1.2 million , resulting from our decrease in gross profit as a percent of sales . interest expense interest expense for the year ended december 31 , 2019 was $ 1.0 million , compared with $ 0.8 million for the year ended december 31 , 2018 due largely to additional borrowing on line of credit and higher interest rates . income taxes income tax expense for the year ended december 31 , 2019 was $ 0.4 million . income tax expense for the year ended december 31 , 2018 was $ 0.3 million . the effective tax rate for fiscal 2019 and 2018 was

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liquidity and capital resources we believe that our existing financing arrangements and anticipated cash flows from operations will be sufficient to satisfy our working capital needs , capital expenditures and debt repayments for at least the next 12 months . credit facility we have a credit agreement with bank of america which was entered into on june 15 , 2017 ( as amended , the “ bank of america credit agreement ” ) , and provides for a line of credit arrangement of $ 16 million that expires on june 15 , 2022. the credit arrangement also has a $ 5 million real estate term note outstanding with a maturity date of june 15 , 2022. under the bank of america credit agreement , both the line of credit and real estate term notes are subject to variations in the libor rate . our bank of america credit agreement bears interest at the combined weighted-average interest rate of 5.5 % as of december 31 , 2019 , compared with 4.80 % as of december 31 , 2018. we had borrowings on our bank of america credit agreement of $ 10.1 million outstanding , compared with $ 9.3 million outstanding as of december 31 , 2018. there are no acceleration clauses under the bank of america credit agreement that would accelerate the maturity of our outstanding line of credit borrowings . the line of credit and real estate term notes with bank of america contain certain covenants which , among other things , require us to adhere to regular reporting requirements , abide by annual shareholder dividend limitations , maintain certain financial performance , and limit the amount of annual capital expenditures . the availability under our line is subject to borrowing base requirements , and advances are at the discretion of the lender .

we are pursuing an integrated therapeutic and diagnostic , or rx/dx , strategy , where we anticipate pairing each of our product candidates with biomarker-based companion diagnostics that are designed to identify the patients who are most likely to benefit from the precisely targeted drugs we develop . our current development plans focus on two product candidates : entrectinib , formerly called rxdx-101 , a tyrosine kinase inhibitor directed to the trk family tyrosine kinase receptors ( trka , trkb and trkc ) , ros1 and alk proteins , which is in two phase i/ii clinical studies in molecularly defined patient populations for the treatment of solid tumors ; and rxdx-103 , a development program targeting the cell division cycle 7-related , or cdc7 , protein kinase . 50 we acquired exclusive global development and marketing rights to entrectinib under a license agreement with nerviano medical sciences s.r.l . , or nms , that became effective in november 2013 , and we acquired exclusive global development and marketing rights to rxdx-103 under a license agreement with nms that became effective in august 2014. we are also pursuing our spark discovery-stage programs , directed to emerging oncology targets . since inception , our operations have focused on organizing and staffing our company , business planning , raising capital , assembling our core capabilities in genetic and epigenetic based biomarker and drug target discovery , identifying potential product candidates and developing such candidates . our product candidate development operations include preparing , managing and conducting preclinical and clinical studies and trials , preparing regulatory submissions relating to those product candidates and establishing and managing relationships with third parties in connection with all of those activities . we expect that in the future our operations may also , if regulatory approval is obtained , include pursuing the commercialization of our product candidates . financial operations overview revenue to date , we have not generated any material revenue from product sales or otherwise . in the future , we expect that we will seek to generate revenue primarily from product sales , but may also seek to generate revenue from research funding , milestone payments and royalties on future product sales in connection with any out-license or other strategic relationships we may establish . research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our drug and biomarker discovery efforts and the development of our product candidates , which include : license fees ; expenses incurred under agreements with third parties , including consultants and advisors we engage for research-related services and any contract research organizations , or cros , that we may engage in connection with conducting preclinical and clinical activities on our behalf ; employee-related expenses , including salaries , benefits and stock-based compensation expense ; the cost of laboratory supplies ; and facilities , depreciation , and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other operating costs . research and development costs are expensed as incurred . nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized . the capitalized amounts are expensed as the related goods are delivered or the services are performed . we have not yet begun tracking our internal and external research and development costs on a program-by-program basis . as such , we do not have historical research and development expenditures by program and we use our employee and infrastructure resources across multiple research and development programs . the following table sets forth our research and development expenses for the periods presented : replace_table_token_2_th research and development activities are central to our business model . our research and development programs that we expect will be our focus in the immediate future consist of the development of entrectinib and rxdx-103 , and drug discovery activities for the development of our spark discovery programs . all of those research and development programs are in the early stage , and since product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials , we expect research and development costs relating to each of those programs to increase significantly for the foreseeable future . however , the successful 51 development of any of those product candidates , or any others we may seek to pursue , is highly uncertain . as such , at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of these product candidates , or whether any of these product candidates will reach successful commercialization . we are also unable to predict when , if ever , any net cash inflows will commence from any of the product candidates we currently or may in the future pursue . this lack of predictability is due to the numerous risks and uncertainties associated with developing medicines , many of which , such as our ability to obtain approvals to market and sell those medicines from the fda and other applicable regulatory authorities , are beyond our control , including the uncertainty of : establishing an appropriate safety profile with toxicology studies adequate to submit to the fda in an investigational new drug application , or ind , or comparable applications to foreign regulatory authorities ; successful enrollment in and adequate design and completion of clinical trials ; receipt of marketing approvals from applicable regulatory authorities , including the fda and comparable foreign authorities ; establishing commercial manufacturing capabilities or , more likely , seeking to establish arrangements with third-party manufacturers ; obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates ; launching commercial story_separator_special_tag our future capital requirements will depend on many factors , including : the scope , progress , results and costs of drug discovery , preclinical development , laboratory testing and clinical trials for our product candidates ; the scope , progress , results and costs of companion diagnostic development for our product candidates ; the achievement of development milestones that trigger payments due to our licensing partners ; the extent to which we acquire or in-license other medicines , biomarkers and or technologies ; the costs , timing and outcome of regulatory review of our product candidates ; the costs of future commercialization activities , including product sales , marketing , manufacturing and distribution , for any of our product candidates for which we receive marketing approval ( to the extent that such sales , marketing , manufacturing and distribution are not the responsibility of collaborators with whom we may engage ) ; revenue , if any , received from commercial sales of our product candidates , should any of our product candidates receive marketing approval ; the costs of preparing , filing and prosecuting patent applications , maintaining and enforcing our intellectual property rights and defending intellectual property-related claims ; and 57 our ability to establish and maintain development , manufacturing or commercial collaborations on favorable terms , if at all . identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming , expensive and uncertain process that takes years to complete , and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales . in addition , our product candidates , if approved , may not achieve commercial success . our commercial revenues , if any , will be derived from sales of medicines that we do not expect to be commercially available for many years , if at all . accordingly , we will likely need to continue to rely on additional financing to achieve our business objectives . adequate additional financing may not be available to us on acceptable terms , or at all . until such time , if ever , as we can generate substantial product revenues , we expect to finance our cash needs through a combination of equity offerings , debt financings , collaborations , strategic alliances and licensing arrangements . any or all of those sources of funding may not be available when needed on acceptable terms or at all . except for our conditional option to acquire a second loan tranche of $ 10 million from svb , we do not have any committed external source of additional funds . to the extent that additional capital is raised through the sale of equity or convertible debt securities , the ownership interest of existing equityholders will be diluted . also , the terms of any additional equity securities that may be issued in the future may include liquidation or other preferences that adversely affect the rights of common stockholders . debt financing may not be available when needed and 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 . if we raise 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 to grant licenses on terms that may not be favorable to us . if we are unable to raise additional funds through equity or debt financings or relationships with third parties when needed or on acceptable terms , we may be required to delay , limit , reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we might otherwise prefer to develop and market ourselves . failure to obtain adequate financing could eventually adversely affect our ability to operate as a going concern . off-balance sheet arrangements we did not have during the periods presented , and we do not currently have , any off-balance sheet arrangements , as defined under applicable sec rules . item 8. financial statements and supplementary data our consolidated financial statements and the reports of our independent registered public accounting firm are included in this report on pages f-1 through f-23 . item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures conclusions regarding the effectiveness of disclosure controls and procedures we maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our exchange act reports is recorded , processed , summarized and reported within the timelines specified in the sec 's rules and forms , and that such information is accumulated and communicated to our management , including our chief executive officer and chief financial officer , as appropriate , to allow timely decisions regarding required disclosure . in designing and evaluating the disclosure controls and procedures , management recognized that any controls and procedures , no matter how well designed and operated , can only provide reasonable assurance of achieving the desired control objectives , and in reaching a reasonable level of assurance , management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures . as required by rule 13a-15 ( b ) under the exchange act , we carried out an evaluation , under the supervision and with the participation of our management , including our chief executive officer and chief financial officer , of the effectiveness of the design and operation of our disclosure controls and procedures , as of the end of the period covered by this report . based on the foregoing , our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of december 31 , 2014

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liquidity and capital resources sources of liquidity since our inception , and through december 31 , 2014 , we have raised an aggregate of approximately $ 146 million to fund our operations , of which approximately $ 21 million was received from the incurrence of indebtedness under our september 2014 loan agreement with svb ( with approximately $ 11 million of such amount used to repay our then-existing loan with svb ) , $ 55 million was received from our issuance and sale of our common stock in an underwritten public offering in march 2014 , approximately $ 54 million was received from our issuance and sale of our common stock in two private placements in november 2013 , approximately $ 6 million was received from our issuance and sale of our preferred stock and $ 10 million was received from the incurrence of indebtedness under our december 2013 loan agreement with svb . as of december 31 , 2014 , we had also received a small amount of funding from our issuance of common stock upon the exercise from time to time of stock options , and from our issuance of common stock to our founders in august and september 2011. as of december 31 , 2014 , we had approximately $ 76.6 million in cash , cash equivalents and available-for-sale securities , consisting of approximately $ 6.3 million in cash and cash equivalents and approximately $ 70.3 million in available-for-sale securities . amended and restated loan agreement with svb . on september 30 , 2014 , we entered into an amended and restated loan agreement with svb under which we incurred $ 21 million of indebtedness , approximately $ 11 million of which was used to repay our then- 55 existing loan with svb . we also have an option to receive an additional $ 10 million loan tranche , which may be drawn down by us at any time prior to september 30 , 2015 , provided that we have initiated the phase iia portion of our ongoing , global phase i/ii clinical study of entrectinib and subject to other customary conditions for funding .

actions taken to mitigate the impact of covid-19 on our business included : ( 1 ) director , executive and senior leadership salary reductions , and for the majority of employees , a four-day work week with associated labor cost reductions , in each case beginning in april 2020 and ceasing near the end of july 2020 ; ( 2 ) a freeze on spending not directly tied to near-term billings , including a reduction in all discretionary spending such as marketing , advertising , travel , and office supplies ; ( 3 ) reduced inventory purchasing ; ( 4 ) deferral of long-term capital projects not directly contributing to billings in 2020 ; and ( 5 ) borrowing $ 150 million from our asset-backed credit facility as a pre-emptive measure to mitigate against capital market disruptions . further , we elected to defer the payment of our employer payroll taxes allowed under the coronavirus aid , relief , and economic security ( “ cares ” ) act . 31 the majority of the hmh workforce has continued to work remotely subsequent to march 2020. the four-day work week furlough program along with director , executive , and senior leadership salary reductions that we announced in march 2020 ended by the end of july . the costs associated with ending the furlough program and the salary reductions were subsequently mitigated by the 2020 restructuring plan discussed below . we also repaid $ 50.0 million of our asset-backed credit facility at the end of june and repaid the remaining outstanding $ 100.0 million during july and currently have no drawn balance on our asset-backed credit facility . further , the deferral of the payment of our employer payroll taxes allowed under the cares act during 2020 was repaid in full in december 2020. given the ongoing covid-19 situation , our education business will continue to be impacted during 2021 , and significant uncertainty is likely to persist in the marketplace . additionally , our hmh books & media business may continue to be impacted . 2020 restructuring plan we are continuing to assess our cost structure amid the covid-19 pandemic and in line with our strategic transformation plan announced in the fourth quarter of 2019 , discussed below , to ensure our cost structure is aligned to our net sales and long-term strategy . as part of this effort , o n september 4 , 2020 , we finalized a voluntary retirement incentive program , which was offered to all u.s. based employees at least 55 years of age with at least five years of service . of the eligible employees , 165 elected to participate representing approximately 5 % of our workforce . the majority of the employees voluntarily retired as of september 4 , 2020 with select employees leaving later in the year . each of the employees received or will receive separation payments in accordance with our severance policy . on september 30 , 2020 , our board of directors committed to a restructuring program , including a reduction in force , as part of the ongoing assessment of our cost structure amid the covid-19 pandemic and in line with our previously disclosed strategic transformation plan . the reduction in force resulted in a 22 % reduction in our workforce , including positions eliminated as part of the voluntary retirement incentive program mentioned above , and net of newly created positions to support our digital-first operations . the reduction in force resulted in the departure of approximately 525 employees and was completed in october 2020. each of the employees received or will receive separation payments in accordance with our severance policy . the total one-time , non-recurring cost incurred in connection with the 2020 restructuring program , inclusive of the voluntary retirement incentive program ( collectively the “ 2020 restructuring plan ” ) , all of which represents cash expenditures , is approximately $ 33.6 million . these actions are aligned with our strategic transformation plan launched in the fourth quarter of 2019 to streamline the cost structure of the company . strategic transformation plan on october 15 , 2019 , our board of directors approved changes connected with our ongoing strategic transformation to simplify our business model and accelerate growth . this includes new product development and go-to-market capabilities , as well as the streamlining of operations company-wide for greater efficiency . these actions , which we refer to as our 2019 restructuring plan , resulted in the net elimination of approximately 10 % of our workforce , after taking into account new strategy-aligned positions that are expected to be added , and additional operating and capitalized cost reductions , including an approximately 20 % reduction in previously planned content development expenditures over the next three years . these steps are intended to further simplify our business model while delivering increased value to customers , teachers and students . the workforce reductions were completed during the first quarter of 2020. after considering additional headcount actions , implementation of the planned actions resulted in total charges of $ 15.8 million which was recorded in the fourth quarter of 2019. with respect to each major type of cost associated with such activities , substantially all costs were severance and other termination benefit costs and will result in cash expenditures . further , as part of the strategic transformation plan , we recorded an incremental $ 9.8 million inventory obsolescence charge in the fourth quarter of 2019 which is recorded in cost of sales in the statement of operations . 32 other events in november 2020 , the company announced that it will explore a potential sale of the hmh books and media segment . such a sale would be intended to build on the company 's other strategic restructuring efforts and further align its cost structure to its digital-first strategy . story_separator_special_tag the net sales decrease was driven by a $ 371.1 million decrease in our education segment , offset by a $ 11.7 million increase in our hmh books & media segment . within our education segment , the decrease was primarily due to lower net sales in extensions , which primarily consist of our heinemann brand , intervention and supplemental products as well as professional services , which decreased by $ 252.0 million from $ 632.0 million in 2019 to $ 380.0 million . within extensions , net sales decreased due to lower sales of the heinemann 's fountas & pinnell classroom , calkins and lli leveled literacy products due to a difficult comparison to prior year texas k-6 sales coupled with the impact of the covid-19 pandemic in 2020. also , contributing to the decrease was lower professional services with the decline of the in-person learning environment as a result of the covid-19 pandemic . further , there were lower net sales from core solutions which decreased by $ 119.0 million from $ 578.0 million in 2019 to $ 459.0 million , primarily due to the smaller new adoption market opportunity in texas ela , along with impacts of the covid-19 pandemic . within our hmh books & media segment , the increase in net sales was primarily due to $ 9.6 million of licensing revenue from a new production series , a $ 3.4 million increase in licensing revenue attributed to the carmen sandiego series on netflix , and strong net sales of the frontlist titles the 99 % invisible city , compromised and defined dish . offsetting the aforementioned , was lower net sales of both adult and young reader 's categories due to the closure of bookstores during the covid-19 pandemic and the corresponding delay in releases of new frontlist titles . 37 operating loss for the year ended dec ember 3 1 , 2020 unfavorably changed from a loss of $ 163 .2 million in 2019 to a loss of $ 429.1 million , due primarily to the following : a $ 359.4 million decrease in net sales ; an impairment charge for goodwill in 2020 of $ 279.0 million . this non-cash impairment is a direct result of the adverse impact that the covid-19 pandemic has had on the company ; a $ 11.9 million increase in costs associated with our restructuring/severance and other charges due to $ 33.6 million of severance costs associated with the 2020 restructuring plan ; partially offset by : a $ 184.5 million decrease in selling and administrative expenses , primarily due to lower labor costs of $ 77.0 million , resulting from cost savings associated with our employee furlough initiative , which began in april and ceased at the end of july , in response to covid-19 , our 2020 restructuring plan and a freeze on hiring . also , there was a decrease of $ 52.0 million of variable expenses such as commissions and transportation due to lower billings . further , there were lower discretionary costs of $ 44.0 million primarily related to travel and expense reduction measures and marketing along with lower depreciation expense of $ 11.0 million ; a $ 170.3 million decrease in our cost of sales , excluding publishing rights and pre-publication amortization , from $ 668.1 million in 2019 to $ 497.8 million , primarily due to lower billings . our cost of sales , excluding publishing rights and pre-publication amortization , as a percentage of sales , was essentially flat year over year ; and a $ 29.6 million decrease in net amortization expense related to publishing rights , pre-publication and other intangible assets , primarily due to a decrease in pre-publication amortization attributed to the timing and large amount of 2019 major product releases and , to a lesser extent , our use of accelerated amortization methods for publishing rights amortization . retirement benefits non-service ( expense ) income for the year ended december 31 , 2020 changed unfavorably by $ 1.0 million due to the recognition of a $ 1.1 million settlement charge related to the pension plan during 2020. interest expense for the year ended december 31 , 2020 increased $ 17.2 million from $ 48.8 million in 2019 to $ 66.0 million , primarily due to our 2019 refinancing during the fourth quarter of 2019. further , there was an increase of $ 2.4 million of net settlement payments on our interest rate derivative instruments during 2020. interest income for the year ended december 31 , 2020 decreased $ 2.3 million from $ 3.2 million in 2019 to $ 0.9 million , primarily due to lower interest rates on our money market funds in 2020. change in fair value of derivative instruments for the year ended december 31 , 2020 favorably changed by $ 1.6 million due to foreign exchange forward contracts executed on the euro that were favorably impacted by the weakening of the u.s. dollar against the euro . gain on investments for the year ended december 31 , 2020 was $ 2.1 million and was related to the fair value change in our equity interests in educational technology private partnerships . income from transition services agreement for the year ended december 31 , 2019 was $ 4.2 million and was related to transition service fees under the transition services agreement with the purchaser of o ur riverside business pursuant to which we performed certain support functions through september 30 , 2019. we had no income from transition services agreement for the year ended december 31 , 2020. loss on extinguishment of debt for the year ended december 31 , 2019 consisted of a $ 3.4 million write-off related to unamortized deferred financing fees associated with the portion of our previous term loan facility that was accounted for as an extinguishment . further , there was a $ 1.0 million write off of the remaining balance of the debt discount associated with the previous

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liquidity and capital resources replace_table_token_8_th operating activities net cash provided by operating activities was $ 115.2 million for the year ended december 31 , 2020 , a $ 139.7 million decrease from the $ 255.0 million of net cash provided by operating activities for the year ended december 31 , 2019. the decrease in cash provided by operating activities was primarily driven by unfavorable changes in net operating assets and liabilities of $ 78.4 million primarily due to changes in deferred revenue of $ 143.3 million and $ 29.3 million of royalties related to greater billings in 2019 , accounts payable of $ 22.8 million related to timing of disbursements and severance and other charges of $ 3.4 million due to the 2020 restructuring plan , offset by favorable period over period inventory changes of $ 74.9 million , favorable period over period changes in accounts receivable of $ 12.4 million , an increase in operating lease liabilities of $ 15.3 million , pension and postretirement benefits of $ 8.2 million , interest payable of $ 3.5 million due to the timing of our 2019 refinancing and other assets and liabilities of $ 6.1 million . additionally , operating profit , net of non-cash items , decreased by $ 61.4 million .

current year highlights during the year ended december 31 , 2018 , overall sales increased compared to the year ended december 31 , 2017 primarily from improved sales in our ris business and in japan . positive net flows drove an increase in our investment portfolio and investment yields improved , however , interest credited rates were higher . a favorable change in net derivative gains ( losses ) was primarily the result of changes in foreign currency exchange rates and interest rates . while u.s. tax reform positively impacted net income in both 2018 and 2017 , the impact in 2017 was significantly larger . in addition , our annual actuarial assumption review negatively impacted results when compared to 2017. our results for 2017 included a loss from the operations of brighthouse that is reflected in discontinued operations . 67 the following represents segment level results and percentage contributions to total segment level adjusted earnings available to common shareholders for the year ended december 31 , 2018 : _ ( 1 ) excludes corporate & other adjusted loss available to common shareholders of $ 704 million . ( 2 ) consistent with gaap guidance for segment reporting , adjusted earnings is our gaap measure of segment performance . for additional information , see note 2 of the notes to the consolidated financial statements . 68 year ended december 31 , 2018 compared with the year ended december 31 , 2017 consolidated results - highlights net income ( loss ) available to metlife , inc. 's common shareholders up $ 1.1 billion : favorable change in net derivative gains ( losses ) of $ 1.4 billion ( $ 1.1 billion , net of income tax ) favorable change in results from divested businesses of $ 936 million ( $ 650 million , net of income tax ) included in continuing operations favorable change in income ( loss ) from discontinued operations , net of income tax , of $ 986 million net tax-related benefit in 2017 of $ 1.3 billion due to u.s. tax reform net unfavorable change from our annual actuarial assumption reviews of $ 395 million ( $ 297 million , net of income tax ) adjusted earnings available to common shareholders up $ 1.2 billion ( 1 ) see “ — results of operations — consolidated results ” and “ — non-gaap and other financial disclosures ” for reconciliations and definitions of non-gaap financial measures . consolidated results - adjusted earnings highlights adjusted earnings available to common shareholders up $ 1.2 billion : the primary drivers of the increase in adjusted earnings were higher net investment income due to a larger asset base and higher investment yields , the favorable impact of u.s. tax reform , other favorable tax items , favorable refinements to dac and certain insurance-related liabilities , lower expenses and favorable underwriting , partially offset by higher interest credited expenses and the net unfavorable change from our annual actuarial assumption review . our results for the year ended december 31 , 2018 included the following : a $ 349 million benefit from the irs audit settlement related to the tax treatment of a wholly-owned u.k. investment subsidiary of mlic , which was comprised of a $ 168 million tax benefit and a $ 181 million interest benefit favorable impact from u.s. tax reform of $ 179 million , which includes a $ 78 million charge related to a revision in the estimate from the enactment of this reform favorable reserve adjustment of $ 62 million , net of income tax , relating to certain variable annuity guarantees assumed from a former joint venture in japan a $ 37 million , net of income tax , favorable net insurance adjustment resulting from reserve and dac modeling improvements in our individual disability insurance business expenses associated with our previously announced unit cost initiative of $ 284 million , net of income tax a $ 63 million , net of income tax , charge due to a current period increase in our incurred but not reported ( “ ibnr ” ) life reserves , reflecting enhancements to our processes related to potential claims a $ 60 million , net of income tax , increase in litigation reserves unfavorable impact from our annual actuarial assumption review of $ 42 million , net of income tax our results for 2017 included the following : a tax charge of $ 298 million related to u.s. tax reform net tax-related charges of $ 139 million consisting of ( i ) a $ 180 million net tax charge related to the repatriation of approximately $ 3.0 billion of cash following the post-separation review of our capital needs , partially offset by a tax benefit associated with dividends from our non-u.s. operations , and ( ii ) a $ 41 million net tax-related benefit from the finalization of certain tax audits 69 expenses associated with our previously announced unit cost initiative of $ 102 million , net of income tax a $ 73 million , net of income tax , charge for expenses incurred related to a guaranty fund assessment for penn treaty network america insurance company ( “ penn treaty ” ) a $ 90 million , net of income tax , charge to increase certain ris policy reserves a favorable reserve adjustment of $ 55 million , net of income tax , resulting from modeling improvements in the reserving process for our life business a charge of $ 36 million , net of income tax , for lease impairments a benefit of $ 12 million , net of income tax , related to a refinement to prior period reinsurance receivables in australia for a more in-depth discussion of our consolidated results , see “ — results of operations — consolidated results , ” “ — results of operations — consolidated results — adjusted earnings ” and “ — results of operations — segment results and corporate & other . story_separator_special_tag we are able to limit or close certain products to new sales in order to manage exposures . business actions , such as shifting the sales focus to less interest rate sensitive products , can also mitigate this risk . in addition , the company is well diversified across product , distribution , and geography . certain of our businesses reported within our latin america , emea , and asia ( exclusive of our japan business ) segments are not significantly interest rate or market sensitive ; in particular , they have limited sensitivity to u.s. interest rates . the company 's primary exposure within these segments is insurance risk . we expect our non-u.s. businesses to grow faster than our u.s. businesses and , over time , to become a larger percentage of our total business . as a result of the foregoing , the company expects to be able to substantially mitigate the negative impact of a sustained low interest rate environment in the u.s. on the company 's profitability . based on a near to intermediate term analysis of a sustained lower interest rate environment in the u.s. , the company anticipates adjusted earnings will continue to increase , although at a slower growth rate . low interest rate scenario in formulating economic assumptions for its insurance contract assumptions , the company uses projections that it makes regarding interest rates . included in these assumptions is the projection that the 10-year treasury rate will rise from 2.69 % at december 31 , 2018 to 4.25 % in 8 years , by 2026 and remains level afterwards and that 10-year yields will reach 2.76 % , 2.84 % and 2.93 % by december 31 , 2019 , 2020 and 2021 , respectively . also included is the projection that the three-month libor rate will move from 2.81 % at december 31 , 2018 to 2.63 % , 2.41 % and 2.46 % by december 31 , 2019 , 2020 and 2021 , respectively . the low interest rate scenario reflects an assumed 100 basis point decline in all interest rate maturities compared to the base scenario from december 31 , 2018 through december 31 , 2021 ( the “ low interest rate scenario ” ) . the following summarizes the impact of the low interest rate scenario on our u.s. dollar and non-u.s. dollar denominated positions . in addition , we have included disclosure on the potential impact on 2019 , 2020 and 2021 net income using the same low interest rate scenario on the mark-to-market of derivative positions that do not qualify as accounting hedges . below is a summary of the rates we used for the low interest rate scenario versus our base scenario through 2021. these rates represent the most relevant short-term and long-term rates for our base scenario which uses libor as the benchmark rate . see “ risk factors — economic environment and capital risks — difficult economic conditions may adversely affect our business , results of operations and financial condition — interest rate risk ” for information regarding the potential change from libor to sofr . replace_table_token_6_th the low interest rate scenario assumes the three-month libor to be 1.81 % and the 10-year u.s. treasury rate to be 1.69 % at december 31 , 2018. we assume the low interest rate scenario to be 100 basis points lower than the base scenario until december 31 , 2021 for all interest rate maturities . in addition , in the low interest rate scenario , we assume credit spreads to remain constant from december 31 , 2018 through the end of 2021 as compared to our base scenario . further , we also include the impact of low interest rates on our pension and postretirement plan expenses . we allocate this impact across our segments and it is included in the segment discussion below . the discount rate used to value these plans is tied to high quality corporate bond yields . accordingly , an extended low interest rate environment will result in increased pension and other postretirement benefit liabilities . however , these liabilities are offset by corresponding returns on the fixed income portfolio of pension and other postretirement benefit plan assets resulting in an overall decrease in expense . 75 hypothetical impact to adjusted earnings based on the above assumptions , we estimate an unfavorable combined long-term and short-term interest rate impact on our consolidated adjusted earnings from the low interest rate scenario of approximately $ 15 million in 2019 , $ 140 million in 2020 and $ 265 million in 2021. under the low interest rate scenario , our long-term businesses are negatively impacted by the larger gap between new money yields and the yield on assets rolling off the portfolio . however , there are positive offsets under the low interest rate scenario as short-term rates are much lower than the base scenario rates and the yield curve steepens beyond 2018. for example , our securities lending business performs better than our base scenario because it is driven by the slope of the yield curve rather than by the level of interest rates . in addition , derivative income is higher primarily due to our receiver swaps where we receive a fixed rate and pay a floating rate . further , the favorable derivative impact under the low interest rate scenario will decrease in 2020 and 2021 compared to 2019. this is driven by higher rates on forward derivative positions protection that begin in 2020. hypothetical impact to our mark-to-market derivative positions in addition to its impact on adjusted earnings , we estimated the effect of the low interest rate scenario on the mark-to-market of our derivative positions that do not qualify as accounting hedges . we applied the low interest rate scenario to these derivatives and compared the impact to that from interest rates in our base scenario . we hold a significant position in long-duration receive-fixed interest rate

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liquidity and capital sources in addition to the general description of liquidity and capital sources in “ — summary of the company 's primary sources and uses of liquidity and capital , ” the company 's primary sources of liquidity and capital are set forth below . see note 3 o f the notes to the consolidated financial statements for information regarding financing transactions related to the separation . global funding sources liquidity is provided by a variety of global funding sources , including funding agreements , credit and committed facilities and commercial paper . capital is provided by a variety of global funding sources , including short-term and long-term debt , the collateral financing arrangement , junior subordinated debt securities , preferred securities , equity securities and equity-linked securities . metlife , inc. maintains a shelf registration statement with the sec that permits the issuance of public debt , equity and hybrid securities . as a “ well-known seasoned issuer ” under sec rules , metlife , inc. 's shelf registration statement provides for automatic effectiveness upon filing and has no stated issuance capacity . the diversity of our global funding sources enhances our funding flexibility , limits dependence on any one market or source of funds and generally lowers the cost of funds . our primary global funding sources include : preferred stock in june 2018 , metlife , inc. issued 32,200 shares of 5.625 % non-cumulative preferred stock , series e ( the “ series e preferred stock ” ) with a $ 0.01 par value per share and a liquidation preference of $ 25,000 per share , for aggregate net proceeds of $ 780 million .

transaction fees are paid by customers based on the volume of transactions processed by systems that contain our products . the increase of $ 46,000 in 2020 , or 3 % , compared to 2019 , is mainly attributed to an increase in our licensing in europe . we have historically derived revenues from different geographical areas . the following table sets forth our revenues , by dollar amount ( in thousands ) and as a percentage of annual revenues in different geographical areas , during the past two years : replace_table_token_2_th our revenues from sales in the americas increased by $ 949,000 , or 26 % , in 2020 compared to 2019 , mainly due to an increase in retail sales to the united states market . our revenues from sales in europe increased by $ 370,000 , or 10 % , in 2020 compared to 2019 , mainly due to an increase in retail sales . our revenues from sales in africa decreased by $ 567,000 , or 27 % , in 2020 compared to 2019 , mainly due to a decrease in sales of petroleum products . our revenues from sales in apac increased by $ 1.3 million , or 125 % , in 2020 compared to 2019 , mainly due to an increase in retail sales . our revenues derived from territories outside the united states , which are primarily received in currencies other than the u.s. dollar , have a varying impact upon our total revenues , as a result of fluctuations in such currencies ' exchange rates versus the u.s. dollar . the following table sets forth our revenues , by dollar amount ( in thousands ) and as a percentage of annual revenues by segments , during the past two years : replace_table_token_3_th revenues in 2020 from retail segment increased by $ 2.8 million , or 37 % , compared to 2019 , mainly attributed to an increase in retail sales in apac , the united states and europe . revenues in 2020 from the petroleum segment decreased by $ 674,000 , or 21 % , compared to 2019 , mainly due to a decrease in petroleum sales in africa . 19 cost of revenues and gross margin our cost of revenues , presented by gross profit and gross margin percentage , for each of the past two years has been as follows ( dollar amounts in thousands ) : replace_table_token_4_th cost of sales . cost of sales consists primarily of materials , as well as salaries , fees to subcontractors and related costs of our technical staff that assemble our products . the cost of sales in 2020 compared to 2019 increased by $ 1.2 million , or 19 % , resulted primarily from an increase in sales . gross margin . gross margin in 2020 compared to 2019 remained consistent . operating expenses our operating expenses for each of the past two years have been as follows ( in thousands ) : replace_table_token_5_th research and development . our research and development expenses consist primarily of the salaries and related expenses of our research and development staff , as well as subcontracting expenses and depreciation of long-lived assets . the increase of $ 244,000 , or 7 % , in 2020 compared to 2019 , is primarily attributed to an increase in expenses relating to employees . selling and marketing . our selling and marketing expenses consist primarily of salaries and substantially all the expenses of our sales and marketing and offices in the united states , south africa , europe and israel , as well as expenses related to advertising , professional expenses and participation in exhibitions and tradeshows and doubtful accounts expenses . the increase of $ 299,000 , or 10 % , in 2020 compared to 2019 , is primarily attributed to an increase in employment expenses and provision for doubtful accounts , partially offset by a decrease in exhibition and traveling expenses as a result of the impact of covid-19 . general and administrative . our general and administrative expenses consist primarily of salaries and related expenses of our executive management and financial and administrative staff . these expenses also include costs of our professional advisors ( such as legal and accounting ) , office expenses and insurance . the decrease of $ 421,000 , or 12 % , in 2020 compared to 2019 , is primarily attributed to a decrease in expenses relating to employees . other ( income ) expenses , net . in 2019 , our other ( income ) expenses , net , consisted mainly of a capital gain from the sale of a building by our south african subsidiary . 20 financing expenses , net our financing expenses , net , for each of the past two years , have been as follows ( in thousands ) : replace_table_token_6_th financing expenses , net , consist primarily of financing expense related to interest payable on bank loans , bank commissions and foreign exchange differentials , partially offset by financing income related to interest earned on investments in short-term deposits . the increase in financing expenses , net , of $ 17,000 , or 5 % , in 2020 compared to 2019 is mainly attributed to transaction expenses related to a convertible short-term loan received from shareholder partially offset by exchange rate differentials . income tax benefit , net our income tax benefit , net for each of the past two years , have been as follows ( in thousands ) : replace_table_token_7_th the decrease in our tax benefit , net , of $ 96,000 , or 91 % , in 2020 compared to 2019 is mainly attributed to income tax benefit due to previous years as recognized by our south african subsidiary in 2019. net loss from continuing operations our net loss from continuing operations for each of the past two years has been as follows ( in thousands ) : replace_table_token_8_th the decrease story_separator_special_tag as of december 31 , 2020 , we had long-term loan obligations of $ 15,000 , the vast majority of which are subject to variable interest rates . the carrying values of the loans are equivalent to or approximate their fair market value as they bear interest at approximate market rates . impact of inflation and currency fluctuations our functional and reporting currency is the u.s. dollar . we generate a certain portion of our revenues , and we incur some of our expenses in other currencies . as a result , we are exposed to the risk that the rate of inflation in countries in which we are active other than the united states will exceed the rate of devaluation of such countries ' currencies in relation to the dollar or that the timing of any such devaluation will lag behind inflation in such countries . to date , we have been affected by changes in the rate of inflation or the exchange rates of other countries ' currencies compared to the dollar , and we can not assure you that we will not be adversely affected in the future . there was a deflation of 0.7 % in 2020 in israel . the annual rate of inflation in israel was 0.6 % in 2019. the nis revaluated against the u.s. dollar by approximately 7.0 % and 7.8 % in 2020 and 2019 , respectively . the functional currency of asec , that on march 29 , 2021 , we entered into an agreement to sell , is the polish zloty . a significant amount of this subsidiary 's revenues is earned , and a significant amount of their expenses are incurred , in its functional currency . to the extent that there are fluctuations between the polish zloty against the u.s. dollar , the translation adjustment will be included in our consolidated statements of changes in equity as other comprehensive income or loss and will not impact the consolidated statements of operations . government of israel support programs until 2005 , we participated in programs offered by the iia that supports research and development activities . from our inception through 2007 , we received grants totaling approximately $ 7.0 million ( excluding accrued interest ) from the iia , and as of december 31 , 2020 , we repaid approximately $ 5.9 million in respect of refundable projects . under the terms of these programs , a royalty of 3 % -3.5 % of the sales of products must be paid to the iia , beginning with the commencement of sales of products developed with grant funds and ending when the dollar value of the grant ( including interest based on annual rate of libor applicable to dollar deposits ) is repaid . in 2006 , we decided to cease our participation with the iia . royalties payable with respect to grants received under programs approved after january 1 , 1999 , however , will be subject to interest on the dollar-linked value of the total grants received at an annual rate of libor applicable to dollar deposits . as of december 31 , 2020 , we have received a total of $ 3.4 million from the iia net of royalties paid to it ( or accrued for ) . local manufacturing obligation the terms of the encouragement of research , development and technological innovation in the industry law , 5744-1984 ( formerly known as the law for the encouragement of research and development in industry 5744-1984 ) , and the regulations , guidelines , rules , procedures and benefit tracks thereunder , collectively , the innovation law , also require that the manufacturing of products developed with government grants be performed in israel unless the iia has granted special approval . such approval is not required for the transfer of up to 10 % of the manufacturing capacity in the aggregate , in which case a notice must be provided to the iia and not objected to by the iia within 30 days of such notice . if the iia consents to the manufacture of the products outside of israel , we may be required to pay increased royalties , ranging from 120 % to 300 % of the amount of the iia grant , depending on the percentage of foreign manufacture . these restrictions continue to apply even after we have paid the full amount of royalties payable with respect of the grants . based upon the aggregate grants received to date , we expect that we will continue to pay royalties to the iia to the extent of our sales of our products and related services for the foreseeable future . separate iia consent is required to transfer to third-parties technologies developed through projects in which the government participates . these restrictions do not apply to exports from israel of products developed with these technologies . 26 know-how transfer limitation the innovation law restricts the ability to transfer know-how funded by the iia outside of israel . transfer of iia funded know-how outside of israel requires prior approval of the iia and may be subject to payments to the iia , calculated according to formulae provided under the innovation law . the redemption fee is subject to a cap of six times the total amount of the iia grants , plus interest accrued thereon ( i.e . the total liability to the iia , including accrued interest , multiplied by six ) . if we wish to transfer iia funded know-how , the terms for approval will be determined according to the nature of the transaction and the consideration paid to us in connection with such transfer . approval of transfer of iia funded know-how to another israeli company may be granted only if the recipient abides by the provisions of the innovation law and related regulations , including the restrictions on the transfer of know-how and manufacturing rights outside of israel . change of

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liquidity and capital resources since inception , our principal sources of liquidity have been revenues , proceeds from sales of equity securities , borrowings from banks , the israeli government and shareholders , including convertible loans , proceeds from the exercise of options and warrants as well as proceeds from the divestiture of parts of our businesses . we had cash , cash equivalents and short-term investments representing bank deposits of $ 1,482,000 ( of which an amount of $ 105,000 has been pledged as securities for certain items ) , excluding cash and cash equivalents held for sale , as of december 31 , 2020. the deterioration due to the covid-19 pandemic in poland has led to an almost complete stop to our mass transit ticketing sales business , negatively impacting our cash flow since march 2020. on march 29 , 2021 , we entered into an agreement to sell asec , including its mass transit ticketing activity , as mentioned above . further , in december 2020 and january 2021 , we borrowed a loan , in two tranches aggregating $ 1,600,000 , from our controlling shareholder and another shareholder that , if not converted , would mature in may 2021. based on the projected cash flows and our cash balances as of december 31 , 2020 , our management is of the opinion that without further fund raising or other increase in our cash , we will not have sufficient resources to enable us to continue our operations for a period of at least the next 12 months . as a result , there is a substantial doubt regarding our ability to continue as a going concern .

the land is a potential site for the construction of a new headquarters building . the transaction was accounted for as an asset acquisition . as such , all acquisition-related costs are capitalized . 38 results of operations comparison of the year ended december 31 , 2018 with the year ended december 31 , 2017 our results of operations for the year ended december 31 , 2018 reflect net income of $ 17,725,000 , or $ 2.34 earnings per diluted common share , compared with a net loss of $ 6,893,000 , or $ 0.75 loss per common share , for the year ended december 31 , 2017. losses and loss adjustment expenses were approximately $ 56,301,000 lower in 2018 , attributable to lower catastrophe losses and decreased adverse development . catastrophe losses in 2018 primarily included net losses of approximately $ 16,520,000 from hurricane michael versus net losses of approximately $ 54,000,000 from hurricane irma in 2017. the year-over-year improvement in losses and loss adjustment expenses was offset by a net $ 11,196,000 decrease in net premiums earned , a net $ 3,315,000 decrease in income from investment activities and a $ 1,329,000 increase in interest expense . income tax expense in 2018 was negatively impacted by the derecognition of deferred tax assets of approximately $ 1,825,000 related to unvested restricted stock with market conditions and the nondeductible expense of approximately $ 1,887,000 associated with the reclassified dividends on such restricted stock awards , offset by a lower federal corporate income tax rate effective january 1 , 2018. revenue gross premiums earned for the years ended december 31 , 2018 and 2017 were approximately $ 343,065,000 and $ 358,253,000 , respectively . the decrease in 2018 was primarily attributable to a net decrease in policies in force offset by an increase in the average premium per policy . premiums ceded for the years ended december 31 , 2018 and 2017 were approximately $ 129,643,000 and $ 133,635,000 , respectively , representing 37.8 % and 37.3 % , respectively , of gross premiums earned . the $ 3,992,000 decrease was primarily attributable to an unfavorable adjustment of $ 12,465,000 to premiums ceded in connection with retrospective provisions under certain reinsurance contracts due to losses incurred by hurricane irma during the third quarter of 2017 , offset by the recognition of additional premiums ceded of approximately $ 1,222,000 resulting from the termination of one reinsurance contract during the second quarter of 2018 ( see note 17 — “related party transactions” to our audited consolidated financial statements under item 8 of this annual report on form 10-k for additional information ) and an increase in premiums ceded attributable to a lower retention level for the reinsurance contract year 2019/20 . our premiums ceded represent costs of reinsurance to cover losses from catastrophes that exceed the retention levels defined by our catastrophe excess of loss reinsurance contracts or to assume a proportional share of losses defined in a quota share arrangement . the rates we pay for reinsurance are based primarily on policy exposures reflected in gross premiums earned . for the year ended december 31 , 2018 , premiums ceded included a net decrease of approximately $ 485,000 versus a net increase of approximately $ 5,740,000 for the year ended december 31 , 2017 related to retrospective provisions . see “economic impact of reinsurance contracts with retrospective provisions” under “critical accounting policies and estimates.” 39 net premiums written for the years ended december 31 , 2018 and 2017 totaled approximately $ 206,813,000 and $ 213,711,000 , respectively . net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance costs . the decrease in 2018 resulted primarily from a decrease in gross premiums written during the period due to policy attrition , offset by the decrease in premiums ceded as described above . we had approximately 127,000 policies in force at december 31 , 2018 versus approximately 139,000 policies in force at december 31 , 2017. net premiums earned for the years ended december 31 , 2018 and 2017 were approximately $ 213,422,000 and $ 224,618,000 , respectively , and reflect the gross premiums earned less reinsurance costs as described above . the following is a reconciliation of our net premiums written to net premiums earned for the years ended december 31 , 2018 and 2017 ( amounts in thousands ) : replace_table_token_9_th net investment income for the years ended december 31 , 2018 and 2017 was approximately $ 16,581,000 and $ 11,439,000 , respectively . the year-over-year increase was attributable to an increase in income from limited partnership investments of approximately $ 2,096,000 , an increase of approximately $ 1,358,000 in income from real estate investments , and an increase in interest income from cash and short-term investments . see note 5 — “investments” under net investment income to our consolidated financial statements under item 8 of this annual report on form 10-k. net realized investment gains for the years ended december 31 , 2018 and 2017 were approximately $ 6,183,000 and $ 4,346,000 , respectively . the gains in 2018 resulted primarily from sales intended to rebalance our investment portfolio to mitigate the impact from the rising interest rate trend and to decrease our holdings in municipal bonds as they become less attractive in a low tax rate environment . net unrealized investment losses for the year ended december 31 , 2018 were approximately $ 10,202,000 versus approximately $ 92,000 of net unrealized investment gains for the year ended december 31 , 2017. net unrealized investment gains or losses represent the net change in the fair value of equity securities . story_separator_special_tag at december 31 , 2018 , there was an aggregate unfunded capital balance of $ 16,304,000. see limited partnership investments under note 5 — “investment” to our consolidated financial statements under item 8 of this annual report on form 10-k. real estate acquisition we currently have a 90 % equity interest in fmkt mel jv , llc , a florida limited liability company for which we are not the primary beneficiary . fmkt mel jv 's real estate portfolio consists of outparcels for ground lease or sale , the values of which have increased since the opening of an adjacent retail shopping center which we acquired in december 2016. we have the option to take full ownership of these outparcels by acquiring the remaining 10 % interest . alternatively , we may sell these outparcels and allocate the profits from the sale before liquidating fmkt mel jv . 47 story_separator_special_tag cellpadding= `` 0 `` cellspacing= `` 0 `` style= `` border-collapse : collapse ; font-family : times new roman ; font-size:10pt `` width= `` 100 % `` > ( 2 ) represents the minimum payment of reinsurance premiums under one multi-year reinsurance contract . reinsurance premiums payable after march 31 , 2019 are estimated and subject to subsequent revision as the premiums are determined on a quarterly basis based on the premiums associated with the applicable flood total insured value on the last day of the preceding quarter . ( 3 ) represents the unfunded balance of capital commitments under the subscription agreements related to four limited partnerships in which we hold interests . ( 4 ) amounts represent principal and interest payments over the lives of various long-term debt obligations . see note 14 — “long-term debt” to our consolidated financial statements under item 8 of this annual report on form 10-k. critical accounting policies and estimates we have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the united states of america ( “u.s . gaap” ) . the preparation of these consolidated financial statements requires us to make estimates and judgments to develop amounts reflected and disclosed in our financial statements . material estimates that are particularly susceptible to significant change in the near term are related to our losses and loss adjustment expenses , which include amounts estimated for claims incurred but not yet reported . we base our estimates on various assumptions and actuarial data we believe to be reasonable under the circumstances . actual results may differ materially from these estimates . we believe our accounting policies specific to losses and loss adjustment expenses , reinsurance recoverable , reinsurance with retrospective provisions , deferred income taxes , and stock-based compensation expense involve our most significant judgments and estimates material to our consolidated financial statements . 50 reserves for losses and loss adjustment expenses . we establish reserves for the estimated total unpaid costs of losses including loss adjustment expenses ( lae ) . loss and lae reserves reflect management 's best estimate of the total cost of ( i ) claims that have been incurred , but not yet paid in full , and ( ii ) claims that have been incurred but not yet reported to us ( “ibnr” ) . reserves established by us represent an estimate of the outcome of future events and , as such , can not be considered an exact calculation of our liability . rather , loss reserves represent , we believe , management 's best estimate of our company 's liability based on the application of actuarial techniques and other projection methodologies and taking into consideration other facts and circumstances known at the balance sheet date . the process of establishing loss reserves is complex and inherently imprecise , as it involves using judgment that is affected by many variables such as past loss experience , current claim trends and the prevailing social changes in our claims adjusting process , economic and legal environments . the impact of both internal and external variables on ultimate losses and lae costs is difficult to estimate . our exposure is impacted by both the risk characteristics of the physical locations where we write policies , such as hurricane and tropical storm-related risks , as well as risks associated with varying social , judicial and legislative characteristics in the locations in which we have exposure . in determining loss reserves , we give careful consideration to all available data and actuarial analyses . reserves represent estimates of the ultimate unpaid cost of all losses incurred , including losses for claims that have not yet been reported to our insurance companies . the amount of loss reserves for reported claims consist of case reserves established by our claims department ( based on a case-by-case evaluation of the kind of risk involved , knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss ) and bulk reserves for additional growth on carried case reserves on known claims established by senior management ( based on historical patterns of development on aggregate claims grouped by loss date ) . the amounts of reserves for unreported claims and lae ( incurred but not reported claims , or ibnr ) are determined using our historical information for each line of business adjusted to reflect current conditions . inflation is ordinarily implicitly provided for in the reserving function through analysis of costs , trends and reviews of historical reserving results over multiple years . reserves are closely monitored and are recalculated periodically using the most recent information on reported claims and a variety of actuarial techniques . specifically , claims management personnel complete weekly and ongoing reviews of existing case reserves , new claims , changes to existing case reserves , and paid losses with respect to the current and prior years . as we continue to expand historical data regarding paid and incurred losses , we use this data to develop expected ultimate loss

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sources and uses of cash our cash flows from operating , investing and financing activities for the years ended december 31 , 2018 , 2017 and 2016 are summarized below . cash flows for the year ended december 31 , 2018 net cash provided by operating activities for the year ended december 31 , 2018 was approximately $ 28,595,000 , which consisted primarily of cash received from net premiums written and reinsurance recoveries of approximately $ 128,300,000 less cash disbursed for operating expenses , losses and loss adjustment expenses and interest payments . net cash used in investing activities of $ 17,678,000 was primarily due to the purchases of fixed-maturity and equity securities of $ 165,424,000 , the purchases of short-term and other investments of $ 201,538,000 , the purchases of real estate investments of $ 7,472,000 , and the limited partnership investments of $ 7,182,000 , offset by the proceeds from sales of fixed-maturity and equity securities of $ 148,248,000 , the proceeds from redemptions and maturities of fixed-maturity securities of $ 82,177,000 , and the proceeds from sales and maturities of short-term and other investments of $ 135,256,000. net cash used in financing activities totaled $ 27,288,000 , which was primarily due to $ 21,166,000 used in our share repurchases , $ 10,351,000 of net cash dividend payments and the repayment of long-term debt of $ 1,127,000 , offset by the proceeds from the issuance of 4.55 % promissory note of $ 6,000,000. cash flows for the year ended december 31 , 2017 net cash provided by operating activities for the year ended december 31 , 2017 was approximately $ 16,635,000 , which consisted primarily of cash received from net premiums written and reinsurance recoveries less cash disbursed for operating expenses , losses and loss adjustment expenses and interest payments .

see `` risk factors— commodity prices fluctuate widely , and low prices for an extended period would likely have a material adverse impact on our business `` and `` risk factors— our future performance depends on our ability to find or acquire additional natural gas and oil reserves that are economically recoverable `` in item 1a . 38 we account for our derivative instruments on a mark-to-market basis with changes in fair value recognized in operating revenues in the consolidated statement of operations . as a result of these mark-to-market adjustments associated with our derivative instruments , we will experience volatility in our earnings due to commodity price volatility . refer to “ impact of derivative instruments on operating revenues ” below and note 6 of the notes to the consolidated financial statements for more information . commodity prices have been and are expected to remain volatile . we believe that we are well-positioned to manage the challenges presented in a volatile commodity pricing environment by : continuing to exercise discipline in our capital program with the expectation of funding our capital expenditures with operating cash flows , and if required , borrowings under our revolving credit facility . continuing to optimize our drilling , completion and operational efficiencies , resulting in lower operating costs per unit of production . continuing to manage our balance sheet , which we believe provides sufficient availability under our revolving credit facility and existing cash balances to meet our capital requirements and maintain compliance with our debt covenants . continuing to manage price risk by strategically hedging our production . while we are unable to predict future commodity prices , in the e vent that commodity prices significantly decline , management would test the recoverability of the carrying value of its oil and gas properties and , if necessary , record an impairment charge . financial condition capital resources and liquidity our primary sources of cash in 2018 were from the sale of natural gas and crude oil production and proceeds from the sale of assets . these cash flows were primarily used to fund our capital expenditures , contributions to our equity method investments , principal and interest payments on debt , repurchase of shares of our common stock and payment of dividends . see below for additional discussion and analysis of cash flow . the borrowing base under the terms of our revolving credit facility is redetermined annually in april . in addition , either we or the banks may request an interim redetermination twice a year or in connection with certain acquisitions or divestitures of oil and gas properties . effective april 18 , 2018 , the borrowing base and available commitments were reaffirmed at $ 3.2 billion and $ 1.7 billion , respectively . as of december 31 , 2018 , we had $ 7.0 million of borrowings outstanding and unused commitments of $ 1.8 billion under our revolving credit facility . a decline in commodity prices could result in the future reduction of our borrowing base and related commitments under our revolving credit facility . unless commodity prices decline significantly from current levels , we do not believe that any such reductions would have a significant impact on our ability to service our debt and fund our drilling program and related operations . we strive to manage our debt at a level below the available credit line in order to maintain borrowing capacity . our revolving credit facility includes a covenant limiting our total debt . we believe that , with internally generated cash flow and availability under our revolving credit facility , we have the capacity to finance our spending plans . at december 31 , 2018 , we were in compliance with all restrictive financial covenants for both our revolving credit facility and senior notes . see note 5 of the notes to the consolidated financial statements for further details regarding our debt . 39 cash flows our cash flows from operating activities , investing activities and financing activities are as follows : replace_table_token_14_th operating activities . operating cash flow fluctuations are substantially driven by commodity prices , changes in our production volumes and operating expenses . commodity prices have historically been volatile , primarily as a result of supply and demand for natural gas and crude oil , pipeline infrastructure constraints , basis differentials , inventory storage levels and seasonal influences . in addition , fluctuations in cash flow may result in an increase or decrease in our capital expenditures . see `` results of operations `` for a review of the impact of prices and volumes on revenues . our working capital is substantially influenced by the variables discussed above and fluctuates based on the timing and amount of borrowings and repayments under our revolving credit facility , repayments of debt , the timing of cash collections and payments on our trade accounts receivable and payable , respectively , repurchases of our securities and changes in the fair value of our commodity derivative activity . from time to time , our working capital will reflect a deficit , while at other times it will reflect a surplus . this fluctuation is not unusual . at december 31 , 2018 and 2017 , we had a working capital surplus of $ 257.3 million and $ 134.9 million , respectively . we believe we have adequate liquidity and availability under our revolving credit facility available to meet our working capital requirements over the next twelve months . net cash provided by operating activities in 2018 increase d by $ 206.7 million compared to 2017 . this increase was primarily due to higher operating revenues , partially offset by higher operating expenses ( excluding non-cash expenses ) and unfavorable changes in working capital and other assets and liabilities . the increase in operating revenues was primarily due to an increase in realized natural gas and crude oil prices and higher equivalent production . story_separator_special_tag generally , if the related commodity index declines , the price that we receive for our production will also decline . therefore , the amount of revenue that we realize is determined by certain factors that are beyond our control . however , management may mitigate this price risk on a portion of our anticipated production with the use of financial commodity derivatives , including collars and swaps to reduce the impact of sustained lower pricing on our revenue . under both arrangements , there is also a risk that the movement of index prices may result in our inability to realize the full benefit of an improvement in market conditions . results of operations 2018 and 2017 compared we reported net income for 2018 of $ 557.0 million , or $ 1.25 per share , compared to net income for 2017 of $ 100.4 million , or $ 0.22 per share . the increase in net income was primarily due to higher operating revenues , lower operating expenses and higher earnings on equity method investments , partially offset by higher income tax expense . 45 revenue , price and volume variances our revenues vary from year to year as a result of changes in commodity prices and production volumes . below is a discussion of revenue , price and volume variances . replace_table_token_18_th replace_table_token_19_th natural gas revenues the increase in natural gas revenues of $ 375.1 million was due to higher natural gas prices and production . the increase in production was a result of an increase in our drilling and completion activities in the marcellus shale . crude oil and condensate revenues the decrease in crude oil and condensate revenues of $ 163.6 million was due to lower production , partially offset by higher crude oil prices . the decrease in production was the result of the sale of our eagle ford shale assets in february 2018. impact of derivative instruments on operating revenues replace_table_token_20_th brokered natural gas replace_table_token_21_th 46 the $ 23.4 million increase in brokered natural gas margin is a result of an increase in brokered activity . this increase was due to higher volumes associated with natural gas purchases that were required to satisfy certain sales obligations . operating and other expenses replace_table_token_22_th total costs and expenses from operations decrease d by $ 402.3 million from 2017 to 2018 . the primary reasons for this fluctuation are as follows : direct operations decrease d $ 32.7 million largely due to the sale of our oil and gas properties in west virginia in the third quarter of 2017 and the eagle ford shale assets in the first quarter of 2018 , partially offset by an increase in operating costs primarily driven by higher marcellus shale production . transportation and gathering increase d $ 15.3 million due to higher throughput as a result of higher marcellus shale production , partially offset by a decrease in transportation and gathering related to the sale of our eagle ford shale assets in the first quarter of 2018. brokered natural gas increase d $ 168.9 million from 2017 to 2018 . see the preceding table titled `` brokered natural gas `` for further analysis . taxes other than income decrease d $ 10.8 million due to $ 9.3 million lower production taxes and $ 5.5 million lower ad valorem taxes resulting from the sale of our oil and gas properties in west virginia in the third quarter of 2017 and the eagle ford shale assets in the first quarter of 2018. these decrease s were partially offset by $ 4.7 million higher drilling impact fees due to an increase in rates associated with higher natural gas prices . exploration increase d $ 92.3 million as a result of an increase in exploratory dry hole expense of $ 93.9 million . the exploratory dry hole costs in 2018 relate to our activities in west texas and ohio . these increases were partially offset by a decrease of $ 2.7 million in geological and geophysical costs associated with our exploration activities . depreciation , depletion and amortization decrease d $ 151.3 million primarily due to lower dd & a of $ 175.6 million and lower accretion of asset retirement obligations of $ 2.7 million , partially offset by higher amortization of undeveloped leases of $ 29.6 million . the decrease in dd & a was primarily due to a decrease of $ 212.1 million related to a lower dd & a rate of $ 0.45 per mcfe for 2018 compared to $ 0.73 per mcfe for 2017 , partially offset by an increase of $ 36.5 million due to higher equivalent production volumes in the marcellus shale . the lower dd & a rate was primarily due to lower cost reserve additions and sales of higher dd & a rate fields . amortization of undeveloped leasehold costs increased due to higher amortization associated with our exploration areas . 47 impairment of oil and gas properties was $ 482.8 million in 2017 due to a $ 414.3 million impairment of oil and gas properties located in south texas and $ 68.6 million impairment of oil and gas properties and related pipeline assets in west virginia , virginia and ohio . there were no impairments of oil and gas properties in 2018. general and administrative decrease d $ 1.1 million . there were no changes in general and administrative expenses that were individually significant . earnings ( loss ) on equity method investments the increase in earnings ( loss ) on equity method investments is due to an other than temporary impairment of $ 95.9 million associated with our equity method investment in constitution that was recognized in 2017 , partially offset by the recognition of our proportionate share of net earnings from our equity method investment in meade , which commenced operations in late 2018 . loss on sale of assets during 2018 , we recognized a net aggregate loss of $ 16.3 million

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cash flows used in investing activities decrease d by $ 412.8 million from 2017 to 2018 due to $ 562.9 million higher proceeds from the sale of assets primarily due to the divestiture of our eagle ford shale assets in february 2018 and our haynesville shale assets in july 2018. this change was partially offset by $ 129.9 million higher capital expenditures and $ 20.2 million higher capital contributions associated with our equity method investments . cash flows used in investing activities increased by $ 352.9 million from 2016 to 2017 due to an increase of $ 389.4 million in capital expenditures and $ 28.6 million higher capital contributions associated with our equity method investments , partially offset by $ 65.0 million higher proceeds from the sale of assets . financing activities . cash flows used in financing activities increase d by $ 1,078.8 million from 2017 to 2018 due to $ 749.0 million higher repurchases of our common stock in 2018 , $ 297.0 million of higher net repayments of debt primarily related to maturities of certain of our senior notes during 2018 and $ 32.5 million of higher dividend payments related to an increase in our dividend rate in 2018. cash flows provided by financing activities decreased by $ 664.3 million from 2016 to 2017 due to $ 995.3 million lower net proceeds from the issuance of common stock in 2016 , $ 123.7 million of repurchases of our common stock in 2017 and $ 42.7 million of higher dividend payments related to an increase in the dividend rate in 2017 and the issuance of common stock 40 in 2016. these decreases were partially offset by $ 497.0 million of lower net repayments of debt due to the repayment of the outstanding balance on our revolving credit facility and certain of our senior notes with the proceeds from the issuance of common stock in 2016. capitalization information about our capitalization is as follows : replace_table_token_15_th _ ( 1 ) includes $ 7.0 million of borrowings outstanding under our revolving credit

this growth in the number of gas utility customers reflects continued high demand for natural gas across the residential and commercial customer segments . our gas utility continued to execute on its infrastructure replacement and system betterment program with record capital expenditures in fiscal 2018. our total capital expenditures were nearly $ 340 million which included record spending on replacement and betterment capital expenditures . in addition to these distribution system expenditures , we spent more than $ 30 million on buildings and grounds improvements , including the renovation of existing buildings and a new leed certified headquarters building which is scheduled to be completed in fiscal 2019. we also made significant progress on our it project to replace our core general ledger system . we will continue to invest in this and other technology changes during fiscal 2019 and beyond , with a number of operations-related it initiatives scheduled over the next several years . in october 2017 , ugi utilities issued $ 125 million of variable-rate term loan debt to provide additional long-term financing of its infrastructure replacement and betterment capital program as well as it initiatives . later in fiscal 2018 , we increased the borrowing capacity under our revolving credit agreement to $ 450 million from $ 300 million previously ( see note 7 to consolidated financial statements ) . we believe we have sufficient liquidity from our revolving credit facility , cash flow from operations and the ability to issue long-term debt at attractive rates to fund business operations during fiscal 2019 ( see “ financial condition and liquidity ” below ) . analysis of results of operations the following analyses compare the company 's results of operations for fiscal 2018 , fiscal 2017 and fiscal 2016 . 14 fiscal 2018 compared with fiscal 2017 replace_table_token_0_th ( a ) gas utility revenues , total margin , operating income and income before income taxes were reduced by $ 24.1 million to record the effects of income tax savings that accrued during the period january 1 , 2018 to june 30 , 2018 , in accordance with a papuc order issued may 17 , 2018 , related to the tcja ( see notes 4 and 8 to consolidated financial statements ) . although gas utility 's income before income taxes for fiscal 2018 was negatively impacted by this reduction in revenues , the after-tax impact of this reduction was offset by a reduction in fiscal 2018 income tax expense principally as a result of the lower federal income tax rate . the impact of the papuc order on revenues for the period july 1 , 2018 to september 30 , 2018 was not material . ( b ) gas utility 's total margin represents total revenues less total cost of sales . electric utility 's total margin represents total revenues less total cost of sales and electric utility gross receipts taxes , of $ 5.0 million and $ 4.7 million during fiscal 2018 and fiscal 2017 , respectively . for financial statement purposes , electric utility gross receipts taxes are included in “ operating and administrative expenses ” on the consolidated statements of income ( but are excluded from electric utility operating expenses presented above ) . ( c ) deviation from average heating degree days for the 15-year period 2000-2014 based upon weather statistics provided by the national oceanic and atmospheric administration ( “ noaa ” ) for airports located within gas utility 's service territory . temperatures in gas utility 's service territory during fiscal 2018 were 2.1 % warmer than normal but 10.1 % colder than fiscal 2017. gas utility core market volumes increased 9.8 bcf ( 13.9 % ) reflecting , among other things , the effects of the colder weather and growth in the number of core market customers . total gas utility distribution system throughput increased 20.9 bcf principally reflecting higher large firm delivery service volumes and the higher core market volumes . gas utility 's core market customers comprise firm- residential , commercial and industrial ( “ retail core-market ” ) customers who purchase their gas from gas utility and , to a much lesser extent , residential and small commercial customers who purchase their gas from others . these increases were partially offset by lower interruptible delivery service volumes . electric utility kilowatt-hour sales were 5.8 % higher than fiscal 2017 , principally reflecting the effects of colder heating-season weather on heating-related sales , and the effects of warmer summer weather on air-conditioning sales . ugi utilities revenues increased $ 204.8 million reflecting a $ 195.7 million increase in gas utility revenues and a $ 9.1 million increase in electric utility revenues . in accordance with a papuc order issued may 17 , 2018 , during fiscal 2018 gas utility 's revenues were reduced by $ 24.1 million , and an associated regulatory liability was established , to record the effects of tax savings that accrued during the period january 1 , 2018 to june 30 , 2018 as a result of the tcja . excluding the impact on revenues from 15 the papuc order , gas utility revenues increased $ 218.8 million principally reflecting an increase in core market revenues ( $ 143.0 million ) , higher off-system sales revenues ( $ 54.6 million ) , and higher large firm delivery service revenues ( $ 21.2 million ) . the $ 143.0 million increase in gas utility core market revenues principally reflects the effects of the higher core market throughput ( $ 70.7 million ) , higher average retail core market purchased gas cost ( “ pgc ” ) rates ( $ 61.4 million ) and the increase in png base rates effective october 20 , 2017 ( $ 10.9 million ) . story_separator_special_tag in november 2016 , ugi gas received papuc approval to establish a dsic tariff mechanism , capped at 5 % of distribution charges billed to customers , effective january 1 , 2017. ugi gas began recovering revenue under the mechanism effective july 1 , 2018 , as it exceeded the threshold amount of dsic-eligible plant agreed upon in the settlement of its recent base rate case during the third quarter of fiscal 2018. manor township , pennsylvania natural gas incident complaint . in connection with a july 2 , 2017 , explosion in manor township , lancaster county , pa , that resulted in the death of one company employee and injuries to two company employees and one sewer authority employee , and destroyed two residences and damaged several other homes , the papuc bureau of investigation and enforcement ( “ bie ” ) filed a formal complaint at the papuc in which bie alleges that the company committed multiple violations of federal and state gas pipeline regulations in connection with its emergency response leading up to the explosion , and requested that the papuc order the company to pay approximately $ 2.1 million in civil penalties , which is the maximum allowable fine . on november 16 , 2018 , the company filed its formal written answer contesting the bie complaint . manufactured gas plants from the late 1800s through the mid-1900s , ugi utilities and its current and former subsidiaries owned and operated a number of manufactured gas plants ( “ mgps ” ) prior to the general availability of natural gas . some constituents of coal tars and other residues of the manufactured gas process are today considered hazardous substances under the superfund law and may be present on the sites of former mgps . between 1882 and 1953 , ugi utilities owned the stock of subsidiary gas companies in pennsylvania and elsewhere and also operated the businesses of some gas companies under agreement . by the early 1950s , ugi utilities divested all of its utility operations other than certain pennsylvania operations , including those now constituting ugi gas and electric utility . beginning in 2006 and 2008 , ugi utilities also owned and operated two acquired subsidiaries ( cpg and png ) with similar histories of owning , and in some cases operating , mgps in pennsylvania . png and cpg were merged into ugi utilities effective october 1 , 2018. prior to the utilities merger , each of ugi utilities and its subsidiaries , cpg and png , were subject to a consent order and agreement ( “ coa ” ) with the pennsylvania department of environmental protection ( “ padep ” ) to address the remediation of specified former mgp sites in pennsylvania . in accordance with the coas , as amended to recognize the merger , ugi utilities , as the successor to cpg and png , is required to either obtain a certain number of points per calendar year based on defined eligible 21 environmental investigatory and or remedial activities at the mgps and in the case of one coa , an additional obligation to plug specific natural gas wells , or make expenditures for such activities in an amount equal to an annual environmental cost cap . the cost cap of the three coas , in the aggregate , is $ 5.4 million . the three coas are scheduled to terminate at the end of 2031 , 2020 , and 2020. at september 30 , 2018 and 2017 , our aggregate estimated accrued liabilities for environmental investigation and remediation costs related to the coas totaled $ 51.0 million and $ 54.3 million , respectively . ugi utilities has recorded associated regulatory assets for these costs because recovery of these costs from customers is probable . ( see note 4 to the consolidated financial statements ) . ugi utilities does not expect the costs for investigation and remediation of hazardous substances at pennsylvania mgp sites to be material to its results of operations because ugi utilities receives ratemaking recovery of actual environmental investigation and remediation costs associated with the sites covered by the coas . this ratemaking recognition reconciles the accumulated difference between historical costs and rate recoveries with an estimate of future costs associated with the sites . from time to time , ugi utilities is notified of sites outside pennsylvania on which private parties allege mgps were formerly owned or operated by ugi utilities or owned or operated by a former subsidiary . such parties generally investigate the extent of environmental contamination or perform environmental remediation . management believes that under applicable law , ugi utilities should not be liable in those instances in which a former subsidiary owned or operated an mgp . there could be , however , significant future costs of an uncertain amount associated with environmental damage caused by mgps outside pennsylvania that ugi utilities directly operated , or that were owned or operated by a former subsidiary of ugi utilities if a court were to conclude that ( 1 ) the subsidiary 's separate corporate form should be disregarded , or ( 2 ) ugi utilities should be considered to have been an operator because of its conduct with respect to its subsidiary 's mgp . at september 30 , 2018 and 2017 , neither the undiscounted nor the accrued liability for environmental investigation and cleanup costs for ugi utilities ' mgp sites outside pennsylvania was material . related party transactions ugi provides certain financial and administrative services to ugi utilities . ugi bills ugi utilities monthly for all direct expenses incurred by ugi on behalf of ugi utilities and an allocated share of indirect corporate expenses incurred or paid with respect to services provided to ugi utilities . the allocation of indirect ugi corporate expenses to ugi utilities utilizes a weighted , three-component formula comprising revenues , operating expenses and net assets employed and considers ugi utilities ' relative percentage of such items

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cash used by investing activities was $ 331.7 million in fiscal 2018 , $ 320.5 million in fiscal 2017 , and $ 252.5 million in fiscal 2016 . the increase in capital expenditures in fiscal 2018 compared to fiscal 2017 principally reflects higher expenditures associated with buildings and grounds improvements and higher replacement and betterment capital expenditures , partially offset by lower it capital expenditures . the increase in capital expenditures in fiscal 2017 compared to fiscal 2016 principally reflects higher capital expenditures associated with a pipeline expansion project and higher it capital expenditures . fiscal 2018 cash flow from investing activities includes a $ 1.9 million decrease in restricted cash in futures brokerage accounts compared to a $ 2.5 million increase in fiscal 2017 and a $ 6.0 million decrease in fiscal 2016. changes in restricted cash in futures brokerage accounts are generally the result of changes in underlying commodity prices . financing activities . cash provided by financing activities was $ 48.2 million in fiscal 2018 , $ 79.3 million in fiscal 2017 and $ 46.9 million in fiscal 2016 . financing activities cash flows are primarily the result of issuances and repayments of long-term debt , revolving credit agreement borrowings and cash dividends to ugi . in fiscal 2018 , ugi utilities entered into a $ 125 million unsecured term loan agreement and used the net proceeds principally to reduce revolving credit balances and for general corporate purposes . also in fiscal 2018 , ugi utilities repaid $ 40 million of maturing medium-term notes and $ 4.7 million of term loan debt . during fiscal 2017 , ugi utilities issued $ 100 million of senior notes and used the net proceeds principally to fund infrastructure replacement and betterment capital expenditures , it initiatives and for general corporate purposes . fiscal 2016 includes the issuance of $ 300 million of senior notes , the proceeds of which were used to repay maturing long-term debt and short-term borrowings . capital expenditures in the following table , we present capital expenditures by business segment for fiscal 2018 , fiscal 2017 and fiscal 2016 .

for the semiconductor market , our growth is driven by shrinking line widths and process nodes of 45 nanometers and smaller , the use of multiple layers of new materials such as copper and low-k dielectrics and increasing device complexity . our products are used primarily in laboratories to speed new product development and increase yields by enabling 3d wafer metrology , defect analysis , root cause failure analysis and circuit edit for modifying device structures . in the data storage market , our products offer 3d metrology for thin film head processing and root cause failure analysis . factors affecting our business include advances in perpendicular recording head technology , such as rapidly increasing storage densities that require smaller recording heads , thinner geometries and materials that increase the complexity of device structures . the research and industry market segment includes universities , public and private research laboratories and customers in a wide range of industries , including automobiles , aerospace , forensics , metals , mining and petrochemicals . growth in these markets is driven by global corporate and government funding for research and development in materials science and by development of new products and processes based on innovations in materials at the nanoscale . our solutions provide researchers and manufacturers with atomic-level resolution images and permit development , analysis and production of advanced products . our products are also used in mineral concentration analysis , root cause failure analysis and quality control applications . the life sciences market segment includes universities , government laboratories and research institutes engaged in biotech and life sciences applications , as well as pharmaceutical , biotech and medical device companies and hospitals . our products ' ultra-high resolution imaging allows cell biologists and drug researchers to create detailed 3d reconstructions of complex biological structures . our products are also used in particle analysis and a range of pathology and quality control applications . sales and backlog net sales increased to $ 634.2 million in 2010 compared to $ 577.3 million in 2009. this increase reflects increases in electronics and service and components , partially offset by decreases in research and industry and life sciences as described more fully below . at december 31 , 2010 , our total backlog was $ 471.9 million compared to $ 354.6 million at december 31 , 2009. as discussed in the section titled “business-backlog , ” orders received in a particular period that can not be built and shipped to the customer in that period represent backlog . outlook for 2011 we enter 2011 with record backlog of unfilled orders . in addition , we increased our manufacturing capacity in the latter half of 2010 and revenue in the fourth quarter of 2010 was above prior quarters . these factors lead us to believe that we will see revenue growth in the first half of 2011. for the second half of 2011 , we have less visibility , but our pipeline of potential orders is strong . as a result , we expect that 2011 will show improved revenue growth over what we have seen in recent years . this growth is driven by a rebound in our research and industry market , continued recovery of the semiconductor industry and continuing penetration of our tools into emerging markets . a change in any of these factors could adversely affect our business . our gross margins improved in the second half of 2010 , primarily because of product mix , increased volume , a better competitive pricing environment and operational improvements . we expect these factors to continue to influence our gross margins in 2011. accordingly , we expect gross margins for the full year of 2011 to improve year over year from 2010 . 29 operating expenses are expected to increase compared with 2010 , as we invest in new products and expanded markets . the effective tax rate for 2011 will be higher than in 2010. however , the combination of higher revenue and improved gross margins are expected to generate pre-tax earnings growth for the full year . results of operations the following table sets forth our statement of operations data ( in thousands ) : replace_table_token_8_th the following table sets forth our statement of operations data as a percentage of net sales : replace_table_token_9_th ( 1 ) percentages may not add due to rounding . net sales increased $ 56.9 million , or 9.9 % , to $ 634.2 million in 2010 compared to $ 577.3 million in 2009 and decreased $ 21.9 million , or 3.6 % , in 2009 compared to $ 599.2 million in 2008. the factors affecting net sales are discussed in more detail in the net sales by segment discussion below . currency fluctuations decreased net sales by approximately $ 6.6 million in 2010 compared to 2009 as approximately 68 % of our net sales were denominated in foreign currencies that fluctuated against the u.s. dollar . currency fluctuations decreased net sales by approximately $ 9.6 million in 2009 compared to 2008 as approximately 66 % of our net sales were denominated in foreign currencies that declined in strength against the u.s. dollar . a significant portion of our revenue is denominated in foreign currencies , especially the euro . as the u.s. dollar strengthens against these foreign currencies , this generally has the effect of reducing net sales and backlog . 30 net sales by segment net sales by market segment ( in thousands ) and as a percentage of net sales were as follows : replace_table_token_10_th electronics the $ 96.4 million , or 76.2 % , increase in electronics sales in 2010 compared to 2009 was primarily due to an increase in semiconductor and data storage company capital spending for capacity expansion and new process development . we realized increases in unit sales of our wafer-level and small dualbeam products . story_separator_special_tag this expectation is down from our original estimate of 50 positions and is driven by improved business conditions in the netherlands . the move will include severance costs , expected costs to transfer the product line , costs to train brno employees and costs to build-out the existing brno facility to add capacity for the additional small dualbeam production . severance costs were accrued as of july 4 , 2010 , as such amounts were probable and reasonably estimable . we adjusted our severance accrual in the second half of 2010 to reflect the reduced estimate of employees subject to the severance agreement . the principal goal of the product line move is to reduce manufacturing costs for the small dualbeam product . in addition to the product line move , the april 2010 restructuring involves organizational changes designed to improve the efficiency of our finance , research and development and other corporate programs and improve our market focus . we incurred a total of $ 7.3 million of costs related to the april 2010 restructuring plan in 2010 and expect to incur an additional $ 1.0 million to $ 1.7 million as detailed in the table below . presently , all of the costs described are expected to result in cash expenditures and we currently expect the total cost of the restructuring to be approximately $ 8.3 million to $ 9.0 million . a summary of the expenses related to our april 2010 restructuring plan is as follows : restructuring activity expense type approximate range of expected costs expected timing severance costs related to work force reduction and reorganization ( approximately 30 employees ) $ 7.2 million – $ 7.7 million in cash expense $ 6.4 million incurred . remainder through the second quarter of 2011 product line transfer , training of brno employees and facility build-out in brno $ 1.1 million - $ 1.3 million in cash expense $ 0.9 million incurred . remainder through the second quarter of 2011 the actions related to our april 2010 restructuring plan are expected to reduce manufacturing costs and operating expenses and increase cash flow by approximately $ 4.5 million per year once the move to the czech republic is complete . for information regarding the related accrued liability , see note 13 of notes to consolidated financial statements . 36 other income ( expense ) , net other income ( expense ) items include interest income , interest expense , foreign currency gains and losses and other miscellaneous items . interest income represents interest earned on cash and cash equivalents and investments in marketable securities and totaled $ 2.6 million in 2010 , $ 2.9 million in 2009 and $ 14.4 million in 2008. the decrease in 2010 compared to 2009 was primarily due to the use of $ 10.9 million of cash for the repayment of debt in 2010 and lower market interest rates . the decrease in 2009 compared to 2008 was primarily due to lower interest rates and a decrease in our invested balances , primarily due to the use of $ 13.1 million of cash and $ 194.9 million of cash , respectively , for the repayment of debt in 2009 and 2008. interest expense for 2010 , 2009 and 2008 included interest expense related to our 2.875 % convertible notes . interest expense in 2008 also included interest related to our 5.5 % convertible notes , which were repaid in full in january 2008 and $ 6.3 million of non-cash interest related to the effects of the adoption , on january 1 , 2009 , of accounting guidance regarding debt instruments that may be settled in cash upon conversion . see note 22 of notes to consolidated financial statements . the amortization of capitalized note issuance costs related to our convertible note issuances is also included as a component of interest expense . interest expense in 2010 and 2009 included $ 0.1 million and $ 0.3 million , respectively , related to the write-off of note issuance costs in connection with the early redemption of a total of $ 11.0 million and $ 15.0 million , respectively , of our 2.875 % convertible notes . interest expense in 2008 included $ 0.2 million of premiums and commissions paid on the repurchase of the remaining $ 45.9 million of our 5.5 % convertible notes as well as the write-off of $ 0.1 million of related deferred note issuance costs and $ 0.4 million of premiums and commissions paid on the repurchase of $ 148.9 million principal amount of our $ 150.0 million zero coupon convertible notes as well as the write-off of $ 0.2 million of related deferred note issuance costs . assuming no additional note repurchases , amortization of our remaining convertible note issuance costs will total approximately $ 0.1 million per quarter through the second quarter of 2013. other , net primarily consists of foreign currency gains and losses on transactions and realized and unrealized gains and losses on the changes in fair value of derivative contracts entered into to hedge these transactions . other , net in 2010 included a $ 0.1 million gain on the early redemption of a portion of our 2.875 % convertible notes . other , net in 2009 included a $ 2.0 million gain on the early redemption of our 2.875 % notes and a $ 1.3 million charge for cash flow hedge ineffectiveness , foreign currency gains and losses on transactions and realized and unrealized gains and losses on the changes in fair value of derivative contracts entered into to hedge these transactions . other , net in 2008 included a loss of $ 1.3 million related to ineffectiveness of certain of our cash flow hedges due to increased currency volatility and a $ 1.3 million gain related to the disposal of an insignificant sales subsidiary . in addition , during the fourth quarter of 2008 , we classified our ars as trading securities and , therefore

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liquidity and capital resources sources of liquidity and capital resources our sources of liquidity and capital resources as of december 31 , 2010 consisted of $ 343.8 million of cash , cash equivalents , short-term restricted cash and short-term investments , $ 38.7 million in non-current investments , $ 41.4 million of long-term restricted cash , $ 100.0 million available under revolving credit facilities , as well as potential future cash flows from operations . restricted cash relates to deposits to secure bank guarantees for customer prepayments that expire through 2015. we believe that we have sufficient cash resources and available credit lines to meet our expected operational and capital needs for at least the next twelve months from december 31 , 2010. in 2010 , cash and cash equivalents and short-term restricted cash increased $ 158.4 million to $ 299.7 million as of december 31 , 2010 from $ 141.3 million as of december 31 , 2009 primarily as a result of $ 75.0 million provided by operations , $ 98.9 million from the redemption of ars , $ 8.0 million of proceeds from the exercise of employee stock options and the net redemption of $ 81.5 million of marketable securities . these factors were partially offset by $ 8.9 million used for the purchase of property , plant and equipment , $ 59.6 million of repayments on our ubs line of credit , $ 10.9 million used for the early redemption of $ 11.0 million par value of our 2.875 % convertible subordinated notes and a $ 9.6 million unfavorable impact of exchange rate changes .

— during fiscal 2014 , we repurchased 27.0 million shares of our common stock for $ 1.5 billion . earnings per share reflect the benefit of the stock repurchase program . in january 2014 , our board of directors authorized our 15 th stock repurchase program for an additional $ 2 billion . 24 the following is a discussion of our consolidated operating results , followed by a discussion of our segment operating results . adjusted measures exclude certain items affecting comparability . see “adjusted financial measures” below . net sales : consolidated net sales for fiscal 2014 totaled $ 27.4 billion , a 6 % increase over $ 25.9 billion in fiscal 2013. the increase reflected a 4 % increase from new stores , a 3 % increase from same store sales and a 1 % increase from stp , offset by a 2 % decrease attributable to the 53 rd week included in fiscal 2013. foreign currency exchange rates had an immaterial impact on fiscal 2014 net sales . consolidated net sales for fiscal 2013 totaled $ 25.9 billion , a 12 % increase over $ 23.2 billion in fiscal 2012. the increase reflected a 7 % increase from same store sales , a 3 % increase from new stores and a 2 % increase from the impact of the 53 rd week in the fiscal 2013 calendar . foreign currency exchange rates had an immaterial impact on fiscal 2013 net sales . same store sales increases in the u.s. for fiscal 2014 were driven by an increase in average ticket as well as a slight increase in customer traffic . we believe unfavorable weather in many regions where we operate had a negative impact on sales during the first and fourth quarters of fiscal 2014. sales from jewelry and accessories , and home fashions performed particularly well in fiscal 2014. geographically , in the u.s. , sales were strongest in the west coast and florida . same store sales at tjx europe were above the consolidated average while same store sales at tjx canada were below the consolidated average . same store sales increases in the u.s. for fiscal 2013 were driven by an increase in customer traffic , and to a lesser extent an increase in the value of the average transaction . sales of both apparel and home fashions were equally strong . geographically , same store sales increases in the u.s. were strong throughout most regions with florida and the southwest performing above the consolidated average and virtually all other regions close to the consolidated average . our foreign segments both posted same store sales increases , with tjx europe above the consolidated average and tjx canada below the consolidated average . we define same store sales to be sales of those stores that have been in operation for all or a portion of two consecutive fiscal years , or in other words , stores that are starting their third fiscal year of operation . we classify a store as a new store until it meets the same store sales criteria . we determine which stores are included in the same store sales calculation at the beginning of a fiscal year and the classification remains constant throughout that year , unless a store is closed . we calculate same store sales results by comparing the current and prior year weekly periods that are most closely aligned . relocated stores and stores that have increased in size are generally classified in the same way as the original store , and we believe that the impact of these stores on the consolidated same store percentage is immaterial . same store sales of our foreign segments are calculated on a constant currency basis , meaning we translate the current year 's same store sales of our foreign segments at the same exchange rates used in the prior year . this removes the effect of changes in currency exchange rates , which we believe is a more accurate measure of segment operating performance . we define customer traffic to be the number of transactions in stores included in the same store sales calculation and define average ticket to be the average retail price of the units sold . we define average transaction to be the average dollar value of transactions included in the same store sales calculation . 25 the following table sets forth our consolidated operating results from continuing operations as a percentage of net sales on an as reported and as adjusted basis : replace_table_token_4_th * see “adjusted financial measures” below . * * figures may not foot due to rounding . impact of foreign currency exchange rates : our operating results are affected by foreign currency exchange rates as a result of changes in the value of the u.s. dollar in relation to other currencies . two ways in which foreign currency exchange rates affect our reported results are as follows : — translation of foreign operating results into u.s. dollars : in our financial statements , we translate the operations of tjx canada and tjx europe from local currencies into u.s. dollars using currency rates in effect at different points in time . significant changes in foreign exchange rates between comparable prior periods can result in meaningful variations in consolidated net sales , net income and earnings per share growth as well as the net sales and operating results of these segments . currency translation generally does not affect operating margins , or affects them only slightly , as sales and expenses of the foreign operations are translated at essentially the same rates within a given period . — inventory hedges : we routinely enter into inventory-related hedging instruments to mitigate the impact on earnings of changes in foreign currency exchange rates on merchandise purchases denominated in currencies other than the local currencies of our divisions , principally tjx europe and tjx canada . story_separator_special_tag while our inventory hedges help mitigate the impact of currency fluctuations , during fiscal 2014 , the value of the canadian dollar depreciated more dramatically beyond the hedges we placed throughout the year and effectively increased the cost of merchandise bought in u.s. dollars during the latter half of fiscal 2014. segment profit for fiscal 2013 increased to $ 414.9 million , and segment profit margin increased 1.2 percentage points to 14.2 % . the improvement in segment margin was driven by increased merchandise margin , largely due to lower markdowns . this increase in segment margin was partially offset by increased incentive compensation accruals in fiscal 2013 as compared to fiscal 2012. foreign currency translation and the mark-to-market adjustment on inventory-related hedges did not have a significant impact on fiscal 2013 segment profit and segment margin . we expect to add a net of approximately 20 stores in canada in fiscal 2015 , including 10 new marshalls stores , and plan to increase selling square footage by approximately 5 % . 31 tjx europe fiscal year ended u.s. dollars in millions february 1 , 2014 february 2 , 2013 january 28 , 2012 net sales $ 3,621.6 $ 3,283.9 $ 2,890.7 segment profit $ 275.5 $ 215.7 $ 68.7 segment profit as a percentage of net sales 7.6 % 6.6 % 2.4 % increase in same store sales 6 % 10 % 2 % stores in operation at end of period t.k . maxx 371 343 332 homesense 28 24 24 total 399 367 356 selling square footage at end of period ( in thousands ) t.k . maxx 8,383 7,830 7,588 homesense 464 411 402 total 8,847 8,241 7,990 net sales for tjx europe increased 10 % in fiscal 2014 to $ 3.6 billion compared to $ 3.3 billion in fiscal 2013. currency translation had an immaterial impact on sales growth in fiscal 2014. fiscal 2014 same store sales increased 6 % compared to an increase of 10 % in fiscal 2013. the increase in same store sales for fiscal 2014 was driven by an increase in customer traffic along with an increase in the average transaction . net sales for tjx europe increased 14 % in fiscal 2013 to $ 3.3 billion compared to $ 2.9 billion in fiscal 2012. currency translation negatively impacted fiscal 2013 sales growth by 2 percentage points . fiscal 2013 same store sales increased 10 % compared to an increase of 2 % in fiscal 2012. segment profit increased 28 % to $ 275.5 million for fiscal 2014 , and segment profit margin increased to 7.6 % . the improvement in segment margin was due primarily to expense leverage on strong same store sales , particularly occupancy and buying costs and a lower incentive compensation accrual . the mark-to-market adjustment on inventory hedges had a negative impact of 0.3 percentage points and the 53 rd week last year had a negative impact of 0.2 percentage points , on the year-over-year comparison of segment margin for fiscal 2014. segment profit more than tripled to $ 215.7 million for fiscal 2013 , and segment profit margin increased to 6.6 % . the improvements we saw in the fourth quarter of fiscal 2012 in this segment 's performance as we slowed growth and re-focused on off-price fundamentals continued throughout fiscal 2013. more than half of the improvement in segment margin came from improved merchandise margins , which was virtually all due to lower markdowns . segment profit and segment margin for fiscal 2013 as compared to fiscal 2012 , benefitted from the absence of the fiscal 2012 charges for closing an office facility and the write-off of certain technology systems and other adjustments . the impact of foreign currency translation and the mark-to-market adjustment on inventory-related hedges was immaterial for fiscal 2013. we expect to add approximately 40 net stores in europe in fiscal 2015 and plan to increase selling square footage by approximately 9 % . general corporate expense : fiscal year ended dollars in millions february 1 , 2014 february 2 , 2013 january 28 , 2012 general corporate expense $ 329.5 $ 335.0 $ 228.3 general corporate expense for segment reporting purposes represents those costs not specifically related to the operations of our business segments and is included in selling , general and administrative expenses . overall general corporate expense in fiscal 2014 decreased slightly from the prior year . this decrease was primarily due 32 to the absence in fiscal 2014 of approximately $ 56 million of costs incurred in fiscal 2013 ( described below ) . this decline in general corporate expense was largely offset by increases in systems and technology costs , stock compensation and costs relating to our home office relocations . general corporate expense for fiscal 2013 included contributions to the tjx foundation , an adjustment to our reserve for former operations and the acquisition costs of stp . these items account for $ 56 million of the increase in general corporate expense as compared to fiscal 2012. in addition , general corporate expense for fiscal 2013 includes increased incentive compensation accruals under our performance-based plans , additional investments in systems and technology and additional costs related to the expansion of our home office facilities . story_separator_special_tag capital expenditures $ 946.7 $ 978.2 $ 803.3 we expect that we will spend approximately $ 975 million on capital expenditures in fiscal 2015 , including approximately $ 466 million for our offices and distribution centers ( including buying and merchandising systems and information systems ) to support growth , $ 299 million for store renovations and $ 210 million for new stores . we plan to fund these expenditures through internally generated funds . we also purchased short-term investments that had initial maturities in excess of 90 days which , per our policy , are not classified as cash on the consolidated balance sheets presented . in fiscal 2014 , we purchased $ 478 million of such short-term investments

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liquidity and capital resources operating activities : net cash provided by operating activities was $ 2,590 million in fiscal 2014 , $ 3,046 million in fiscal 2013 and $ 1,916 million in fiscal 2012. the cash generated from operating activities in each of these fiscal years was largely due to operating earnings . operating cash flows for fiscal 2014 decreased $ 456 million compared to fiscal 2013. net income plus the non-cash impact of depreciation provided cash of $ 2,686 million in fiscal 2014 compared to $ 2,416 million in fiscal 2013 , an increase of $ 270 million . the change in merchandise inventory , net of the related change in accounts payable , resulted in a use of cash of $ 117 million in fiscal 2014 , compared to a source of cash of $ 239 million in fiscal 2013. this unfavorable impact of $ 356 million in year-over-year cash flow from operations was primarily due to the timing of the acquisition and payment of year-end inventory . the change in accrued expenses and other liabilities unfavorably impacted cash flows by $ 30 million in fiscal 2014 versus a favorable impact of $ 269 million in fiscal 2013. this unfavorable impact of $ 299 million in year-over-year cash flow from operations reflects the change in accrued incentive compensation and a reduction in our reserve for uncertain tax positions as theresult of a settlement with tax authorities .

for the full year of 2019 , cost of total deposits remained low at 0.20 % , compared to 0.10 % in 2018. net interest income totaled $ 95.7 million and $ 91.5 million in 2019 and 2018 , respectively . the increase of $ 4.2 million in 2019 was primarily due to higher average loan balances and asset yields and the early redemption of a high-rate subordinated debenture in the fourth quarter of 2018. positive variances were partially offset by higher balances and rates on money market accounts . the tax-equivalent net interest margin increased to 3.98 % in 2019 , compared to 3.90 % in 2018 for the same reasons . the efficiency ratio was 55.3 % in 2019 , down from 57.3 % in 2018. notably , 2019 non-interest expenses decreased from the prior year due to higher consulting expenses in 2018 for core processing contract renegotiations and lower fdic deposit insurance fund expenses in 2019 as discussed in table 4 below . for the year ended december 31 , 2019 , return on assets and return on equity were 1.34 % and 10.49 % , respectively , compared to 1.31 % and 10.73 % in the prior year . all capital ratios exceed regulatory requirements . the total risk-based capital ratio for bancorp was 15.1 % at december 31 , 2019 up from 14.9 % at december 31 , 2018 . the board of directors declared a cash dividend of $ 0.23 per share on january 24 , 2019 , a $ 0.02 increase from the prior quarter . this was the 59 th consecutive quarterly dividend paid by bank of marin bancorp . the cash dividend was paid on february 14 , 2020 to shareholders of record at the close of business on february 7 , 2020. looking forward into the new year , with a low cost and stable deposit base , opportunities for loan growth , and our unwavering commitment to relationship banking , we believe we are well-positioned to carry our successful performance into 2020. we have ample liquidity and capital to support organic growth and acquisitions in coming years . acquisitions remain a component of our strategic plan and we will continue to evaluate merger and acquisition opportunities that fit with our culture and add value for our shareholders . our disciplined credit culture and relationship-focused banking continue to be critical components of our success . page-25 results of operations net interest income net interest income is the difference between the interest earned on loans , investments and other interest-earning assets and the interest expense incurred on deposits and other interest-bearing liabilities . net interest income is affected by changes in general market interest rates and by changes in the amounts and composition of interest-earning assets and interest-bearing liabilities . interest rate changes can create fluctuations in net interest income and or margin due to an imbalance in the timing of repricing or maturity of assets or liabilities . we manage interest rate risk exposure with the goal of minimizing the effect of interest rate volatility on net interest income . net interest margin is expressed as net interest income divided by average interest-earning assets . net interest rate spread is the difference between the average rate earned on total interest-earning assets and the average rate incurred on total interest-bearing liabilities . both of these measures are reported on a taxable-equivalent basis . net interest margin is the higher of the two because it reflects interest income earned on assets funded with non-interest-bearing sources of funds , which include demand deposits and stockholders ' equity . the following table compares interest income , average interest-earning assets , interest expense , and average interest-bearing liabilities for the periods presented . the table also presents net interest income , net interest margin and net interest rate spread for the years indicated . table 1 average statements of condition and analysis of net interest income year ended year ended december 31 , 2019 december 31 , 2018 interest interest average income/ yield/ average income/ yield/ ( dollars in thousands ; unaudited ) balance expense rate balance expense rate assets interest-bearing due from banks 1 $ 67,192 $ 1,321 1.94 % $ 78,185 $ 1,461 1.84 % investment securities 2 , 3 555,618 15,102 2.72 % 566,883 14,512 2.56 % loans 1 , 3 , 4 1,775,193 85,062 4.73 % 1,704,390 80,406 4.65 % total interest-earning assets 1 2,398,003 101,485 4.17 % 2,349,458 96,379 4.05 % cash and non-interest-bearing due from banks 35,956 41,595 bank premises and equipment , net 6,911 8,021 interest receivable and other assets , net 109,837 86,709 total assets $ 2,550,707 $ 2,485,783 liabilities and stockholders ' equity interest-bearing transaction accounts $ 133,922 $ 347 0.26 % $ 143,706 $ 226 0.16 % savings accounts 172,273 70 0.04 % 178,907 72 0.04 % money market accounts 680,296 3,439 0.51 % 612,372 1,355 0.22 % time accounts , including cdars 106,783 595 0.56 % 137,339 542 0.39 % borrowings and other obligations 1 2,935 77 2.57 % 105 2 2.03 % subordinated debentures 1 2,673 229 8.44 % 5,025 1,339 26.29 % total interest-bearing liabilities 1,098,882 4,757 0.43 % 1,077,454 3,536 0.33 % demand accounts 1,094,806 1,085,870 interest payable and other liabilities 30,578 18,514 stockholders ' equity 326,441 303,945 total liabilities & stockholders ' equity $ 2,550,707 $ 2,485,783 tax-equivalent net interest income/margin 1 $ 96,728 3.98 % $ 92,843 3.90 % reported net interest income/margin 1 $ 95,680 3.94 % $ 91,544 3.84 % tax-equivalent net interest rate spread 3.74 % 3.72 % 1 interest income/expense is divided by actual number of days in the period times 360 days to correspond to stated interest rate terms , where applicable . 2 yields on available-for-sale securities are calculated based on amortized cost balances rather than fair value , as changes in fair value are reflected as a component of stockholders ' equity . story_separator_special_tag most loans with original terms of more than five years have provisions for the fixed rates to page-33 reset , or convert to variable rates , after three , five or seven years . these loans are included in variable-rate balances below . table 9b commercial and construction loan interest rate sensitivity replace_table_token_12_th allowance for loan losses credit risk is inherent in the business of lending . as a result , we maintain an allowance for loan losses to absorb probable losses in our loan portfolio through a provision for loan losses charged against earnings . all specifically identifiable and quantifiable losses are charged off against the allowance . the balance of our allowance for loan losses is management 's best estimate of the remaining probable losses in the portfolio . the ultimate adequacy of the allowance is dependent upon a variety of factors beyond our control , including the real estate market , changes in interest rates and economic and political environments . based on the current conditions of the loan portfolio , management believes that the $ 16.7 million allowance for loan losses at december 31 , 2019 is adequate to absorb losses in our loan portfolio under accounting standards in effect at december 31 , 2019 , but provides no assurance that adverse economic conditions or other circumstances over the life of the loans will not result in increased losses in the portfolio . for information on the adoption of fasb asu no . 2016-13 , financial instruments - credit losses ( topic 326 ) : measurement of credit losses on financial instruments , effective january 1 , 2020 , and potential impact on the allowance for loan losses , refer to note 1 to the consolidated financial statements in item 8 , under `` accounting standards not yet effective . `` the components of the allowance for loan losses as stated in note 1 to the consolidated financial statements in item 8 of this report , the overall allowance consists of 1 ) specific allowances for individually identified impaired loans ( `` asc 310-10 `` ) and 2 ) general allowances for pools of loans ( `` asc 450-20 `` ) , which incorporate quantitative ( e.g . , historical loan loss rates ) and qualitative risk factors ( e.g . , portfolio growth and trends , credit concentrations , economic and regulatory factors , etc . ) . the first component , specific allowances , results from the analysis of identified problem credits and the evaluation of sources of repayment including collateral , as applicable . management evaluates these loans individually for impairment . management considers an originated loan to be impaired when it is probable we will be unable to collect all amounts due according to the contractual terms of the loan agreement . for pci loans , specific allowances are established to account for credit deterioration subsequent to acquisition if we have probable decreases in cash flows expected to be collected . for loans determined to be impaired , the extent of the impairment is measured based on the present value of expected future cash flows discounted at the loan 's effective interest rate at origination ( for originated loans ) , based on the loan 's observable market price , or based on the fair value of the collateral if the loan is collateral dependent or if foreclosure is imminent . generally , for problem credits that are collateral dependent , we obtain appraisals of the collateral at least annually . we may obtain appraisals more frequently if we believe the collateral is subject to market volatility , if a specific event has occurred to the collateral , or if we believe foreclosure is imminent . impaired loan balances decreased to $ 11.5 million at december 31 , 2019 from $ 15.0 million at december 31 , 2018. the specific allowance for impaired loans decreased to $ 397 thousand at december 31 , 2019 from $ 778 thousand at december 31 , 2018 . the decrease in impaired loan balances primarily related to the payoff of a land development loan with recorded investment of $ 2.7 million at december 31 , 2018 and paydowns on other tdr loans . the decrease in reserves for impaired loans was primarily due to two unsecured commercial loans that paid down outstanding balances during 2019 and exhibited improved expected cash flows . the second component is an estimate of the probable inherent losses in each loan pool with similar risk characteristics . this analysis encompasses the entire loan portfolio , excluding individually identified impaired loans and acquired loans whose purchase discount has not been fully accreted . under our allowance model , loans are evaluated on a pool basis by federal regulatory reporting codes ( `` call codes `` or `` segments `` ) , which are further delineated by assigned credit risk ratings , as described in note 3 to the consolidated financial statements in item 8 of this report . at december 31 , 2019 and 2018 , the allowance allocated for the second component totaled $ 16.3 million and $ 15.0 million , respectively . the increase in the general allowance was almost entirely attributed to growth in loans subject page-34 to general allowance reserves ( i.e . , second component ) . loans classified substandard decreased by $ 2.7 million during 2019 primarily due to the payoff of the land development loan mentioned previously . loans designated special mention increased by $ 56.1 million during 2019 due primarily to new commercial loan originations to three borrowing relationships totaling $ 17.7 million that were experiencing perceived temporary financial conditions that warranted the initial designation , and downgrades of existing commercial real estate loans to two borrowing relationships totaling $ 26.7 million . these loans are either well-secured or have strong sponsorship and are not indicative of deteriorating credit quality in the loan portfolio . table 10 shows the allocation of the allowance by

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liquidity the goal of liquidity management is to provide adequate funds to meet loan demand and to fund operating activities and deposit withdrawals . we accomplish this goal by maintaining an appropriate level of liquid assets and formal lines of credit with the fhlb , frbsf and correspondent banks that enable us to borrow funds as discussed in note 7 to the consolidated financial statement in item 8 of this report . our asset liability management committee ( `` alco '' ) , which is comprised of independent bank directors and the bank 's chief executive officer , is responsible for approving and monitoring our liquidity targets and strategies . alco has adopted a contingency funding plan that provides early detection of potential liquidity issues in the market or the bank and institutes prompt responses that may prevent or alleviate a potential liquidity crisis . management monitors liquidity daily and regularly adjusts our position based on current and future liquidity needs . we also have relationships with third-party deposit networks and can adjust the placement of our deposits via reciprocal or one-way sales as part of our cash management strategy . we obtain funds from the repayment and maturity of loans , deposit inflows , investment security maturities and paydowns , federal funds purchases , fhlb advances , other borrowings , and cash flow from operations . our primary uses of funds are the origination of loans , the purchase of investment securities , withdrawals of deposits , maturity of certificates of deposit , repayment of borrowings , and dividends to common stockholders .

u.s. foodservice operations - primarily includes u.s. broadline operations , which distribute a full line of food products , including custom-cut meat , seafood , specialty produce , specialty imports and a wide variety of non-food products ; international foodservice operations - includes operations in the americas and europe , which distribute a full line of food products and a wide variety of non-food products . the americas primarily consists of operations in canada , bahamas , mexico , costa rica and panama , as well as our operations that distribute to international customers . our european operations primarily consist of operations in the united kingdom ( u.k. ) , france , ireland and sweden ; sygma - our u.s. customized distribution subsidiary ; and other - primarily our hotel supply operations and sysco labs , which includes our suite of technology solutions that help support the business needs of our customers and provide support for some of our business technology needs . 4 we estimate that we serve about 16 % of an approximately $ 289 billion annual foodservice market in the u.s. based on industry data obtained from technomic , inc. from time to time , technomic may revise the methodology used to calculate the size of the foodservice market and , as a result , our percentage can change not only from our sales results , but also from such revisions . we also serve certain international geographies that vary in size and amount of market share . according to industry sources , the foodservice , or food-away-from-home , market represents approximately 51 % of the total dollars spent on food purchases made at the consumer level in the u.s. as of the end of calendar 2017 . industry sources estimate the total foodservice market in the u.s. experienced a real sales increase of approximately 1.4 % in both calendar year 2017 and calendar year 2016 . real sales changes do not include the impact of inflation or deflation . highlights and trends comparison of results from fiscal 2018 to fiscal 2017 : sales : ◦ increased 6.1 % , or $ 3.4 billion , to $ 58.7 billion ; operating income : ◦ increased 13.4 % , or $ 275.8 million , to $ 2.3 billion ; ◦ adjusted operating income increased 8.4 % , or $ 196.5 million , to $ 2.5 billion ; net earnings : ◦ increased 25.2 % , or $ 288.3 million , to $ 1.4 billion ; ◦ adjusted net earnings increased 22.1 % , or $ 300.8 million , to $ 1.7 billion ; basic earnings per share : ◦ increase d 30.5 % , or $ 0.64 , to $ 2.74 from the comparable prior year amount of $ 2.10 per share ; diluted earnings per share : ◦ increased 29.8 % , or $ 0.62 , to $ 2.70 from the comparable prior year amount of $ 2.08 per share ; and ◦ adjusted diluted earnings per share were $ 3.14 in fiscal 2018 , a 26.6 % increase from the comparable prior year amount of $ 2.48 per share . fiscal 2015 - fiscal 2018 three-year plan highlights replace_table_token_6_th ( 1 ) adjusted financial results used to measure the progress on sysco 's initial three-year plan exclude certain items , which primarily include restructuring , acquisition-related costs , loss on debt extinguishment , tax benefits from a retirement plan contribution , the impact of repatriating certain international earnings , and certain impacts of tax law changes , and also exclude the results of the brakes group . fiscal 2018 marked the completion of our initial three-year plan that was established in fiscal 2016. as a result of our efforts in connection with the three-year plan , we accelerated local case growth by 3.0 % , achieved adjusted gross profit cagr of 4.2 % , and managed adjusted operating expense cagr to 2.2 % . this gap between adjusted gross profit dollar growth and adjusted expense dollar growth created adjusted operating leverage of 2.0 percentage points , which generated adjusted operating income growth of $ 665.1 million , exceeding the target range of $ 600 million to $ 650 million . adjusted roic was 20.2 % , surpassing our target of 15.0 % , and we achieved a five day improvement in working capital , which was one day above the original goal . on 5 a gaap basis , comparing fiscal 2018 to fiscal 2015 , the company achieved gross profit cagr of 9.0 % , and operating expense cagr of 6.1 % , generating operating income growth of $ 1.1 billion . roic was 13.0 % . our operating income goal was established on an adjusted basis given certain item charges that were applicable in fiscal 2015 , which were primarily due to termination costs in connection with the merger that had been proposed with us foods and financing costs related to the senior notes that were issued in fiscal 2015 to fund the proposed us foods merger . see “ non-gaap reconciliations ” for an explanation of these non-gaap financial measures . the overall macroeconomic trends continue to be positive in the u.s. , and the underlying economic picture remains encouraging , including a strong employment market . this has resulted in a healthy consumer that is helping to drive a positive trend in restaurant sales . we also see continued growth with local customers , as they increase their reach through flexible menus , innovative concepts and additional delivery options to reach consumers . the u.k market continues to experience acute product inflation in the mid-to-high single digits . throughout fiscal 2018 , we improved our customer experience through enhanced service levels , improved sales retention and higher customer loyalty , enhanced associate engagement through improved workplace safety and improved associate retention through attractive career growth opportunities . these were all key targeted steps towards achieving our initial three-year plan financial objectives . story_separator_special_tag the increase for fiscal 2018 was primarily due to favorable changes in exchange rates used to translate our foreign sales into u.s. dollars , as well as product cost inflation in europe and canada and a modest increase in volumes in our canadian operations . the increase was partially offset by a small decline in volumes in europe due to softer market conditions . sales were 95.2 % higher in fiscal 2017 than in fiscal 2016 . the increase for fiscal 2017 was primarily due to the acquisition of the brakes group , which added $ 5.2 billion during the year . the increase was partially offset by the impact of the extra week in fiscal 2016 , a small decline in volume , primarily in canada , and unfavorable changes in exchange rates used to translate our foreign sales into u.s. dollars . we had a modest decrease in sales in canada due to softer market conditions . operating income operating income decreased by 20.5 % in fiscal 2018 from fiscal 2017 , primarily as a result of the strategic investments we are making in our european supply chain . we continue to focus on executing against our long-term plans by investing in necessary capabilities across the international foodservice business . gross profit dollars increased $ 161.1 million in fiscal 2018 , as compared to fiscal 2017 , primarily due to a combination of product costs increasing and currency translation in the u.k. along with local case growth in our canadian operations . operating expenses increased $ 211.0 million in fiscal 2018 , as compared to fiscal 2017 , primarily due to supply chain transformation costs in the u.k. and increased supply chain costs in canada . the supply chain transformation work in the u.k. to transition from a single temperature warehouse and fleet into a multi-temperature network is progressing well . in canada , the increase in supply chain costs was driven by increased case volumes and the resulting increase in transportation costs . we have concluded the merger of brake france and davigel to form sysco france , which will provide new capabilities and the unique multi-temperature service that will better adapt to our customers ' growing needs , as well as access to new customer segments . integration of these businesses in france will continue through fiscal 2019. additionally , the integration of pallas and brakes in ireland is nearly complete , and we have achieved strong cost synergies throughout the year . across europe , we are also making technology investments to improve the infrastructure and to enhance our suite of customer facing tools . in mexico , we absorbed the cost of adding a new large customer during the year . operating income increased by 37.2 % in fiscal 2017 from fiscal 2016 , primarily attributable to the brakes acquisition . the brakes group is progressing in its supply chain transformational efforts as it moves to multi-temperature capability across the u.k. growth in france remains steady . excluding the brakes group , non-gaap operating income , adjusted for the impact of the extra week in fiscal 2016 , increased 11.7 % in fiscal 2017 as compared to fiscal 2016 , primarily from managing costs effectively in canada within a deflationary and somewhat softer market environment . our joint venture in costa rica also experienced improved operating income performance . 13 gross profit dollars increased $ 1.3 billion in fiscal 2017 as compared to fiscal 2016 , primarily due to the brakes acquisition . adjusted gross profit dollars , excluding the impact of brakes and on a comparable 52 week basis , increased 2.4 % . adjusted gross profit dollar growth was higher due to improved sales execution and implementation of our customer focused initiatives , such as category management and revenue management in our canadian operations . operating expenses increased $ 1.3 billion in fiscal 2017 as compared to fiscal 2016 , largely due to the brakes acquisition . adjusted operating expenses excluding brakes were flat in fiscal 2017 , as compared to fiscal 2016 , as a result of our effectively managing costs by streamlining administrative expenses to improve productivity in the canadian business . results of sygma and other segment sygma operating companies distribute a full line of food products and a wide variety of non-food products to certain chain restaurant customer locations . sales sales were 6.1 % higher in fiscal 2018 than in fiscal 2017 . the increase for fiscal 2018 was primarily attributable to case growth and product cost inflation . case growth was primarily the result of increased volume from existing customers , as well as new business acquired during the year . sygma experienced product cost inflation of 2.5 % during fiscal 2018 . sales were 1.3 % higher in fiscal 2017 than in fiscal 2016 . the increase for fiscal 2017 was primarily attributable to case growth . case growth was primarily the result of increased volume from existing customers , with additional new business also contributing to such growth . operating income operating income increased by 4.4 % in fiscal 2018 , as compared to fiscal 2017 , primarily driven by sales growth and partially offset by operating expense growth exceeding gross profit dollar growth . gross profit dollars increased 8.5 % , driven by higher product margins , while operating expenses increased 8.7 % in fiscal 2018 , as compared to fiscal 2017 . operating expenses increased in fiscal 2018 largely due to increased transportation expenses resulting from driver hiring challenges and outsourced delivery costs to meet the high service level expectations of our customers . operating income decreased by 15.2 % in fiscal 2017 as compared to fiscal 2016 , primarily driven by operating expense growth exceeding gross profit dollar growth . gross profit dollars increased 3.3 % , while operating expenses increased 4.5 % in fiscal 2017 as compared to fiscal 2016 . gross profit dollar growth was lower due to higher

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debt activity and borrowing availability our debt activity , including issuances and repayments , and our borrowing availability is described in note 11 , “ debt and other financing arrangements. ” our outstanding borrowings at june 30 , 2018 , and repayment activity since the close of fiscal 2018 are disclosed within those notes . updated amounts through august 10 , 2018 , include : $ 409.1 million outstanding from our commercial paper program ; and no amounts outstanding from the credit facility supporting the company 's u.s. commercial paper program . our aggregate commercial paper issuances and short-term bank borrowings had weighted average interest rates of 1.71 % for fiscal 2018 , 0.97 % for fiscal 2017 , and 0.49 % for fiscal 2016 . included in current maturities of long-term debt as of june 30 , 2018 are the 5.375 % senior notes totaling $ 250 million , which mature in march 2019 and the 1.9 % senior notes totaling $ 500 million , which mature in april 2019. it is our intention to fund the repayment of these notes at maturity through cash on hand , cash flow from operations , issuances of commercial paper , issuances of senior notes or a combination thereof . off-balance sheet arrangements we have no off-balance sheet arrangements . contractual obligations the following table sets forth , as of june 30 , 2018 , certain information concerning our obligations and commitments to make contractual future payments : replace_table_token_30_th ( 1 ) the estimate of the timing of future payments under the executive deferred compensation plan and management savings plan involves the use of certain assumptions , including retirement ages and payout periods . ( 2 ) includes estimated contributions to the unfunded supplemental executive retirement plan ( serp ) and other postretirement benefit plans made in amounts needed to fund benefit payments for vested participants in these plans through fiscal 2028 , based on actuarial assumptions . ( 3 ) unrecognized tax benefits relate to uncertain tax positions recorded under accounting standards related to uncertain tax positions .

scd is marked by red blood cell , or rbc , destruction and occluded blood flow and hypoxia , leading to anemia , stroke , multi-organ failure , severe pain crises , and shortened patient life span . voxelotor inhibits abnormal hemoglobin polymerization , the underlying mechanism that causes sickling of rbcs . in our clinical trials to date of voxelotor in scd patients , we observed reduced markers of red blood cell destruction , improvements in anemia , improvements in markers of tissue oxygenation , and reduced numbers of sickled rbcs . we own or jointly own and have exclusively licensed rights to our product candidates in the united states , europe and other major markets . we are the sole owner of issued u.s. patents covering voxelotor , including its composition of matter , methods of use , and a polymorph of voxelotor . these issued patents covering voxelotor will expire between 2032 and 2035 , absent any applicable patent term extensions . we own or co-own additional pending patent applications in the united states and multiple foreign countries relating to our lead product candidate voxelotor . 73 beyond evaluation voxelotor in scd , we are also engaged in other research and development activities , all of which are currently in the pre-clinical phase . in addition , we regularly evaluate opportunities to in-license , acquire or invest in new business , technology or assets or engage in related discussions with other business entities . since our inception in 2011 , we have devoted substantially all of our resources to identifying and developing our product candidates , including conducting clinical trials and nonclinical studies and providing general and administrative support for these operations . prior to our initial public offering , or ipo , we had funded our operations primarily from the issuance and sale of redeemable convertible preferred stock . in august 2015 , we completed our ipo pursuant to which we issued 6,900,000 shares of our common stock at a price of $ 20.00 per share , resulting in proceeds of approximately $ 126.2 million , net of underwriting discounts and commissions , and offering expenses . in july 2016 , we completed a follow-on offering pursuant to which we issued an aggregate of 6,667,228 shares of our common stock at a price of $ 18.75 per share , including 6,400,000 shares sold at the initial closing in june 2016 and 267,228 shares sold pursuant to the exercise of the underwriters ' over-allotment option to purchase additional shares in july 2016 , resulting in proceeds of approximately $ 117.0 million , net of underwriting discounts and commissions , and offering expenses . in february 2017 , we completed a follow-on offering pursuant to which we issued an aggregate of 5,867,347 shares of our common stock at a price of $ 24.50 per share , resulting in proceeds of approximately $ 135.6 million from the offering , net of underwriting discounts and commissions , and offering expenses . in january 2018 , we completed a follow-on offering pursuant to which we issued an aggregate of 3,026,315 shares of our common stock at a price of $ 38.00 per share , including 2,631,579 shares sold at the additional closing in december 2017 and 394,736 shares sold pursuant to the exercise of the underwriter 's over-allotment option in january 2018 , resulting in aggregate proceeds of approximately $ 110.9 million , net of underwriting discounts and commissions , and estimated offering expenses . we have never been profitable and have incurred net losses in each year since inception . our net losses were $ 117.0 million for the year ended december 31 , 2017 , $ 82.5 million for the year ended december 31 , 2016 and $ 46.4 million for the year ended december 31 , 2015. as of december 31 , 2017 , we had an accumulated deficit of $ 298.0 million . to date , we have not generated any revenue . we do not expect to receive any revenue from any product candidates that we develop until we obtain regulatory approval and commercialize our products or enter into collaborative agreements with third parties . substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations . we had $ 198.3 million in cash and cash equivalents and $ 131.1 million in marketable securities as of december 31 , 2017. critical accounting polices and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with united states generally accepted accounting principles , or u.s. gaap . the preparation of these consolidated 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 consolidated financial statements , as well as the reported expenses incurred during the reporting periods . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . 74 accrued research and development costs we record accrued expenses for estimated costs of our research and development activities conducted by third-party service providers , which include the conduct of nonclinical studies and clinical trials and contract manufacturing activities . story_separator_special_tag if we determine in the future that we will be able to realize all or a portion of our net operating loss carryforwards , an adjustment to our net operating loss carryforwards would increase net income in the period in which we make such a determination . liquidity and capital resources we are not profitable and have incurred losses and negative cash flows from operations each year since our inception . prior to our ipo , our operations were financed primarily by net proceeds from the sale and issuance of convertible preferred stock . in august 2015 , we completed our ipo pursuant to which we issued 6,900,000 shares of our common stock at a price to the public of $ 20.00 per share and received proceeds of $ 126.2 million , net of underwriting discounts and commissions and offering expenses . in july 2016 , we completed a follow-on offering pursuant to which we issued an aggregate of 6,667,228 shares of our common stock at a price of $ 18.75 per share , including 6,400,000 shares sold at the initial closing in june 2016 and 267,228 shares sold pursuant to the exercise of the underwriters ' over-allotment option to purchase additional shares in july 2016. we received aggregate proceeds of $ 117.0 million from the offering , net of underwriting discounts and commissions and offering expenses . in october 2016 , we filed our shelf registration statement on form s-3 for the potential offering , issuance and sale by us of up to a maximum aggregate offering price of $ 250 million of our common stock , preferred stock , debt securities , warrants , and or units . in february 2017 , we completed a follow-on offering under the shelf registration pursuant to which we issued an aggregate of 5,867,347 shares of our common stock at a price of $ 24.50 per share . we received aggregate proceeds of $ 135.6 million from the offering , net of underwriting discounts and commissions and offering expenses . after the completion of this follow-on offering in february 2017 , up to a maximum aggregate offering price of $ 106.2 million of our common stock , preferred stock , debt securities , warrants and or units remain available under our shelf registration statement on form s-3 . in august 2017 , we filed an additional shelf registration statement on form s-3asr , for the potential offering , issuance and sale by us of an indeterminate amount of common stock , preferred stock , debt securities , warrants , and or units . our shelf registration statement on form s-3asr also includes a prospectus covering up to an aggregate of $ 125.0 million in 79 shares of our common stock that we may issue and sell at market prices from time to time , through cowen and company , llc , or cowen , acting as our sales agent and or principal , pursuant to the sales agreement that we entered into with cowen in august 2017 for our “at-the-market” equity program . in december 2017 , we completed a follow-on offering under the shelf registration statement on form s-3asr pursuant to which we issued an aggregate of 2,631,579 shares of our common stock at a price of $ 38.00 per share . in addition , in january 2018 , we sold an additional 394,736 shares of our common stock directly to the underwriters when they exercised their over-allotment option at the price of $ 38.00 per share . we received aggregate proceeds of approximately $ 110.9 million from this follow-on offering , net of underwriting discounts and commissions , and estimated offering expenses . our primary use of cash is to fund operations , which consist primarily of research and development expenditures . cash used to fund operations is impacted by the timing of when we pay these expenses , as reflected in the change in our outstanding accounts payable and accrued expenses . we believe that our existing capital resources will be sufficient to fund our planned operations for at least the next twelve months . we have based this estimate on assumptions that may prove to be wrong , and we could utilize our available capital resources sooner than we currently expect . we will continue to require additional financing to advance voxelotor through any completion of clinical development , to develop other potential product candidates from our research programs and to fund operations for the foreseeable future . we will continue to seek funds through equity or debt financings , collaborative or other arrangements with corporate sources , or through other sources of financing . adequate additional funding may not be available to us on acceptable terms , or at all . our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies . our future funding requirements will depend on many factors , including : the time and cost necessary to complete our phase 3 hope study of voxelotor for the potential treatment of scd , as well as to complete our ongoing phase 2a clinical trial in adolescent and pediatric patients in this development program ; the time and cost necessary to conduct and complete any additional clinical studies required to pursue regulatory approvals for voxelotor for scd or any other indications , and the costs of post-marketing studies that could be required by regulatory authorities for any indications ; the progress , data and results of our phase 3 hope study , as well as other clinical trials of voxelotor for the potential treatment of scd and our potential future clinical trials ; the progress , timing , scope and costs of our nonclinical studies , our clinical trials and other related activities , including our ability to enroll subjects in a timely manner for our phase 3 hope study as well as our other multiple clinical trials of voxelotor

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cash flows from operating activities net cash used in operating activities was $ 93.0 million for the year ended december 31 , 2017 , consisting of a net loss of $ 117.0 million , which was partially offset by non-cash charges of $ 13.7 million for stock-based compensation and $ 2.4 million for depreciation and amortization expense . the change in our net operating assets and liabilities was due primarily to an increase of $ 3.6 million of accrued compensation related to higher headcounts , an increase of $ 3.3 million of accrued liabilities along with an increase of $ 2.8 million of accounts payable related to an increase in our research and development activities and an increase in professional and consulting services due to the growth of our operations . net cash used in operating activities was $ 67.7 million for the year ended december 31 , 2016 , consisting of a net loss of $ 82.5 million , which was offset by non-cash charges for stock-based compensation of $ 9.2 million , and for depreciation and amortization expense of $ 1.2 million . the change in our net operating assets and liabilities was due primarily to increases in accrued expenses related to an increase in our research and development activities and an increase in professional and consulting services of $ 1.8 million due to the growth of our operations , in accounts payable as a result of timing of payments of $ 1.1 million , and in accrued compensation related to our headcount of $ 2.7 million . net cash used in operating activities was $ 30.9 million for the year ended december 31 , 2015 , consisting of a net loss of $ 46.4 million , which was offset by non-cash charges for the fair value of stock issued for the license agreement entered into with the regents of $ 4.5 million , for stock-based compensation of $ 3.2 million , and for depreciation and amortization expense of $ 0.9 million .

the following discussion will provide a summary review of important items relating to : ● challenges ● key performance indicators ● industry results ● critical accounting policies ● income statement review ● balance sheet review ● asset quality review and credit risk management ● liquidity and capital resources ● interest rate risk ● inflation ● forward-looking statements and business risks ● non-gaap financial measures 24 challenges management has identified certain events or circumstances that have the potential to negatively impact the company 's financial condition and results of operations in the future and is attempting to position the company to best respond to those challenges . ● if interest rates increase significantly over a relatively short period of time due to improving national employment levels or higher inflationary numbers , the interest rate environment may present a challenge to the company . increases in interest rates may negatively impact the company 's net interest margin if interest expense increases more quickly than interest income , thus placing downward pressure on net interest income . the company 's earning assets ( primarily its loan and investment portfolio ) have longer maturities than its interest bearing liabilities ( primarily deposits and other borrowings ) ; therefore , in a rising interest rate environment , interest expense will tend to increase more quickly than interest income as the interest bearing liabilities reprice more quickly than earning assets , resulting in a reduction in net interest income . in response to this challenge , the banks model quarterly the changes in income that would result from various changes in interest rates . management believes bank earning assets have the appropriate maturity and repricing characteristics to optimize earnings and the banks ' interest rate risk positions . ● if market interest rates in the three to five year term remain at low levels as compared to the short term interest rates , the interest rate environment may present a challenge to the company . the company 's earning assets ( typically priced at market interest rates in the three to five year range ) will reprice at lower interest rates , but the deposits will not reprice at significantly lower interest rates , therefore the net interest income may decrease . management believes bank earning assets have the appropriate maturity and repricing characteristics to optimize earnings and the banks ' interest rate risk positions . ● the agricultural community is subject to commodity price fluctuations . extended periods of low commodity prices , higher input costs or poor weather conditions could result in reduced profit margins , reducing demand for goods and services provided by agriculture-related businesses , which , in turn , could affect other businesses in the company 's market area . moreover , the recent changes in u.s. trade policy , including the imposition of tariffs by the u.s. government and retaliatory tariffs imposed in response by foreign governments , could create further volatility for commodities prices as the volume of exports of agricultural products to these foreign markets could be adversely impacted . any combination of these factors could produce losses within the company 's agricultural loan portfolio and in the commercial loan portfolio with respect to borrowers whose businesses are directly or indirectly impacted by the health of the agricultural economy . key performance indicators certain key performance indicators for the company and the industry are presented in the following chart . the industry figures are compiled by the federal deposit insurance corporation ( fdic ) and are derived from 5,406 commercial banks and savings institutions insured by the fdic . management reviews these indicators on a quarterly basis for purposes of comparing the company 's performance from quarter to quarter against the industry as a whole . selected indicators for the company and the industry replace_table_token_2_th 25 key performance indicators include : ● return on assets this ratio is calculated by dividing net income by average assets . it is used to measure how effectively the assets of the company are being utilized in generating income . the company 's return on assets ratio is lower than that of the industry , primarily as a result of the company 's net interest margin being lower than the industry . ● return on equity this ratio is calculated by dividing net income by average equity . it is used to measure the net income or return the company generated for the shareholders ' equity investment in the company . the company 's return on equity ratio is lower than the industry primarily as a result of the company 's higher capital ratio and lower net interest margin as compared to the industry . ● net interest margin this ratio is calculated by dividing net interest income by average earning assets . earning assets consist primarily of loans and investments that earn interest . this ratio is used to measure how well the company is able to maintain interest rates on earning assets above those of interest-bearing liabilities , which is the interest expense paid on deposit accounts and other borrowings . the company 's net interest margin is in line with the industry net interest margin . ● efficiency ratio this ratio is calculated by dividing noninterest expense by net interest income and noninterest income . the ratio is a measure of the company 's ability to manage noninterest expenses . the company 's efficiency ratio is slightly lower than the industry average . ● capital ratio the capital ratio is calculated by dividing average total equity capital by average total assets . it measures the level of average assets that are funded by shareholders ' equity . given an equal level of risk in the financial condition of two companies , the higher the capital ratio , generally the more financially sound the company . the company 's capital ratio is significantly higher than the industry average . story_separator_special_tag the net interest margin is equal to the interest income less the interest expense divided by average earning assets . refer to the net interest income discussion following the tables for additional detail . ( dollars in thousands ) replace_table_token_4_th ( 1 ) average loan balance includes nonaccrual loans , if any . interest income collected on nonaccrual loans has been included . ( 2 ) tax-exempt income has been adjusted to a tax-equivalent basis using an incremental tax rate of 21 % for the year ended december 31 , 2018 and 35 % for the years ended december 31 , 2017 . 31 average balances and interest rates ( continued ) replace_table_token_5_th 32 rate and volume analysis the rate and volume analysis is used to determine how much of the change in interest income or expense is the result of a change in volume or a change in interest rate . for example , real estate loan interest income increased $ 2,862,000 in 2018 compared to 2017. increased volume of real estate loans increased interest income in 2018 by $ 1,671,000 and higher interest rates increased interest income in 2018 by $ 1,191,000. the following table sets forth , on a tax-equivalent basis , a summary of the changes in net interest income resulting from changes in volume and rates . ( dollars in thousands ) replace_table_token_6_th ( 1 ) the change in interest due to both volume and yield/rate has been allocated to change due to volume and change due to yield/rate in proportion to the absolute value of the change in each . net interest income the company 's largest contributing component to net income is net interest income , which is the difference between interest earned on earning assets and interest paid on interest bearing liabilities . the volume of and yields earned on earning assets and the volume of and the rates paid on interest bearing liabilities determine net interest income . refer to the tables preceding this paragraph for additional detail . interest earned and interest paid is also affected by general economic conditions , particularly changes in market interest rates , by government policies and the action of regulatory authorities . net interest income divided by average earning assets is referred to as net interest margin . for the years december 31 , 2018 and 2017 , the company 's net interest margin was 3.23 % and 3.25 % , respectively , computed on a fte basis . 33 net interest income during 2018 and 2017 totaled $ 42,124,000 and $ 40,213,000 , respectively , representing a 4.8 % increase in 2018 compared to 2017. net interest income increased in 2018 as compared to 2017 due primarily to increases in the average balance and rates of real estate loans , offset in part by increases in rates on deposits . the high level of competition in the local markets will continue to put downward pressure on the net interest margin of the company . currently , the company 's primary market in ames , iowa , has ten banks , six credit unions and several other financial investment companies . multiple banks are also located in the company 's other market areas in central , north-central and south-central iowa creating similarly competitive environments . provision for loan losses the provision for loan losses reflects management 's judgment of the expense to be recognized in order to maintain an adequate allowance for loan losses . the company 's provision for loan losses for the year ended december 31 , 2018 was $ 639,000 compared to $ 1,520,000 for the previous year . the provision for loan losses in 2018 and 2017 was necessary to maintain an adequate allowance for loan loss on the increasing outstanding loan portfolio , as well as funding net charge offs of $ 276,000 and $ 706,000 for 2018 and 2017 , respectively . classified assets increased $ 26,229,000 due in part to several agricultural credits and a large hospitality credit , however the nonperforming loans have decreased from $ 4,828,000 in 2017 to $ 3,384,000 in 2018. refer to the “ asset quality and credit risk management ” discussion for additional details with regard to loan loss provision expense . management believes the allowance for loan losses is adequate to absorb probable losses in the current portfolio . this statement is based upon management 's continuing evaluation of inherent risks in the current loan portfolio , current levels of classified assets and general economic factors . the company will continue to monitor the allowance and make future adjustments to the allowance as conditions dictate . due to potential changes in conditions , it is at least reasonably possible that change in estimates will occur in the near term and that such changes could be material to the amounts reported in the company 's financial statements . noninterest income and expense total noninterest income is comprised primarily of fee-based revenues from wealth management and trust services , bank-related service charges on deposit activities , net securities gains , merchant and card fees related to electronic processing of merchant and cash transactions and gain on the sale of loans held for sale . noninterest income during the years ended 2018 and 2017 totaled $ 7,901,000 and $ 7,993,000 , respectively . the decrease in noninterest income in 2018 compared to 2017 is primarily due to no security gains in 2018 as compared to $ 505,000 gains in 2017. partially offsetting this decrease was higher wealth management income and a gain on the foreclosure of other real estate owned . the increase in wealth management income is primarily due to increases in estate fees in 2018. excluding securities gains , noninterest income increased 5.5 % in 2018 as compared to 2017. noninterest expense for the company consists of all operating expenses other than interest expense on deposits and other borrowed funds . salaries and employee benefits are the largest component of the

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liquidity and capital resources liquidity management is the process by which the company , through its banks ' asset and liability committees ( alco ) , ensures adequate liquid funds are available to meet its financial commitments on a timely basis , at a reasonable cost and within acceptable risk tolerances . these commitments include funding credit obligations to borrowers , funding of mortgage originations pending delivery to the secondary market , withdrawals by depositors , maintaining adequate collateral for pledging for public funds , trust deposits and borrowings , paying dividends to shareholders , payment of operating expenses , funding capital expenditures and maintaining deposit reserve requirements . liquidity is derived primarily from core deposit growth and retention ; principal and interest payments on loans ; principal and interest payments , sale , maturity and prepayment of investment securities ; net cash provided from operations ; and access to other funding sources . other funding sources include federal funds purchased lines , fhlb advances and other capital market sources . as of december 31 , 2018 , the level of liquidity and capital resources of the company remain at a satisfactory level and compare favorably to that of other fdic insured institutions . management believes that the company 's liquidity sources will be sufficient to support its existing operations for the foreseeable future . the liquidity and capital resources discussion will cover the following topics : ● review of the company 's current liquidity sources ● review of the consolidated statements of cash flows ● review of company only cash flows ● review of commitments for capital expenditures , cash flow uncertainties and known trends in liquidity and cash flow needs ● capital resources review of the company 's current liquidity sources liquid assets of cash on hand , balances due from other banks and interest-bearing deposits in financial institutions for december 31 , 2018 and 2017 totaled $ 56,442,000 and $ 69,420,000 , respectively . the lower balance of liquid assets at december 31 , 2018 primarily relates to a decrease in funds at the federal reserve bank , partially offset by an increase in interest-bearing deposits at financial institutions .

sbh has incurred significant transaction costs associated with the spectrum merger that may impact the comparability of the consolidated results of operations . effective as of the closing date of the spectrum merger , management and control of the organization was assumed by its majority-owned subsidiary , spectrum , and the company continues to operate as the consumer products company that was principally conducted by its majority owned subsidiary . see note 4 – acquisitions to the consolidated financial statements , included elsewhere in this annual report , for more information on the spectrum merger and associated transaction costs .  additionally , as a result of the spectrum merger , hrg and spectrum will join in the filing of u.s. consolidated tax return starting july 13 , 2018. the form of the spectrum merger allows for the hrg capital and net operating loss carryforwards to be able to be used to offset spectrum 's future income and the u.s. tax gain on the sale of the gbl business to energizer . as a result , sbh released $ 365.3 million of valuation allowance on its net deferred tax assets since it is now more likely than not that the assets will be realized . as of sep tember 30 , 2018 , sbh had $ 247.3 million of valuation allowance recorded on u.s. deferred tax assets , primarily net operating losses and tax credits subject to certain ownership change limitations on their use . acquisitions  the following acquisition activity has a significant impact on the comparability of the financial results on the consolidated financial statements .  · petmatrix – on june 1 , 2017 , the company completed the acquisition of petmatrix llc , a manufacturer and marketer of rawhide-free dog chews consisting primarily of the dreambone ® and smartbones® brands . the results of petmatrix 's operations since june 1 , 2017 are included in the company 's consolidated statements of income and reported within the pet reporting segment for the years ended september 30 , 2017 and 2018 . · glofish – on may 12 , 2017 , the company entered into an asset purchase agreement with yorktown technologies lp , for the acquisition of assets consisting of the glofish operations , including transfer of the glofish® brand , related intellectual property and operating agreements . the glofish operations consist of the development and licensing of fluorescent fish for sale through retail and online channels . the results of glofish 's operations since may 12 , 2017 are included in the company 's consolidated statement of income and reported within the pet reporting segment for the years ended september 30 , 2017 and 2018 .  see note 4 - acquisitions in the notes to the consolidated financial statements , included elsewhere within this annual report , for additional detail regarding acquisition activity .  restructuring activity  we continually seek to improve our operational efficiency , match our manufacturing capacity and product costs to market demand and better utilize our manufacturing resources . we have undertaken various initiatives to reduce manufacturing and operating costs . the most significant of these initiatives are :  · gac business rationalization initiatives , which began during the third quarter of the year ended september 30 , 2016 and is closed as of september 30 , 2018 ; · pet rightsizing initiative , which began during the second quarter of the year ended september 30 , 2017 and is closed as of september 30 , 2018 ; · hhi distribution center consolidation , which began during the second quarter of the year ended september 30 , 2017 and is anticipated to be closed by december 31 , 2018 .  see note 5 - restructuring and related charges in the notes to the consolidated financial statements , included elsewhere within this annual report , for additional detail regarding restructuring and related activity .  34 refinancing activity  the following recent financing activity has a significant impact on the comparability of financial results on the consolidated financial statements .  · during the year ended september 30 , 2018 , hrg paid off $ 92.0 million aggregate principal amount of the hgi energy notes , as further detailed in note 11 – debt to the consolidated financial statements , included elsewhere within this annual report ; redeemed all $ 864.4 million outstanding principal amount of its 7.875 % senior secured notes due 2019 at a redemption price equal to 100 % of the principal amount , plus accrued and unpaid interest to the redemption rate ; and paid off $ 50.0 million aggregate principal amount of a hgi funding loan due july 13 , 2018 . · during the year ended september 30 , 2017 , spectrum refinanced a portion of its debt to extend maturities and reduce borrowing costs including entering into various amendments to the credit agreement under its term loans resulting in an increase to the usd term loan , repayment of the euro term loan , increase in the capacity of the revolver facility and changes to the applicable variable interest rates . · during the year ended september 30 , 2016 , spectrum refinanced a portion of its debt to extend maturities and reduce borrowing costs including the issuance of euro denominated notes and repurchase of the 6.375 % notes .  see note 11 - debt in the notes to the consolidated financial statements , included elsewhere within this annual report , for additional detail regarding debt .  safety recall  on june 10 , 2017 , the company initiated a voluntary safety recall of various rawhide chew products for dogs sold by the company 's pet segment due to possible chemical contamination . the company recognized a loss of $ 35.8 million for the year ended september 30 , 2017 associated with the recall , which comprised of inventory write-offs of $ 15.0 million , customer losses of $ 7.1 story_separator_special_tag  income from discontinued operations , net of tax , for the year ended sep tember 30 , 2018 increased $ 225.2 million , or 65.8 % , due to the decrease in income from gba d iscontinued operations of $ 73.5 million and increase in income from fgl discontinued operations of $ 298.7 million . the decrease in income from gba discontinued operations is primarily attributable to incremental transaction related costs of $ 78.1 million that was recognized for the planned divestitures , decrease in net sales , increased operating expenses for selling and marketing activities and increased interest expense allocated to discontinued operations from increased variable rates . the increase in income from fgl is primarily attributable to the recognition of $ 445.9 million to reclassify accumulated other comprehensive income related to f g l , that was previously included in equity ; offset by lower income from operations with the completion of the sale of the hrg insurance operations on november 30 , 2017 and the recognition of a write-down on net assets of $ 14.2 million on fgl and front street upon completion of sale .  income from discontinued operations , net of tax , for the year ended september 30 , 2017 increased $ 443.9 million , or 437.3 % , due to the increase in income from gba discontinued o perations of $ 95.5 million , an increase of $ 389.2 million from hrg insurance operations ; partially offset by $ 40.8 million income from discontinued operations related to compass during the year ended september 30 , 2016. the increase from gba discontinued operations is due to cost improvements , decrease in interest expense allocated to discontinued operations from refinancing activity previously discussed , and lower income tax expense driven by an incremental $ 25.5 million expense during the year ended september 30 , 2016 to record a tax contingency reserve for a tax exposure in germany where a local court ruled against our characterization of certain assets as amortizable under german tax law . the increase in discontinued operations from hrg insurance operations was due to a $ 304.4 million write-down of assets held for sale to the fair value less cost to sell , the reversal of a $ 15.2 million estimated alternative minimum tax liability for a 338 tax election which is not expected to result in a taxable gain , and an increase in operating results .  noncontrolling interest . the net income attributable to noncontrolling interest reflects the share of the net income of our subsidiaries , which are not wholly-owned , attributable to the accounting interest . such amount varies in relation to such subsidiary 's net income or loss for the period and the percentage interest not owned by sbh . effective the close of the spectrum merger , the net income from spectrum is fully recognized by sbh for all periods subsequent to july 13 , 2018 as spectrum became wholly-owned as a result of the transaction . 40 sb / rh  the following is summarized consolidated results of operations for sb/rh for the years ended september 30 , 2018 , 2017 and 2016 :   replace_table_token_10_th for the year ended september 30 , 2018 , the increase in net sales of $ 136.4 million , or 4.5 % , and decrease in gross profit of $ 22.4 million are attributable to the changes in sbh previously discussed . the increase in operating expenses of $ 134.2 million is primarily attributable to the changes in sbh previously discussed excluding the impact in hrg operating costs and transaction costs from the spectrum merger . an increase in interest expense of $ 6.3 million is primarily attributable to interest costs on variable interest debt and incremental borrowings on $ 520 million of debt with the parent company . for the year ended september 30 , 2017 , the decrease in net sales of $ 19.9 million , or 0.7 % , and decrease in gross profit of $ 61.7 million are attributable to the chang es in sbh previously discussed . the i ncrease in operating expenses of $ 25.1 million is primarily attributable to the change in sbh previously discussed , excluding the impact in hrg corporate operating costs . the d ecrease in interest expense of $ 20.7 million is primarily attributable to lower borrowing costs and incremental premium paid f or debt redemption in the prior year due to the refinancing activities previously discussed .  income taxes . t he effective tax rate was ( 787.4 % ) for the year ended september 30 , 2018 compared to 24.2 % for the year ended september 30 , 2017 and ( 16 . 5 % ) for the year ended september 30 , 2016. our effective tax rate for the year ended september 30 , 2018 was significantly impacted by the tax reform act and goodwill impairment as further detailed in sbh above . our effective tax rate for the year ended september 30 , 2017 differs from the u.s federal statutory rate of 35 % due to income earned outside the u.s. that is subject to statutory rates lower than 35 % . additionally , the company recognized a $ 33.4 million tax benefit for changes in our assessment over our ability to effectively repatriate tax-free non-u.s. earnings upon which liabilities were previously recorded , and a $ 13.1 million tax benefit for the recognition of additional federal and state tax credits . the company also recorded a $ 14.7 million valuation allowance on additional state net operating losses that more likely than not will expire unused . our effective tax rate applied to the years ended september 30 , 2016 differs from the u.s. federal statutory rate of 35 % primarily due to the release of valuation allowances on u.s. net operating losses deferred tax assets and income earned outside the u.s. that is subject to statutory rates lower

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cash flows from financing activities  cash flows used by financing activities for sbh continuing operations increased $ 1,106.9 million for the year ended september 30 , 2018 due to reduced proceeds from debt , incremental debt repayment , and dividend payments to sbh shareholders after completion of the spectrum merger . cash flows used by financing activities for sbh continuing operations decreased $ 445.0 million for the year ended september 30 , 2017 due to the reduction of debt net proceeds from debt financing activity , reduction of debt payments ; partially offset by an increase in repurchases of spectrum stock , share based tax withholdings , and payment of dividends to spectrum non-controlling interest  cash flows provided by financing activities for sb/rh continuing operations increased $ 432.5 million for the year ended september 30 , 2018 due to incremental proceeds from the issuance of debt with its parent company of $ 520 million , lower payment on spectrum debt ; offset by increased dividend payments to parent company . cash flows used by financing activities for sb/rh continuing operations decreased $ 148.7 million for the year ended september 30 , 2017 due to the reduction of debt net proceeds from spectrum debt financing activity , reduction of payments on spectrum debt ; partially offset by an increase in dividends paid to parent company and the purchase of the non-controlling interest in shaser for $ 12.6 million .  debt  during the year ended september 30 , 2018 , the company recognized reduced proceeds from the issuance of debt financing of $ 296.0 million primarily due to the issuance of usd term loan debt and hgi funding 2017 loan in the prior year .

pension settlements are recognized when cash payments exceed the sum of the service and interest cost components of net periodic pension cost of the plan for the fiscal year . the participant 's vested benefit is considered fully settled upon cash payment of the lump sum . we recognized $ 5.5 ( $ 3.6 after-tax , or $ .02 per share ) and $ 12.4 ( $ 7.8 after-tax , or $ .04 per share ) of settlement charges in 2014 and 2013 , respectively . goodwill and intangible asset impairment charge in july 2012 , we acquired a controlling interest in the outstanding shares of indura s.a. , a latin american industrial gases company . in connection with this acquisition , we recorded $ 626.2 of goodwill , which was incorporated into the latin american reporting unit of our merchant gases segment . during the fourth quarter of 2014 , we concluded that the goodwill and indefinite-lived intangible assets ( primarily acquired trade names ) associated with this reporting unit were impaired . the indura business continues to be profitable ; however , recent economic conditions in latin america , including the impact of tax legislation in chile , have been less favorable due to increasing inflation , a decline in chilean manufacturing growth , and weaker export demand for many commodities . as a result , we concluded in the fourth quarter that this business will not grow at the rate we anticipated , and we lowered our growth projections . we recorded a noncash impairment charge of $ 310.1 ( $ 275.1 attributable to air products , after-tax or $ 1.27 per share ) for the latin america reporting unit . refer to the critical accounting policies and estimates section below and note 9 , goodwill , and note 10 , intangible assets , to the consolidated financial statements for additional details . 24 business combinations 2013 business combinations we completed three acquisitions in 2013. the acquisitions were accounted for as business combinations , and their results of operations were consolidated within their respective segments after the acquisition dates . the aggregate purchase price , net of cash acquired , for these acquisitions was $ 233 . 2012 business combinations indura s.a. in july 2012 , we acquired a 64.8 % controlling equity interest in the outstanding shares of indura s.a. following the acquisition date , 100 % of the indura s.a. results are consolidated in our financial statements within the merchant gases business segment . the portion of the business that is not owned by the company is recorded as noncontrolling interests . we paid cash consideration in chilean pesos ( clp ) of 345.5 billion ( $ 690 ) and assumed debt of clp113.8 billion ( $ 227 ) for these interests . as of 30 september 2014 , we hold a 67.3 % interest . da nanomaterials llc on 2 april 2012 , we closed on the acquisition agreement with e.i . dupont de nemours and co. , inc. to acquire their 50 % interest in our joint venture , da nanomaterials . beginning in the third quarter of 2012 , the results of da nanomaterials were consolidated within our electronics and performance materials business segment . prior to the acquisition date , we accounted for our 50 % interest in da nanomaterials as an equity-method investment . the year ended 30 september 2012 included a gain of $ 85.9 ( $ 54.6 after-tax , or $ .25 per share ) as a result of revaluing our previously held equity interest to fair market value as of the acquisition date . refer to note 5 , business combinations , to the consolidated financial statements for additional details on these transactions . customer bankruptcy as a result of events which occurred during the fourth quarter of 2012 , we recognized a charge of $ 9.8 ( $ 6.1 after-tax , or $ .03 per share ) primarily related to the write-off of on-site assets due to a customer bankruptcy and mill shutdown . the customer , which primarily received products from the tonnage gases segment , filed for bankruptcy in may 2012 and announced the mill shutdown in august 2012. advisory costs during the fourth quarter of 2013 , we incurred legal and other advisory fees of $ 10.1 ( $ 6.4 after-tax , or $ .03 per share ) in connection with our response to the rapid acquisition of a large position in shares of our common stock by pershing square capital management llc and its affiliates ( pershing square ) . these fees , which are reflected on the consolidated income statements as “advisory costs , ” include costs incurred before and after pershing square 's disclosure of its holdings and cover advisory services related to the adoption of the shareholders rights plan , preparation for a potential proxy solicitation campaign , and entering into an agreement with pershing square . other income ( expense ) , net items recorded to other income ( expense ) , net arise from transactions and events not directly related to our principal income earning activities . the detail of other income ( expense ) , net is presented in note 23 , supplemental information , to the consolidated financial statements . 2014 vs. 2013 other income ( expense ) , net of $ 52.8 decreased $ 17.4 , primarily due to higher gains from the sale of a number of small assets and investments , higher government grants , and a favorable commercial contract settlement in the prior year . otherwise , no individual items were significant in comparison to the prior year . story_separator_special_tag in asia , sales increased 4 % due to higher volumes of 5 % , partially offset by lower pricing of 1 % . volumes increased with higher liquid oxygen , nitrogen , and argon volumes across the region , partially offset by lower helium volumes . pricing decreased as higher helium pricing was more than offset by lower pricing in liquid oxygen , nitrogen , and argon , particularly in china , driven in part by a higher mix of wholesale customers . in latin america , sales decreased 8 % , as higher volumes of 1 % , and higher pricing of 2 % was more than offset by unfavorable currency impacts of 11 % from the brazilian real and chilean peso . volumes increased in brazil and were only modestly higher in chile as the economy slowed . operating income decreased 1 % , primarily due to higher operating costs of $ 25 , prior year gains from sales of assets and investments of $ 10 , and lower price recovery of power and fuel costs of $ 3 , partially offset by higher volumes of $ 31. operating margin decreased 80 basis points ( bp ) from prior year , primarily due to higher power and fuel costs . merchant gases equity affiliates ' income of $ 140.1 decreased $ 4.9 , primarily from unfavorable currency impacts in mexico , south africa , and india and lower oilfield services volume in mexico . 2013 vs. 2012 underlying sales increased 1 % due to higher pricing of 1 % . the acquisition of indura s.a. had a favorable impact on sales of 11 % . in the u.s. and canada , sales increased 5 % , with volumes up 2 % and price up 3 % . volumes increased primarily due to higher liquid oxygen and liquid nitrogen , partially offset by helium supply limitations . in europe , sales decreased 3 % , with volumes down 3 % primarily due to overall economic weakness in the region . in asia , sales increased 3 % due to higher volumes of 2 % and favorable currency of 2 % , partially offset by lower pricing of 1 % . volumes increased primarily due to higher liquid oxygen and liquid nitrogen volumes . operating income increased 6 % , primarily due to higher acquisitions of $ 48 and lower operating costs of $ 13 , partially offset by lower price recovery of power and fuel costs of $ 25 and lower volumes of $ 10. the lower operating costs included the impact from the prior year cost reduction plan in europe , partially offset by higher pension costs . 27 operating income in 2013 also included $ 10 for gains from sales of assets and investments . operating margin decreased 100 bp , primarily due to the impact of the indura s.a. acquisition and higher power and fuel costs . merchant gases equity affiliates ' income of $ 145.0 increased $ 7.9 , primarily as a result of improved performance in our mexican equity affiliate . tonnage gases replace_table_token_8_th 2014 vs. 2013 volumes decreased 7 % , as strong demand in the united states gulf coast hydrogen system was more than offset by lower volumes in latin america and the exit from our pui business . the lower pui volumes decreased sales by 4 % . as of the end of the first quarter of 2014 , our exit from the pui business was complete . higher energy contractual cost pass-through to customers increased sales by 3 % . currency favorably impacted sales by 1 % . operating income decreased primarily due to higher costs of $ 22 , including maintenance , and lower volumes of $ 9. operating margin decreased 50 bp from prior year , primarily due to the higher maintenance costs and higher pass-through of energy costs . 2013 vs. 2012 volumes decreased 1 % , as the impact from implementation of our previous decision to exit the pui business was partially offset by the impact of new plants . higher energy and raw material contractual cost pass-through to customers increased sales by 6 % . currency favorably impacted sales by 1 % . operating income increased as higher volumes of $ 22 and favorable currency of $ 3 were partially offset by higher costs of $ 21 , including higher maintenance and pension costs . operating margin decreased 80 bp , primarily due to the higher energy cost pass-through and higher costs , partially offset by the higher volumes from new plants . electronics and performance materials replace_table_token_9_th 28 2014 vs. 2013 sales increased 9 % , as higher volumes of 9 % and favorable currency of 1 % were partially offset by lower pricing of 1 % . electronics sales increased 8 % , as higher delivery systems equipment sales and materials volumes of 8 % and favorable currency of 1 % were partially offset by lower pricing of 1 % . performance materials sales increased 10 % , as higher volumes of 11 % were partially offset by lower pricing of 1 % . the higher volumes were across all product lines and major regions . the lower pricing was primarily due to unfavorable mix impacts . operating income of $ 425.3 increased 32 % , or $ 104.0 , primarily from higher volumes of $ 93 , lower operating costs of $ 31 , and favorable currency impacts of $ 5 , partially offset by unfavorable price and mix impacts of $ 26. operating margin of 17.4 % increased 310 bp , primarily due to improved loading and leverage from the higher volumes and improved cost performance , partially offset by the unfavorable pricing impacts . 2013 vs. 2012 sales decreased 3 % , as lower volumes of 4 % and lower pricing of 1 % were partially offset by acquisitions of 2 % . electronics sales decreased 8 % ,

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liquidity and capital resources we maintained a strong financial position throughout 2014. we continue to have consistent access to commercial paper markets , and cash flows from operations and financing activities are expected to meet liquidity needs for the foreseeable future . as of 30 september 2014 , we had $ 330.3 of foreign cash and cash items compared to a total amount of cash and cash items of $ 336.6. if the foreign cash and cash items are needed for operations in the u.s. or we otherwise elect to repatriate the funds , we may be required to accrue and pay u.s. taxes on a significant portion of these amounts . however , since we have significant current investment plans outside the u.s. , it is our intent to permanently reinvest the majority of our foreign cash and cash items outside the u.s. current financing alternatives do not require the repatriation of foreign funds . our cash flows from operating , investing , and financing activities of continuing operations , as reflected in the consolidated statements of cash flows , are summarized in the following table : replace_table_token_16_th operating activities for the year ended 2014 , cash provided by operating activities was $ 2,186.4. income from continuing operations of $ 987.1 reflected the goodwill and intangible asset impairment charge of $ 310.1. income from continuing operations is adjusted for other noncash items that include depreciation and amortization , undistributed earnings of equity affiliates , share-based compensation expense , and noncurrent capital lease receivables . other adjustments included a source of cash of $ 143.2 for pension and other postretirement expense , partially offset by a use of cash of $ 78.2 for pension contributions . the working capital accounts were a use of cash of $ 246.5. inventory was a use of cash of $ 23.5 primarily due to the timing of helium purchases from the u.s. bureau of land management .

17 trends and strategy trends general economic conditions and consumer confidence can affect the frequency of purchases and amounts spent by consumers for food-away-from-home and , in turn , can impact our customers and our sales . consumer confidence has improved since 2008 , however it remains below its historical highs . we believe that the consumer is currently concerned about lingering unemployment levels and lack of growth in personal income . we believe these items and other current general economic conditions , have negatively impacted consumer confidence and contributed to a slow rate of recovery in the foodservice market . while these trends can be cyclical in nature , greater consumer confidence will be required to reverse the trend . according to industry sources , real sales growth for the total foodservice market in the united states is expected to be modest over the long-term . non-traditional competitors are becoming more of a factor in terms of competition within our industry , and consumer spending trends are gradually shifting more to fresh , natural and sustainably-produced products . we believe these industry trends reinforce the need for us to transform our business so that we can be in a position to provide greater value to our customers and reduce our overall cost structure . our gross margin performance has been influenced by multiple factors . our sales growth in fiscal 2013 was greater with our large regional and national customers . gross margin from these types of customers is generally lower than our independent restaurant customers . if sales from our independent restaurant customers do not grow at the same rate or a greater rate than sales from these large regional and national customers , our gross margins may decline . additional pressure exists on our gross margin from competitive pricing pressures . low growth in the foodservice market is contributing to increased competition which is in turn pressuring gross profits . we expect this pricing pressure will likely continue . inflation can be a factor that contributes to gross margin pressure ; however , inflation rates remained relatively stable throughout fiscal 2013 at a rate between 2.0 % to 2.5 % . inflation was present in certain product categories such as poultry and meat , but was not significant in the majority of our product categories . while we can not predict whether inflation will continue at current levels , periods of high inflation , either overall or in certain product categories , can have a negative impact on us and our customers , as high food costs can reduce consumer spending in the food-away-from-home market , and may negatively impact our sales , gross profit , operating income and earnings . we have experienced higher operating expenses this fiscal year as compared to fiscal 2012. our business transformation project has been a primary contributor to this increase . this project is a key part of our strategy to control costs and grow our market share over the long-term . this project includes an integrated software system that went into deployment in august 2012 , resulting in increased deployment expenses and software amortization . in fiscal 2012 , we were still building and testing our software and therefore had a greater amount of capitalized costs . we believe expenses related to the project in fiscal 2014 will be similar to the costs incurred in fiscal 2013. operating expenses have also increased due to provisions related to multiemployer pension plan withdrawals . these pension plan provisions generally occur when a collective bargaining agreement is being renewed . pay-related expenses have increased primarily from acquired companies and within delivery areas of our business , however these have been partially offset by lower costs in the selling and information technology areas due to initiatives from our business transformation project . fuel costs have increased due to both increases diesel prices and gallon usage . our retirement-related expenses consist primarily of costs from our company-sponsored qualified pension plan ( retirement plan ) , our supplement executive retirement plan ( serp ) and our defined contribution plan . the net impact in fiscal 2013 of our retirement-related expenses as compared to fiscal 2012 was an increase of $ 31.3 million . at the end of fiscal 2012 , we decided to freeze future benefit accruals under the retirement plan as of december 31 , 2012 for all united states-based ( u.s.-based ) salaried and non-union hourly employees . effective january 1 , 2013 , these employees were eligible for additional contributions under an enhanced , defined contribution plan . absent the retirement plan freeze discussed above , net company-sponsored pension costs would have increased $ 106.9 million in fiscal 2013 , however because of the freeze the costs decreased as compared to fiscal 2012. our expenses related to our defined contribution plan increased in fiscal 2013. during fiscal 2013 , we approved a plan to restructure our executive nonqualified retirement program , including the serp , by freezing benefits . we believe this restructuring more closely aligns our executive plans with our non-executive plans . as a result of this restructuring , we incurred $ 21.0 million in charges in fiscal 2013. we expect our retirement-related expenses will decrease in the range of $ 75 million to $ 85 million in fiscal 2014 as compared to fiscal 2013. a greater portion of the decrease will occur in the second half of fiscal 2014 due to operation of our enhanced , defined contribution plan for a one-year period . excluding the $ 21.0 million restructuring charge in fiscal 2013 , the decrease is expected to be $ 50 million to $ 60 million in fiscal 2014. over the long-term , we believe the changes to all of these retirement programs will result in reduced volatility of retirement-related expenses and a reduction in total retirement-related expenses . story_separator_special_tag these increases were partially offset by reduced sales and information 22 technology pay-related expenses as a result of some of our business transformation initiatives . during fiscal 2013 , we streamlined our sales management organization and modified marketing associate compensation plans . we also restructured our information technology department during the mid-point of fiscal 2013 , reducing headcount as a result . our retirement-related expenses consist primarily of costs from our retirement plan , serp and our defined contribution plan . the net impact in fiscal 2013 of our retirement-related expenses as compared to fiscal 2012 was an increase of $ 31.3 million , consisting of $ 48 . 1 million increased costs from the defined contribution plan , a $ 20.8 million decrease in our net company-sponsored pension costs and approximately $ 4 million for other costs . at the end of fiscal 2012 , sysco decided to freeze future benefit accruals under the retirement plan as of december 31 , 2012 for all u.s.-based salaried and non-union hourly employees . effective january 1 , 2013 , these employees were eligible for additional contributions under an enhanced , defined contribution plan . absent the retirement plan freeze , net company-sponsored pension costs would have increased $ 106.9 million in fiscal 2013. during fiscal 2013 , we approved a plan to restructure our executive nonqualified retirement program including the serp and our executive deferred compensation plan . a non-qualified defined contribution plan became effective on january 1 , 2013 as a replacement plan and benefits were frozen under the serp at the end of fiscal 2013. we believe this restructuring more closely aligned our executive plans with our non-executive plans . as a result of this restructuring , we incurred $ 21.0 million in charges in fiscal 2013. we expect our retirement-related expenses in fiscal 2014 as compared to fiscal 2013 will decrease in the range of $ 75 million to $ 85 million primarily from reduced expenses of our retirement plan , partially offset by increased defined contribution plan expenses . a greater portion of the decrease will occur in the second half of fiscal 2014 due to operation of our enhanced , defined contribution plan for a one-year period . excluding the $ 21.0 million restructuring charge in fiscal 2013 and the decrease in fiscal 2014 is expected to be $ 50 million to $ 60 million . over the long-term , we believe the changes to all of these retirement programs will result in reduced volatility of retirement-related expenses and a reduction in total retirement-related expenses . depreciation and amortization expense increased by $ 95.6 million in fiscal 2013 over fiscal 2012. the increase related to our business transformation project is described above . the remaining increase of $ 36.0 million in fiscal 2013 was primarily related to assets that were not placed in service in fiscal 2012 that were in service in fiscal 2013 , primarily from new facilities , property from new acquisitions and expansions . from time to time , we may voluntarily withdraw from multiemployer pension plans to minimize or limit our future exposure to these plans . in fiscal 2013 and fiscal 2012 , we recorded provisions of $ 41.9 million and $ 21.9 million , respectively , related to multiemployer pension plan withdrawals . fuel costs increased by $ 18.9 million in fiscal 2013 over fiscal 2012. the increase was primarily due to increased contracted diesel prices and increased gallon usage . our costs per gallon increased 2.8 % in fiscal 2013 over fiscal 2012. our activities to mitigate fuel costs include reducing miles driven by our trucks through improved routing techniques , improving fleet utilization by adjusting idling time and maximum speeds and using fuel surcharges . we routinely enter into forward purchase commitments for a portion of our projected monthly diesel fuel requirements with a goal of mitigating a portion of the volatility in fuel prices . our fuel commitments will result in either additional fuel costs or avoided fuel costs based on the comparison of the prices on the fixed price contracts and market prices for the respective periods . in fiscal 2013 , the forward purchase commitments resulted in an estimated $ 17.8 million of avoided fuel costs as the fixed price contracts were generally lower than market prices for the contracted volumes . in fiscal 2012 , the forward purchase commitments resulted in an estimated $ 20.2 million of avoided fuel costs as the fixed price contracts were generally lower than market prices for the contracted volumes . as of june 29 , 2013 , we had forward diesel fuel commitments totaling approximately $ 204.0 million through august 2014. these contracts will lock in the price of approximately 60 % to 65 % of our fuel purchase needs for the remainder of the fiscal year at prices slightly lower than the current market price for diesel . assuming that fuel prices do not rise significantly over recent levels during fiscal 2014 , fuel costs , exclusive of any amounts recovered through fuel surcharges , are expected to increase by approximately $ 10 to $ 20 million as compared to fiscal 2013. our estimate is based upon current , published quarterly market price projections for diesel , the cost committed to in our forward fuel purchase agreements currently in place for fiscal 2014 and estimates of fuel consumption . actual fuel costs could vary from our estimates if any of these assumptions change , in particular if future fuel prices vary significantly from our current estimates . we continue to evaluate all opportunities to offset potential increases in fuel expense , including the use of fuel surcharges and overall expense management . we also measure our expense performance on a cost per case basis . this metric is calculated by taking the total operating expense of our broadline companies , excluding charges multiemployer pension plans and severance charges , divided by the number of cases sold .

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debt activity and borrowing availability short-term borrowings we have uncommitted bank lines of credit , which provided for unsecured borrowings for working capital of u p to $ 95.0 mi llion , of whic h none was outstanding as of june 29 , 2013. outstanding borrowings under this facility were $ 4.0 million as of augu st 14 , 2013 . in september 2012 , the company 's irish subsidiary , pallas foods , entered into a 75.0 million ( euro ) multicurrency revolving credit facility , which will be utilized for capital needs for the company 's european subsidiaries . this facility replaces the subsidiary 's 36 previous 10.0 mi llion ( euro ) committed facility for unsecured borrowings . the new facility provides for unsecured borrowings and expires september 25 , 2013 , but is subject to extension . outstanding borrowings under this facility wer e 32.0 mi llion ( euro ) as of june 29 , 2013 , located within notes payable on the consolidated balance sheet . outstanding borrowings under this facility were 32.0 million ( euro ) as of august 14 , 2013. on june 30 , 2011 , a canadian subsidiary of sysco entered into a short-term demand loan facility for the purpose of facilitating a distribution from the canadian subsidiary to sysco , and sysco concurrently entered into an agreement with the bank to guarantee the loan . the amount borrowed was $ 182.0 million and was repaid in full on july 4 , 2011. commercial paper and revolving credit facility we have a board-approved commercial paper program allowing us to issue short-term unsecured notes in an aggregate amount not to exceed $ 1.3 billion . in december 2011 , we terminated our previously existing revolving credit facility that supported the company 's u.s. and canadian commercial paper programs . at the same time , sysco and one of its subsidiaries , sysco international , ulc , entered into a new $ 1.0 billion credit facility supporting the company 's u.s. and canadian commercial paper programs . this facility provides for borrowings in both u.s. and canadian dollars .

those estimates are based on historical operations , future business plans and projected financial results , the terms of existing contracts , the observance of trends in the industry , information provided by customers and information available from other outside sources , as appropriate . the following discusses the company 's critical accounting policies and estimates : estimates . operating results may be affected by certain accounting estimates . the most sensitive and significant accounting estimates in the financial statements relate to customer rebates , valuation allowances for deferred income tax assets , obsolete and slow moving inventories , potentially uncollectible accounts receivable , pension liability and accruals for income taxes . although the company 's management has used available information to make judgments on the appropriate estimates to account for the above matters , there can be no assurance that future events will not significantly affect the estimated amounts related to these areas where estimates are required . however , historically , actual results have not been materially different than original estimates . revenue recognition . the company recognizes revenue from the sales of its products when ownership transfers to the customers , which occurs either at the time of shipment or upon delivery based upon contractual terms with the customer . the company recognizes customer program costs , including rebates , cooperative advertising , slotting fees and other sales related discounts , as a reduction to sales . allowance for doubtful accounts . the company provides an allowance for doubtful accounts based upon a review of outstanding accounts receivable , historical collection information and existing economic conditions . the allowance for doubtful accounts represents estimated uncollectible accounts receivables associated with potential customer defaults on contractual obligations , usually due to potential insolvencies . the allowance includes amounts for certain customers where a risk of default has been specifically identified . in addition , the allowance includes a provision for customer defaults based on historical experience . the company actively monitors its accounts receivable balances , and its historical experience of annual accounts receivable write offs has been negligible . customer rebates . customer rebates and incentives are a common practice in the office products industry . we incur customer rebate costs to obtain favorable product placement , to promote sell-through of products and to maintain competitive pricing . customer rebate costs and incentives , including volume rebates , promotional funds , catalog allowances and slotting fees , are accounted for as a reduction to gross sales . these costs are recorded at the time of sale and are based on individual customer contracts . management periodically reviews accruals for these rebates and allowances , and adjusts accruals when appropriate . 17 obsolete and slow moving inventory . inventories are stated at the lower of cost , determined on the first-in , first-out method , or market . an allowance is established to adjust the cost of inventory to its net realizable value . inventory allowances are recorded for obsolete or slow moving inventory based on assumptions about future demand and marketability of products , the impact of new product introductions and specific identification of items , such as discontinued products . these estimates could vary significantly from actual requirements if future economic conditions , customer inventory levels or competitive conditions differ from expectations . income taxes . deferred income tax liabilities or assets are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in tax rates expected to be in effect when the temporary differences reverse . a valuation allowance is recorded to reduce deferred income tax assets to an amount that is more likely than not to be realized . intangible assets and goodwill . intangible assets with finite useful lives are recorded at cost upon acquisition and amortized over the term of the related contract , if any , or useful life , as applicable . intangible assets held by the company with finite useful lives include patents and trademarks . the weighted average amortization period for intangible assets at december 31 , 2015 was 8 years . the company periodically reviews the values recorded for intangible assets and goodwill to assess recoverability from future operations whenever events or changes in circumstances indicate that its carrying amount may not be recoverable . at december 31 , 2015 and 2014 , the company assessed the recoverability of its long-lived assets and goodwill and believed that there were no events or circumstances present that would that would require a test of recoverability on those assets . as a result , there was no impairment of the carrying amounts of such assets and no reduction in their estimated useful lives . the net book value of the company 's intangible assets was $ 11,950,991 as of december 31 , 2015 , compared to $ 12,554,611 as of december 31 , 2014 , and the net book value of the company 's goodwill was $ 1,406,000 at december 31 , 2015 and $ 1,375,000 at december 31 , 2014. pension obligation . the pension benefit obligation is based on various assumptions used by third-party actuaries in calculating this amount . these assumptions include discount rates , expected return on plan assets , mortality rates and other factors . revisions in assumptions and actual results that differ from the assumptions affect future expenses , cash funding requirements and obligations . our funding policy is to fund the plan in accordance with applicable requirements of the internal revenue code and regulations . these assumptions are reviewed annually and updated as required . the company has a frozen defined benefit pension plan . two assumptions , the discount rate and the expected return on plan assets , are important elements of expense and liability measurement . story_separator_special_tag we determine the discount rate used to measure plan liabilities as of the december 31 measurement date . the discount rate reflects the current rate at which the associated liabilities could be effectively settled at the end of the year . in estimating this rate , we look at rates of return on fixed-income investments of similar duration to the liabilities in the plan that receive high , investment grade ratings by recognized ratings agencies . using these methodologies , we determined a discount rate of 3.50 % to be appropriate as of december 31 , 2015 , which is an increase of .27 percentage points from the rate used as of december 31 , 2014. the expected long-term rate of return on assets considers the company 's historical results and projected returns for similar allocations among asset classes . in accordance with generally accepted accounting principles , actual results that differ from the company 's assumptions are accumulated and amortized over future periods and , therefore , affect expense and obligation in future periods . for the u.s. pension plan , our assumption for the expected return on plan assets was 6.0 % for 2015. for more information concerning these costs and obligations , see the discussion in note 6 – pension and profit sharing , in the notes to the company 's consolidated financial statements in this report . 18 accounting for stock-based compensation . stock based compensation cost is measured at the grant date fair value of the award and is recognized as expense over the requisite service period . the company uses the black-scholes option - pricing model to determine fair value of the awards , which involves certain subjective assumptions . these assumptions include estimating the length of time employees will retain their vested stock options before exercising them ( “ expected term ” ) , the estimated volatility of the company 's common stock price over the expected term ( “ volatility ” ) and the number of options for which vesting requirements will not be completed ( “ forfeitures ” ) . changes in the subjective assumptions can materially affect estimates of fair value stock-based compensation , and the related amount recognized on the consolidated statements of operations . refer to note 11 - stock option plans - in the notes to consolidated financial statements in this report for a more detailed discussion . results of operations 2015 compared with 2014 on april 7 , 2014 , the company sold its fremont , nc distribution facility for $ 850,000 in cash . the facility originally served as a manufacturing site for the company 's scissors and rulers . in conjunction with the sale of the property , the company recorded a liability of $ 300,000 in the second quarter of 2014 , related to environmental remediation of the property . the accrual included the total estimated costs of remedial activities and post-remediation operating and maintenance costs . the balance remaining in the accrual at december 31 , 2015 was approximately $ 80,000. additional information concerning the sale of the property is set forth in note 16 – sale of property , in the notes to condensed consolidated financial statements . on june 2 , 2014 , the company purchased certain assets of first aid only , located in vancouver , wa , a supplier of smart compliance® first aid kits , refills , and safety products that meet regulatory requirements for a broad range of industries . the company purchased inventory , accounts receivable , equipment , patents , trademarks and other intellectual property for approximately $ 13.8 million using funds borrowed under its revolving credit facility with hsbc . additional information concerning the acquisition of first aid only assets is set forth in note 17 – business combinations , in the notes to condensed consolidated financial statements . net sales in 2015 , sales increased by $ 2,590,000 or 2 % to $ 109,812,000 compared to $ 107,222,000 in 2014 ( 5 % in constant currency ) . the u.s. segment sales increased by $ 5,324,000 or 6 % in 2015 compared to 2014. sales in canada decreased by $ 2,034,000 or 23 % in u.s. dollars and 11 % in local currency in 2015 compared to 2014. european sales decreased by $ 698,000 or 10 % in u.s. dollars but increased 7 % local currency in 2015 compared to 2014. the increase in net sales for the twelve months ended december 31 , 2015 in the u.s. segment was primarily due to increased sales of first aid products , including the additional sales from the acquisition of the assets of first aid only , inc. in june 2014. the decrease in net sales in local currency in canada for the twelve months ended december 31 , 2015 was primarily due to weak economic conditions and the exiting of a large retailer from the canadian market . the increase in sales in local currency in europe in 2015 was primarily due to higher sales and increased market share in the office products channel . gross profit gross profit was 36.0 % of net sales in 2015 compared to 35.6 % in 2014. the company spent approximately $ 400,000 in one-time severance , moving and production start-up costs associated with consolidating its first aid manufacturing facilities . excluding these costs gross profit would have been 36.4 % in 2015 . 19 selling , general and administrative selling , general and administrative expenses were $ 32,214,000 in 2015 compared with $ 30,791,000 in 2014 , an increase of $ 1,423,000 or 5 % . sg & a expenses were 29 % of net sales in 2015 and 2014 , respectively . the increase in sg & a expenses was primarily the result of incremental expenses resulting from the addition of first aid only ( $ .7 million ) , higher delivery costs and sales commissions ( $ .2 million ) as a result of

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liquidity and capital resources during 2015 , working capital increased by approximately $ 5.5 million compared to december 31 , 2014. inventory increased by approximately $ 1.8 million , or 5 % , which corresponds to the increase in sales . the company expects that changes in inventory levels will continue to be consistent with changes in sales , including the seasonal impact on the company 's revenue stream . inventory turnover , calculated using a twelve month average inventory balance , decreased to 2.0 from 2.2 at december 31 , 2014. the reserve for slow moving and obsolete inventory was $ 698,592 at december 31 , 2015 compare to $ 825,087 at december 31 , 2014. further , we do not anticipate significant increases in the allowance for slow moving and obsolete inventory in the ordinary course of business . receivables increased by approximately $ 65,000. the average number of days sales outstanding in accounts receivable was 64 days in 2015 compared to 63 days in 2014. accounts payable and other current liabilities decreased by approximately $ 3.4 million . 20 at december 31 , 2015 , total debt outstanding under the company 's revolving credit facility ( referred to below ) increased by approximately $ 1.8 million compared to total debt at december 31 , 2014. the change in debt was primarily due to the increase in inventory . as of december 31 , 2015 , $ 25,912,652 was outstanding and $ 14,087,348 was available for borrowing under the company 's revolving credit facility . under its revolving credit facility with hsbc bank , n.a.

in 2014 , the currency fluctuations had a negative impact on net revenue of $ 6.8 million as compared to 2013. key financial results and transactions for 2014 included the following : net revenue increased 2.8 percent from 2013 primarily driven by a 3.5 percent increase in sales volume . gross profit margin decreased to 25.3 percent from 27.9 percent in 2013 and 27.4 percent in 2012. cash flow generated by operating activities from continuing operations was $ 29.7 million in 2014 as compared to $ 132.7 million in 2013 and $ 108.6 million in 2012. we acquired prospec construction products business on september 3 , 2014 for $ 26.2 million . the global economic conditions were mixed in 2014. demand in north america saw the growth momentum built in the second half of 2013 weaken notably in the first quarter of 2014. however market conditions improved the rest of the year . the recovery in europe remains weak though conditions stabilized during the year . we experienced continued growth in our asian markets , particularly in china . our total year organic sales growth , which we define as the combined variances from product pricing , sales volume and small acquisitions , was 3.1 percent for 2014 compared to 2013. in 2014 our diluted earnings per share from continuing operations was $ 0.97 per share compared to $ 1.87 per share in 2013 and $ 1.34 per share in 2012. the lower earnings per share from continuing operations in 2014 resulted from production inefficiencies related to the business integration project , erp system implementation costs in north america and higher special charges , net costs for the business integration project . special charges , net in 2014 were $ 51.5 million for costs related to the business integration project . on an after-tax basis , the special charges , net resulted in a $ 45.2 million negative impact on net income and a negative $ 0.88 effect on diluted earnings per share . special charges , net in 2013 were $ 45.1 million for costs related to the business integration project . on an after-tax basis , the special charges , net resulted in a $ 35.3 million negative impact on net income and a negative $ 0.69 effect on diluted earnings per share . in 2012 we had special charges , net of $ 52.5 million for costs related to the business integration project . on an after-tax basis , the special charges , net resulted in a $ 35.4 million negative impact on net income and a negative $ 0.70 effect on diluted earnings per share . see note 5 to the consolidated financial statements for more information . project one : in december of 2012 our board of directors approved a multi-year project to replace and enhance our existing core information technology platforms . the scope for this project includes most of the basic transaction processing for the company including customer orders , procurement , manufacturing , and financial reporting . the project envisions harmonized business processes for all of our operating segments supported with one standard software configuration . the execution of this project , which we refer to as project one , is being supported by internal resources and consulting services . during 2013 a project team was formed and the global blueprint for the software configuration was designed and built . in the latter half of 2013 and in the early months of 2014 the global blueprint was applied to the specific requirements of our north america adhesives business , the software was tested and the user groups were trained . on april 6 , 2014 our north america adhesives business went live . the implementation process proved to be 18 more difficult than we originally anticipated resulting in disruptions in our manufacturing network , lower productivity and deteriorated customer service levels . by the end of 2014 most of the problems associated with the software implementation had been remediated and the business was stable and running at capacity with productivity levels approaching the levels experienced prior to the new software implementation . in late 2014 we suspended any further implementation projects in other geographic regions until we complete the optimization of the current platform in north america . we are preparing a revised implementation plan that leverages the experiences of our first go-live event and reduces the risk of significant business interruption . we expect to start subsequent implementations in 2016. the original capital expenditure plan for project one was approximately $ 60.0 million , of which $ 43.3 million was spent through november 29 , 2014. given the complexity of the initial implementation we anticipate that the total investment to complete the project will exceed our original estimate . we will have a revised estimate of the total project costs and the expected completion timetable later in 2015 when the revised implementation plan is complete . 2015 outlook : our key long term financial objectives remain unchanged : achieve organic revenue growth between 5 and 8 percent per year , increase our earnings before interest , taxes , depreciation and amortization ( ebitda ) margin to 15 percent , grow earnings per share by 15 percent per year and increase return on invested capital ( roic ) to 15 percent . ebitda is a non-gaap financial measure defined on a consolidated basis as gross profit , less sg & a expense , plus depreciation expense , plus amortization expense . ebitda excludes special charges , net . ebitda margin is a non-gaap financial measure defined as ebitda divided by net revenue . story_separator_special_tag a discussion of environmental , product and other litigation liabilities is disclosed in item 3. and note 12 to the consolidated financial statements . 22 based upon currently available facts , we do not believe that the ultimate resolution of any pending legal proceeding , individually or in the aggregate , will have a material adverse effect on our long-term financial condition . however , adverse developments and or periodic settlements could negatively affect our results of operations or cash flows in one or more future quarters . income tax accounting : as part of the process of preparing the consolidated financial statements , we are required to estimate income taxes in each of the jurisdictions in which we operate . the process involves estimating actual current tax expense along with assessing temporary differences resulting from differing treatment of items for book and tax purposes . these temporary differences result in deferred tax assets and liabilities , which are included in the consolidated balance sheets . we record a valuation allowance to reduce our deferred tax assets to the amount that is more-likely-than-not to be realized . we have considered future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance . increases in the valuation allowance result in additional expense to be reflected within the tax provision in the consolidated statements of income . as of november 29 , 2014 , the valuation allowance to reduce deferred tax assets totaled $ 16.4 million . we recognize tax benefits for tax positions for which it is more-likely-than-not that the tax position will be sustained by the applicable tax authority at the largest amount of tax benefit that is greater than fifty percent likely of being realized upon ultimate settlement . we do not recognize a financial statement benefit for a tax position that does not meet the more-likely-than-not threshold . we believe that our liabilities for income taxes reflect the most likely outcome . it is difficult to predict the final outcome or the timing of the resolution of any particular tax position . future changes in judgment related to the resolution of tax positions will impact earnings in the quarter of such change . we adjust our income tax liabilities related to tax positions in light of changing facts and circumstances . settlement with respect to a tax position would usually require cash . based upon our analysis of tax positions taken on prior year returns and expected tax positions to be taken for the current year tax returns , we have identified gross uncertain tax positions of $ 4.8 million as of november 29 , 2014. we have not recorded u.s. deferred income taxes for certain of our non-u.s. subsidiaries undistributed earnings as such amounts are intended to be indefinitely reinvested outside of the u.s. should we change our business strategies related to these non-u.s. subsidiaries , additional u.s. tax liabilities could be incurred . it is not practical to estimate the amount of these additional tax liabilities . see note 8 to the consolidated financial statements for further information on income tax accounting . results of operations net revenue replace_table_token_7_th net revenue in 2014 increased 2.8 percent from 2013. the 2013 net revenue was 8.5 percent higher than the net revenue in 2012. we review variances in net revenue in terms of changes related to product pricing , sales volume , changes in foreign currency exchange rates and major acquisitions . the pricing/sales volume variance and small acquisitions including prospec construction products , which was acquired in the fourth quarter of 2014 , are viewed as organic growth . the following table shows the net revenue variance analysis for the past two years : replace_table_token_8_th 23 organic sales growth was 3.1 percent in 2014 compared to 2013. the 3.1 percent organic sales growth in 2014 was led by 18.7 percent growth in construction products , 11.2 percent growth in asia pacific and 2.4 percent growth in americas adhesives . the majority of the negative currency impact was driven by the weakening of the australian dollar and the canadian dollar against the u.s. dollar . organic sales growth was 1.6 percent in 2013 compared to 2012. the 1.6 percent organic sales growth in 2013 was led by 7.8 percent growth in construction products , 6.5 percent growth in asia pacific and 1.6 percent growth in americas adhesives . the majority of the positive currency impact was driven by the strengthening of the euro against the u.s. dollar . the acquired business added $ 121.8 million to net revenue in 2013 compared to 2012. cost of sales replace_table_token_9_th raw material costs as a percentage of net revenue increased 100 basis points in 2014 relative to 2013 , reflecting increases in raw materials costs as well as changes in product pricing and sales mix . other manufacturing costs as a percentage of revenue increased 160 basis points compared to last year mainly driven by cost associated with the implementation of our new erp system as well as business integration costs that are not classified as special charges . as a result , cost of sales as a percentage of net revenue increased 260 basis points . the 7.9 percent increase in cost of sales for 2013 compared to 2012 was driven by the inclusion of the acquired business for the full year of 2013 , offset by the recognition of the non-cash charge for the sale of inventories revalued at the date of the acquisition , which increased cost of sales by 20 basis points in 2012. cost of sales as a percentage of net revenue decreased 50 basis points primarily driven by synergies from integrating the acquired business and benefits realized from the business integration project . raw material costs as a percentage of net revenue decreased 80 basis points relative to the prior year , reflecting material cost synergies and other profit improvement initiatives undertaken over the year . other manufacturing costs as

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selected metrics of liquidity and capital resources key metrics we monitor are net working capital as a percent of annualized net revenue , trade account receivable days sales outstanding ( dso ) , inventory days on hand , free cash flow and debt capitalization ratio . replace_table_token_36_th 1 current quarter net working capital ( trade receivables , net of allowance for doubtful accounts plus inventory minus trade payables ) divided by annualized net revenue . 2 trade receivables net of allowance for doubtful accounts multiplied by 56 ( 8 weeks ) and divided by the net revenue for the last 2 months of the quarter . 3 total inventory multiplied by 56 and divided by cost of sales ( excluding delivery costs ) for the last 2 months of the quarter . 4 net cash provided by operations less purchased property , plant and equipment and dividends paid . 5 total debt divided by ( total debt plus total stockholders ' equity ) . another key metric we measure is the return on invested capital , or roic . the calculation is represented by total return divided by total invested capital . total return is defined as : gross profit less sg & a expenses , less taxes at the effective tax rate plus income from equity method investments . total return is calculated using trailing 12 month information . total invested capital is defined as the sum of notes payable , current maturities of long-term debt , long-term debt , redeemable non-controlling interest and total equity . 35 we believe roic provides a true measure of return on capital invested and is focused on the long term .

during the year ended december 31 , 2020 , we originated $ 54.1 million in one- to four-family residential real estate loans , selling $ 37.3 million in one- to four-family residential real estate loans and recording gains of $ 1.1 million on the sale of those loans . similarly , during the year ended december 31 , 2019 , we originated $ 28.7 million in one- to four-family residential real estate loans , selling $ 8.9 million in one- to four-family residential real estate loans and recording gains of $ 215,000 on the sale of those loans . we intend to continue to sell in the secondary market a portion of the long-term conforming fixed-rate one- to four-family residential real estate loans that we originate to increase non-interest income and manage the interest rate risk of our loan portfolio . increase nonresidential real estate lending . in order to increase the yield on our loan portfolio and reduce the term to repricing , we plan to increase our nonresidential real estate lending while maintaining what we believe are conservative underwriting standards . we will focus our nonresidential real estate lending on small businesses located in our market area , targeting owner-occupied businesses . maintain high asset quality . strong asset quality is critical to the long-term financial success of a community bank . we attribute our high asset quality to maintaining conservative underwriting standards , the diligence of our loan collection personnel and the stability of the local economy . at december 31 , 2020 , our non-performing assets to total assets ratio was 0.41 % . because substantially all of our loans are secured by real estate , and the level of our non-performing loans has been low in recent years , we believe that our allowance for loan losses is adequate to absorb the probable losses inherent in our loan portfolio . increase core deposits , with an emphasis on low-cost commercial demand deposits . deposits are the major source of balance sheet funding for lending and other investments . we have made investments in new products and services , as well as enhancing our electronic delivery solutions including business bill-pay in an effort to become more competitive in the financial services marketplace and attract more core deposits , our least costly source of funds . our ratio of core ( non-time ) deposits to total deposits was 45.10 % at december 31 , 2020. we plan to continue to aggressively market our core deposit accounts , emphasizing our high-quality service and competitive pricing of these products . 35 critical accounting policies the discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements , which are prepared in conformity with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities , and the reported amounts of income and expenses . we consider the accounting policies discussed below to be critical accounting policies . the estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions , resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations . on april 5 , 2012 , the jobs act was signed into law . the jobs act contains provisions that , among other things , reduce certain reporting requirements for qualifying public companies . as an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies . we intend to take advantage of the benefits of this extended transition period . accordingly , our financial statements may not be comparable to companies that comply with such new or revised accounting standards . the following represents our critical accounting policies : allowance for loan losses . the allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date . the allowance is established through the provision for loan losses , which is charged to income . determining the amount of the allowance for loan losses necessarily involves a high degree of judgment . the allowance for loan losses represents management 's estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans . the allowance for loan losses is increased by the provision for loan losses , and decreased by charge-offs , net of recoveries . loans deemed to be uncollectible are charged against the allowance for loan losses , and subsequent recoveries , if any , are credited to the allowance . all , or part , of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all , or part , of the principal balance is highly unlikely . the allowance for loan losses is maintained at a level considered adequate to provide for losses that we have estimated to have been incurred . management performs a quarterly evaluation of the adequacy of the allowance . the allowance is based on the bank 's past loan loss experience , known and inherent risks in the portfolio , adverse situations that may affect the borrower 's ability to repay , the estimated value of any underlying collateral , composition of the loan portfolio , current economic conditions and other relevant factors . this evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available . story_separator_special_tag our average balance of interest-bearing deposits increased $ 3.0 million , or 2.20 % , to $ 139.6 million for the year ended december 31 , 2020 from $ 136.6 million for the year ended december 31 , 2019. our average rate paid on interest-bearing deposits decreased two basis points to 1.01 % for the year ended december 31 , 2020 from 1.03 % for the year ended december 31 , 2019. our average borrowings with the federal home loan bank increased to $ 7.7 million for the year ended december 31 , 2020 from $ 103,000 for the year ended december 31 , 2019. the average rate paid on the borrowings was 0.86 % for the year ended december 31 , 2020 compared to 1.94 % for the year ended december 31 , 2019. net interest income . net interest income decreased $ 349,000 , or 4.59 % , to $ 7.3 million for the year ended december 31 , 2020 from $ 7.6 million for the year ended december 31 , 2019. the decrease was primarily the result of lower net interest spread and net interest margin offset by a slight increase in our net-interest earning assets . our net interest rate spread decreased by 32 basis points to 3.01 % for the year ended december 31 , 2020 from 3.33 % for the year ended december 31 , 2019 and our net interest margin decreased 35 basis points to 3.33 % for the year ended . december 31 , 2020 from 3.68 % for the year ended december 31 , 2019. our average net-interest earning assets , which represents total interest-earning assets , less total interest-bearing liabilities , increased slightly to $ 71.3 million at december 31 , 2020 from $ 70.8 million at december 31 , 2019 . 42 provisions for loan losses . provisions for loan losses are charged to operations to establish and allowance for loan losses at a level necessary to absorb known and inherent losses in our loan portfolio that are both probable and reasonably estimable at the date of the financial statements . in evaluating the level of the allowance for loan losses , management analyzes several qualitative loan portfolio risk factors , including , but not limited to , management 's ongoing review and grading of loans , facts and issues related to specific loans , historical loan loss and delinquency experience , trends in past due and non-accrual loans , existing risk characteristics of specific loans or loan pools , the fair value of underlying collateral , current economic conditions and other qualitative and quantitative factors which could affect potential credit losses . the allowance for loan losses is assessed on a quarterly basis and provisions are made for loan losses as required in order to maintain the allowance . provision for loan losses increased by $ 175,000 , or 100.00 % , to $ 350,000 for the year ended december 31 , 2020 from a provision for loan losses for the year ended december 31 , 2019 of $ 175,000. we recorded net charge-offs of $ 2,000 for the year ended december 31 , 2020 compared to net recoveries of $ 16,000 for the year ended december 31 , 2019. non-performing loans totaled $ 188,000 for the year ended december 31 , 2020 compared to $ 490,000 at december 31 , 2019. the decrease of $ 302,000 in non-performing loans was primarily the result of a decrease of $ 150,000 in non-performing one-to four-family residential loans , a decrease of $ 76,000 in non-performing home equity loans and lines of credit and decrease of $ 76,000 in nonresidential loans . our non-performing loans to total loans decreased to 0.12 % at december 31 , 2020 from 0.31 % at december 31 , 2019. the increase in the provision for loan losses was necessary due to an increase in our qualitative factors , such as current economic conditions , the adequacy of underlying collateral and the financial strength of our borrowers affected by the covid-19 pandemic . we have provided for losses that are probable and reasonably estimable at december 31 , 2020. non-interest income . non-interest income increased by $ 982,000 to $ 1.6 million for the year ended december 31 , 2020 from $ 592,000 for the year ended december 31 , 2019. the increase was primarily due to an increase of $ 863,000 in gain on sale of loans to $ 1.1 million for the year ended december 31 , 2020 compared to $ 215,000 for the year ended december 31 , 2019 primarily as a result of the increase in refinancing in the residential mortgage market due to the lower rate environment and the gain recorded on the sale of investment securities of $ 143,000 during the year ended december 31 , 2020. non-interest expense . non-interest expense increased by $ 372,000 , or 5.47 % , to $ 7.1 million for the year ended december 31 , 2020 from $ 6.8 million for the year ended december 31 , 2019. salaries , director fees and employee benefits increased $ 463,000 , or 11.02 % , to $ 4.7 million for the year ended december 31 , 2020 from $ 4.2 million for the year ended december 31 , 2019 primarily due to an increase of $ 280,000 in stock-based compensation to $ 712,000 for the year ended december 2020 compared to $ 432,000 for the year ended december 31 , 2019 relating to the 2019 equity incentive plan which was approved in may 2019 , as well as commissions paid to loan officers for the increase in loans originated for sale . professional and legal fees decreased $ 44,000 , or 8.03 % , to $ 504,000 for the year ended december 31 , 2020 from $ 548,000 for the year ended december 31 , 2019 primarily due to lower levels of consulting expenses relating to the company 's public status during the year

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cash and cash equivalents . cash and cash equivalents increased $ 41.6 million to $ 47.6 million at december 31 , 2020 from $ 6.0 million at december 31 , 2019. the increase in cash and cash equivalents was primarily driven by the increase in deposits and a decrease in investment securities and loans as discussed in more detail below . time deposits in other banks . time deposits in other banks decreased by $ 1.5 million , or 18.99 % , to $ 6.4 million at december 31 , 2020 from $ 7.9 million at december 31 , 2019. this decrease was due to calls and maturities of $ 1.5 million . investment securities . investment securities decreased $ 20.6 million , or 55.53 % , to $ 16.5 million at december 31 , 2020 from $ 37.1 million at december 31 , 2019. the decrease was due to the sale of municipal securities and residential mortgage backed securities in the amount of $ 7.3 million and principal repayments and calls in the amount of $ 13.6 million . all of our investment securities are currently classified as available for sale . loans held for sale . loans held for sale increased $ 4.4 million to $ 6.1 million at december 31 , 2020 from $ 1.7 million at december 31 , 2019 as a result of an increase in originations of one-to four-family residential real estate loans during the year due to an increase in refinancing in the residential mortgage market due to the lower rate environment . net loans . net loans decreased $ 9.7 million , or 6.13 % , to $ 148.6 million at december 31 , 2020 from $ 158.3 million at december 31 , 2019. one-to four-family residential real estate loans decreased $ 12.6 million , or 16.87 % , to $ 62.1 million at december 31 , 2020 from $ 74.7 million at december 31 , 2019 as higher yielding loans have been repaid and refinanced due to the current low rate environment for residential loans .

the increase in total assets was partially offset by decreases in loans , which decreased to $ 249.8 million at june 30 , 2012 from $ 264.9 million at june 30 , 2011 , federal funds sold and overnight deposits , which decreased to $ 32.6 million at june 30 , 2012 from $ 49.4 million at june 30 , 2011 , and real estate owned , which decreased to $ 854 thousand at june 30 , 2012 from $ 2.3 million at june 30 , 2011 , reflecting a decrease in foreclosures of real estate collateralizing one- to four-family residential mortgage loans and sales of existing real estate owned . additionally , there were modest decreases in securities held-to-maturity to $ 8.7 million at june 30 , 2012 from $ 9.0 million at june 30 , 2011 and prepaid fdic insurance premiums to $ 345 thousand from $ 488 thousand at the same periods , respectively . 45 deposits increased modestly by $ 899 thousand , or 0.3 % , to $ 293.4 million at june 30 , 2012 from $ 292.5 million at june 30 , 2011. the increase in deposits reflected increases in now and demand deposits , money market deposits , and regular savings and other deposits of $ 4.7 million , or 7.4 % . the increase in transaction and savings accounts was offset partially by a decrease in certificates of deposit of $ 3.8 million , or 1.6 % . the declining interest rate environment has slowed overall deposit growth , particularly in certificates of deposit , which historically have yielded higher rates . we generally do not accept brokered deposits and no brokered deposits were accepted during the 12 months ended june 30 , 2012. we had no advances from the federal home loan bank of atlanta as of june 30 , 2012 and 2011. we have credit available under a loan agreement with the federal home loan bank of atlanta in the amount of 11 % of total assets , or approximately $ 41.5 million at june 30 , 2012. total equity equaled $ 83.0 million at june 30 , 2012 , compared to $ 80.2 million at june 30 , 2011. the increase resulted from net income of $ 4.0 million , net of dividends of $ 1.8 million , an increase in accumulated other comprehensive income of $ 463 thousand , and a decrease in unearned esop shares of $ 187 thousand , offset partially by a decrease in additional paid in capital of $ 55 thousand . during 2012 , we issued 87 thousand shares of restricted stock for our equity incentive plan . additionally , during the fourth quarter of 2012 , we repurchased 11 thousand shares of our outstanding common stock for $ 141 thousand . comparison of operating results for the years ended june 30 , 2012 and june 30 , 2011 general . net income increased to $ 4.0 million for the year ended june 30 , 2012 from $ 2.3 million for the year ended june 30 , 2011 , an increase of $ 1.7 million , or 74.5 % , from june 30 , 2011. the increase was primarily attributed to a decrease in interest expense of $ 1.7 million for the year ended june 30 , 2012. the decrease in interest expense resulted in an increase in net interest income of $ 1.8 million , or 17.2 % . additionally , an increase in noninterest income of $ 307 thousand , or 313.3 % , and a decrease in noninterest expense of $ 976 thousand , or 14.8 % also contributed to the overall increase in net income . the increase in noninterest income was primarily due to gains on sales of real estate owned and gains on sales of available-for-sale securities of $ 131 thousand and $ 185 thousand , respectfully , for the year ended june 30 , 2012 as compared to $ 7 thousand for the year ended june 30 , 2011 , and the decrease in noninterest expense was primarily due to a decrease in charitable contribution expense of $ 1.7 million from the year ended june 30 , 2011. in 2011 , we incurred $ 1.7 million in charitable contribution expense related to the cash and common stock contributed to a charitable foundation as part of our mutual to stock conversion . interest income . interest income increased $ 27 thousand , or 0.18 % , to $ 15.3 million for the year ended june 30 , 2012 from $ 15.2 million for the year ended june 30 , 2011. the modest increase was due to a slight increase in the yield on interest-earning assets to 4.4 % for the year ended june 30 , 2012 from 4.35 % for the year ended june 30 , 2011 , which offset the decrease in the average balances of interest-earning assets to $ 349.5 million for the year ended june 30 , 2012 from $ 350.5 million for the year ended june 30 , 2011. the decline in the average balances of interest earning assets is primarily a reflection of the decline in average loans due to the decline in demand in our market area . interest income on loans decreased $ 422 thousand , or 2.9 % , for the year ended june 30 , 2012 from $ 14.7 million for the year ended june 30 , 2011 , reflecting shrinking loan demand . story_separator_special_tag noninterest income increased $ 307 thousand for the year ended june 30 , 2012 from $ 98 thousand for the year ended june 30 , 2011. the increase in noninterest income was attributable to an increase in other noninterest income of $ 134 thousand , which was entirely attributable to an increase in gains on sales of real estate owned of $ 124 thousand to $ 131 thousand for the year ended june 30 , 2012 from $ 7 thousand for the year ended june 30 , 2011. additionally , the increase in noninterest income was attributable to gains of sales of available-for-sale securities of $ 185 thousand for the year ended june 30 , 2012 compared to no gains for the year ended june 30 , 2011. noninterest expense . noninterest expense decreased $ 976 thousand , or 14.8 % , to $ 5.6 million for the year ended june 30 , 2012 from $ 6.6 million for the year ended june 30 , 2011. the decrease was primarily attributed to a decrease in charitable contributions expense to $ 2 thousand for the year ended june 30 , 2012 from $ 1.7 million for the year ended june 30 , 2011 , which was related to our contribution of $ 1.7 million of cash and common stock issued to a charitable foundation formed in connection with our conversion in 2011. the decrease in charitable contribution expense was offset by increases in wages and salaries of $ 328 thousand , or 12.8 % to $ 2.9 million for the year ended june 30 , 2012 from $ 2.6 million for the year ended june 30 , 2011 due to our esop and grants under our equity incentive plan . compensation expense for our esop plan was $ 217 thousand for the year ended june 30 , 2012 compared to $ 60 thousand for the year ended june 30 , 2011. compensation expense related to our equity incentive plan was $ 57 thousand for the year ended june 30 , 2012. income tax expense . the provision for income taxes was $ 2.6 million for year ended june 30 , 2012 compared to $ 1.4 million at june 30 , 2011. our effective tax rates for the years ended june 30 , 2012 and 2011 were 39.1 % and 37.3 % , respectively . the increase in effective tax rates resulted from changes in the impact of permanent differences relative to pre-tax net income in each year . analysis of net interest income net interest income represents the difference between the income we earn on interest-earning assets and the interest expense we pay on interest-bearing liabilities . net interest income also depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them . the following tables set forth average balance sheets , average yields and costs , and certain other information at the dates and for the periods indicated . all average balances are daily average balances . non-accrual loans were included in the computation of average balances , but have been reflected in the 48 tables as loans carrying a zero yield . the yields set forth below include the effect of deferred fees , discounts and premiums that are amortized or accreted to interest income . replace_table_token_23_th rate/volume analysis the following table presents the dollar amount of changes in interest income and interest expense for the major categories of our interest-earning assets and interest-bearing liabilities . information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to ( i ) changes attributable to changes in volume ( i.e . , changes in average balances multiplied by the prior-period average rate ) and ( ii ) changes attributable to rate ( i.e . , changes in average rate multiplied by prior-period average balances ) . for purposes of this table , changes attributable to both rate and 49 volume , which can not be segregated , have been allocated proportionately to the change due to volume and the change due to rate . replace_table_token_24_th replace_table_token_25_th management of market risk our most significant form of market risk is interest rate risk because , as a financial institution , the majority of our assets and liabilities are sensitive to changes in interest rates . therefore , a principal part of our operations is to manage interest rate risk and limit the exposure of our net interest income to changes in market interest rates . our board of directors is responsible for the review and oversight of our asset/liability strategies . the asset/liability committee of our board of directors meets monthly and is charged with developing an asset/liability management plan . our board of directors has established an asset/liability management committee , consisting of senior management . senior management meets daily to review pricing and liquidity needs and to assess our interest rate risk . this committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities , for determining the level of risk that is appropriate , given our business strategy , operating environment , capital , liquidity and performance objectives , and for managing this risk consistent with the guidelines approved by our board of directors . the techniques we are currently using to manage interest rate risk include : using pricing strategies in an effort to balance the proportions of 30-year and 15-year fixed rate loans in our portfolio ; maintaining a modest portfolio of adjustable-rate one- to four-family residential loans ; funding a portion of our operations with deposits with terms greater than one year ; 50 focusing our business operations on local retail customers who value our community orientation and personal service and who may be somewhat less sensitive to interest rate changes than wholesale deposit customers ; and maintaining a strong capital position , which provides for a favorable level of interest-earning assets relative to interest-bearing liabilities . depending on

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liquidity and capital resources our primary sources of funds are deposits and the proceeds from principal and interest payments on loans and investment securities . while maturities and scheduled amortization of loans and securities are predictable sources of funds , deposit flows and mortgage prepayments are greatly influenced by general interest rates , economic conditions and competition . we generally manage the pricing of our deposits to be competitive within our market and to increase core deposit relationships . our cash flows are derived from operating activities , investing activities and financing activities . net cash flows provided by operating activities were $ 5.4 million for the year ended june 30 , 2012 and $ 4.1 million for the year ended june 30 , 2011. net cash flows provided by operating activities consisted primarily of our net income . net cash flows used in investing activities were $ 17.3 million for the year ended june 30 , 2012 and $ 29.9 million for the year ended june 30 , 2011. net cash flows used in investing activities consisted primarily of purchases of investment securities , offset by proceeds from maturities and paydowns on investment securities , and net loan repayments . net cash flows used in financing activities were $ 1.3 million for the year ended june 30 , 2012. net cash flows provided by financing activities were $ 36.9 million for the year ended june 30 , 2011. net cash flows used in financing activities consisted primarily of the payment of dividends . our most liquid assets are cash and short-term investments . the levels of these assets are dependent on our operating , financing , lending , and investing activities during any given period . at june 30 , 2012 and 2011 , cash and short-term investments totaled $ 47.6 million and $ 60.8 million , respectively .

earnings before taxes were $ 560 million in 2010 , down from $ 1.1 billion in 2009. the decrease in earnings for 2010 was primarily due to the impact of charges totaling $ 343 million for the greater gabbard project and a charge totaling $ 95 million for the completed infrastructure joint venture project in california . some of the impact of the charges for the greater gabbard project and the infrastructure joint venture project was offset by improved performance in 2010 on other industrial & infrastructure projects in the infrastructure and mining and metals business lines . the 2010 results were also impacted by the lower volume and associated earnings in the oil & gas segment due to reduced project execution activities as a number of large projects that were awarded in 2006 through 2008 had been completed or were near completion . in addition , the earnings of the segment were impacted by slower new award activity during 2009 and the first half of 2010 related to the global recession , a decline in the demand for new capacity in the refining , petrochemical and polysilicon markets , and a highly competitive business environment that resulted from changed market conditions . improved performance was noted in the government , global services and power segments for 2010. the 2010 improvement in the government segment was primarily the result of a higher level of project execution activities to support the united states army in afghanistan . the global services segment 's increase in profitability in 2010 compared to the prior year was primarily because the 2009 period included a $ 45 million charge related to the uncollectability of a client receivable for a paper mill project . the power segment contributed higher earnings during 2010 compared to the prior year mostly due to higher contributions from the oak grove coal-fired power project and a gas-fired power plant , both in texas . these positive results in the power segment were offset somewhat by charges of $ 91 million taken in 2010 on a gas-fired power project in georgia for estimated additional costs to complete the project . the company reported lower corporate general and administrative expense in 2010 when compared to 2009 , primarily as a result of overhead reduction efforts and lower management incentive compensation . the effective tax rate was 30.3 percent , 21.2 percent and 35.5 percent for 2011 , 2010 and 2009 , respectively . the 2011 rate was favorably impacted by the release of previously unrecognized tax benefits related to the expiration of statutes of limitations and the resolution of various disputed items . the lower 2010 rate was primarily attributable to a $ 152 million tax benefit that resulted from a worthless stock deduction for the tax restructuring of a foreign subsidiary in the fourth quarter , partially offset by an increase in the valuation allowance associated with net operating losses . factors affecting the effective tax rates for 2009 - 2011 are discussed further under `` — corporate , tax and other matters `` below . net earnings attributable to fluor corporation were $ 3.40 per diluted share in 2011 compared to $ 1.98 and $ 3.75 per diluted share in 2010 and 2009 , respectively . net earnings attributable to fluor corporation in 2011 reflected the additional pre-tax charges of $ 60 million ( $ 0.21 per diluted share ) for the greater gabbard project noted above . net earnings attributable to fluor corporation in 2010 included the negative impact of the following pre-tax charges previously discussed : $ 343 million ( $ 1.79 per diluted share ) for the greater gabbard project ; $ 95 million ( $ 0.33 per diluted share ) for the completed infrastructure joint venture project in california ; and $ 91 million ( $ 0.31 per diluted share ) for the gas-fired power project in georgia . net earnings attributable to fluor corporation in 2010 also included the $ 152 million ( $ 0.84 per diluted share ) tax benefit described above for the tax restructuring of a foreign subsidiary in the fourth quarter . a significant portion of this tax benefit resulted from the financial impact of the greater gabbard project charges on the foreign subsidiary . net earnings attributable to fluor 30 corporation in 2009 included a $ 45 million ( $ 0.15 per diluted share ) pre-tax charge for the uncollectability of the paper mill project receivable in the global services segment noted above . consolidated new awards for 2011 were $ 26.9 billion compared to $ 27.4 billion in 2010 and $ 18.5 billion in 2009. new award activity in 2011 and 2010 were driven by the strength of the mining and metals business line in the industrial & infrastructure segment and the oil & gas segment . the lower level of new awards in 2009 was primarily attributable to the global recession , though the oil & gas and industrial & infrastructure segments were still the principal drivers of the new award activity for the company . approximately 84 percent of consolidated new awards for 2011 were for projects located outside of the united states . consolidated backlog was $ 39.5 billion as of december 31 , 2011 , $ 34.9 billion as of december 31 , 2010 , and $ 26.8 billion as of december 31 , 2009. the increase in backlog during 2011 and 2010 was due to the strength of the new award activity noted above in the industrial & infrastructure and oil & gas segments . backlog was lower at the end of 2009 primarily because of the impact of the global recession on new award activity , as well as certain project cancellations and scope reductions attributable to the global credit crisis and falling oil prices . story_separator_special_tag the global recession , changing market conditions and a decline in demand for new capacity in the refining , petrochemical and polysilicon markets resulted in lower new award activity in 2009 and the first half of 2010 , as well as $ 5.2 billion of project cancellations and scope reductions during 2009. as a consequence of this lower level of new award activity and the 2009 project cancellations and scope reductions , the segment 's 2010 and 2011 revenue and segment profit declined when compared to 2009. although the market conditions for the segment have improved somewhat since the recession , a highly competitive business environment has resulted in significant pressure on margins . it is anticipated that these market conditions will continue and that the highly competitive business environment could result in continued margin pressures and more lump-sum project execution for the segment . total assets in the segment were $ 1.2 billion as of december 31 , 2011 , $ 986 million as of december 31 , 2010 and $ 972 million as of december 31 , 2009. the higher level of total assets in 2011 compared to 2010 and 2009 was primarily to meet working capital requirements to support project execution activities . industrial & infrastructure revenue and segment profit for the industrial & infrastructure segment are summarized as follows : replace_table_token_7_th revenue in 2011 increased 41 percent compared to 2010 , and revenue in 2010 increased 42 percent from 2009 , primarily due to substantial growth in the mining and metals business line . segment profit and segment profit margin increased significantly in 2011 compared to 2010 primarily because the prior year included the impact of significant charges for two infrastructure projects . for the greater gabbard project , charges totaling $ 343 million were taken in 2010 for estimated cost overruns for a variety of execution challenges that impacted the schedule and project cost forecast , including material and equipment delivery issues , productivity issues , the bankruptcy of a major subcontractor and weather-related delays . the segment also recorded a charge of $ 95 million during the prior year third quarter after an adverse bankruptcy court ruling on the priority of claims made by its joint venture against a bankrupt client entity for a completed $ 700 million fixed-price infrastructure joint venture project near san diego , california . as a result of the ruling , the company determined that the likelihood of recovering cost overruns resulting from owner-directed scope changes was no longer considered probable . during 2011 , the segment recorded additional charges for the greater gabbard project totaling $ 60 million , primarily due to increased costs associated with the installation of subsea cable and schedule delays related to adverse weather conditions . challenges in the cable installation process have been compounded by the bankruptcy of a critical subcontractor in january 2011 which forced the project to secure alternative vessels and equipment . the project forecast has been revised for the cost overruns and the company has taken a number of actions to mitigate further cost growth . the 2011 charges for the greater gabbard project were offset by positive contributions from other projects in the segment during the year , including $ 20 million for forecast adjustments due to the achievement of progress milestones on two infrastructure road projects , $ 11 million from the closeout of an infrastructure project , $ 11 million of costs recovered in a settlement with the bankrupt client for the above-referenced fixed-price infrastructure joint venture project , and $ 10 million related to the favorable resolution of certain disputed items and the achievement of incentive targets on a mining project . segment 35 profit in 2011 was also favorably impacted by a significantly higher level of project execution activities related to the growth in the mining and metals business line , noted above . segment profit and segment profit margin declined significantly in 2010 compared to 2009 due to the impact of significant charges for the greater gabbard project and the fixed-price infrastructure joint venture project , discussed above . the 2010 charges for these two projects were offset somewhat by positive contributions from other projects in the segment during the year , including $ 16 million of fees earned at financial closing for an infrastructure rail project , $ 13 million for the final negotiated settlement and closeout of both an infrastructure road project and an infrastructure telecommunications project , and $ 11 million for the approval of a significant change order for another infrastructure road project . in addition , there were increased contributions in segment profit in 2010 when compared to 2009 due to a significantly higher level of project execution activities related to the growth in the mining and metals business line , noted above . the company is involved in a dispute in connection with the greater gabbard project . the dispute relates to the company 's claim for additional compensation for schedule and cost impacts arising from delays in the fabrication of monopiles and transition pieces , along with certain disruption and productivity issues associated with construction activities and weather-related delays . the company believes the schedule and cost impacts are attributable to the client and other third parties . as of december 31 , 2011 , the company had recorded $ 265 million of claim revenue related to this issue for costs incurred to date . additional costs arising from this dispute are expected to be incurred during the remaining life of the project and , as a result , claim revenue will increase accordingly . the company believes the ultimate recovery of incurred and future costs is probable under asc 605-35-25. the company will continue to periodically evaluate its position and the amount recognized in revenue with respect to this claim . the project is expected to be substantially complete by the second quarter of 2012. however , the resolution of the claims is expected to

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debt : 3.375 % senior notes $ 496 $ — $ — $ — $ 496 1.5 % convertible senior notes 19 19 — — — 5.625 % municipal bonds 18 — — — 18 interest on debt obligations ( 1 ) 169 18 35 35 81 operating leases ( 2 ) 267 39 77 51 100 uncertain tax contingencies ( 3 ) 78 — — — 78 joint venture contributions 35 11 4 20 — pension minimum funding ( 4 ) 77 10 20 47 — other post-employment benefits 35 5 10 8 12 other compensation-related obligations ( 5 ) 341 44 65 53 179 total $ 1,535 $ 146 $ 211 $ 214 $ 964 ( 1 ) interest is based on the borrowings that are presently outstanding and the timing of payments indicated in the above table . ( 2 ) operating leases are primarily for engineering and project execution office facilities in sugar land , texas , the united kingdom and various other u.s and international locations , equipment used in connection with long-term construction contracts and other personal property . ( 3 ) uncertain tax contingencies are positions taken or expected to be taken on an income tax return that may result in additional payments to tax authorities . the total amount of uncertain tax contingencies is included in the `` over 5 years '' column as the company is not able to reasonably estimate the

from zinc and 7 % from various other products , including gold , sulfuric acid and other materials . copper : 2017 is starting with the copper market showing the first signs of a structural supply deficit created by the lack of investments in the last few years . for 2017 , we expect demand to grow between 2.0 % to 2.5 % , driven by china 's metal consumption recovery , and a strong economy in the united states and europe , where the auto industry demand is a driver of basic metal consumption . on the supply side , after five years of copper price reductions , we see supply underperforming the market needs . we expect a weak growth , in the range of 0.5 % to 1.0 % in 2017. this lack of growth results from the above noted decline in investments as well as technical problems , labor unrest , excess government taxation and other difficulties . all of these factors will contribute to the market deficit in 2017 , thereby giving good support to current copper prices . annual copper production in 2016 was 899,955 tons , a new company record . this increase of 21.1 % from the 742,993 tons produced in 2015 results from the higher production from our buenavista mine expansion . the additional copper units produced have lower cost per pound , improving the overall company cash cost and competitiveness . silver : we believe that silver prices will have support due to its industrial uses as well as being perceived as a value shelter in times of economic uncertainty . silver represented 5.5 % of our sales in 2016. molybdenum : this metal represented 5.0 % of company sales in 2016. during the fourth quarter of 2016 , the molybdenum price maintained its level when compared to the third quarter of 2016 due to production cuts from major producers . the molybdenum market is still affected by existing excess inventories and weak demand coming from steel special alloys and the oil drilling industry . molybdenum is mainly used for the production of special alloys of stainless steel that require significant hardness , corrosion and heat resistance . a new use for this metal is in lubricants and sulfur filtering of heavy oils and shale gas production . zinc : zinc has very good long term fundamentals due to its significant industrial consumption and the expected mine production shutdowns . in the last 12 months zinc inventories have consistently decreased , improving this market 's fundamentals . we are expecting an increasing price scenario for zinc during 2017. zinc represented 4.4 % of our sales in 2016. production : for 2017 , we expect to maintain our current production level of about 900,000 tons of copper . for 2018 , we will initiate production at the new toquepala concentrator and expect to be able to produce 972,300 tons of copper , continuing our aggressive organic growth program . we also expect to produce 16.6 million ounces of silver , about 2.5 % higher than the 2016 production of 16.2 million ounces due to higher buenavista and immsa production . for zinc production , in 2017 , we expect to produce 80,800 tons from our mines , up from 2016 's production , of 73,984 tons , mainly due to higher production from our charcas , santa barbara and santa eulalia mines , which will increase their milling amd forecast higher grades as well in 2017. additionally , we expect to produce 19,700 tons of molybdenum , lower by 9.4 % from last year 's production of 21,736 tons . 71 cost : our operating costs and expenses for the three-years ended december 2016 have increased in total in each of the years . our comparison of costs for the three year period is as follows : replace_table_token_33_th operating costs and expenses in 2016 increased $ 184.1 million , compared to 2015 , principally due to higher costs of sales at our mexican operations resulting from the 18.3 % increase in copper sales volume , higher depreciation , amortization and depletion on the new assets added to our operations at buenavista . this was partially offset by lower environmental remediation and exploration expenses . operating costs and expenses in 2015 increased $ 76.5 million , compared to 2014 , principally due to higher production , which led to higher costs of sales and due to higher depreciation , amortization and depletion at our operations ; partially offset by lower environmental remediation and exploration expense . capital investments : capital investments were $ 1,118.5 million for 2016. this is 2.7 % lower than in 2015 , and represented 144 % of net income . our growth program to develop the full production potential of our company is underway . in addition , the buenavista expansion program is largely completed . for 2017 , the board of directors approved a capital investment program of $ 1,105.2 million . the year 2017 will be the starting point of a new strategic plan : we will grow copper production capacity to exceed the one million ton milestone by mid-2018 , and by 2023 we expect to reach 1.5 million copper tons . key matters we discuss below several matters that we believe are important to understand our results of operations and financial condition . these matters include ( i ) earnings , ( ii ) production , ( iii ) `` operating cash costs `` as a measure of our performance , ( iv ) metal prices , ( v ) business segments , ( vi ) the effect of inflation and other local currency issues and ( vii ) our capital investment and exploration program . story_separator_special_tag the purpose is to streamline the concentrator flotation process and improve water recovery efficiency , increasing the tailings solids content from 54 % to 61 % , thereby reducing fresh water consumption and replacing it with recovered water . as of december 31 , 2016 , we have almost completed the engineering and procurement process and have started the excavation and civil works . we have invested $ 14.4 million in this project out of the approved capital budget of $ 30 million . the project has reached 62 % progress and we expect it to be completed by the second quarter of 2017. tailings disposal at quebrada honda—moquegua : this project increases the height of the existing quebrada honda dam to impound future tailings from the toquepala and cuajone mills and will extend the expected life of this tailings facility by 25 years . the first stage and construction of the drainage system for the lateral dam is finished . we finished the engineering and procurement is in progress . in order to improve and increase the dam 's embankment , we have assigned a construction contractor to install a new cyclone battery station that will allow us to place more slurry at the dams . the project has a total budgeted cost of $ 116.0 million . we have invested $ 71.7 million through december 31 , 2016 and expect the project to be completed by the second quarter of 2018. potential projects we have a number of other projects that we may develop in the future . we continuously evaluate new projects on the basis of our long-term corporate objectives , strategic and operating fit , expected return on investment , required investment , estimated production , estimated cash-flow profile , social and environmental considerations , among other factors . all capital spending plans will continue to be reviewed and adjusted to respond to changes in the economy or market conditions . the year 2017 will be the starting point of a new strategic plan : we will grow copper production capacity to exceed the one 78 million ton milestone by mid-2018 , and by 2023 we expect to reach 1.5 million copper tons . this strategic plan includes the following projects : buenavista- zinc project : this zinc open pit mine located in our buenavista complex in sonora , mexico will produce 87,800 tons of zinc and 27,500 tons of copper content in concentrates per year with a capital budget of $ 360 million . currently , we are reviewing the block model and the mine plan which are expected to be completed in march 2017. also , we are preparing the basic engineering and will request authorization to begin the detail engineering . as of december 31 , 2016 we have invested $ 14.6 million and expect the project to be completed in 2018. pilares : this brownfield project located in sonora , mexico will produce 35,000 tons of copper per year with an initial capital budget of $ 200 million which we believe is still subject to further optimization . pilares is an open-pit mine , located 6 kilometers away from our la caridad complex , thus , leveraging on la caridad infrastructure . we are working to define the mineral flow and on a trade-off analysis for a potential expansion of the la caridad concentrator . in addition , we are analyzing mineral blending alternatives between pilares and la caridad in order to improve the copper grade of concentrates . as of december 31 , 2016 we have invested $ 39.9 million and expect the project to be completed in 2018. tia maria : we have completed all engineering and have successfully obtained the approval of the environmental impact assessment for the project . we are currently working to obtain the construction license for this 120,000 tons of sx-ew copper per year project with a total capital investment of $ 1,400 million . in 2017 , we expect to continue with our social development programs with the neighboring communities . this greenfield project , located in arequipa peru , will use state of the art sx-ew technology with the highest international environmental standards . sx-ew facilities are the most environmentally friendly in the industry due to their technical process and consequently no emissions into the atmosphere are released . the project will use seawater , transporting it more than 25 kilometers and at 1,000 meters above sea level . the construction of the desalinization plant requires an investment of approximately $ 95 million . we expect the project to generate 3,500 jobs during the construction phase . when in operation , tia maria will directly employ 600 workers and indirectly another 2,000. through its expected twenty-year life , the project related services will create significant business opportunities in the arequipa region . tia maria has complied with all existing requirements and regulations and therefore the company trusts that it will soon receive from government authorities the construction licenses and permits required in order to begin construction of this project . el arco : this is a world class copper deposit located in the central part of the baja california peninsula , with ore reserves over 2.7 billion tons with an ore grade of 0.399 % and 0.11 grams of gold per ton . this project , includes an open-pit mine combining concentrator and sx-ew operations with an estimated production of 190,000 tons of copper and 105,000 ounces of gold annually . between july 2015 and february 2016 , we conducted a drilling program of 20,170 meters in order to further define the deposit at lower depths of between 300 and 600 meters . through december 31 , 2016 we have invested $ 77 million on studies , exploration and land acquisition for the project . further exploration work is still required to better define the geometry of the deposit towards its west end and at the depths worked . in 2017 , we

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net cash provided by operating activities : the 2016 , 2015 and 2014 change in net cash from operating activities include ( in millions ) : replace_table_token_56_th significant items added to ( deducted from ) net income to arrive at operating cash flow include depreciation , amortization and depletion , deferred tax amounts and changes in operating assets and liabilities . 2016 : net income was $ 778.8 million , approximately 84 % of the net operating cash flow . an increase in operating assets and liabilities reduced operating cash flow by $ 393.8 million and included : $ ( 143.3 ) million increase in accounts receivable . $ ( 207.9 ) million increase in inventory which includes $ ( 122.3 ) million of higher leachable material inventory and $ ( 43.1 ) million of metals in process , $ ( 26.3 ) million of higher finished goods and $ ( 16.2 ) million of higher supplies inventory . $ ( 42.6 ) million of net changes in accounts payable , accrued liabilities and other operating assets . 2015 : net income was $ 741.1 million , approximately 84 % of the net operating cash flow . an increase in operating assets and liabilities reduced operating cash flow by $ 209.8 million and included : $ 91 . 6 million decrease in accounts receivable . $ ( 260.3 ) million increase in inventory which includes $ ( 239.6 ) million of higher long-term leachable material inventory , principally at our buenavista mine .

in addition , we can experience fluctuations in net sales as a result of variations in the ordering patterns of our largest customers , which may be driven more by production scheduling and their inventory levels , and less by seasonality . our expenses often do not fluctuate in the same manner as net sales , which may cause fluctuations in operating income that are disproportionate to fluctuations in our revenue . swabcap acquisition on october 6 , 2015 , we acquired all of the outstanding shares of exc holding corp. ( `` exc `` ) , for approximately $ 59.5 million in cash . immediately following the completion of the acquisition of exc we sold certain assets to excelsior medical , llc for a final purchase price including working capital adjustments of $ 29.0 million in cash . we retained all of the assets related to the business of manufacturing and selling the needleless connector disinfection swabcap . the swabcap product enhances our infusion therapy product offering across our existing direct and oem business lines , as well as , open new customer opportunities globally . in 2015 , we signed an exclusive agreement with medline to supply them with swabcaps for their swabflush syringe product used in infusion therapy . the swabcap product is expected to have a minimal impact on earnings per share for the first year , however after one year we expect to see a greater return on invested capital . 25 year-to-year comparisons we present summarized income statement data in item 6. selected financial data . the following table shows , for the three most recent years , the percentages of each income statement caption in relation to revenues . replace_table_token_9_th a portion of our sales is conducted in currencies other than the u.s. dollar , particularly the euro . in 2015 , approximately 13 % of our total revenue was denominated in the euro and translated to the u.s. dollar . significant fluctuations in foreign currency exchange rates , particularly the euro , impact the comparability of our total revenues . in addition to comparing changes in revenue on a u.s. gaap basis , we also compare the changes in revenue from one period to another using constant currency . we provide constant currency information to enhance the visibility of underlying business trends , excluding the effects of changes in foreign currency translation rates . to calculate our constant currency results , we apply the average exchange rate for revenues from the prior year to the current year results . these results should be considered in addition to , not as a substitute for , results reported in accordance with gaap . results on a constant currency basis , as we present them , may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with gaap . comparison of 2015 to 2014 revenues were $ 341.7 million in 2015 , compared to $ 309.3 million in 2014 . on a constant currency basis , revenues would have been $ 350.6 million in 2015 , an increase of $ 41.3 million from 2014. infusion therapy : net infusion therapy sales were $ 244.8 million in 2015 , an increase of $ 28.5 million , or 13 % , from 2014 . on a constant currency basis , net infusion therapy sales would have been $ 249.9 million in 2015 , an increase of $ 33.6 million , or 16 % , from 2014. the increase in infusion therapy sales is primarily due to new customers and higher volume to existing customers . domestic infusion therapy sales were $ 181.8 million in 2015 , an increase of $ 26.4 million , or 17 % , from 2014. the increase in domestic infusion therapy sales was from $ 12.2 million in higher sales to pfizer , and $ 14.2 million in higher direct domestic sales , both due to increased unit sales related to increased utilization and new customers . international infusion therapy sales were $ 63.0 million in 2015 , an increase of $ 2.1 million , or 3 % , from 2014. international infusion therapy sales outside of europe increased $ 3.7 million and were offset by $ 1.6 million in lower european sales due to the decline in the exchange rate of the euro to the u.s. dollar . on a constant currency basis , international infusion therapy sales would have increased $ 7.2 million in 2015 , compared to 2014. critical care : net critical care sales were $ 54.3 million in 2015 , a decrease of $ 0.8 million , or 1.4 % , from 2014. on a constant currency basis , net critical care sales would have been $ 55.2 million in 2015 , an increase of $ 0.2 million from 2014 . 26 the decrease in critical care sales is primarily due the decline in the exchange rate of the euro to the u.s. dollar and lower domestic unit sales . domestic critical care sales were $ 39.2 million in 2015 , a decrease of $ 1.4 million from 2014. international critical care sales were $ 15.1 million in 2015 , an increase of $ 0.6 million , or 4 % , from 2014 primarily due to increased sales outside of europe , partially offset by the effect of the decline in the exchange rate of the euro to the u.s. dollar . story_separator_special_tag the amounts of uncertain tax positions recognized are the largest benefits that have a greater than 50 percent likelihood of being realized upon settlement with the relevant tax authorities . new accounting pronouncements see note 1 of the consolidated financial statements in this annual report on form 10-k. off balance sheet arrangements in the normal course of business , we have agreed to indemnify our officers and directors to the maximum extent permitted under delaware law and to indemnify customers as to certain intellectual property matters related to sales of our products . there is no maximum limit on the indemnification that may be required under these agreements . although we can provide no assurances , we have never incurred , nor do we expect to incur , any liability for indemnification . contractual obligations we have contractual obligations , at december 31 , 2015 , of approximately the amount set forth in the table below . this amount excludes inventory-related purchase orders for goods and services for current delivery . the majority of our inventory purchase orders are blanket purchase orders that represent an estimated forecast of goods and services . we do not have a commitment liability on the blanket purchase orders . since we do not have the ability to separate out blanket purchase orders from non-blanket purchase orders for inventory-related goods and services for current delivery , amounts related to such purchase orders are excluded from the table below . we have excluded from the table below pursuant to asc 740-10-25 ( formerly fin 48 ) , an interpretation of asc 740-10 ( formerly sfas 109 ) , a non-current income tax liability of $ 1.5 million due to the high degree of uncertainty regarding the timing of future cash outflows associated with the liabilities . replace_table_token_10_th forward looking statements various portions of this annual report on form 10-k , including this management 's discussion and analysis of financial condition and results of operations , describe trends in our business and finances that we perceive and state some of our expectations and beliefs about our future . these statements about the future are “ forward looking statements , ” within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended , and we identify them by using words such as “ anticipate , ” “ believe , ” “ expect , ” “ estimate , ” “ intend , ” “ plan , ” “ will , ” “ continue , ” “ could , ” “ may , ” and by similar expressions and statements about aims , goals and plans . the forward looking statements are based on the best information currently available to us and assumptions that we believe are reasonable , but we do not intend the statements to be representations as to future results . they include , without limitation , statements about : 31 future growth ; future operating results and various elements of operating results , including future expenditures and effects with respect to sales and marketing and product development and acquisition efforts ; future sales and unit volumes of products ; expected increases and decreases in sales ; deferred revenue ; accruals for restructuring charges , future license , royalty and revenue share income ; production costs ; gross margins ; litigation expense ; future sg & a and r & d expenses ; manufacturing expenses ; future costs of expanding our business ; income ; losses ; cash flow ; amortization ; source of funds for capital purchases and operations ; future tax rates ; alternative sources of capital or financing ; changes in working capital items such as receivables and inventory ; selling prices ; and income taxes ; factors affecting operating results , such as shipments to specific customers ; reduced dependence on current proprietary products ; loss of a strategic relationship ; change in demand ; domestic and international sales ; expansion in international markets , selling prices ; future increases or decreases in sales of certain products and in certain markets and distribution channels ; maintaining strategic relationships and securing long-term and multi-product contracts with large healthcare providers and major buying organizations ; increases in systems capabilities ; introduction , development and sales of new products , including swabcap and integration of exc ; benefits of our products over competing systems ; qualification of our new products for the expedited section 510 ( k ) clearance procedure ; possibility of lengthier clearance process for new products ; planned increases in marketing ; warranty claims ; rebates ; product returns ; bad debt expense ; amortization expense ; inventory requirements ; lives of property and equipment ; manufacturing efficiencies and cost savings ; unit manufacturing costs ; establishment or expansion of production facilities inside or outside of the united states ; planned new orders for semi-automated or fully automated assembly machines for new products ; adequacy of production capacity ; results of r & d our plans to repurchase shares of our common stock ; asset impairment losses ; relocation of manufacturing facilities and personnel ; effect of expansion of manufacturing facilities on production efficiencies and resolution of production inefficiencies ; the effect of costs to customers and delivery times ; business seasonality and fluctuations in quarterly results ; customer ordering patterns and the effects of new accounting pronouncements ; and new or extended contracts with manufacturers and buying organizations ; dependence on a small number of customers ; loss of larger distributors and the ability to locate other distributors ; future sales to and revenues from pfizer and the importance of pfizer to our growth ; effect of the current relationship with pfizer , including its effect on future revenues and our positioning with respect to new product introductions and market share ; and the impact of the pfizer acquisition ; growth of our clave

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liquidity and capital resources during 2015 , our cash , cash equivalents and investment securities increased by $ 30.6 million from $ 346.8 million at december 31 , 2014 to $ 377.4 million at december 31 , 2015 . operating activities : our cash provided by operations was $ 54.9 million in 2015 . net income plus adjustments for non-cash net expenses contributed $ 80.7 million to cash provided by operations . net cash used by operations as a result of changes in operating assets and liabilities was $ 25.8 million . the changes in operating assets and liabilities included a $ 20.5 million increase in accounts receivable , an $ 8.3 million increase in inventories , a $ 7.7 million net change in prepaid and deferred income taxes and $ 1.8 million increase in prepaid expenses and other assets , partially offset by a $ 9.4 million increase in accrued liabilities and a $ 3.1 million increase in accounts payable . the increase in accounts receivable was primarily due to higher revenue in the fourth quarter of 2015 compared to the fourth quarter of 2014 and an increase in days sales outstanding . the increase in inventory was primarily due to an increase in forecasted sales and inventory from south africa . the net changes in prepaid and deferred income taxes was primarily due to a loss on the sale of assets to medline and the utilization of an excelsior net operating loss carryover . the $ 9.4 million increase in accrued liabilities was primarily due to restructuring charges accruals , acquisition accruals and accrued compensation and benefits .

54 on december 23 , 2020 , silver lake partners vi de ( aiv ) , l.p. ( “ silver lake ” ) agreed to purchase $ 550 million of shares of our class a common stock , comprising ( a ) 15,018,484 shares at $ 21.64 per share and ( b ) $ 225 million of shares at the initial public offering price of $ 30 per share , in a concurrent private placement transaction ( the “ silver lake investment ” ) . on february 1 , 2021 , we closed our private placement transaction with silver lake . for a description of subsequent events , see item 8 of part ii , financial statements and supplementary data - note 17 , “ subsequent events . ” key factors affecting our performance we believe that the growth and future success of our business depends on many factors . while each of these factors presents significant opportunities for our business , they also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations . customer acquisition and expansion we are focused on continuing to acquire new customers to support our long-term growth . we have invested , and expect to continue to invest , heavily in our sales and marketing efforts to drive customer acquisition . as of december 31 , 2020 , we had more than 13,500 customers , including 85 % of the fortune 100. our customers include businesses of all sizes , academic institutions , and government organizations . we define the number of customers at the end of any particular period as the number of parties or individual legal entities that have entered into a separate subscription contract with us . for avoidance of doubt , international subsidiaries of parent entities are not separately counted , but business units , brands , and academic institutions are counted if they are distinct legal entities . a single organization or customer may have multiple paid business accounts . our business model relies on rapidly and efficiently landing new customers and expanding our relationship with them over time . we have a history of attracting new customers , driving expanded use through upselling our xm platform across the enterprise , and cross-selling through the subsequent deployment of additional solutions throughout the enterprise . our relationship with sap has resulted in greater access to enterprise customers and increased cross-sell opportunities through sap 's customer base . we continue to increase the number of customers who have entered into larger subscriptions with us . we had 1,338 customers with arr of $ 100,000 or more as of december 31 , 2020 , increased from 1,026 and 720 as of december 31 , 2019 and 2018 , respectively . further , as of december 31 , 2020 , we had 74 customers with arr of $ 1 million or more , up from 43 and 27 as of december 31 , 2019 and 2018 , respectively . the number of customers with arr of $ 100,000 or more indicates the strategic importance of our platform for enterprise customers and our ability to both initially land significant accounts and grow them over time . investing for growth our investment for growth encompasses multiple critical areas , including international growth , enterprise sales , and product expansion . our revenue outside of the united states represented 28 % , 26 % , and 23 % of our total revenue in the years ended december 31 , 2020 , 2019 , and 2018. we initially started our expansion outside of the united states in english-speaking countries , such as ireland , the united kingdom , canada , and australia , as we were able to leverage our core technologies and go-to-market motion . since opening our first international office in dublin , ireland in 2013 , we now have 27 sales offices in countries around the globe . we continue to evolve our technology to ensure that we are best serving our customers ' needs . we believe this will lead to continued increased retention and positive customer referrals that will continue to generate expansion within current customer organizations and business from new customers . since 2015 , we have established offices in seattle and poland to expand our engineering headcount . we continue to invest in research and development to drive product innovation and development . 55 strategic partnerships in 2018 , we announced the launch of qpn . since then , we have built out our partner network to include over 200 global member companies partnering with us on our platform to help drive breakthrough business outcomes for joint customers . since the sap acquisition in 2019 , we have also developed joint go-to-market and product integrations with sap . we expect our partnerships to extend our sales reach and provide implementation leverage both domestically and internationally , as well as product and technology integrations that will accelerate our product roadmap . key business metrics we review a number of operating and financial metrics , including the following key metrics to evaluate our business , measure our performance , identify trends affecting our business , formulate business plans , and make strategic decisions . large customers we define our large customers as those spending more than $ 100,000 in arr on our xm platform . we believe that our ability to increase the number of large customers is an indicator of our market penetration , strategic demand for our platform , the growth of our business , and our potential future business opportunities . increasing awareness of our platform and its broad range of capabilities , coupled with the mainstream adoption of cloud-based technology , has expanded the diversity of our large customer base to include organizations of different sizes across virtually all industries . story_separator_special_tag 60 results of operations the following table sets forth our results of operations for the periods presented : replace_table_token_1_th ( 1 ) includes equity and cash settled stock-based compensation expense , as follows : replace_table_token_2_th _ ( a ) as a result of the sap acquisition , our stock-based compensation expense reflects the recognition of both equity-classified awards and liability-classified awards . liability-classified awards are settled in cash in accordance with sap 's employee equity compensation programs . 2020 stock-based compensation expense consisted of $ 224.0 million of liability-classified awards . during the year ended december 31 , 2020 awards of $ 388.6 million were settled in cash . 2019 stock-based compensation expense consisted of $ 185.8 million of equity-classified awards that was recognized as a result of the sap acquisition , and $ 690.4 million of liability-classified awards , of which $ 312.8 million were settled in cash in 2019 . 2018 stock-based compensation expense consisted entirely of equity-classified awards . liability-classified awards are recorded according to mark-to-market accounting . 61 ( 2 ) includes amortization of acquired intangible assets as follows : replace_table_token_3_th the following table sets forth our results of operations for the periods presented as a percentage of our total revenue for those periods : replace_table_token_4_th comparison of the years ended december 31 , 2020 and 2019 revenue replace_table_token_5_th subscription revenue increased by $ 145.4 million , or 34 % , for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. this increase was due primarily to increased demand for our solutions from 62 new and existing customers . of the increase in subscription revenue for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , approximately $ 92.0 million was attributable to existing customers and approximately $ 53.4 million was attributable to new customers . the increase in revenue from existing customers was driven by upgrades of current subscription solutions and the purchase of additional solutions within our platform . pricing changes were not material to the increase in revenue . professional services and other revenue increased $ 27.0 million , or 17 % , for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. this increase was primarily due to an increase in revenue from large customers , who generally require more services . cost of revenue , gross profit , and gross margin replace_table_token_6_th cost of subscription revenue decreased $ 5.3 million , or 8 % , for the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019 , while subscription revenue grew 34 % over the same period . this decrease was driven by a $ 19.5 million decrease in stock-based compensation expense primarily due to fluctuations in sap 's stock price related to liability-classified awards , partially offset by a $ 6.7 million increase in employee-related costs from headcount growth , a $ 5.9 million increase in server costs , and a $ 1.5 million increase in amortization of internal-use software . cost of professional services and other revenue increased $ 18.3 million , or 16 % , for the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019. this increase was driven by a $ 19.2 million increase in employee-related costs from headcount growth and a $ 11.1 million increase in professional services vendor costs , offset partially by a $ 10.4 million decrease in stock-based compensation expense and a $ 1.6 million decrease in travel-related expenses . our gross margins increased from 69 % during the year ended december 31 , 2019 to 74 % during the year ended december 31 , 2020 , due primarily to a decrease in equity and cash settled stock-based compensation expense of $ 29.9 million , as described above . operating expenses research and development year ended december 31 , 2020 2019 $ change % change ( in thousands ) research and development $ 212,795 $ 242,124 $ ( 29,329 ) ( 12 ) % research and development expenses decreased $ 29.3 million , or 12 % , for the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019. this decrease was driven by a $ 62.5 million decrease in stock- 63 based compensation expense , partially offset by a $ 33.8 million increase in employee-related costs from headcount growth as we continue to add to and enhance our products . sales and marketing year ended december 31 , 2020 2019 $ change % change ( in thousands ) sales and marketing $ 431,794 $ 440,325 $ ( 8,531 ) ( 2 ) % sales and marketing expenses decreased $ 8.5 million , or 2 % , for the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019. the decrease in sales and marketing was primarily driven by a $ 77.7 million decrease in stock-based compensation expense and a $ 9.2 million decrease in travel-related expenses resulting from the covid-19 pandemic , partially offset by a $ 75.1 million increase in employee-related costs from headcount growth and a $ 3.3 million increase in marketing spend . general and administrative year ended december 31 , 2020 2019 $ change % change ( in thousands ) general and administrative $ 175,499 $ 717,363 $ ( 541,864 ) ( 76 ) % general and administrative expenses decreased $ 541.9 million , or 76 % , for the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019. the decrease in general and administrative expenses was primarily driven by a $ 482.1 million decrease in stock-based compensation expense and a $ 62.7 million decrease in advisory and legal costs related to the sap acquisition . other non-operating income ( expense ) , net other non-operating income

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liquidity and capital resources as of december 31 , 2020 we had cash and cash equivalents of $ 203.9 million . our cash and cash equivalents consist primarily of cash and money market funds . as of december 31 , 2020 , we had $ 23.5 million of our cash and cash equivalents held by our foreign subsidiaries . we have financed our operations primarily through cash generated from our operations , equity issuances , and proceeds from capital contributions received from sap in conjunction with the sap acquisition and funding of cash settled stock-based compensation expense . our principal uses of cash in recent periods have been funding our operations , making capital expenditures , and settling equity-based awards . we believe our existing cash and cash equivalents , together with cash provided by operations and funding obligations from sap , will be sufficient to meet our needs for at least the next 12 months . our future capital requirements will depend on many factors , including our revenue growth rate , subscription renewal activity , the timing and extent of spending to support further infrastructure development and research and development efforts , the timing and extent of additional capital expenditures to invest in existing and new office spaces , the satisfaction of tax withholding obligations for the settlement of future share-based awards , the expansion of sales and marketing and international operation activities , the introduction of new product capabilities and enhancement of our xm platform , and the continuing market acceptance of our platform . with respect to the funding of tax withholding and remittance obligations related to the settlement of share-based awards , we may use a significant portion of our existing cash , including funds raised in our initial public offering and private placements to q ii and silver lake . if we elect not to fully fund tax withholding and remittance obligations through cash or if we are unable to do so , we may choose to sell equity or debt securities , or rely on a combination of these alternatives .

auvs are calculated by dividing restaurant revenue by the number of operating days within each time period and multiplying by 361 , which is equal to the number of operating days we have in a typical year . this measurement allows management to assess changes in consumer traffic and per person spending patterns at our restaurants . comparable restaurant sales comparable restaurant sales refer to year-over-year sales comparisons for the comparable restaurant base . we define the comparable restaurant base to include restaurants open for at least 18 full periods . as of 2014 , 2013 and 2012 , there were 295 , 248 and 216 restaurants , respectively , in our comparable restaurant base for company-owned locations . this measure highlights performance of existing restaurants , as the impact of new restaurant openings is excluded . comparable restaurant sales growth is generated by increases in traffic , which we calculate as the number of entrées sold , or changes in per person spend , calculated as sales divided by traffic . per person spend can be influenced by changes in menu prices and the mix and number of items sold per person . measuring our comparable restaurant sales allows us to evaluate the performance of our existing restaurant base . various factors impact comparable restaurant sales , including : consumer recognition of our brand and our ability to respond to changing consumer preferences ; overall economic trends , particularly those related to consumer spending ; our ability to operate restaurants effectively and efficiently to meet consumer expectations ; pricing ; per person spend and average check amount ; marketing and promotional efforts ; local competition ; trade area dynamics ; introduction of new and seasonal menu items and limited time offerings ; and opening of new restaurants in the vicinity of existing locations . as a result of the 53-week fiscal year 2011 , our fiscal year 2012 began one week later than our fiscal year 2011. consistent with common industry practice , we present comparable restaurant sales on a calendar-adjusted basis that aligns current year sales weeks with comparable periods in the prior year , regardless of whether they belong to the same fiscal period or not . since opening new company-owned and franchise restaurants will be a significant component of our revenue growth , comparable restaurant sales are only one measure of how we evaluate our performance . restaurant contribution restaurant contribution is defined as restaurant revenue less restaurant operating costs which are cost of sales , labor , occupancy and other restaurant operating costs . we expect restaurant contribution to increase in proportion to the number of new restaurants we open and our comparable restaurant sales growth . fluctuations in restaurant contribution margin can also be attributed to those factors discussed above for the components of restaurant operating costs . 29 ebitda and adjusted ebitda we define ebitda as net income before interest expense , provision ( benefit ) for income taxes and depreciation and amortization . we define adjusted ebitda as net income before interest expense , debt extinguishment expense , provision ( benefit ) for income taxes , asset disposals , closure costs and restaurant impairments , depreciation and amortization , stock-based compensation , management fees , ipo-related expenses , follow-on offering expenses , transaction costs and obsolete inventory . ebitda and adjusted ebitda provide clear pictures of our operating results by eliminating certain non-cash expenses that are not reflective of the underlying business performance . we use these metrics to facilitate a comparison of our operating performance on a consistent basis from period to period and to analyze the factors and trends affecting our business . the following table presents a reconciliation of net income to ebitda and adjusted ebitda : replace_table_token_7_th _ ( a ) fiscal year 2013 included $ 0.5 million in management fee expense , and fiscal years 2012 and 2011 each included $ 1.0 million of management fee expense , in accordance with our management services agreement and through the class c common stock dividend paid to the holder of the one outstanding share of our class c common stock . in connection with our ipo , the management services agreement expired and the one share of class c common stock was redeemed . ( b ) 2010 included $ 3.7 million of non-cash stock-based compensation expense and $ 0.3 million of expense for our portion of payroll taxes related to the 2010 equity recapitalization . the stock-based compensation expense for fiscal year 2013 that was previously reported in our earnings release and annual report on form 10-k for the fiscal year ended december 31 , 2013 included $ 3.2 million of stock-based compensation related to the accelerated vesting of outstanding stock options upon our ipo that was also included in ipo-related expenses . accordingly , fiscal year 2013 stock-based compensation expense presented in the table above has been revised accordingly . ( c ) reflects certain expenses incurred in conjunction with the closing of our initial public offering . amount includes $ 2.0 million of stock-based compensation related to accelerated vesting of outstanding stock options , $ 1.2 million of stock-based compensation related to stock options granted to our chief executive officer and president and chief operations officer of which 50 % were vested at grant , $ 1.7 million of transaction bonuses and related payroll tax and $ 0.8 million in transaction payments to our equity sponsors . ( d ) reflects $ 0.7 million of offering expenses related to our follow-on offering completed in december of 2013 . ( e ) expenses related to the purchase of 19 franchise restaurants . see note 2 of our consolidated financial statements , business combinations . story_separator_special_tag the increase in investing activities in 2014 was also a result of purchasing 19 restaurants from two franchisees . we used approximately $ 15.7 million of cash flows for acquisitions in 2014 . we acquired substantially all of the assets of 16 restaurants from our indiana franchisee and an additional three restaurants from our new jersey franchisee . see note 2 to the consolidated financial statements for further information with respect to our acquisition activity in 2014 . in addition to our standard refresh and remodel investments in 2014 , 2013 and 2012 , we also invested additional funds in our existing restaurant base as we finished the roll out of our `` your world kitchen `` merchandising in the first quarter of 2013 . 40 financing activities net cash provided by financing activities was $ 24.0 million and $ 11.2 million in 2014 and 2013 , respectively . we used borrowings in both fiscal years to fund new restaurant capital expenditures . in 2014 , we also used borrowings for investments in technology and acquisitions . on july 2 , 2013 , we closed our ipo in which we sold 6,160,714 shares of class a common stock at $ 18.00 per share and received net proceeds of approximately $ 100.2 million ( after underwriting discounts , commissions and offering expenses ) . these net proceeds were used to pay off our outstanding term loan and repay all but $ 0.2 million of our revolving line of credit . in november of 2013 , we amended and restated our credit facility to provide more favorable borrowing rates and fees , to extend borrowing capacity through july 2018 and to effect certain changes to the covenants . the credit facility had been previously amended in august of 2012 to provide more favorable borrowing rates and extend borrowing capacity to july 2017. net cash provided by financing activities was $ 15.4 million in 2012 , driven by borrowings on our credit facility to fund capital expenditures . credit facility we maintain a $ 45.0 million revolving line of credit under our credit facility . the revolving line of credit includes a swing line loan of $ 10.0 million used to fund working capital requirements . on november 22 , 2013 , we amended and restated our credit facility to provide more favorable borrowing rates and fees , to extend borrowing capacity through july 2018 and to effect certain changes to the covenants . in connection with the ipo , we repaid our $ 75.0 million senior term loan under our credit facility and the majority of the revolving line of credit . we had $ 27.5 million of outstanding indebtedness , $ 2.7 million of outstanding letters of credit and $ 14.8 million available for borrowing under our revolving line of credit as of december 30 , 2014 . borrowings under our amended and restated credit facility bear interest , at our option , at either ( i ) libor plus 1.00 to 1.75 % , based on the lease-adjusted leverage ratio or ( ii ) the highest of the following rates plus zero to 0.75 % : ( a ) the federal funds rate plus 0.50 % ; ( b ) the bank of america prime rate or ( c ) the one month libor plus 1.00 % . the facility includes a commitment fee of 0.125 to 0.25 % , based on the lease-adjusted leverage ratio , per year on any unused portion of the facility . we also maintain outstanding letters of credit to secure obligations under our workers ' compensation program and certain lease obligations . availability of borrowings under the revolving line of credit is conditioned on our compliance with specified covenants , including a maximum lease-adjusted leverage ratio and a minimum consolidated fixed charge coverage ratio . we are subject to a number of other customary covenants , including limitations on additional borrowings , acquisitions , dividend payments and lease commitments . as of december 30 , 2014 , we were in compliance with all of our debt covenants . our credit facility is secured by a pledge of stock of substantially all of our subsidiaries and a lien on substantially all of the personal property assets of the company and its subsidiaries . contractual obligations our contractual obligations at december 30 , 2014 were as follows : replace_table_token_14_th _ ( 1 ) we are obligated under non-cancelable leases for our restaurants , administrative offices and equipment . some restaurant leases provide for contingent rental payments based on sales thresholds , which are excluded from this table . we also include capital leases for computer equipment of $ 200,000 . ( 2 ) we enter into various purchase obligations in the ordinary course of business . our binding purchase obligations relate to volume commitments for beverage and food products , as well as binding commitments for the construction of new restaurants . 41 ( 3 ) reflects full payment of our long-term debt at maturity of our credit facility in 2018 . ( 4 ) reflects the expected payments associated with our commitment under our non-qualified deferred compensation plan and capital lease obligations on equipment . off-balance sheet arrangements we had no off-balance sheet arrangements or obligations as of december 30 , 2014 . critical accounting policies and estimates our consolidated financial statements and accompanying notes are prepared in accordance with us gaap . preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses . these estimates and assumptions are affected by the application of our accounting policies . our significant accounting policies are described in note 1 to our consolidated financial statements . critical accounting estimates are those that require application of management 's most difficult , subjective or complex judgments , often as a result of matters that are inherently uncertain and may change in subsequent periods . while we

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debt extinguishment in 2013 , debt extinguishment expense was $ 0.6 million as a result the november 2013 amendment to our credit facility that extended the maturity date and reduced the interest rates on borrowings . a portion of the existing and new fees were treated as debt extinguishment expense . interest expense interest expense decreased by $ 1.8 million in 2014 compared to 2013 . the decrease was primarily due to lower average borrowings in 2014 due to the payoff of the majority of our outstanding debt in conjunction with our ipo in 2013. provision for income taxes provision for income taxes increased by $ 2.4 million in 2014 compared to 2013 , due to an increase in pre-tax net income in 2014 , offset by a decrease to our effective income tax rate . our effective tax rate decreased to 38.4 % in 2014 from 41.7 % in 2013 primarily due to the impact of non-deductible follow-on offering transaction costs in 2013 , offset by increased employment credits in 2014 . 36 fiscal year ended december 31 , 2013 compared to fiscal year ended january 1 , 2013 fiscal year 2013 and 2012 each contained 52 operating weeks . the table below presents our operating results for 2013 and 2012 , and the related year-over-year changes : replace_table_token_11_th _ * not meaningful . ( 1 ) fiscal year 2013 included $ 500,000 of management fee expense and 2012 included $ 1.0 million of management fee expense , in accordance with our management services agreement and through the class c common stock dividend paid to the holder of the one outstanding share of our class c common stock . in connection with our ipo , the management services agreement expired and the one share of class c common stock was redeemed . additionally , we incurred $ 0.7 million of expenses related to our follow-on offering which closed in december of 2013. revenue restaurant revenue increased by $ 49.9 million in 2013 compared to 2012 .

the principal amount of these debt securities and any accrued but unpaid interest generally will become due at maturity . we also earn interest income at market rates on investments in short-term marketable securities . from time to time , we generate income from time to time in the form of commitment , origination and structuring fees in connection with our investments . we recognize all such fees when earned . expenses . currently , our primary operating expenses include director fees and expenses , professional fees , compensation expense , and general and administrative fees . during 2011 , we incurred non-recurring expenses including settlement expenses , related to the various legal proceedings described in item 3 above , were $ 0.3 million and offering costs of $ 0.4 million . during 2010 , professional fees and other expenses incidental to our annual meeting and proxy contest were $ 0.7 million . prior to the internalization described above , our primary operating expenses consisted of investment advisory and management fees payable to mcca for its work in identifying , evaluating , negotiating , closing and monitoring investments . mcca provided us with the services of its investment professionals and our former administrator , equus capital administration company , inc. ( “ ecac ” ) provided us the services of its administrative staff as well as its investment professionals . mcca also provided and paid for the management services necessary to run the fund 's business . under the advisory agreement between mcca and the fund , mcca received a management fee equal to an annual rate of 2 % of our net assets , which was paid quarterly in arrears . under the advisory agreement , we also agreed to pay an incentive fee to mcca based on both realized investment income and net realized capital gains less unrealized capital depreciation . this incentive fee was equal to ( a ) 20 % of the excess , if any , of our net investment income for each quarter that exceeded a quarterly hurdle rate equal to 2 % ( 8 % annualized ) of our net assets , and ( b ) 20 % of our net realized capital gain less unrealized capital depreciation . the incentive fee calculated in clause ( b ) was paid on an annual basis . ecac provided administrative services to us for which we paid ecac an administrative fee . under the administration agreement we entered into with ecac on june 30 , 2005 , we reimbursed the ecac for its costs and expenses in performing its obligations and providing personnel and facilities up to a maximum of $ 0.5 million per year . pursuant to the internalization described above , our administration agreement with ecac expired on june 30 , 2009. consequently , all services previously provided to us by ecac are now performed internally by our employees or from time to time by other third parties . operating activities . we use cash to make new investments and follow-on investments in our existing portfolio companies . we record these investments at cost on the applicable trade date . realized gains or losses are computed using the specific identification method . on an ongoing basis , we carry our investments in our financial statements at fair value , as determined by our board of directors . see “ —significant accounting policies – valuation ” below . as of december 31 , 2011 , we had invested 50.2 % of our net assets in securities of portfolio companies that constituted qualifying investments under the 1940 act . at that time , we had invested 12.1 % by value in shares of common stock , 1.0 % in membership interests in limited liability companies , and 37.1 % in various debt instruments . also , as of december 31 , 2011 , we had invested the proceeds of borrowings on margin ( as discussed below under “ —financing activities ” ) in short-term , highly liquid investments , consisting primarily of u.s. treasury bills , interest-bearing bank accounts and certificates of deposit , that are , in our opinion , appropriate for the preservation of the principal amount of such instruments . under certain circumstances , we make follow-on investments in some of our portfolio companies . as of december 31 , 2011 , we had no outstanding commitments to our portfolio company investments . financing activities . from time to time , we use leverage to finance a portion of our investments . we then repay such debt from the sale of portfolio securities . under the 1940 act , we have the ability to borrow funds and issue debt securities or preferred stock that are referred to as senior securities , subject to certain restrictions including an overall limitation on the amount of outstanding debt , or leverage , relative to equity of 1:1. because of the nature and size of our portfolio investments , we periodically borrow funds to make qualifying investments in order to maintain our qualification as a ric . during 2011 and 2010 , we borrowed such funds by accessing a margin account with a securities brokerage firm . we invest the proceeds of these margin loans in high-quality securities such as u.s. treasury securities until they are repaid . we refer to these high-quality investments as “ restricted assets ” because they are not generally available for investment in portfolio companies under the terms of borrowing . if , in the future , we can not borrow funds to make such qualifying investments at the end of any future quarter , we may not qualify as a ric and would become subject to corporate-level income tax on our net investment income and realized capital gains , if any . in addition , our distributions to stockholders would be taxable as ordinary dividends to the extent paid from earnings and profits . story_separator_special_tag the fund also incurred expenses related offering costs of $ 0.4 million and settlement costs of $ 0.3 million for 2011. as a result of the factors described above , net investment loss after expenses was ( $ 3.5 ) million for 2011 as compared to a net investment loss of ( $ 0.8 ) million for 2010. year ended december 31 , 2010 as compared to year ended december 31 , 2009 total income from portfolio securities declined to $ 2.9 million for 2010 from $ 3.7 million for 2009. this decrease was largely due to declines in interest bearing promissory notes during 2010 along with the restructuring of our holding in conglobal industries holding , inc. in the third quarter 2009 , resulting in the recognition of additional accrued interest for the period . during the first six months of 2009 , the former investment adviser received management fee compensation at an annual rate of 2 % of the net assets of the fund paid quarterly in arrears . such fees amounted to $ 0.7 million for the six months ended june 30 , 2009. we also reimbursed equus capital administration company , inc. ( “ ecac ” ) , the former administrator , for the costs and expenses incurred in performing its obligations and providing personnel and facilities under the fund 's administration agreement with ecac , provided that such reimbursements did not exceed $ 450,000 per year . ecac received $ 0.2 million for the six months ended june 30 , 2009. as a result of the internalization management , we assumed these obligations directly beginning july 1 , 2009. professional fees increased to $ 1.4 million for 2010 from $ 1.2 million for 2009. these increases were due to the increases in legal fees and solicitation costs associated with our annual shareholder meeting held in may 2010 and resulting proxy contest . compensation expense was $ 1.4 million for 2010 and $ 0.5 million in 2009 , respectively . the increase in compensation expense generated in 2010 is due to the internalization of management as of june 30 , 2009. accordingly , we paid no compensation prior to july 1 , 2009. as a result of the factors described above , net investment loss after expenses was ( $ 0.8 ) million for 2010 as compared to a net investment income of $ 0.2 million for 2009. summary of portfolio investment activity year ended december 31 , 2011 during the year ended december 31 , 2011 , we received $ 0.4 million from sovereign business forms , inc. in the form of principal payments and a distribution from equus media development company , llc ( “ emdc ” ) in the amount of $ 1.0 million . we sold our promissory notes in 1848 capital partners , llc ( “ 1848 ” ) , big apple entertainment partners , llc ( “ big apple ” ) , and london bridge entertainment partners , ltd ( “ london bridge ” ) and certain assets of riptide entertainment partners , llc 27 ( “ riptide ” ) in which we held a 64.67 % membership interest . all of these assets were sold to capital markets acquisition partners , llc for a combined price of $ 10 million , with $ 9.8 million allocated to the promissory notes held by the fund and $ 0.2 million to riptide . the fund allocated the proceeds to the promissory notes resulting in a realized loss of approximately $ 0.9 million at london bridge . in addition , the monies provided to riptide were sufficient to satisfy its outstanding liabilities , resulting in a value of $ 0. we also received $ 0.8 million in connection with the sale and redemption of our membership interest in rp & c international investments llc . during the year ended december 31 , 2011 , the fund had investment activity of $ 3.7 million in three portfolio companies . we made a follow-on investment of $ 0.3 million in spectrum management , llc . on april 27 , 2011 , we announced that we had entered into two separate transactions involving the purchase of an aggregate of 11,408 4 % bonds due may 2012 ( “ bonds ” ) issued by orco germany s.a. , a commercial and multi-family residential real estate holding company and developer based in berlin . the consideration provided to the selling bondholders consisted of an aggregate of 1,700,000 newly issued shares of common stock of the fund . these shares are unregistered under the securities act of 1933. we received 8,890 of the bonds on april 27 , 2011. on may 9 , 2011 , one of these agreements was amended and restated to provide for an additional 45 days to deliver 2,518 of the bonds in exchange for providing to the fund approximately $ 1.6 million in cash as security for such delivery . as the remaining bonds were not delivered by the specified date , the cash collateral became free and clear property of the fund on june 23 , 2011. on september 30 , 2011 , we formed equus energy , llc ( “ equus energy ” ) , as a wholly-owned subsidiary of the fund , to make investments in companies in the energy sector , with particular emphasis on income-producing oil & gas properties . in december 2011 , we contributed $ 250,000 to the capital of equus energy . the following table includes significant investment activity during the year ended december 31 , 2011 ( in thousands ) : replace_table_token_3_th year ended december 31 , 2010 during the year ended december 31 , 2010 , we received payment in full for the trulite , inc. promissory note , in the amount of $ 2.6 million , which included interest income of $ 0.3 million , a distribution from equus media development company , llc of $ 1.0 million , and repayment of

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liquidity and capital resources we generate cash primarily from maturities , sales of securities and borrowings , as well as capital gains realized upon the sale of portfolio investments . we use cash primarily to make additional investments , either in new companies or as follow-on investments in the existing portfolio companies and to pay the dividends to our stockholders . we are currently evaluating the impact of current market conditions on our portfolio company valuations and their ability to provide current income . we have followed valuation techniques in a consistent manner ; however , it is cognizant of current market conditions that might effect future valuations of portfolio securities . we believe that our operating cash flow and cash on hand will be sufficient to meet operating requirements and to finance routine capital expenditures through the next 12 months . 25 year ended december 31 , 2011 as of december 31 , 2011 , we had total assets of $ 44.3 million , of which $ 19.2 million were invested in portfolio investments and $ 16.8 million were invested in cash and cash equivalents . among our portfolio investments , $ 14.1 million ( at fair value ) or 37.1 % of net asset value were in the form of notes receivable from portfolio companies as of december 31 , 2011. we impaired certain promissory notes issued by spectrum management , llc , having a fair value of $ 0.3 million . as of december 31 , 2011 , we also had $ 6.1 million of restricted cash and temporary cash investments , including primarily the proceeds of a quarter-end margin loan that we incurred to maintain the diversification requirements applicable to a ric . of this amount , $ 6.0 million was invested in u.s. treasury bills and $ 0.1 million represented a required 1 % brokerage margin deposit . these securities were held by a securities brokerage firm and pledged along with other assets to secure repayment of the margin loan . the u.s. treasury bills were sold on january 3 , 2012 and we subsequently repaid this margin . operating activities .

the majority of these costs are recorded in the investments in new businesses segment and are included in consulting , outsourcing and professional fees on the accompanying consolidated statements of operations . operating expenses in our investment managers segment increased primarily due to higher personnel costs to service new clients . travel and promotional-related expenses declined during 2020 as sales and client relationship personnel adapted to covid-19 restrictions . travel expenses are included in compensation , benefits and other personnel costs on the accompanying consolidated statements of operations . promotional-related expenses are included in facilities , supplies and other costs on the accompanying consolidated statements of operations . we capitalized $ 22.3 million in 2020 for swp as compared to $ 33.1 million in 2019. amortization expense related to swp increased to $ 43.9 million during 2020 as compared to $ 42.3 million during 2019 due to continued development . the proportion of expenses related to maintenance and support of swp , which are not capitalized , has increased as compared to costs related to development and enhancements eligible for capitalization . we expect the rate of capitalization of software development costs in 2021 to remain at or exceed the level in 2020. the effective tax rate during 2020 was 21.3 % as compared to 20.6 % during 2019. the increase in the effective tax rate was primarily due to reduced tax benefits from a lower volume of stock option exercise activity and an increase in the state effective tax rate ( see the caption `` income taxes `` later in this discussion for more information ) . we continued the stock repurchase program during 2020 and purchased approximately 8,008,000 shares at an average price of $ 53.04 per share for a total cost of $ 424.7 million . significant items impacting our financial results in 2019 revenues increased $ 25.7 million , or 2 % , to $ 1.6 billion in 2019 compared to 2018. net income increased $ 4.4 million , or 1 % , to $ 501.4 million and diluted earnings per share increased to $ 3.24 per share in 2019 compared to $ 3.14 per share in 2018. we believe the following items were significant to our business results during 2019 : revenue from asset management , administration and distribution fees increased primarily from higher assets under administration in our investment managers segment due to sales of new business and market appreciation . average assets under administration increased $ 80.2 billion , or 14 % , to $ 635.8 billion during 2019 as compared to $ 555.6 billion during 2018. information processing and software servicing fees in the private banks segment decreased by $ 10.4 million during 2019 due to previously announced client losses and decreased non-recurring fees . revenues in the institutional investors segment declined $ 11.2 million during 2019 due to acquisitions , plan curtailments and fee compression from increased competition related to the continued contraction of the u.s. corporate defined benefit market . asset funding from new sales partially offset the decline in revenues . our proportionate share in the earnings of lsv decreased by $ 7.9 million , or 5 % , in 2019 due to lower assets under management from negative cash flows and lost clients . market appreciation during 2019 partially offset the decline in lsv 's average assets under management . lower performance fees earned by lsv also negatively impacted earnings . operating expenses were favorably impacted by cost containment measures implemented in late 2018 and early 2019. these expenses primarily consist of operational , technology and marketing costs and are mainly related to solutions offerings as well as servicing existing and acquiring new clients . these operating expenses are primarily included in compensation , benefits and other personnel costs on the accompanying consolidated statements of operations . we capitalized $ 33.1 million in 2019 for swp as compared to $ 43.4 million in 2018. amortization expense related to swp increased to $ 42.3 million during 2019 as compared to $ 39.9 million during 2018 due to continued development . the proportion of expenses related to maintenance and support of swp , which are not capitalized , has increased as compared to costs related to development and enhancements eligible for capitalization . 30 our effective tax rate during 2019 was 20.6 % as compared to 17.6 % during 2018. the increase in the effective tax rate was primarily due to reduced tax benefits from a lower volume of stock option exercise activity . we continued the stock repurchase program during 2019 and purchased approximately 6,225,000 shares at an average price of $ 55.96 per share for a total cost of $ 348.3 million . impact of covid-19 and other events the occurrence of unforeseen or catastrophic events , including the emergence of a pandemic or other widespread health emergency or concerns over the possibility of such an emergency , could create economic and financial disruptions , and could lead to operational difficulties that could impair our ability to manage our business . in december 2019 , a novel strain of coronavirus ( covid-19 ) was identified in wuhan , china . covid-19 quickly spread globally , leading the world health organization to declare the covid-19 virus outbreak a global pandemic in march 2020. since that time , governmental authorities have implemented numerous and varying measures to stall the spread and ameliorate the impact of covid-19 , including travel bans and restrictions , quarantines , curfews , shelter in place and safer-at-home orders , business shutdowns and closures , and have also implemented multi-step policies with the goal of re-opening domestic and global markets . certain jurisdictions have begun re-opening only to return to restrictions in the face of increases in new covid-19 cases . recent developments include the phased re-opening of domestic and global markets to varying degrees . in march 2020 , we executed upon our business resiliency and contingency plans . story_separator_special_tag revenues increased $ 4.7 million , or 1 % , in 2019 compared to the prior year . revenues during 2019 were primarily affected by : increased separately managed account program fees from market appreciation and positive cash flows into sei 's etf programs ; partially offset by decreased investment management fees as market appreciation was more than offset by negative cash flows and a decrease in average basis points earned on assets due to client-directed shifts into lower fee investment products including sei 's etf program . operating margins were 49 % in 2020 and 48 % in 2019. operating income increased $ 6.4 million , or 3 % , in 2020 compared to the prior year . operating income in 2020 was primarily affected by : an increase in revenues ; and decreased promotion and travel costs due to covid-19 restrictions ; partially offset by increased direct expenses associated with increased assets into our separately managed account program . operating margins were 48 % in 2019 and 47 % in 2018. operating income increased $ 8.6 million , or 5 % , in 2019 compared to the prior year . operating income in 2019 was primarily affected by : an increase in revenues ; decreased costs , mainly personnel and consulting costs , related to maintenance , support and client migrations to swp ; decreased sales compensation expense ; and decreased costs associated with accounts formerly processed on trust 3000 ® due to client migrations to swp ; partially offset by increased direct expenses associated with increased assets into our investment products ; and increased amortization expense related to swp due to continued enhancements . 39 institutional investors revenues decreased $ 4.4 million , or 1 % , in 2020 compared to the prior year . revenues during 2020 were primarily affected by : defined benefit client losses , mainly resulting from acquisitions and plan curtailments ; partially offset by asset funding from new sales of our ocio platform ; and increased investment management fees from market appreciation . revenues decreased $ 11.2 million , or 3 % , in 2019 compared to the prior year . revenues during 2019 were primarily affected by : defined benefit client losses , mainly resulting from acquisitions and plan curtailments ; and the negative impact from foreign currency exchange rate fluctuations between the u.s. dollar and the british pound on our foreign operations ; partially offset by asset funding from new sales of our ocio platform ; and increased investment management fees from market appreciation . operating margins were 53 % in 2020 and 52 % in 2019. operating income decreased slightly in 2020 compared to the prior year . operating income during 2020 was primarily affected by : a decrease in revenues ; partially offset by decreased direct expenses associated with investment management fees ; and decreased travel costs due to covid-19 restrictions . operating margins were 52 % in 2019 and 51 % in 2018. operating income decreased $ 1.6 million , or 1 % , in 2019 compared to the prior year . operating income during 2019 was primarily affected by : a decrease in revenues ; and the net negative impact from foreign currency exchange rate fluctuations between the u.s. dollar and the british pound on our foreign operations ; partially offset by decreased direct expenses associated with investment management fees . investment managers revenues increased $ 48.7 million , or 11 % , in 2020 compared to the prior year . revenues during 2020 were primarily affected by : positive cash flows into alternative , traditional and separately managed account offerings from new and existing clients ; and higher valuations of existing client assets from market appreciation ; partially offset by client losses and fund closures . revenues increased $ 42.7 million , or 11 % , in 2019 compared to the prior year . revenues during 2019 were primarily affected by : positive cash flows into alternative , traditional and separately managed account offerings from new and existing clients ; higher valuations of existing client assets from market appreciation ; partially offset by client losses and fund closures . operating margins were 37 % in 2020 and 36 % in 2019. operating income increased $ 21.7 million , or 14 % , in 2020 compared to the prior year . operating income during 2020 was primarily affected by : an increase in revenues ; and decreased promotion and travel costs due to covid-19 restrictions ; partially offset by increased costs associated with new business , primarily personnel expenses and third-party vendor costs ; and increased non-capitalized investment spending , mainly consulting costs . operating margins were 36 % in 2019 and 35 % in 2018. operating income increased $ 20.4 million , or 15 % , in 2019 compared to the prior year . operating income during 2019 was primarily affected by : an increase in revenues ; and 40 the net positive impact from foreign currency exchange rate fluctuations between the u.s. dollar and the euro on our foreign operations ; partially offset by increased personnel expenses , technology and other operational costs to service new and existing clients ; and increased non-capitalized investment spending , mainly consulting costs . other corporate overhead expenses corporate overhead expenses primarily consist of general and administrative expenses and other costs not directly attributable to a reportable business segment . corporate overhead expenses were $ 74.0 million , $ 72.2 million and $ 65.6 million in 2020 , 2019 and 2018 , respectively . the increase in corporate overhead expenses during 2020 was primarily due to an increase in personnel costs and increased professional fees related to our initiative to identify tactical and strategic improvements to our operational resiliency plans and capabilities . the increase in corporate overhead expenses in 2019 was primarily due to increased non-recurring personnel-related costs , primarily severance costs . other income and expense items other income and expense items on the accompanying consolidated

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net cash used in investing activities includes : purchases , sales and maturities of marketable securities . our purchases , sales and maturities of marketable securities during 2020 , 2019 and 2018 were as follows : replace_table_token_17_th marketable securities purchased generally consisted of investments in short-term u.s. government agency securities through sidco 's cash management program , additional gnma securities to satisfy applicable regulatory requirements of sptc and investments for the start-up of new investment products . proceeds received from sales and maturities primarily included maturities of short-term securities owned by sidco and principal prepayments related to the gnma securities owned by sptc . the capitalization of costs incurred in developing computer software . we capitalized $ 24.1 million , $ 34.1 million and $ 44.2 million of software development costs in 2020 , 2019 and 2018 , respectively . amounts capitalized primarily include costs for significant enhancements and upgrades for the expanded functionality of swp . capital expenditures . capital expenditures in 2020 , 2019 and 2018 primarily include purchased software and equipment for data center operations . expenditures also include the expansion of our corporate headquarters , which was substantially completed during 2020. total expenditures in 2020 for the expansion of the headquarters were $ 23.5 million and we expect final expenditures in 2021 to be approximately $ 5.9 million . we also expect to incur costs in 2021 related to our ongoing assessment of operational resiliency plans and capabilities . cash paid for acquisition , net of cash acquired . we completed the acquisition of huntington steele in april 2018. the purchase price included a net cash payment of $ 5.8 million . net cash used in financing activities includes : principal repayments on revolving credit facility . we made principal payments of $ 30.0 million during 2018 to fully repay the outstanding balance of the credit facility . borrowings were related to the funding of an acquisition . we had no borrowings under our credit facility in 2020 , 2019 or 2018. the repurchase of our common stock . the board of directors has authorized the repurchase of common stock through multiple authorizations .

in july 2013 , our ohio subsidiary , buckeye community health plan ( buckeye ) , began operating under a new and expanded contract with ohio department of job and family services ( odjfs ) to serve medicaid members statewide through ohio 's three newly aligned regions ( west , central/southeast , and northeast ) . buckeye also began serving members under the abd children program in july 2013. tennessee . in september 2013 , our joint venture subsidiary , centurion , began operating under a new contract to provide comprehensive healthcare services to individuals incarcerated in tennessee state correctional facilities . texas . in march 2012 , we began operating under contracts in texas that expanded its operations through new service areas including the 10 county hidalgo service area and the medicaid rural service areas of west texas , central texas and north-east texas , as well as the addition of star+plus in the lubbock service area . the expansion also added the management of outpatient pharmacy benefits in all service areas and products , as well as inpatient facility services for the star+plus program . washington . in july 2012 , we began operating under a new contract with the washington health care authority to serve medicaid beneficiaries in the state , operating as coordinated care . we expect the following items to contribute to our future growth potential : we expect to realize the full year benefit in 2014 of business commenced during 2013 in california , florida , massachusetts , new hampshire , ohio , and tennessee as discussed above . in february 2014 , our mississippi subsidiary , magnolia health plan , was awarded a statewide managed care contract to continue serving members enrolled in the mississippi coordinated access network ( mississippican ) program , as one of two contractors . under the new contract , magnolia will continue providing outpatient , behavioral health , pharmacy , vision and dental services , and will also begin providing non-emergency transportation as of july 1 , 2014. in january 2014 , we acquired a majority interest in u.s. medical management , llc , a management services organization and provider of in-home health services for high acuity populations , for approximately $ 200.0 million . the transaction consideration was financed through a combination of cash on hand and 2,243,217 shares of centene common stock in january 2014 , we began serving members enrolled in health insurance marketplaces in certain regions of 9 states : arkansas , florida , georgia , indiana , massachusetts , mississippi , ohio , texas and washington . in january 2014 , our celticare subsidiary began operating under a new contract with the massachusetts executive office of health and human services to participate in the masshealth careplus program in all five regions . in january 2014 , centurion began operating under a new agreement with the minnesota department of corrections to provide managed healthcare services to offenders in the state 's correctional facilities . in december 2013 , we signed a definitive agreement to purchase a majority stake in fidelis securecare of michigan , inc. ( fidelis ) , a subsidiary of fidelis seniorcare , inc. the transaction is expected to close in the fourth quarter of 2014 , subject to certain closing conditions including regulatory approvals , and will involve cash purchase price payments contingent on the performance of the plan over the course of 2015. fidelis was recently selected by the michigan department of community health to provide integrated healthcare services to members who are dually eligible for medicare and medicaid in macomb and wayne counties . enrollment is expected to commence in the fourth quarter of 2014 . 33 in november 2013 , our south carolina subsidiary , absolute total care , was selected by the south carolina department of health and human services to serve dual-eligible members as part of the state 's pilot program to provide integrated and coordinated care for individuals who are eligible for both medicare and medicaid . operations are expected to commence in the second half of 2014. in september 2013 , the florida agency for health care administration provided notice of intent to award a contract to our subsidiary , sunshine health , in 9 of 11 regions of the managed medical assistance ( mma ) program . the mma program includes tanf recipients as well as abd and dual-eligible members . the award is subject to challenge and contract readiness periods , with enrollment expected to begin in the second quarter of 2014 and continue through october 2014. in addition , we were recommended as the sole provider under a contract award for the child welfare specialty plan ( foster care ) , which is expected to commence in the second quarter of 2014. in september 2013 , we were awarded a contract in texas from the texas health and human services commission to expand our operations and serve star+plus members in two medicaid rural service areas . enrollment is expected to begin in the second half of 2014. in november 2012 , our illinois subsidiary , illinicare health plan , was selected , contingent upon successful completion of contract negotiations , to serve dual-eligible members in cook , dupage , lake , kane , kankakee and will counties ( greater chicago region ) as part of the illinois medicare-medicaid alignment initiative . upon execution of a contract and regulatory approval , enrollment is expected to begin in 2014. in august 2012 , we were notified by the odjfs that buckeye , our ohio subsidiary , was selected to serve medicaid members in a dual-eligible demonstration program in three of ohio 's pre-determined seven regions : northeast ( cleveland ) , northwest ( toledo ) and west central ( dayton ) . story_separator_special_tag the year over year decrease in the g & a expense ratio reflects the leveraging of expenses over higher revenues in 2012 and a reduction in performance based compensation expense in 2012 which lowered the g & a expense ratio by approximately 60 basis points . impairment loss during 2011 , the company completed its annual goodwill and intangible asset impairment testing and concluded that the fair value of all reporting units with material amounts of goodwill was substantially in excess of the carrying value as of our impairment testing date . specifically , the company tested its celtic reporting unit under a quantitative model which included anticipated financial performance for new business to be converted in 2012. under the quantitative model , the testing revealed that the carrying value exceeded fair value of the celtic reporting unit by approximately 190 % . during 2012 , our subsidiary , celtic insurance company , experienced a high level of medical costs for individual health policies , especially for recently issued policies related to members converted from another insurer during the first quarter of 2012. additionally , in june 2012 , the u.s. supreme court upheld the constitutionality of the patient protection and affordable care act . the affordable care act , among other things , limits the profitability of the individual health insurance business because of minimum medical loss ratios , guaranteed issue policies , and increased competition in the marketplace product . as a result of these factors , our expectations for future growth and profitability were lower than previous estimates and we conducted an impairment analysis of the identifiable intangible assets and goodwill of the celtic reporting unit . the impairment analysis resulted in goodwill and intangible asset impairments of $ 28.0 million , recorded as an impairment loss in the consolidated statement of operations . the impaired identifiable intangible assets of $ 2.3 million and goodwill of $ 25.7 million were reported under the specialty services segment ; $ 26.6 million of the impairment loss is not deductible for income tax purposes . 41 investment and other income , net the following table summarizes the components of other income ( expense ) for the year ended december 31 , ( $ in millions ) : replace_table_token_13_th investment income . the increase in investment income in 2012 primarily reflects higher investment balances in 2012. gain on sale of investments . during the year ended december 31 , 2012 , we recognized $ 1.5 million in net gains primarily as a result of the liquidation of $ 75.5 million of investments held by the georgia health plan in order to meet short term liquidity needs due to delays in premium receipts from the state . gain on sale of investment in convertible note . between july 2008 and october 2011 , we made an investment of $ 30.0 million in secured notes receivable to a third party as part of an investment in certain medicaid and medicare related businesses . the notes included a feature to convert the note balance into an equity ownership in the underlying businesses . in september 2012 , we executed an agreement with the borrower whereby the borrower agreed to pay us total consideration of $ 50.0 million for retirement of the outstanding notes and equity ownership conversion feature . as a result , during the third quarter of 2012 , we recorded a pre-tax gain of $ 17.9 million in other income representing the fair value of the total consideration in excess of the carrying value of the loans on the balance sheet . interest expense . interest expense increased during the year ended december 31 , 2012 by $ 0.2 million reflecting the issuance of an additional $ 175 million in senior notes in november 2012 , partially offset by the refinancing of our $ 250 million senior notes and execution of the associated interest rate swap agreement in may 2011. income tax expense excluding the effects of noncontrolling interests , our effective tax rate for 2012 was 34.9 % compared to 37.0 % in 2011 . the tax rate for the year ended december 31 , 2012 , reflects a tax benefit resulting from the clarification by a state taxing authority regarding a state income tax calculation , partially offset by celtic 's non-deductible goodwill impairment . segment results the following table summarizes our operating results by segment for the year ended december 31 , ( in millions ) : replace_table_token_14_th managed care premium and service revenues increased 55.6 % in the year ended december 31 , 2012 , due to the addition of our illinois , louisiana , mississippi , missouri and washington contracts , texas expansion , pharmacy carve-ins in texas and ohio , and organic membership growth . earnings from operations decreased $ 99.0 million in the year ended december 31 , 2012 , 42 primarily due to higher medical costs in our texas health plan specifically in the expansion areas and increased flu costs during the fourth quarter of 2012. specialty services premium and service revenues increased 77.0 % in the year ended december 31 , 2012 , due to ( 1 ) the carve-in of pharmacy services in texas and ohio , ( 2 ) specialty company revenue related to the growth in our medicaid segment and the associated specialty services provided to this increased membership and ( 3 ) the arizona expansion . earnings from operations increased $ 3.2 million in the year ended december 31 , 2012 , reflecting growth in our pharmacy business and the associated specialty services provided to our increased medicaid membership , partially offset by the impairment loss of $ 28.0 million recorded in 2012 and a high level of medical costs in celtic insurance company , especially for members converted in the first quarter of 2012. liquidity and capital resources shown below is a condensed schedule of cash flows for the years ended december 31 , 2013 , 2012 and

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cash flows from operating activities for 2013 increased $ 103.8 million , or 37 % compared to 2012 due to an increase in net earnings between years and growth in our business . additionally , incentive compensation accruals increased from 2012 due to the performance of the company . this accrual will be paid during the first and second quarter of 2014. cash flows from operating activities for 2012 increased $ 17.0 million , or 6 % compared to 2011 driven by lower net earnings that were partially offset by the growth in medical claims liabilities associated with business expansions . cash flows from operations in each year were impacted by the timing of payments we receive from our states . states may prepay the following month premium payment , which we record as unearned revenue , or they may delay our premium payment , which we record as a receivable . we typically receive capitation payments monthly , however the states in which we operate may decide to adjust their payment schedules which could positively or negatively impact our reported cash flows from operating activities in any given period . the table below details the impact to cash flows from operations from the timing of payments from our states ( $ in millions ) . replace_table_token_16_th net cash provided by operating activities in 2011 was negatively impacted by the timing of payments from our states by $ 120.4 million . as of december 31 , 2011 , we had received all december 2011 capitation payments from our states and had not received any prepayments of january 2012 capitation . this was offset by an increase in medical claims liabilities related to the start up of our mississippi , illinois and kentucky health plans , as well as expansion of our texas health plan in 2011. cash flows used in investing activities cash flows used in investing activities in 2013 primarily consisted of additions to the investment portfolio of our regulated subsidiaries , including transfers from cash and cash equivalents to long term investments , the acquisition of acariahealth and 43 capital expenditures .

our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in “ cautionary statement regarding forward-looking statements ” and “ item 1a . risk factors . ” overview of operations we are a pharmaceutical company currently engaged in the research and development of innovative pharmaceutical solutions , including an orally ingestible insulin capsule to be used for the treatment of individuals with diabetes , and the use of orally ingestible capsules or pills for delivery of other polypeptides . an overview of our current clinical studies can be found in “ item 1. business . ” of this annual report on form 10-k. results of operations critical accounting policies our significant accounting policies are more fully described in the notes to our accompanying consolidated financial statements . we believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations . the discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which we prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of our consolidated 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 consolidated financial statements , as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate such estimates and judgments . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . 23 revenue recognition : revenue is recognized when delivery has occurred , evidence of an arrangement exists , title and risks and rewards for the products are transferred to the customer and collection is reasonably assured . under accounting standards codification , or asc , 605 ( which was the authoritative revenue recognition guidance applied for all periods prior to september 1 , 2018 ) given the company 's continuing involvement through the expected product submission in june 2023 , amounts received relating to the license agreement were recognized over the period from which we were entitled to the respective payment , and the expected product submission date using a time-based model approach over the periods that the fees were earned . however , under asc 606 , we are required to recognize the total transaction price ( which includes consideration related to milestones once the criteria for recognition have been satisfied ) using the input method over the period the performance obligation is fulfilled . accordingly , once the consideration associated with a milestone is included in the transaction price , incremental revenue is recognized immediately based on the period of time that has elapsed towards complete satisfaction of the performance obligation . since the customer benefits from the services as the entity performs , revenue is recognized over time through the expected product submission date in june 2023 , using the input method . the company used the input method to measure the process for the purpose of recognizing revenue , which approximates the straight line attribution . the company used significant judgment when it determined the product submission date . under asc 606 , the consideration that the company would be entitled to upon the achievement of contractual milestones , which are contingent upon the occurrence of future events , are a form of variable consideration . when assessing the portion , if any , of such milestones-related consideration to be included in the transaction price , the company first assesses the most likely outcome for each milestone and excludes the consideration related to milestones of which the occurrence is not considered the most likely outcome . the company then evaluates if any of the variable consideration determined in the first step is constrained by including in the transaction price variable consideration 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 . the company used significant judgment when it determined the first step of variable consideration . comparison of fiscal 2019 to fiscal 2018 the following table summarizes certain statements of operations data for us for the twelve month periods ended august 31 , 2019 and 2018 : replace_table_token_3_th 24 revenues revenues consist of proceeds related to the license agreement that are recognized over the period from which the company is entitled to the respective payments and through june 2023. revenues for fiscal 2019 increased by 10 % to $ 2,703,000 from $ 2,449,000 for fiscal 2018. the increase is mainly attributed to milestone payments received during fiscal 2019 in connection with the license agreement which are recognized through the expected product submission date using a cost-to-cost model approach . cost of revenues ( income ) cost of revenues consists of royalties related to the license agreement that will be paid over the term of the license agreement in accordance with revenue recognition accounting and the law for the encouragement of industrial research , development and technological innovation , 1984 , as amended , including any regulations or tracks promulgated thereunder , or ther & d law . story_separator_special_tag in any case of transfer of manufacturing out of israel , the grant recipient is required to pay royalties at an increased rate , which may be substantial , and the aggregate repayment amount is increased up to 120 % , 150 % or 300 % of the grant , depending on the portion of the total manufacturing volume that is performed outside of israel . the approval we received from the iia for the license agreement was subject to payment of increased royalties and an increased ceiling , all in accordance with the provisions of the r & d law . the r & d law further permits the iia , among other things , to approve the transfer of manufacturing rights outside of israel in exchange for the import of different manufacturing into israel as a substitute , in lieu of the increased royalties . the r & d law also provides that know-how developed under an approved research and development program may not be transferred or licensed to third parties in israel without the approval of the research committee . such approval is not required for the sale or export of any products resulting from such research or development . the r & d law further provides that the know-how developed under an approved research and development program may not be transferred or licensed to any third parties outside israel absent iia approval which may be granted in certain circumstances as follows : ( a ) the grant recipient pays to the iia a portion of the sale or license price paid in consideration for the purchase or license of such iia-funded know-how or the price paid in consideration for the sale of the grant recipient itself , as the case may be , in accordance with certain formulas included in the r & d law ; ( b ) the grant recipient receives know-how from a third party in exchange for its iia-funded know-how ; or ( c ) such transfer of iia-funded know-how is made in the context of iia approved research and development cooperation projects or consortia . the r & d law imposes reporting requirements with respect to certain changes in the ownership of a grant recipient . the r & d law requires the grant recipient to notify the iia of any change in control of the recipient or a change in the holdings of the means of control of the recipient that results in a non-israeli entity becoming an interested party in the recipient , and requires the new non-israeli interested party to undertake to the iia to comply with the r & d law . in addition , the rules of the iia may require the provision of additional information or representations in respect of certain such events . for this purpose , “ control ” is defined as the ability to direct the activities of a company other than any ability arising solely from serving as an officer or director of the company . a person is presumed to have control if such person holds 50 % or more of the means of control of a company . “ means of control ” refers to voting rights or the right to appoint directors or the chief executive officer . an “ interested party ” of a company includes a holder of 5 % or more of its outstanding share capital or voting rights , its chief executive officer and directors , someone who has the right to appoint its chief executive officer or at least one director , and a company with respect to which any of the foregoing interested parties holds 25 % or more of the outstanding share capital or voting rights or has the right to appoint 25 % or more of the directors . 26 failure to meet the r & d law 's requirements may subject us to mandatory repayment of grants received by us ( together with interest and penalties ) , as well as expose us to criminal proceedings . in addition , the israeli government may from time to time audit sales of products which it claims incorporate technology funded through iia programs which may lead to additional royalties being payable on additional products . general and administrative expenses general and administrative expenses include the salaries and related expenses of our management , consulting costs , legal and professional fees , travel expenses , business development costs , insurance expenses and other general costs . general and administrative expenses decreased by 9 % from $ 4,083,000 for fiscal 2018 to $ 3,722,000 for fiscal 2019. the decrease in costs incurred related to general and administrative activities during fiscal 2019 , is primarily attributable to a decrease in stock-based compensation costs and is partially offset by an increase in salaries and related expenses . during fiscal 2019 , as part of our general and administrative expenses , we incurred expenses of $ 591,000 related to stock-based compensation costs , as compared to $ 972,000 during fiscal 2018. the decrease is mainly attributable to the progress in amortization of awards granted in prior periods and to option forfeitures during the period . financial income , net net financial income , net was $ 576,000 for fiscal 2019 as compared to net financial income of $ 800,000 for fiscal 2018. the decrease is mainly attributable to a decrease in fair market value of some investments and to the change in accounting method which classifies such losses under profit and loss rather than other comprehensive income . taxes on income taxes on income were $ 300,000 recognized for fiscal 2019 as compared to no tax expenses in fiscal 2018. the increase is due to the withholding taxes during 2019 in connection with the receipt of a milestone payment pursuant to the license agreement , while no withholding taxes applied in fiscal 2018. comparison of fiscal 2018 to fiscal 2017 for a discussion of fiscal 2018

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liquidity and capital resources from our inception through august 31 , 2019 , we have incurred losses in an aggregate amount of $ 81,103,000. during that period we have financed our operations through several private placements of our common stock , as well as public offerings of our common stock , raising a total of $ 77,790,000 , net of transaction costs . during that period we also received cash consideration of $ 5,879,000 from the exercise of warrants and options . we will seek to obtain additional financing through similar sources in the future as needed . as of august 31 , 2019 , we had $ 3,329,000 of available cash , $ 25,253,000 of short term and long term deposits and $ 4,996,000 of marketable securities . management continues to evaluate various financing alternatives for funding future research and development activities and general and administrative expenses through fundraising in the public or private equity markets . although there is no assurance that we will be successful with those initiatives , management believes that it will be able to secure the necessary financing as a result of future third party investments . based on our current cash resources and commitments , we believe we will be able to maintain our current planned development activities and the corresponding level of expenditures for at least the next 12 months . 27 as of august 31 , 2019 , our total current assets were $ 33,324,000 and our total current liabilities were $ 5,308,000. on august 31 , 2019 , we had a working capital surplus of $ 28,016,000 and an accumulated loss of $ 81,103,000. as of august 31 , 2018 , our total current assets were $ 31,037,000 and our total current liabilities were $ 4,553,000. on august 31 , 2018 , we had a working capital surplus of $ 26,484,000 and an accumulated loss of $ 69,223,000. the increase in working capital surplus from august 31 , 2018 to august 31 , 2019 was primarily due to an increase in short term deposits .

the second step of the goodwill impairment test , used to measure the amount of impairment loss , compares the implied fair value of a reporting unit 's goodwill with the carrying amount of that goodwill . other than temporary decline in the value of debt and equity securities : accounting standards require that , for individual securities classified as either available-for-sale or held-to-maturity , an enterprise shall determine whether a decline in fair value below the amortized cost basis is other than temporary . when an other-than-temporary impairment has occurred , the amount of the other-than-temporary impairment recognized in earnings depends on whether we intend to sell the security or whether or not it is more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss . if we intend to sell the security or if it is more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss , the other-than-temporary impairment is recognized in earnings equal to the entire difference between the investment ' s amortized cost basis and its fair value at the balance sheet date . if we do not intend to sell the security and it is not more likely than not that we will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss , the other-than-temporary impairment is separated into the amount representing the credit loss and the amount related to all other factors . the amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings . any significant economic downturn might result , and historically have on occasion resulted , in an other-than-temporary impairment in securities held in our portfolio . valuation methods for securities : most of the securities portfolio , which includes u.s. treasury and agency securities , mortgage-backed securities , collateralized mortgage obligations , municipal securities , corporate debt and equity securities are priced using industry-standard models that consider various assumptions that include time value , yield curves , volatility factors , prepayment speeds , default rates , loss severity , current market and contractual prices for the underlying financial instruments , as well as other relevant economic measures . substantially all of these assumptions are either observable in the marketplace , derived from observable data or are supported by observable levels at which transactions are executed in the marketplace . municipal and corporate securities are valued using a type of matrix , or grid , pricing in which securities are benchmarked against the treasury rate based on credit rating . these model and matrix measurements are classified as level 2 in the fair value hierarchy . # 24 the following discussion and analysis focuses on and reviews our results of operations for each of the years in the three-year period ended december 31 , 2012 and our financial condition as of december 31 , 2012 and 2011 . the discussion below should be read in conjunction with the selected quarterly and annual information set forth above and the consolidated financial statements and other financial data presented elsewhere in this report . when necessary , prior-year financial information has been reclassified to conform to the current-year presentation . a. overview summary of 2012 financial results we reported net income for 2012 of $ 22.2 million , representing diluted earnings per share ( `` eps `` ) of $ 1.85 , an increase of two cents , or 1.1 % from our 2011 result . return on average equity ( `` roe `` ) for the 2012 year continued to be strong at 12.88 % , although down from the roe of 13.45 % for the 2011 year . return on average assets ( `` roa `` ) for 2012 continued to be strong at 1.11 % , although down from roa of 1.13 % for 2011 . both decreases were principally due to our shrinking net interest margin , which led to a slight decrease , 0.6 % , in our net interest income , despite the fact that our earning assets grew and our asset quality remained strong . the decrease in net interest income was more than offset by a 4.5 % increase in our noninterest income . total assets were $ 2.023 billion at december 31 , 2012 , which represented an increase of $ 60.1 million , or 3.1 % , above the $ 1.963 billion level at december 31 , 2011 . stockholders ' equity was $ 175.8 million at december 31 , 2012 , an increase of $ 9.44 million or 5.7 % , from the year earlier level . the components of the change in stockholders ' equity since year-end 2011 are presented in the consolidated statement of changes in stockholders ' equity on page 59 , and are discussed in more detail in the last section of this overview on page 27 entitled , “ increase in stockholder equity . ” regulatory capital : at period-end , we continue to exceed all current regulatory minimum capital requirements at both the holding company and bank levels , by a substantial amount . as of december 31 , 2012 both of our banks , as well as our holding company , qualified as `` well-capitalized `` under federal bank regulatory guidelines . our regulatory capital levels have consistently remained well in excess of required minimums during recent years , despite the economic downturn , because of our continued profitability and strong asset quality . even if the new enhanced capital requirements as set forth in the june 2012 joint bank regulatory release , `` basel iii notices of proposed rulemaking , `` were to go into effect as they were proposed , arrow and its banks would meet all of these enhanced standards . story_separator_special_tag the modest up-tick in loan demand and in the u.s. economy generally experienced during 2012 may prove transitory , in light of continuing economic and financial woes across the rest of the developed world and stubborn fiscal pressures in the u.s. # 30 recent pressure on our net interest margin . from mid-2008 into 2009 , our net interest margin held steady at around 3.90 % , but the margin began to narrow in the last three quarters of 2009 and throughout 2010 and 2011 as the downward repricing of paying liabilities slowed while interest earning assets continued to reprice downward at a steady rate . currently , our net interest margin continues to be under pressure . during the last five quarters , our margin ranged from 3.33 % to 3.13 % . even if new assets do not continue to price downward , our average yield on assets may continue to decline in future periods as our older , higher-priced assets continue to mature and pay off at a faster rate than newer , lower-priced assets . thus , we may continue to experience additional margin compression in upcoming periods . that is , our average yield on assets may decline in upcoming periods at a slightly higher rate than our average cost of deposits . in this light , no assurances can be given that our net interest income will resume the growth it experienced in 2010 and prior years , even if asset growth continues or increases , or that net earnings will continue to grow , if net interest income decreases more rapidly than other sources of operating income increase . potential inflation ; effect on interest rates and margins . currently , there is considerable discussion , and some disagreement , about the possible emergence of meaningful inflation across some or all asset classes in the u.s. or other world economies . to the extent that such inflation may occur , it is likely to be the result of persistent efforts by the federal reserve and other central banks , including the european central bank , to significantly increase the money supply in the u.s. and western world economies , which in the u.s. started at the onset of the crisis in 2008 and continues . the fed has increased the u.s. money supply by setting and maintaining the fed funds rate at historically low levels ( with consequent downward pressure on all rates ) , and by purchasing massive amounts of u.s. treasuries and other debt securities through the federal reserve bank ( i.e . , `` quantitative easing `` ) , which is intended in part to have the identical effect of lowering and reinforcing already low interest rates in addition to directly expanding the supply of credit . when the second round of quantitative easing expired on june 30 , 2011 , the fed elected not to continue the program , for a variety of reasons including some concern over inflation . instead , the fed announced it would support economic recovery through a new series of interest rate manipulations , dubbed `` operation twist `` , under which it would reinvest the proceeds from maturing short-term ( and long-term ) securities in its substantial u.s. treasury and mortgage-backed securities portfolios into longer-dated securities , thereby seeking to lower long-term rates ( and mortgage rates ) , as a priority over further reductions in short-term rates . however , in the ensuing summer months of 2012 , the underlying inflation rate in the u.s. , exclusive of the historically volatile categories of fuel and food purchases , remained quite low , and the u.s. economy , though slowly improving , remained sluggish . as a result , in september 2012 , the fed announced that it would resume quantitative easing , by embarking on a program of purchasing $ 40 billion of mortgage-backed securities on a monthly basis in the market until the economy regained suitable momentum ( so-called `` infinite qe `` ) , while at the same time monitoring inflation in the economy , with a view toward taking appropriate corrective measures if inflation increased beyond acceptable levels . as the u.s. economy continued to demonstrate weakness in the second half of 2012 , the fed increased the level of its fixed monthly purchases of debt securities to $ 85 billion , approximately half treasury bonds and the rest in mortgage-backed securities . however , there has now emerged a certain level of concern not only about the weak u.s. economy , but also that at some point prevailing interest rates may begin to rise , along with inflation , perhaps significant inflation , potentially damaging u.s. financial markets . for the present , management does not anticipate near-term substantial increases in prevailing rates , short- or long-term . if modest rate increases should occur , there is some expectation that the impact on our margins , as well as on our net interest income and earnings , may be somewhat negative in the short run but possibly positive in the long run . given the extraordinary forces currently in play in the financial markets , any speculation on the likelihood of significant inflation in the near future , or the impact of such inflation on prevailing interest rates , short- or long-term , or on the net interest margins or the net interest income of banks such as ours , must be regarded as highly subjective . a discussion of the models we use in projecting the impact on net interest income resulting from possible changes in interest rates vis-à-vis the repricing patterns of our earning assets and interest-bearing liabilities is included later in this report . a discussion of the models we use in projecting the impact on net interest income resulting from possible changes in interest rates vis-à-vis the repricing patterns of our earning assets and interest-bearing liabilities is included later in this report under item

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liquidity and access to credit markets : we did not experience any liquidity problems or special concerns during 2012 , nor did we during 2011 or 2010. the terms of our lines of credit with our correspondent banks , the fhlbny and the federal reserve bank have not changed ( see our general liquidity discussion on page 46 ) . in general , we rely on asset-based liquidity ( i.e. , funds in overnight investments and cash flow from maturing investments and loans ) with liability-based liquidity as a secondary source ( our main liability-based sources are overnight borrowing arrangements with our correspondent banks , term credit arrangement advances from the fhlbny and the federal reserve bank discount window ) . during the recent financial crisis , many financial institutions , small and large , relied extensively on the fed 's discount window to support their liquidity positions , but we did not . we maintain , and periodically test , a contingent liquidity plan to ensure that we can generate an adequate amount of available funds to meet a wide variety of potential liquidity crises , including a severe crisis . fdic shift from deposit-based to asset-based insurance premiums ; reduction in premiums : the dodd-frank act changed the basis on which insured banks would be assessed deposit insurance premiums , which has had a beneficial effect on the rates we pay and our overall premiums . beginning with the second quarter of 2011 , the calculation of regular fdic insurance premiums for insured institutions changed so as to be based on adjusted assets ( as defined ) rather than deposits . this had the effect of imposing fdic insurance fees not only on deposits but on other sources of funding as well , including short-term borrowings and repurchase agreements . the rate , however , given the significantly larger base on which premiums would be assessed ( total assets versus insured deposits ) , was set at a lower percentage than the rate applicable under the old formula .

dividends payable was $ 2,220,000 and $ 8,578,000 at december 31 , 2017 and december 31 , 2016 , respectively , decreasing $ 6,358,000 ( 74.1 % ) . on june 9 , 2017 , the company announced that it would begin paying regular quarterly dividends . on december 13 , 2017 , the company declared its third regular quarterly dividend of the year in the amount of $ 0.22 per share , which was then paid to shareholders in january 2018. at december 31 , 2016 , dividends payable reflected the $ 0.85 special dividend per share declared by the board earlier that month . this dividend was then paid to shareholders in january of 2017 , thus reducing the cash balance , as described above . a full discussion of dividends is provided in note 6 , “ shareholders ' equity ” . - 18 - results of operations twelve-months ended december 31 , 2017 vs. december 31 , 2016 the company reported comparative results from operations for the twelve-month period ended december 31 , 2017 and 2016 as follows : replace_table_token_5_th net sales . the company 's sales for the full year of 2017 were $ 101,799,000 , reflecting an increase of $ 7,748,000 , or 8.2 % over the $ 94,051,000 of sales generated in 2016. the majority of the increase was related to an increase in unit volume , combined with higher sales prices that were necessary to help offset a rise in the company 's material costs . gross profit . the company 's gross profit margins decreased slightly between the two periods , being 60.7 % and 61.5 % for the twelve-months ended december 31 , 2017 and 2016 , respectively . 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 $ 16,359,000 and $ 15,694,000 for 2017 and 2016 , respectively , representing a year over year increase of $ 665,000 or 4.2 % . the increase was primarily attributable to a rise in freight and commissions , which change in conjunction with sales unit volume . for the same periods , selling expense as a percentage of net sales was 16.1 % and 16.7 % , respectively . 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 $ 17,897,000 and $ 17,108,000 for the years ended december 31 , 2017 and 2016 , respectively , increasing $ 789,000 ( 4.6 % ) between periods . this included an increase in incentive compensation partially due to the increase in profits , and also related to the company 's phantom stock plan , mainly resulting from an increase in the company 's stock price . there was also an increase in insurance costs . the impact of these costs were however tempered by a decrease in legal and product liability related defense costs . as a percentage of sales , general and administrative expenses were 17.6 % and 18.2 % for the twelve-months ended december 31 , 2017 and 2016 , respectively . engineering expense . engineering expenses consist of development expenses associated with the development of new products , and costs related to enhancements of existing products and manufacturing processes . engineering expenses increased $ 108,000 or 3.4 % between periods , being $ 3,293,000 and $ 3,185,000 for the years ended december 31 , 2017 and 2016 , respectively . the change was primarily related to an increase in staffing . as a percentage of sales for the year , engineering expense was 3.2 % in 2017 and 3.4 % in 2016. operating profit . reflecting all of the factors mentioned above , operating profits increased $ 2,320,000 or 10.6 % , ending with a profit of $ 24,217,000 in 2017 , compared to $ 21,897,000 in 2016. interest income . interest income is recorded on cash investments , and interest expense is recorded at times when the company has debt amounts outstanding on its line of credit . there was $ 117,000 of interest income recorded during 2017 and $ 98,000 in 2016 . - 19 - other expense . other income ( expense ) primarily consists of foreign currency exchange gains ( losses ) on transactions with omega flex limited , our united kingdom ( “ uk ” ) subsidiary . during 2016 , the british pound weakened , largely as a result of the uk 's vote to exit the european union . as a result , the company recognized currency related losses of $ 474,000 for 2016. the british pound stabilized during 2017 , and therefore the company only recognized a loss of $ 38,000 during the year . income tax expense . income tax expense was $ 8,450,000 for the full year 2017 , compared to $ 6,975,000 for the same period in 2016 , increasing by $ 1,475,000 ( 21.1 % ) . as outlined in note 7 , “ income taxes ” , the company recognized a one-time tax charge of $ 709,000 during the fourth quarter of 2017 primarily related to unremitted foreign earnings resulting from the recent change in the tax code . the remainder of the increase was largely in correlation with the change in income before taxes . excluding the previously described one-time tax charge , the company 's effective tax rate in 2017 approximates the 2016 rate and does not differ materially from expected statutory rates . story_separator_special_tag 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 reviewed the need for a reserve for uncertainties in tax positions at both december 31 , 2017 and 2016 , with no reserve necessary . these reserves are reviewed each quarter . story_separator_special_tag in note 6 of the consolidated financial statements . the company had no borrowings or payments on its line of credit during 2017 or 2016. liquidity we believe our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next twelve months . our future capital requirements will depend upon many factors including our rate of revenue growth , the timing and extent of any expansion efforts , and the potential for investments in , or the acquisition of any complementary products , businesses or supplementary facilities for additional capacity . recent accounting pronouncements in may 2014 , the fasb issued asu 2014-09 , revenue from contracts with customers ( topic 606 ) , requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers . the updated standard will replace most existing revenue recognition guidance in u.s. gaap when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method . the updated standard becomes effective for the company in the first quarter of fiscal year 2018. the company has completed its review of its customer contracts and its analysis of the impact of the disclosure requirements of asu 2014-09. the company plans to adopt the revenue guidance effective january 1 , 2018 , using the modified retrospective approach . the adoption of asu 2014-09 will not have a material impact on our financial statements on an on-going basis . - 24 - 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. the company has evaluated the provisions of this statement , and concluded that the adoption of asu 2015-11 did 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 currently evaluating its population of leases , and is continuing to assess all potential impacts of the standard , but currently believes the most significant impact relates to its accounting for real estate operating leases . the company anticipates recognition of additional assets and corresponding liabilities related to leases upon adoption , but has not quantified these amounts at this time . the company plans to adopt the standard effective january 1 , 2019. off-balance sheet obligations or arrangements none . tabular disclosure of contractual obligations and off-balance sheet arrangements contractual obligation and commercial commitments the

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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 $ 37,938,000 at december 31 , 2017 , 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 , 2016 , the company had cash of $ 35,318,000. 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 2017 , the company 's cash provided from operating activities was $ 18,048,000 , compared to $ 14,758,000 of cash provided during 2016 , thus increasing by $ 3,290,000 between periods . with regards to creating the generation of cash , the company grew net income by $ 1,300,000 , which increased cash , additionally , there were increases in cash attributable to other assets , accrued commissions and sales incentives and accrued compensation of $ 1,947,000 , $ 1,188,000 and $ 762,000 , respectively . last year , the company posted a $ 1,600,000 security deposit to proceed with further hearings related to the company 's 2010 pennsylvania claim ( see discussion in note 10 , commitments and contingencies of the notes to the consolidated financial statements ) , which was recorded in other assets , while there was no such event in the current year . accrued commissions and sales incentives typically fluctuate based upon sales volume , and our customer 's ability to achieve sales growth over the previous year .

it plans to improve the performance of its v8 beverages business through disciplined focus on the drivers of demand , continued expansion in energy drinks and other growth segments in the shelf-stable beverages category , and close attention to cost management . the introduction of v8 harvest , a fresh tomato-based 100 % vegetable juice , will represent the first entry of the v8 brand into the super-premium beverage segment . in campbell 's baking and snacking portfolio , pepperidge farm expects continued growth in 2014 , driven primarily by its cracker business . with the introduction of goldfish puffs , a puffed cheese snack product designed primarily for teens , pepperidge farm will begin to expand the goldfish brand into adjacent categories . at arnott 's in australia , the company will focus on growing the core biscuits business with innovative flavors and new pack sizes and on driving productivity and reducing costs . campbell is seeking to expand its presence in international markets by extending the product platforms of many of its current businesses and by pursuing business development opportunities in faster-growing developing markets . in 2014 , the company intends to leverage new strategic alliances in mexico with grupo jumex and conservas la costeña to drive profitable growth in beverages , soups and simple meals through access to expanded manufacturing and distribution capabilities . in indonesia , it plans to continue to drive growth in biscuits through increased penetration in the general trade . in malaysia , it will focus on improved in-store execution behind its prego and kimball sauce brands . the company 's acquisition of kelsen during the first quarter of 2014 provides an immediate opportunity for growth in the large baked snacks category in china . executive summary this executive summary provides significant highlights from the discussion and analysis that follows . net sales increased 12 % in 2013 to $ 8.052 billion . the acquisition of bolthouse farms and plum contributed 11 points of the growth . gross profit , as a percent of sales , decreased to 36.2 % from 39.2 % a year ago . the decline was primarily attributable to the acquisition of bolthouse farms and the impact of restructuring-related costs recognized in the current year . earnings from continuing operations per share were $ 2.17 in 2013 , compared to $ 2.29 in 2012. the current year included $ .31 per share of expense from items that impacted comparability , as discussed below . the prior year included $ .02 per share of expense from items that impacted comparability , as discussed below . in 2013 , the company reported a loss from discontinued operations of $ .73 per share , compared to earnings of $ .12 per share in 2012. the current year included $ .89 per share of expense from items that impacted comparability . the prior year included $ .01 per share of expense from items that impacted comparability , as discussed below . net earnings attributable to campbell soup company - 2013 compared with 2012 the following items impacted the comparability of net earnings and net earnings per share : continuing operations in 2013 , the company incurred transaction costs of $ 10 million ( $ 7 million after tax or $ .02 per share ) associated with the acquisition of bolthouse farms . in 2012 , the company recorded pre-tax transaction costs of $ 5 million ( $ 3 million after tax or $ .01 per share ) related to the acquisition ; in 2013 , the company recorded pre-tax restructuring charges of $ 51 million and restructuring-related costs of $ 91 million in cost of products sold ( aggregate impact of $ 90 million after tax or $ .28 per share ) associated with initiatives to improve its u.s. supply chain cost structure and increase asset utilization across its u.s. thermal plant network ; expand access to manufacturing and distribution capabilities in mexico ; improve its pepperidge farm bakery supply chain cost structure ; and reduce overhead costs in north america . see note 8 to the consolidated financial statements and `` restructuring charges `` for additional information ; and in 2011 , the company announced a series of initiatives to improve supply chain efficiency and reduce overhead costs across the organization to help fund plans to drive growth of the business . the company also announced its exit from the russian market . in 2012 , the company recorded pre-tax restructuring charges of $ 7 million ( $ 4 million after tax or $ .01 per share ) related to the initiatives . see note 8 to the consolidated financial statements and `` restructuring charges `` for additional information . discontinued operations in the fourth quarter of 2013 , the company recorded an impairment charge on the intangible assets of the simple meals business in europe of $ 396 million ( $ 263 million after tax or $ .83 per share ) . in addition , the company recorded $ 18 million in tax expense ( $ .06 per share ) representing taxes on the difference between the book value and tax basis of the business . see note 4 to the consolidated financial statements for additional information . 14 in 2012 , the company recorded restructuring charges of $ 3 million ( $ 2 million after tax or $ .01 per share ) associated with reducing overhead . the items impacting comparability are summarized below : replace_table_token_5_th _ ( 1 ) the sum of the individual per share amounts may not add due to rounding . earnings from continuing operations were $ 689 million ( $ 2.17 per share ) in 2013 , compared to $ 734 million ( $ 2.29 per share ) in 2012 . story_separator_special_tag most of the positions were eliminated in 2013 and operations ceased in august 2013. the company shifted the majority of sacramento 's soup , sauce and beverage production to its thermal plants in maxton , north carolina ; napoleon , ohio ; and paris , texas . the company also closed its spice plant in south plainfield , new jersey , which resulted in the elimination of 27 positions . the company consolidated spice production at its milwaukee , wisconsin , plant in 2013. in mexico , the company entered into commercial arrangements with third-party providers to expand access to manufacturing and distribution capabilities . the third-party providers will produce and distribute the company 's beverages , soups , broths and sauces throughout the mexican market . as a result of these agreements , the company will close its plant in villagrán , mexico , in 2014 and eliminate approximately 260 positions . the company will improve its pepperidge farm bakery supply chain cost structure by closing its plant in aiken , south carolina , in 2014. the company will shift the majority of aiken 's bread production to its bakery plant in lakeland , florida . approximately 110 positions will be eliminated as a result of the plant closure . the company streamlined its salaried workforce in u.s. simple meals , north america foodservice and u.s. beverages by approximately 70 positions . this action was substantially completed in august 2013 . 20 the company recorded a restructuring charge of $ 51 million related to these initiatives in 2013. in addition , approximately $ 91 million of costs related to these initiatives were recorded in cost of products sold , representing accelerated depreciation and other exit costs . the aggregate after-tax impact of restructuring charges and related costs was $ 90 million , or $ .28 per share . a summary of the pre-tax costs and remaining costs associated with the initiatives is as follows : replace_table_token_12_th of the aggregate $ 150 million of pre-tax costs , the company expects approximately $ 47 million will be cash expenditures . in addition , the company expects to invest approximately $ 31 million in capital expenditures , primarily to relocate and refurbish a beverage filling and packaging line , and relocate bread production , of which approximately $ 12 million has been invested as of july 28 , 2013 . the outstanding aspects of these restructuring initiatives are expected to be completed in 2014. the remaining cash outflows related to these restructuring initiatives are not expected to have a material adverse impact on the company 's liquidity . the initiatives included in this program , once fully implemented , are expected to generate annual ongoing pre-tax savings of approximately $ 40 million beginning in 2015 , with 2014 savings of approximately $ 30 million . the total pre-tax costs of $ 150 million associated with segments are expected to be as follows : u.s. simple meals - $ 91 million ; global baking and snacking - $ 16 million ; international simple meals and beverages - $ 10 million ; u.s. beverages - $ 31 million ; and bolthouse and foodservice - $ 2 million . segment operating results do not include restructuring charges as segment performance is evaluated excluding such charges . 2011 initiatives in the fourth quarter of 2011 , the company announced a series of initiatives to improve supply chain efficiency and reduce overhead costs across the organization to help fund plans to drive the growth of the business . the company also announced its exit from the russian market . details of the initiatives include : in australia , the company is investing in a new system to automate packing operations at its biscuit plant in virginia . this investment continued through 2013 and will result in the elimination of approximately 190 positions . this initiative is now expected to be substantially completed by december 2013. further , the company improved asset utilization in the u.s. by shifting production of ready-to-serve soups from paris , texas , to other facilities in 2012. in addition , the manufacturing facility in marshall , michigan , was closed in 2011 , and manufacturing of campbell 's soup at hand microwavable products was consolidated at the maxton , north carolina , plant in 2012. the company streamlined its salaried workforce by approximately 510 positions around the world , including approximately 130 positions at its world headquarters in camden , new jersey . these actions were substantially completed in 2011. as part of this initiative , the company outsourced a larger portion of its u.s. retail merchandising activities to its retail sales agent , acosta sales and marketing , and eliminated approximately 190 positions . in connection with exiting the russian market , the company eliminated approximately 50 positions . the exit process commenced in 2011 and was substantially completed in 2012. in 2012 , the company recorded a restructuring charge of $ 10 million ( $ 6 million after tax or $ .02 per share ) . of the amount recorded in 2012 , $ 3 million relates to discontinued operations . in the fourth quarter of 2011 , the company recorded a restructuring charge of $ 63 million ( $ 41 million after tax or $ .12 per share ) . of the amount recorded in 2011 , $ 3 million related to discontinued operations . a summary of the pre-tax charges and remaining costs associated with the initiatives is as follows : replace_table_token_13_th of the aggregate $ 74 million of pre-tax costs , approximately $ 50 million represents cash expenditures , the majority of which was spent in 2012. in addition , the company expects to invest approximately $ 40 million in capital expenditures in connection 21 with the actions , of which approximately $ 33 million has been invested as of july 28 , 2013 . the remaining cash outflows related to these restructuring initiatives are not expected to

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liquidity and capital resources the company expects that foreseeable liquidity and capital resource requirements , including cash outflows to repay debt , pay dividends and fund pension plan contributions , will be met through anticipated cash flows from operations ; long-term borrowings under its shelf registration statement ; short-term borrowings , including commercial paper ; and cash and cash equivalents . the company believes that its sources of financing will be adequate to meet its future liquidity and capital resource requirements . the company generated cash from operations of $ 1.019 billion in 2013 , compared to $ 1.120 billion in 2012. the decrease was primarily due to higher working capital requirements , partly offset by higher cash earnings . the company generated cash from operations of $ 1.120 billion in 2012 , compared to $ 1.142 billion in 2011. the decline was primarily due to lower cash earnings , partially offset by lower pension contributions in 2012. capital expenditures were $ 336 million in 2013 compared to $ 323 million a year ago . capital expenditures are expected to total approximately $ 350 million in 2014 . capital expenditures in 2013 included the soup capacity expansion project for the north america foodservice business ( approximately $ 42 million ) , capacity expansion at pepperidge farm ( approximately $ 38 million ) , the packing automation and capacity expansion projects at one of the company 's australianbiscuit plants ( approximately $ 19 22 million ) , the ongoing initiative to simplify the soup-making process in north america ( also known as the soup common platform initiative ) ( approximately $ 20 million ) , and an advanced planning system in north america ( approximately $ 11 million ) .

with respect to certain loans , the underwritten irr calculation assumes certain estimates with respect to the timing and magnitude of future fundings for the remaining commitments and associated loan repayments , and assumes no defaults . irr is the annualized effective compounded return rate that accounts for the time-value of money and represents the rate of return on an investment over a holding period expressed as a percentage of the investment . it is the discount rate that makes the net present value of all cash outflows ( the costs of investment ) equal to the net present value of cash inflows ( returns on investment ) . it is derived from the negative and positive cash flows resulting from or 34 produced by each transaction ( or for a transaction involving more than one investment , cash flows resulting from or produced by each of the investments ) , whether positive , such as investment returns , or negative , such as transaction expenses or other costs of investment , taking into account the dates on which such cash flows occurred or are expected to occur , and compounding interest accordingly . there can be no assurance that the actual irrs will equal the underwritten irrs shown in the table . see “ risk factors — the company may not achieve its underwritten internal rate of return on its investments which may lead to future returns that may be significantly lower than anticipated ” for a discussion of some of the factors that could adversely impact the returns received by the company from the investments shown in the table over time . ( 4 ) subordinate loans are net of a participation sold during february 2015. the company presents the participation sold as both assets and non-recourse liabilities because the participation does not qualify as a sale according to gaap . at december 31 , 2015 , the company had one such participation sold with a face amount of £19,850 ( or $ 29,250 ) and a carrying amount of £19,850 ( or $ 29,250 ) . ( 5 ) cmbs , held-to-maturity are net of a participation sold during june 2014. at december 31 , 2015 , the company presented the participation sold as an asset of $ 88,984 and non-recourse liabilities of $ 88,951 because the participation does not qualify as a sale according to gaap . investment activity – 2015 during january 2015 , the company closed a £34,519 ( or $ 51,996 ) mezzanine loan secured by a portfolio of 44 senior housing facilities located throughout the united kingdom . the five-year , floating-rate mezzanine loan is part of a £223,800 whole loan , which includes a £164,100 first mortgage loan and a £59,700 mezzanine loan . the company closed an additional £20,000 ( or $ 30,672 ) during february 2015 , which was participated to an investment fund affiliated with apollo . the mezzanine loan has an appraised loan-to-value ( `` ltv `` ) of 70 % and was underwritten to generate an irr of approximately 10 % . see “ — investments ” above for a discussion of how irr is calculated . during january 2015 , the company funded an additional investment of 3,331 ( or $ 3,929 ) related to its investment in champ lp . in february 2015 , the company sold approximately 48 % of its ownership interest in champ lp at cost to an account managed by apollo for approximately 16,314 ( or $ 20,794 ) ( of which $ 2,614 related to foreign exchange losses , which were previously included in accumulated other comprehensive loss ) , reducing its unfunded commitment to champ lp to 3,229 ( or $ 3,508 ) . through its interest in champ lp , the company now holds an indirect ownership interest of approximately 11 % in bremer kreditbank ag , which operates under the name bkb bank ( `` bkb bank `` ) . the company together with other affiliated investors , in aggregate , own 100 % of champ lp . champ lp together with certain unaffiliated third party investors , in aggregate , own 100 % of bkb bank . during february 2015 , the company closed a $ 20,000 mezzanine loan secured by a 488-key full service hotel located in burbank , california . the five-year , fixed rate mezzanine loan is part of a $ 90,000 financing which consists of a $ 70,000 first mortgage loan and the company 's $ 20,000 mezzanine loan . the mezzanine loan has an appraised ltv of 74 % and has been underwritten to generate an irr of approximately 11 % . see “ — investments ” above for a discussion of how irr is calculated . during february 2015 , the company closed a $ 92,500 ( $ 72,500 of which was funded at closing ) first mortgage loan for the predevelopment of a mixed-use multifamily and retail development aggregating approximately 330,000 square feet in downtown brooklyn , new york . the two-year , floating-rate first mortgage loan has an appraised ltv of 57 % and has been underwritten to generate an irr of approximately 21 % on a levered basis . see “ — investments ” above for a discussion of how irr is calculated . during april 2015 , the company closed a $ 37,500 financing , consisting of a $ 22,000 mezzanine loan and a $ 15,500 preferred equity investment for two multifamily properties , totaling 621 units of collateral located in southern florida . the floating-rate financing has a two-year initial term and three one-year extension options . the repeat borrower , an international commercial real estate owner and operator , provided a $ 25,000 payment guarantee on the financing . the subordinate financing has an appraised ltv of 89 % and was underwritten to generate an irr of approximately 14 % . story_separator_special_tag see “ — investments ” above for a discussion of how irr is calculated . during may 2014 , the company closed a $ 34,000 floating-rate first mortgage loan for the acquisition of a newly renovated 301-key hotel located in downtown philadelphia . the first mortgage has a three-year term with two one-year extension options and an underwritten loan-to-cost of approximately 58 % . the first mortgage loan was underwritten to generate an irr of approximately 13 % on a levered basis . see “ — investments ” above for a discussion of how irr is calculated . during june 2014 , the company closed a $ 65,100 floating-rate first mortgage loan ( $ 20,000 of which was funded at closing ) for the development of a 40-unit luxury residential condominium in downtown bethesda , maryland . the company 's loan has a 30-month term with a six-month extension option . on a fully funded basis , the first mortgage loan has a projected appraised loan-to-net sellout of approximately 67 % and has been underwritten to generate an irr of approximately 14 % . see “ — investments ” above for a discussion of how irr is calculated . during july 2014 , the company closed a $ 34,500 ( $ 30,000 of which was funded at closing ) floating-rate , first mortgage loan secured by a newly constructed , class-a , 63-unit multifamily property located in brooklyn , new york , which also includes approximately 7,300 square feet of retail space and 31 parking spaces . the first mortgage loan has a two-year initial 38 term with three one-year extension options and an appraised ltv of approximately 70 % on a fully funded basis . the company anticipates financing the loan , and on a levered basis , the loan was underwritten to generate an irr of approximately 12 % . see “ — investments ” above for a discussion of how irr is calculated . during november 2014 , the company closed a $ 165,000 ( $ 18,350 of which was funded at closing ) floating-rate first mortgage loan for the development of the majority of the retail portion of a mixed-use lifestyle center in cincinnati , ohio . when completed , the 65-acre property will consist of 626,791 square feet of retail space , a 200,000 flagship retail building , 233 residential units , a 130-key hotel and 4,216 structured and surfaced parking spaces . the balance of the loan will be funded throughout the next eighteen months . the first mortgage loan has a 42-month term with two one-year extension options and a loan-to-cost of approximately 56 % . the first mortgage loan was underwritten to generate an irr of approximately 14 % once financed under the jpmorgan facility . see “ — investments ” above for a discussion of how irr is calculated . during november 2014 , the company closed a $ 67,300 floating-rate first mortgage loan for the acquisition and predevelopment of an existing 12-story industrial building planned to be converted into a luxury residential condominium with approximately 86,000 square feet of net sellable residential space located in the west village neighborhood of new york city . the first mortgage loan is part of an $ 87,300 first mortgage which consists of the company 's $ 67,300 a-note and a subordinate $ 20,000 b-note . the company will have the option , but not the obligation , to participate in the development financing for the property . the a-note has an 18-month term and one six-month extension option and a loan-to-cost of approximately 58 % . the a-note loan was underwritten to generate a levered irr of approximately 25 % . see “ — investments ” above for a discussion of how irr is calculated . during november 2014 , the company closed a $ 58,000 floating rate first mortgage loan secured by a 330-unit , eight building apartment community and 36 single-family rental homes located in williston , north dakota . williston is located at the epicenter of oil drilling activity for the bakken formation and the property is part of a master-developed residential community . the first mortgage loan has a three-year term with two one-year extension options and an appraised ltv of 73 % . the first mortgage has been underwritten to generate a levered irr of approximately 13 % . see “ — investments ” above for a discussion of how irr is calculated . during november 2014 , the company closed a $ 50,000 participating first mortgage loan secured by a portfolio of 24 condominiums located in new york city and maui , hawaii owned by a luxury destination club . earlier in the year , the company provided a $ 210,000 first mortgage loan to the same borrower , secured by an additional portfolio of single-family and condominium destination homes located throughout north america , central america , england and the caribbean . the fixed-rate , participating first mortgage loan has a five-year term with two one-year extension options and an appraised ltv of 75 % . the first mortgage loan was underwritten to generate an irr of approximately 8 % on an unlevered basis . the company anticipates financing the loan , and on a levered basis , the loan was underwritten to generate an irr of approximately 15 % . see “ — investments ” above for a discussion of how irr is calculated . subordinate loans . during april 2014 , the company closed a $ 53,954 ( £32,100 ) fixed-rate , nine-month mezzanine loan in connection with the purchase of an existing commercial building that is expected to be re-developed into a 173,000 salable square foot residential condominium in central london . the mezzanine loan is part of a $ 126,060 ( £75,000 ) pre-development loan comprised of a $ 72,106 ( £42,900 ) first mortgage and the company 's $ 53,954 ( £32,100 ) mezzanine loan . the company will have the

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cash generated from operations cash from operations is generally comprised of interest income from the company 's investments , net of any associated financing expense , principal repayments from the company 's investments , net of associated financing repayments , proceeds from the sale of investments , and changes in working capital balances . see “ - results of operations – investments '' for a summary of interest rates and weighted average lives related to the company 's investment portfolio as of december 31 , 2015 . 50 while there are no contractual paydowns related to the company 's cmbs , periodic paydowns do occur . repayments on the debt secured by the company 's cmbs occur in conjunction with the paydowns on the collateral pledged . borrowings under various financing arrangements jpmorgan facility in january 2010 , the company , through two indirect wholly owned subsidiaries , entered into the jpmorgan facility , which as amended in 2015 , currently provides for a maximum aggregate purchase price of $ 600,000 and a three-year term expiring in january 2018 plus a one-year extension option , exercisable at the option of the company subject to certain conditions and the payment of a fee , for the purchase , sale and repurchase of eligible senior commercial or multifamily mortgage loans , junior commercial or multifamily mortgage loans , mezzanine loans and participation interests therein that are secured by properties located in the united states , england or wales . amounts borrowed under the jpmorgan facility bear interest at spreads ranging from 2.25 % to 4.75 % over one-month libor . maximum advance rates under the jpmorgan facility range from 25 % to 80 % on the estimated fair value of the pledged collateral depending on its ltv .

year ended december 31 , 2015 financial results summary net income for the year ended december 31 , 2015 was $ 76,907,000 , or $ 15.04 per diluted share , compared to $ 67,925,000 , or $ 13.29 per diluted share for the year ended december 31 , 2014. funds from operations ( “ ffo ” ) for the year ended december 31 , 2015 was $ 107,648,000 , or $ 21.06 per diluted share , compared to $ 96,980,000 , or $ 18.98 per diluted share for the year ended december 31 , 2014. quarter ended december 31 , 2015 financial results summary net income for the quarter ended december 31 , 2015 was $ 23,572,000 , or $ 4.61 per diluted share , compared to $ 18,161,000 , or $ 3.55 per diluted share for the quarter ended december 31 , 2014. ffo for the quarter ended december 31 , 2015 was $ 31,730,000 , or $ 6.21 per diluted share , compared to $ 25,508,000 , or $ 4.99 per diluted share for the quarter ended december 31 , 2014 . 22 overview – continued square footage , occupancy and leasing activity as of december 31 , 2015 our portfolio was comprised of seven properties aggregating 2,437,000 square feet . as of december 31 , 2015 , our office and retail properties had an occupancy rate of 99.7 % and the alexander apartment tower had an occupancy rate of 25.6 % . significant tenants bloomberg l.p. ( “ bloomberg ” ) accounted for $ 94,468,000 , $ 91,109,000 and $ 88,164,000 , or approximately 45 % of our total revenues in each of the years ended december 31 , 2015 , 2014 and 2013 , respectively . no other tenant accounted for more than 10 % of our total revenues . if we were to lose bloomberg as a tenant , or if bloomberg were to be unable to fulfill its obligations under its lease , it would adversely affect our results of operations and financial condition . in order to assist us in our continuing assessment of bloomberg 's creditworthiness , we receive certain confidential financial information and metrics from bloomberg . in addition , we access and evaluate financial information regarding bloomberg from other private sources , as well as publicly available data . in october 2014 , bloomberg exercised its option to extend leases that were scheduled to expire in december 2015 for a term of five years , covering 192,000 square feet of office space at our 731 lexington avenue property . in january 2016 , we entered into a lease amendment with bloomberg which extends the lease term related to this space to be coterminous with the other 697,000 square feet of office space leased by bloomberg through february 2029 , with a ten-year extension option . in connection with the lease amendment , bloomberg provided a $ 200,000,000 letter of credit , which amount may be reduced in certain circumstances . we may draw on this letter of credit subject to certain terms of the lease amendment , including an event of default by bloomberg . financing in august 2015 , we completed a $ 350,000,000 refinancing of the retail portion of 731 lexington avenue . the interest-only loan is at libor plus 1.40 % ( 1.67 % as of december 31 , 2015 ) and matures in august 2020 , with two one-year extension options . critical accounting policies and estimates our financial statements are prepared in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) , which requires us 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 periods . actual results could differ from those estimates . set forth below is a summary of our accounting policies that we believe are critical to the preparation of our consolidated financial statements . this summary should be read in conjunction with a more complete discussion of our accounting policies included in note 2 to the consolidated financial statements in this annual report on form 10-k. real estate real estate is carried at cost , net of accumulated depreciation and amortization . as of december 31 , 2015 and 2014 , the carrying amount of our real estate , net of accumulated depreciation and amortization , was $ 803,939,000 and $ 783,902,000 , respectively . maintenance and repairs are expensed as incurred . depreciation requires an estimate by management of the useful life of each property and improvement as well as an allocation of the costs associated with a property to its various components . if we do not allocate these costs appropriately or incorrectly estimate the useful lives of our real estate , depreciation expense may be misstated . we capitalize all property operating expenses directly associated with and attributable to , the development and construction of a project , including interest expense . the capitalization period begins when development activities are underway and ends when it is determined that the asset is substantially complete and ready for its intended use , which is typically evidenced by the receipt of a temporary certificate of occupancy . general and administrative costs are expensed as incurred . 23 critical accounting policies and estimates – continued our properties and related intangible assets , including properties to be developed in the future and currently under development , are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable . story_separator_special_tag for nbcr acts , fnsic is responsible for a $ 275,000 deductible ( $ 348,000 effective january 1 , 2016 ) and 15 % of the balance ( 16 % effective january 1 , 2016 ) of a covered loss , and the federal government is responsible for the remaining 85 % ( 84 % effective january 1 , 2016 ) of a covered loss . we are ultimately responsible for any loss incurred by fnsic . we continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism . however , we can not anticipate what coverage will be available on commercially reasonable terms in the future . we are responsible for deductibles and losses in excess of our insurance coverage , which could be material . our mortgage loans are non-recourse to us and contain customary covenants requiring us to maintain insurance . although we believe that we have adequate insurance coverage for purposes of these agreements , we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future . if lenders insist on greater coverage than we are able to obtain , it could adversely affect our ability to finance our properties . rego park i litigation on june 24 , 2014 , sears roebuck and co. ( “ sears ” ) filed a lawsuit in the supreme court of the state of new york against vornado and us ( and certain of our subsidiaries ) with regard to space that sears leases at our rego park i property . sears alleges that the defendants are liable for harm sears has suffered as a result of ( a ) water intrusions into the premises , ( b ) two fires in february 2014 that caused damages to those premises , and ( c ) alleged violations of the americans with disabilities act in the premises ' parking garage . sears asserts various causes of actions for damages and seeks to compel compliance with landlord 's obligations to repair the premises and to provide security , and to compel us to abate a nuisance that sears claims was a cause of the water intrusions into its premises . in addition to injunctive relief , sears seeks , among other things , damages of not less than $ 4 million and future damages it estimates will not be less than $ 25 million . we intend to defend the claims vigorously . the amount or range of reasonable possible losses , if any , can not be estimated . paramus in 2001 , we leased 30.3 acres of land located in paramus , new jersey to ikea property , inc. the lease has a purchase option in 2021 for $ 75,000,000. the property is encumbered by a $ 68,000,000 interest-only mortgage loan with a fixed rate of 2.90 % , which matures in october 2018. the annual triple-net rent is the sum of $ 700,000 plus the amount of debt service on the mortgage loan . if the purchase option is exercised , we will receive net cash proceeds of approximately $ 7,000,000 and recognize a gain on sale of land of approximately $ 60,000,000. if the purchase option is not exercised , the triple-net rent for the last 20 years would include debt service sufficient to fully amortize $ 68,000,000 over the remaining 20-year lease term . letters of credit approximately $ 2,074,000 of standby letters of credit were outstanding as of december 31 , 2015. other in october 2015 , the new york city department of finance ( “ nyc dof ” ) issued a notice of determination to us assessing an additional $ 20,300,000 of transfer taxes ( including interest and penalties ) in connection with the sale of kings plaza in november 2012. we believe that the nyc dof 's claim is without merit and intend to vigorously contest this assessment . we have determined that the likelihood of a loss related to this issue is not probable and , after consultation with legal counsel , that the outcome of this assessment is not expected to have a material adverse effect on our financial position , results of operations or cash flows . 29 liquidity and capital resources – continued other – continued in october 2015 , we entered into a settlement agreement with a former bankrupt tenant at our rego park i property . during the fourth quarter of 2015 , we received approximately $ 2,100,000 from the bankruptcy estate , which is included as “ interest and other income , net ” in our consolidated statement of income for the year ended december 31 , 2015. there are various other legal actions against us in the ordinary course of business . in our opinion , the outcome of such matters in the aggregate will not have a material effect on our financial position , results of operations or cash flows . story_separator_special_tag face= `` times new roman `` lang= `` en-us `` style= `` font-size : 10pt `` > ffo is computed in accordance with the definition adopted by the board of governors of the national association of real estate investment trusts ( “ nareit ” ) . nareit defines ffo as gaap net income or loss adjusted to exclude net gains from sales of depreciated real estate assets , real estate impairment losses , depreciation and amortization expense from real estate assets and other specified non-cash items , including the pro rata share of such adjustments of unconsolidated subsidiaries . ffo and ffo per diluted share are used by management , investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales , which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time , rather than

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cash flows cash and cash equivalents were $ 259,349,000 at december 31 , 2015 , compared to $ 227,815,000 at december 31 , 2014 , an increase of $ 31,534,000. this increase resulted from ( i ) $ 106,201,000 of net cash provided by operating activities partially offset by ( ii ) $ 48,839,000 of net cash used in financing activities and ( iii ) $ 25,828,000 of net cash used in investing activities . year ended december 31 , 2015 net cash provided by operating activities of $ 106,201,000 was comprised of net income of $ 76,907,000 and $ 32,853,000 of adjustments for non-cash items , partially offset by $ 3,559,000 for the net change in operating assets and liabilities . the adjustments for non-cash items were primarily comprised of depreciation and amortization of $ 33,671,000 , partially offset by straight-lining of rental income of $ 1,418,000. net cash used in investing activities of $ 25,828,000 was primarily comprised of construction in progress and real estate additions of $ 50,121,000 ( primarily related to the alexander apartment tower ) partially offset by proceeds of $ 24,998,000 from short-term investments that matured during the second quarter of 2015. net cash used in financing activities of $ 48,839,000

our segments consist of : ( 1 ) investment banking and capital markets ; ( 2 ) asset management ; ( 3 ) merchant banking ; and ( 4 ) corporate . in the fourth quarter of 2018 , we changed our fiscal year end from a calendar year basis to a fiscal year ending on november 30. our 2018 fiscal year consists of the eleven month transition period beginning january 1 , 2018 through november 30 , 2018. jefferies group has a november 30 year end . prior to the fourth quarter of 2018 , because our fiscal year end was december 31 , we reflected jefferies group in our consolidated financial statements utilizing a one month lag . in connection with our change in fiscal year end to november 30 , we eliminated the one month lag utilized to reflect jefferies group results beginning with the fourth quarter of 2018. therefore , our results for the eleven months ended november 30 , 2018 , include twelve month results for jefferies group and eleven months for the remainder of our results . the following tables present a summary of our financial results . a summary of results of operations for the twelve months ended november 30 , 2020 is as follows ( in thousands ) : replace_table_token_3_th ( 1 ) includes floor brokerage and clearing fees . ( 2 ) interest expense within merchant banking of $ 31.4 million for the twelve months ended november 30 , 2020 primarily includes $ 26.7 million for foursight capital and $ 4.7 million for vitesse energy finance . 24 a summary of results of operations for the twelve months ended november 30 , 2019 is as follows ( in thousands ) : replace_table_token_4_th ( 1 ) includes floor brokerage and clearing fees . ( 2 ) interest expense within merchant banking of $ 34.1 million for the twelve months ended november 30 , 2019 primarily includes $ 29.0 million for foursight capital and $ 4.8 million for vitesse energy finance . 25 a summary of results of operations for the eleven months ended november 30 , 2018 is as follows ( in thousands ) : replace_table_token_5_th ( 1 ) includes floor brokerage and clearing fees . ( 2 ) interest expense within merchant banking of $ 26.2 million for the eleven months ended november 30 , 2018 primarily includes $ 20.6 million for foursight capital and $ 3.3 million for vitesse energy finance . the composition of our financial results has varied over time and we expect will continue to evolve . our strategy is designed to transform jefferies into a pure financial services firm and , as such , we are focused on the development of our investment banking and capital markets , and asset management segments , while we continue to realize the value of or otherwise transform our investments in merchant banking . the following factors and events should be considered in evaluating our financial results as they impact comparisons : during march 2020 , the global covid-19 pandemic and initial actions taken in response wreaked havoc on the global economy and all financial markets , and adversely affected our businesses . subsequently , with various government actions and more clarity from the u.s. federal reserve bank on future interest rate policy , the equity markets have experienced a strong rebound and a supportive trading environment for investors has emerged along with renewed activity in the equity and debt new issue capital markets . jefferies group has experienced strong market volumes and increased client activity across its capital markets business with considerably improved performance , and mergers and acquisition activity was significant in the latter part of the year . we continue to monitor the impact of the pandemic on the operations and value of our investments . our leadership is continuously monitoring circumstances around covid-19 , as well as economic and capital market conditions , and providing frequent communications to both our clients and our employees . 26 our 2020 financial results from continuing operations were impacted by : record pre-tax income of $ 1,177.5 million from jefferies group reflecting record total net revenues of $ 5,197.5 million , including : ◦ record investment banking net revenues of $ 2,398.2 million , including record advisory net revenues of $ 1,053.5 million , record equity underwriting net revenues of $ 902.0 million and debt underwriting net revenues of $ 546.0 million ; ◦ record combined capital markets net revenues of $ 2,469.7 million , including record equities net revenues of $ 1,128.9 million and record fixed income net revenues of $ 1,340.8 million ; and ◦ record asset management revenues ( before allocated net interest ) of $ 256.8 million . pre-tax loss of $ 24.6 million related to our merchant banking businesses reflecting : ◦ record performance from idaho timber and a positive contribution from vitesse energy finance ; ◦ a gain of $ 61.5 million from effective short-term hedges against mark-to-market and fair value decreases in some of our other investments within merchant banking ; ◦ a $ 44.2 million non-cash charge to write down the value of our investment in wework in the first half of 2020 ; ◦ non-cash charges of $ 73.9 million related to write-downs of real estate investments at homefed ; and ◦ non-cash charge of $ 13.2 million to write down vitesse energy finance 's oil and gas assets in the denver-julesburg basin ( `` dj basin `` ) and $ 34.6 million to write down the value of our investment in jetx energy to reflect the decline in oil prices . story_separator_special_tag in some instances , due to the timing of payments and crystallization of profits or revenue , the majority of revenue related to these relationships will be realized at their calendar year-end ( during our first fiscal quarter ) . $ 10.8 billion ( 2020 ) and $ 9.5 billion ( 2019 ) - asset management activities within jefferies finance , our 50/50 joint venture with massachusetts mutual life insurance company , which represent the aggregate par value of collateralized loan obligations managed by jefferies finance , including those consolidated by jefferies finance . because management evaluates segment performance based on the inclusion of our share of the net earnings of our jefferies finance joint venture in our investment banking and capital markets segment , those activities are excluded from our asset management segment results . $ 2.6 billion ( 2020 ) and $ 2.8 billion ( 2019 ) - net asset values of investments made by us in funds or separately managed accounts . at times , we will incubate strategies using our own capital during the institutional build-out phase before opening investments to outside capital . this net asset value includes our seed capital of $ 1.5 billion ( 2020 ) and $ 1.3 billion ( 2019 ) in addition to amounts financed of $ 1.1 billion ( 2020 ) and $ 1.5 billion ( 2019 ) , invested in funds and separately managed accounts that are managed by us and our affiliated asset managers . $ 0.8 billion ( 2020 ) and $ 1.2 billion ( 2019 ) - this includes third-party investments actively managed by wholly-owned divisions . 32 a summary of results of operations for our asset management segment is as follows ( in thousands ) : replace_table_token_10_th revenues asset management net revenues include the following : total asset management fees : management and performance fees from funds and accounts managed by us ; revenue from arrangements with strategic affiliates : revenues from affiliated asset managers in which we hold interests that entitle us to portions of their revenues and or profits , as well as earnings on our ownership interests in our affiliated asset managers ; and investment return : this includes investment income from capital invested in and managed by us and our affiliated asset managers . the key components of asset management revenues are the level of assets under management and the performance return , for the most part on an absolute basis and , in certain cases , relative to a benchmark or hurdle , of us and our affiliated asset managers . these components can be affected by financial markets , profits and losses in the applicable investment portfolios and client capital activity . further , asset management fees vary with the nature of investment management services . the terms under which clients may terminate our investment management authority , and the requisite notice period for such termination , varies depending on the nature of the investment vehicle and the liquidity of the portfolio assets . performance fees are generally recognized once a year , typically in december , when they become fixed and determinable and are not probable of being significantly reversed . as a result , the benefit of performance fees attributable to performance during the latter eleven months of each of our fiscal years is actually realized and recorded only in the first quarter of our next fiscal year . 33 the following summarizes the results of our asset management businesses revenues by asset class ( in thousands ) : replace_table_token_11_th ( 1 ) the amounts include our share of fees received by affiliated asset management companies with which we have revenue and profit share arrangements , as well as earnings on our ownership interest in affiliated asset managers . ( 2 ) net revenues attributed to the investment return in our asset management segment have been disaggregated to separately present investment return and allocated net interest ( see footnote 4 below ) . this disaggregation is intended to increase transparency and to make clearer actual investment return . we believe that aggregating investment return and allocated net interest would obscure the investment return by including an amount that is unique to our credit spreads , debt maturity profile , capital structure , liquidity risks and allocation methods . ( 3 ) includes net interest expense of $ 24.5 million , $ 8.9 million and $ 8.4 million for 2020 , 2019 and 2018 , respectively . ( 4 ) allocated net interest represents the allocation of long-term debt interest expense to our asset management reportable segment , net of interest income on cash and cash equivalents and other sources of liquidity . for discussion of sources of liquidity , refer to the `` liquidity and capital resources `` section herein . asset management net revenues for 2020 were a record $ 235.3 million , compared with $ 84.9 million for 2019 , primarily as a result of higher investment returns . since 2019 , we made capital investments in several new separately managed accounts and funds . total asset management revenues for 2020 are also reflective of a 6.2 % increase in total asset management fees and revenues , primarily attributed to higher revenues from our share of fees received by affiliated asset management companies with which we have revenue and profit share arrangements , partially offset by a decline in asset management fees . expenses the increase in expenses in 2020 as compared with 2019 primarily reflects the expansion of the asset management business , additional costs from the wind down of one of our asset management businesses and the dedication of resources previously included in corporate . 34 assets under management the tables below include only third-party assets under management by us , excluding those of our affiliated asset managers . assets under management by predominant asset class were as follows ( in millions ) : replace_table_token_12_th ( 1 ) assets under management include

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liquidity and capital resources parent company liquidity our strategy focuses on strengthening and expanding our core businesses of investment banking and capital markets and asset management , while continuing to simplify our structure and return capital to our shareholders . we are simplifying our structure through a managed transformation of merchant banking , which to date has included divestitures , special distributions to shareholders of assets , as well as transfers of financial assets out of our merchant banking portfolio and into jefferies group . we anticipate additional transactions as our transformation is completed . some of these transactions have generated significant excess liquidity ; some of these transactions have also reduced the future receipt of periodic distributions from subsidiaries to the parent company . parent company liquidity , which includes cash and investments that are easily convertible into cash within a relatively short period of time total $ 1,884.7 million at november 30 , 2020 , and are primarily comprised of cash , prime and government money market funds and other publicly traded securities . these are classified in our consolidated statement of financial condition as cash and cash equivalents and financial instruments owned , at fair value . at november 30 , 2020 , $ 1,551.7 million of this amount is invested in u.s. government money funds that invest at least 99.5 % of its total assets in cash , securities issued by the u.s. government and u.s. government-sponsored entities and repurchase agreements that are fully collateralized by cash or government securities . during the twelve months ended november 30 , 2020 , our parent company received cash distributions of $ 733.5 million from our subsidiary businesses , including $ 581.7 million from jefferies group . we also received $ 303.4 million from divestitures and repayments of advances .

in asia-pacific , growth decelerated , especially in the second half of 2015 due to more challenging economic conditions in china . overall , reported sales for 2015 declined 3 % , or $ 46 million , while organic sales for 2015 grew by 0.5 % , or $ 7.4 million , as compared to 2014. organic sales growth excludes the impacts of acquisitions , divestitures and foreign exchange from year-over-year comparisons . we believe this provides investors with a more complete understanding of underlying sales trends by providing sales growth on a consistent basis . compared to 2014 , organic sales in americas and asia-pacific grew by 2.1 % and 12.6 % , respectively , but were offset by a reduction in emea organic sales of 3.2 % . as part of our ongoing focus on operational excellence , we implemented a broad transformation program , first in emea in 2013 , and this past year in our americas and asia-pacific businesses . in february 2015 , our board of directors approved the initial phase of a restructuring program relating to the transformation of our americas and asia-pacific businesses , which primarily involved the exit of low-margin , non-core product lines and global sourcing actions ( `` phase one `` ) . we eliminated approximately $ 175 million of our combined americas and asia-pacific net sales that primarily sell through our diy distribution channel . in september 2015 , we were able to sell certain assets which represented approximately $ 105 million of the rationalized product line revenues . we sold our fittings , brass and tubular and vinyl tubing product lines to sioux chief mfg . co. , inc. ( `` sioux chief `` ) in an all-cash transaction for approximately $ 33.1 million , recording an immaterial loss on the sale . we expect to discontinue selling our remaining rationalized product lines during the first half of 2016. as part of the rationalization exercise , we have entered into an agreement to sell a manufacturing plant in china whose production was used exclusively for products being rationalized . we expect to complete that asset sale in the first half of 2016 for approximately $ 9 million . the sourcing initiatives are focused in the americas and we realized approximately $ 4 million in savings in 2015 , and estimate we could save an incremental $ 4 million in 2016 from this initiative . total expected costs relating to phase one have been fully recognized during 2015. total pre-tax cost incurred were $ 31.5 million , which included non-cash charges of $ 17.1 million . total net after-tax charges were $ 26.2 million . in october 2015 , our board of directors approved the second phase of our transformation program related to our americas and asia-pacific businesses ( `` phase two `` ) . phase two involves decreasing the square footage of our americas facilities , which together with phase one , is expected to reduce the americas net operating footprint by approximately 30 % . phase two is designed to improve the utilization of our remaining facilities , better leverage our cost structure , reduce working capital , and improve execution of customer delivery requirements . our estimate of total phase two pre-tax costs is 26 approximately $ 31 million to $ 37 million , of which $ 8.3 million has been incurred to date . total phase two non-cash charges are estimated to be $ 9 million . total net after-tax charges are estimated to be $ 19.4 million to $ 22.4 million . total gross annualized savings for phase two are estimated to be $ 10 million by 2018. we expect to spend approximately $ 21 million in 2016 on phase two activities and realize approximately $ 2 million in operational savings . on a combined basis , the total estimated pre-tax cost for our transformation program related to our americas and asia-pacific businesses is $ 63 million to $ 68 million , including restructuring costs of $ 21.2 million , goodwill and intangible asset impairments of $ 13.4 million and other transformation and deployment costs of approximately $ 28 million to $ 33 million . other transformation and deployment costs include consulting and project management fees and other associated costs . costs of the program are expected to be incurred through 2017. refer to note 4 and 5 in `` item 15. exhibits and financial statement schedules `` , for further details . our emea transformation program that began in 2013 , was designed to realign our european operating strategy from being a portfolio of independent businesses to a pan-european platform structure . under this initiative , we have made progress to ( 1 ) develop better sales capabilities through improved product management and enhanced product cross-selling efforts , ( 2 ) drive more efficient sourcing and logistics , and ( 3 ) enhance our focus on emerging market opportunities . we are in the process of aligning our legal and tax structure in accordance with our business structure and to take advantage of favorable tax rates where possible . we expect this project to be ongoing through 2018. we incurred deployment costs of approximately $ 3.4 million , $ 7.5 million and $ 1.2 million in 2015 , 2014 and 2013 , respectively . these costs consist primarily of external consulting and it related costs . we anticipate total deployment costs of approximately $ 3 million in 2016 for the emea program . story_separator_special_tag the change in organic net sales by channel was attributable to the following : replace_table_token_16_th organic net sales in the americas wholesale , diy and oem markets increased in 2014 compared to 2013. the increase was driven by growth in all principal products lines , and in particular , growth in our residential and commercial flow product lines . organic net sales in the emea wholesale market decreased as compared to 2013 primarily due to softening in the france , germany and italy wholesale markets . decreases in the diy channel were primarily due to decreases in the france diy market . decreases in the oem channel were primarily due to decreases in the germany and italy markets , partially offset by increases in our electronic controls and drains businesses . organic net sales in the asia-pacific wholesale market increased as compared to 2013 primarily due to increased sales in residential valve and heating products and the expansion in the east and north regions of china . the net decrease in sales due to foreign exchange was primarily due to the depreciation of the canadian dollar against the u.s. dollar . we can not predict with any degree of certainty whether foreign currencies will appreciate or depreciate against the u.s. dollar in future periods or whether future foreign exchange rate fluctuations will have a positive or negative impact on our net sales . the change in net sales due to acquisition relates to the acquisition of aerco in december 2014. gross profit . gross profit and gross profit as a percent of net sales ( gross margin ) for 2014 and 2013 were as follows : replace_table_token_17_th americas ' gross margin remained consistent compared to 2013 due primarily to incremental wholesale volume and pricing , offset by the manufacturing inefficiencies in the foundry in the first half of 2014 and lower pricing in our diy channel . emea 's gross margin increased primarily due to cost reductions and production efficiencies driven from ongoing restructuring initiatives offsetting lower overhead absorption related to reduced manufacturing volumes . 33 selling , general and administrative expenses . selling , general and administrative expenses , or sg & a expenses , increased $ 1.3 million , or 0.3 % , in 2014 as compared to 2013. the increase in sg & a expenses was attributable to the following : replace_table_token_18_th the organic decrease in sg & a expenses was primarily due to decreased legal costs of $ 18.5 million and a decrease in product liability costs of $ 3.5 million offset by increased non-recurring transformation deployment costs in the americas and emea of $ 8.1 million , acquisition costs of $ 4.5 million , increased personnel costs of $ 2.7 million , increased commission and freight costs of $ 4.1 million and lower depreciation and amortization of $ 0.7 million . the primary driver of the decrease in legal cost relates to the agreement to settle all claims in the trabakoolas et al . , v. watts water technologies , inc. , et al . , matter . the net settlement charged to operations amounted to $ 13.6 million in 2013. refer to note 15 of the notes to consolidated financial statements in this annual report on form 10-k for more detail . the non-recurring americas and emea deployment costs consist primarily of external consulting and it related costs . the acquisition costs of $ 4.5 million relate to the aerco acquisition . the decrease in sg & a expenses from foreign exchange was primarily due to the depreciation of the canadian dollar against the u.s. dollar in 2014. acquired sg & a costs relate to the aerco acquisition . total sg & a expenses , as a percentage of sales , were 26.9 % in 2014 and 27.5 % in 2013. restructuring and other charges . in 2014 , we recorded a net charge of $ 15.2 million primarily for involuntary terminations and other costs incurred as part of our emea restructuring initiatives , a reduction-in-force in the americas and corporate and reductions-in-force in asia-pacific . restructuring charges in 2013 were $ 8.7 million . for a more detailed description of our current restructuring plans , see note 4 of notes to consolidated financial statements in this annual report on form 10-k. goodwill and other long-lived asset impairment charges . in 2014 , we recorded impairment charges of $ 14.2 million , primarily relating to a $ 12.9 million goodwill impairment charge in the asia-pacific reporting unit and trade name impairment charges of $ 0.5 million and $ 0.8 million in the americas and emea , respectively , compared to $ 1.2 million in 2013. see note 2 of notes to consolidated financial statements in this annual report on form 10-k , for additional information regarding these impairments . operating income . operating income by geographic segment for 2014 and 2013 was as follows : replace_table_token_19_th 34 the change in operating income was attributable to the following : replace_table_token_20_th the decrease in consolidated operating income was due primarily to an increase in restructuring and impairment charges offset by an increase in gross profit from increased sales volume and cost containment initiatives . the increase in americas ' organic operating income was driven by higher sales volume and reduced sg & a expenses offset partially by increased restructuring expenses . the emea organic operating income decrease was primarily due to lower sales volumes , higher restructuring costs and transformation deployment costs partially offset by productivity efficiencies and cost containment efforts . asia-pacific 's organic operating income decreased primarily due to the impact on gross margins from reduced absorption driven by lower intercompany sales and higher sg & a expenses . as of january 1 , 2014 , we began allocating certain expenses to our three operating segments that had previously been recorded as corporate expenses . these expenses primarily include stock compensation , legal expenses and audit expenses that are directly attributable to and benefit

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liquidity and capital resources 2015 cash flows in 2015 , we generated $ 109.4 million of cash from operating activities as compared to $ 135.2 million in 2014. the decrease was primarily due to the $ 49.2 million settlement of certain long-term obligations , including the pension plan , offset by inventory reduction efforts and stronger accounts receivable collections . we generated approximately $ 81.8 million of free cash flow ( a non-gaap financial measure , which we reconcile below , defined as net cash provided by continuing operating activities minus capital expenditures plus proceeds from sale of assets ) , compared to free cash flow of $ 111.9 million in 2014. in 2015 , we used $ 17.3 million of net cash for investing activities , including $ 20.4 million for the purchase of apex and $ 27.7 million of cash for capital equipment , offset by cash proceeds of approximately $ 33.1 million for the sale of certain assets relating to divested product lines in the americas . we anticipate investing approximately $ 35 million to $ 40 million in capital equipment in 2016 to improve our manufacturing capabilities . in 2015 , we used $ 70.9 million of net cash from financing activities including $ 44.6 million used to repurchase approximately 813,000 shares of class a common stock and $ 23.1 million used to pay dividends . on february 18 , 2014 , we entered into a credit agreement ( the prior credit agreement ) among the company , certain subsidiaries of the company who become borrowers under the prior credit agreement , jpmorgan chase bank , n.a. , as administrative agent , swing line lender and letter of credit issuer , and the other lenders referred to therein . the prior credit agreement , which was terminated on february 12 , 2016 , provided for a $ 500 million , five-year , senior unsecured revolving credit facility which could have been increased by an additional $ 500 million under certain circumstances and subject to the terms of the prior credit agreement . the prior credit agreement had a sublimit of up to $ 100 million in letters of credit .

the company also issued $ 2.5 million of series b preferred stock on the same terms as starboard to certain franchisees of the company . in connection with starboard 's investment , starboard was granted certain corporate governance rights , including the right to appoint two new independent directors , including jeffrey c. smith , chief executive officer of starboard , who was appointed chairman of the board . ​ franchisee assistance and marketing investment . beginning in the third quarter of 2018 , the company began providing various forms of increased support and financial assistance to the north america franchise system in response to declining north america sales . in july 2019 , the company announced a new program , developed with the support of the company 's elected franchise advisory council , to make investments in marketing and brand initiatives as well as to provide scheduled financial assistance for traditional north america franchisees beginning in the third quarter of 2019 and expected to continue through 2020. under the program , the company is making marketing investments to support the long-term strength of the brand . the company has also extended financial assistance to its traditional north america franchisees in the form of lower royalties , royalty-based service incentives , and targeted relief through 2020 , thus providing franchisees with certainty on the schedule of remaining royalty relief . the company incurred significant costs ( defined as “ special charges ” ) of approximately $ 36.8 million associated with this program in the last six months of 2019 and expects to incur $ 25 million to $ 30 million of special charges associated with this program in 2020. for more details , see the special charges detailed in “ items impacting comparability ; non-gaap measures ” within “ item 7. management 's discussion and analysis of financial condition and results of operations ” for additional information . ​ new management restructure . in august 2019 , the company appointed robert lynch as the company 's new president and chief executive officer . on november 6 , 2019 , the company also announced an executive management restructure . the updated management structure is intended to align with the company 's strategic focus . ​ positive comparable sales . as the company continues to focus on its strategic priorities previously discussed , the company has experienced recent improvement in north america restaurant comparable sales trends , with positive north america comparable sales for the last two fiscal quarters of 2019. prior to the third quarter of 2019 , north america comparable sales had been negative since the fourth quarter of 2017 . ​ ​ 36 presentation of financial results ​ immaterial restatement of previously issued consolidated financial statements to include the papa john 's marketing fund , inc. ( “ pjmf ” ) ​ during the first quarter of 2019 , the company reassessed the governance structure and operating procedures of pjmf , a nonstock corporation designed to operate at break-even for the purpose of designing and administering advertising and promotional programs for all participating domestic restaurants , and determined the company has the power to control certain significant activities of pjmf , a variable interest entity ( “ vie ” ) in accordance with accounting standards codification 810 ( “ asc 810 ” ) , consolidations . therefore , the company is the primary beneficiary of the vie and per asc 810 must consolidate pjmf . prior to 2019 , the company did not consolidate pjmf . the company has concluded the previous accounting policy to not consolidate was an immaterial error . the company has corrected this immaterial error by restating the 2018 consolidated financial statements included herein to include pjmf . fiscal 2017 was not restated as consolidating pjmf was not material to the results of operations . see “ note 2 ” , “ note 5 ” and “ note 27 ” of “ notes to consolidated financial statements ” , respectively , for additional information . ​ critical accounting policies and estimates ​ the results of operations are based on our consolidated financial statements , which were prepared in conformity with accounting principles generally accepted in the united states ( “ gaap ” ) . the preparation of consolidated financial statements requires management to select accounting policies for critical accounting areas as well as estimates and assumptions that affect the amounts reported in the consolidated financial statements . the company 's significant accounting policies , including recently issued accounting pronouncements , are more fully described in “ note 2 ” of “ notes to consolidated financial statements . ” significant changes in assumptions and or conditions in our critical accounting policies could materially impact the operating results . we have identified the following accounting policies and related judgments as critical to understanding the results of our operations : ​ revenue recognition and statement of operations presentation ​ revenue is measured based on consideration specified in contracts with customers and excludes waivers or incentives and amounts collected on behalf of third parties , primarily sales tax . the company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer . taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction , that are collected by the company from a customer , are excluded from revenue . delivery costs , including freight associated with our domestic commissary and other sales , are accounted for as fulfillment costs and are included in operating costs . ​ the company adopted asc topic 606 , “ revenue from contracts with customers ” ( “ topic 606 ” ) , in the first quarter of 2018. our 2017 revenue recognition follows asc topic 605 , “ revenue recognition . story_separator_special_tag ​ results of operations ​ 2019 compared to 2018 ​ discussion of revenues . consolidated revenues decreased $ 43.6 million , or 2.6 % , to $ 1.62 billion in 2019 , compared to $ 1.66 billion in 2018. revenues are summarized in the following table ( dollars in thousands ) . replace_table_token_11_th ​ domestic company-owned restaurant sales decreased $ 40.3 million , or 5.8 % , in 2019 primarily due to the refranchising of 46 restaurants in 2019 primarily located in south florida and georgia and 62 restaurants in denver and minnesota in 2018. excluding the impact of refranchising , domestic company-owned restaurant sales decreased $ 10.3 million primarily due to negative comparable sales of 2.7 % , partially offset by the favorable impact of the expiration of rewards associated with our papa rewards loyalty program . “ comparable sales ” represents the change in year-over-year sales for the same base of restaurants for the same fiscal periods . ​ north america franchise royalties and fees decreased $ 7.5 million , or 9.4 % , in 2019. excluding the impact of refranchising , north american franchise royalties and fees decreased $ 8.2 million primarily due to higher royalty relief of $ 6.0 million over the comparable period , including $ 3.7 million in higher special charges . the remaining decrease was primarily due to a decrease in comparable sales and equivalent units of 2.0 % and 0.9 % , respectively . ​ north america franchise restaurant sales decreased 1.6 % to $ 2.10 billion for 2019. north america franchise restaurant sales are not included in company revenues ; however , our north america franchise royalties are derived from these sales . “ equivalent units ” represents the number of restaurants open at the beginning of a given period , adjusted for restaurants opened , closed , acquired or sold during the period on a weighted average basis . ​ north america commissary sales increased $ 2.8 million , or 0.5 % , primarily due to higher pricing associated with higher commodities costs . this increase was partially offset by lower restaurant sales volumes . ​ international revenues decreased $ 7.4 million , or 6.7 % , in 2019. the decrease compared to the prior year was primarily due to reduced revenues from the refranchising of a qc center in mexico in the first quarter of 2019 and the company-owned stores and the qc center in china , which occurred during the second quarter of 2018. excluding the impact of refranchising , international revenues increased $ 3.0 million primarily due to higher royalties and higher united kingdom ( “ pjuk ” ) commissary revenue on higher comparable sales and increased equivalent units . these increases were partially offset by unfavorable foreign exchange rates of approximately $ 4.2 million . ​ international franchise restaurant sales increased 9.9 % to $ 921.4 million in 2019 , excluding the impact of foreign currency , primarily due to increases in equivalent units . international franchise restaurant sales are not included in company revenues ; however , our international royalty revenue is derived from these sales . ​ 45 other revenues increased $ 8.8 million , or 5.2 % in 2019 due to higher marketing fund revenue primarily due to an increase in the pjmf contribution rate , higher online revenues and higher pjuk marketing fund revenues and head lease rental income , partially offset by lower revenues for preferred marketing solutions , our print and promotions subsidiary . ​ discussion of operating results ​ income before income taxes is summarized in the following table on a reporting segment basis . income before income taxes decreased approximately $ 1.7 million , or 24.7 % , for the year ended december 29 , 2019 as compared to the prior year . excluding the previously discussed special items , income before income taxes was $ 61.1 million , or a decrease of $ 3.4 million . alongside the gaap income before income taxes data , we have included “ adjusted ” income before income taxes for 2019 to exclude special items . we believe this non-gaap measure is important for purposes of comparison to prior year results . ​ replace_table_token_12_th ​ the increase in adjusted income before income taxes of $ 3.4 million , or 5.9 % for 2019 excluding special items , was primarily due to the following : ​ ● domestic company-owned restaurants segment . domestic company-owned restaurants income before income taxes increased $ 11.9 million for 2019 as compared to prior year primarily due to improved operating costs including lower advertising spend , lower workers ' compensation , automobile and general insurance costs , and the favorable impact of the expiration of rewards associated with our papa rewards loyalty program . these increases were partially offset by lower comparable sales of 2.7 % . ​ ● north america commissaries segment . north america commissaries income before income taxes increased $ 2.5 million in 2019 , as 2018 included additional franchise support in the form of lower commissary pricing . ​ ● north america franchising segment . north america franchising income before income taxes decreased $ 2.7 million in 2019 primarily due to negative comparable sales of 2.0 % and additional royalty reductions of $ 2.3 million , not included in special items , partially offset by favorable g & a costs . ​ ● international segment . international income before income taxes increased $ 2.8 million for 2019 compared to the prior year primarily due to increased royalties and lower pjuk marketing fund expenses . these increases were partially offset by unfavorable foreign exchange rates of approximately $ 1.3 million and higher legal costs . ​ 46 ● all others . all others income before income taxes , which primarily includes our online and mobile ordering business , our wholly-owned print and promotions subsidiary and our north america marketing funds , increased $ 3.6 million primarily due to higher online revenues and the timing

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debt ​ the company has a secured revolving credit facility with available borrowings of $ 400.0 million ( the “ revolving facility ” ) , of which $ 10.0 million was outstanding as of december 29 , 2019 , and a secured term loan facility with an outstanding balance of $ 360.0 million ( the “ term loan facility ” ) and together with the revolving facility , the “ pji facilities ” . the pji facilities mature on august 30 , 2022. the loans under the pji facilities accrue interest at a per annum rate equal to , at the company 's election , either libor plus a margin ranging from 125 to 250 basis points or a base rate ( generally determined by a prime rate , federal funds rate or libor plus 1.00 % ) plus a margin ranging from 25 to 150 basis points . in each case , the actual margin is determined according to a ratio of the company 's total indebtedness to earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) for the then most recently ended four-quarter period ( the “ leverage ratio ” ) . the credit agreement governing the pji facilities ( the “ pji credit agreement ” ) places certain customary restrictions upon the company based on its financial covenants .

because our probody therapeutics are designed to minimize binding of potent anti-cancer therapy to normal tissues , we believe we can address a new class of targets with attractive molecular features that were previously unsuitable because of high expression on normal tissues . cd166 is an example of this kind of target . cd166 is highly and homogenously expressed in multiple different tumors types , which makes it an attractive target for a probody drug conjugate therapeutic ; however , the high expression of cd166 on normal tissues makes this a difficult target to drug with a traditional adc . cx-2009 is currently in the dose escalation portion of a phase 1/2 study . in february 2019 , we disclosed initial clinical data on cx-2009 at the cytomx r & d day . in addition to our wholly owned programs , we have entered into several strategic collaborations with leading oncology-focused pharmaceutical companies , such as abbvie inc. , through its subsidiary abbvie ireland unlimited company ( “ abbvie ” ) , amgen , inc. ( “ amgen ” ) and bristol-myers squibb company ( “ bms ” ) . the most advanced program from our partnerships is a bms-986249 , a ctla-4 probody therapeutic , which bms is currently advancing through the dose escalation phase of a phase 1/2 clinical trial . we are also treating patients in a phase 1/2 clinical study for cx-2029 , a pdc targeting the highly expressed target , cd71 that we have partnered with abbvie . we have also extended our probody platform to the t-cell engaging bispecific modality . our most advanced program in that modality is an epidermal growth factor receptor-cd3 ( “ egfr-cd3 ” ) t-cell bispecific , which is currently in lead optimization stage , and which we are developing in partnership with amgen . we currently have three product candidates enrolling patients in clinical trials that we are conducting and one product candidate enrolling patients in clinical trials which our partner , bms , is conducting , but we do not have any product candidates approved for sale , and we continue to incur significant research and development and general administrative expenses related to our operations . we are not profitable and have incurred losses in each year since our founding in 2008. our net loss was $ 84.6 million , $ 43.1 million and $ 58.9 million for 2018 , 2017 and 2016 , respectively . as of december 31 , 2018 and 2017 we had an accumulated deficit of $ 315.0 million and $ 219.5 million , respectively . we expect to continue to incur significant losses for the foreseeable future . 77 regulatory agencies , including the fda , regulate many aspects of a product candidate 's life cycle , including research and development and preclinical and clinical testing . we will need to commit significant time , resources , and funding to develop our wholly owned and partnered product candidates in clinical trials , including cx-072 , cx-2009 and cx-2029 as well as any additional product candidates for which we initiate clinical trials in 201 9 and beyond . we are unable to provide the nature , timing , and estimated costs of the efforts necessary to complete the development of our product candidates because , among other reasons , of regulatory uncertainty , manufacturing limitations and the pace of enrollment of our clinical trials , which is a function of many factors , including the availability and proximity of patients with the relevant condition . we currently have no manufacturing capabilities and do not intend to establish any such capabilities in the near term . as such , we are dependent on third parties to supply our product candidates according to our specifications , in sufficient quantities , on time , in compliance with appropriate regulatory standards and at competitive prices . components of results of operations revenue our revenue to date has been primarily derived from non-refundable license payments , milestone payments and reimbursements for research and development expenses under our research , collaboration , and license agreements . we recognize revenue from upfront payments over the term of our estimated period of performance under the agreement using a cost-based input method or a common measure of progress for the entire performance obligation . in addition to receiving upfront payments , we may also be entitled to milestone and other contingent payments upon achieving predefined objectives . revenue from milestones and other contingent payments , when it is probable that there will not be a significant revenue reversal , is also recognized over the performance period based on a similar method . reimbursements from bms and pfizer for research and development costs incurred under our research , collaboration and license agreements with them are classified as revenue . for the foreseeable future , we do not expect to generate any revenue from the sale of products unless and until such time as our product candidates have advanced through clinical development and obtained regulatory approval . we expect that any revenue we generate in the foreseeable future will fluctuate from year to year as a result of the timing and amount of milestones and other payments from our collaboration agreements with abbvie , amgen , bms , immunogen and any other collaboration partners , and as a result of the fluctuations in the research and development expenses we incur in the performance of assigned activities under these agreements . abbvie ireland unlimited company ( “ abbvie ” ) , one of our collaboration partners , entered into a license agreement with seattle genetics , inc. ( “ sgen ” ) to license certain intellectual property rights . as part of our collaboration agreement with abbvie , we pay sgen sublicense fees . these sublicense fees are treated as reductions to the transaction price and combined with the performance obligation to which they relate . story_separator_special_tag 82 comparison of years ended december 31 , 2017 and 2016 revenue year ended december 31 , 2017 2016 change ( in thousands ) revenue $ 71,623 $ 15,043 $ 56,580 revenue increased $ 56.6 million during the year ended december 31 , 2017 compared to the corresponding period in 2016. the following table summarizes our revenue by collaboration partner during the respective periods : replace_table_token_7_th the increase in revenue from abbvie of $ 16.2 million for the year ended december 31 , 2017 compared to the corresponding period in 2016 was due to recognition of $ 14.0 million , net of the associated sublicense fee , from the milestone payment we received as a result of our achievement of certain milestones required to be met to begin glp toxicology studies under the abbvie agreements , and an increase of $ 2.2 million , net of the related deferred costs , related to the recognition of the upfront payment we received in april 2016. we entered into the amgen agreement in september 2017 and we recognized $ 1.3 million of upfront payments in 2017. the increase in revenue from bms of $ 26.9 million for the year ended december 31 , 2017 compared to the corresponding period in 2016 was due to an increase of $ 17.1 million related to the recognition of an upfront payment we received in connection with the expansion of our collaboration , an increase of $ 2.1 million related to the recognition of payments made in connection with the selection of its fourth target under our collaboration and license agreement with bms and the acceleration of the research timeline triggered by bms 's selection of a fourth target under the bms agreement , and a milestone payment of $ 10.0 million related to the ind filing for bms-986249 by bms in 2017. these increases were partially offset by a milestone payment of $ 2.0 million payment received in 2016 for the selection of bms-986249 clinical candidate , and a decrease of $ 0.3 million related to research and development services provided to bms . the increase in revenue from immunogen of $ 12.5 million for the year ended december 31 , 2017 compared to the corresponding period in 2016 was a result of the recognition of $ 6.6 million for the delivery of the immunogen 2017 license to immunogen in connection with the immunogen research agreement and the recognition of $ 5.9 million resulting from an amendment to the immunogen research amendment . see note 9 - research and collaboration agreements under item 8 of this annual report on form 10-k for more details . the decrease in revenue from pfizer of $ 0.3 million for the year ended december 31 , 2017 compared to the corresponding period in 2016 was due to a reduction in the research and development services we provided to pfizer . in march 2018 , pfizer gave notice terminating our collaboration in its entirety . as a result of such termination , we are no longer eligible to receive any future payments from our collaboration with pfizer . research and development expenses year ended december 31 , 2017 2016 change ( in thousands ) research and development $ 92,277 $ 54,755 $ 37,522 83 research and development expenses increased $ 37.5 million during the year ended december 31 , 2017 compared to the corresponding period in 2016. the increase was primarily attributable to the following : a non-cash charge of $ 10.7 million of in-process research and development expense recognized related to the amgen agreement ; $ 10.0 million sublicense payment made to ucsb triggered by the $ 200.0 million upfront payment made by bms in connection with our expanded collaboration ; $ 2.1 million of ucsb sublicense fees accrued as a result of the amgen agreement ; $ 1.0 million of ucsb sublicense fees recognized for our achievement of certain milestones required to be met to begin glp toxicology studies under the abbvie agreement and the ind filing for bms-986249 by bms ; an increase of $ 8.5 million in pharmacology studies and clinical trial expenses resulting from the advancement of cx-072 , cx-2009 and cx-2029 in 2017 ; an increase of $ 5.3 million in personnel-related expenses and allocation of it and facilities-related expenses due to an increase in headcount ; an increase of $ 1.7 million in consulting expenses due to the commencement of clinical trials in 2017 ; an increase of $ 0.6 million related to expenses incurred in acquiring a patent ; and an increase of $ 0.5 million in stock-based compensation resulting from increased headcount and an increase in the value of our stock . these increases were partially offset by : a decrease of $ 2.1 million in manufacturing expenses for our cx-072 and cx-2009 programs due to manufacturing activities occurring in 2016 in preparation for clinical trials in 2017 ; a decrease in laboratory supply expenses of $ 0.4 million ; and a decrease in program management expenses of $ 0.4 million . the following table summarizes our research and development expenses by program incurred during the respective periods : replace_table_token_8_th general and administrative expenses year ended december 31 , 2017 2016 change ( in thousands ) general and administrative $ 25,605 $ 19,874 $ 5,731 84 general and administrative expense increased $ 5.7 million during the year ended december 31 , 2017 compared to the corresponding period in 2016. the increase was attributable to an increase of $ 1.4 million in personnel-related expenses and an increase of $ 1.0 million in recruitment fees due to an increase in headcount and temporary labor ; an increase in stock-based compensation of $ 1.0 million due to an increase in headcount and an increase in the value of our stock ; an increase of $ 1.2 million in consulting services expenses primarily due to an increase in tax and accounting compliance activities and investor relations expenses ; an increase in legal expenses of $

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cash flows from operating activities during the year ended december 31 , 2018 , cash used in operating activities was $ 75.5 million , which consisted of a net loss of $ 84.6 million , adjusted by non-cash charges of $ 17.1 million and a net decrease of $ 8.0 million in our operating assets and liabilities . the non-cash charges primarily consisted of $ 16.9 million in stock-based compensation and $ 1.9 million in depreciation and amortization , partially offset by $ 1.7 million in accretion of discounts on our short-term investments . the net decrease in our operating assets and liabilities of $ 8.0 million was primarily attributable to : a net decrease in deferred revenue of $ 38.2 million resulting from the recognition of $ 59.2 million in upfront fees and milestone payments under asc 606 pursuant to our collaboration agreements , offset by the $ 21.0 million ( net of the payment of an associated sublicense fee of $ 4.0 million to sgen ) new milestone addition to deferred revenue in 2018 resulting from the abbvie cx-2029 milestone payment received ; a decrease of $ 4.9 million resulting from the increase in prepaid expenses and other current assets ; partially offset by an increase in cash flows from accounts receivable primarily from the $ 10.0 million we received from bms for achieving the milestone of ind filing of bms-986249 in 2018 ; an increase of $ 24.8 million in accrued liabilities , income tax payable and other long-term liabilities resulting primarily from a $ 13.3 million increase in income tax payable , a

cim group believes that a vast majority of the risks associated with acquiring real estate are mitigated by accumulating local market knowledge of the community where the asset is located . cim group typically spends significant time and resources qualifying targeted communities prior to making any acquisitions . since 1994 , cim group has qualified 122 communities and has deployed capital in 72 of these qualified communities . although we may not deploy capital exclusively in qualified communities , it is expected that most of our assets will be identified through this systematic process . cim group seeks to maximize the value of its holdings through active onsite property management and leasing . cim group has extensive in-house research , acquisition , credit analysis , development , financing , leasing and onsite property 70 management capabilities , which leverage its deep understanding of metropolitan communities to position properties for multiple uses and to maximize operating income . as a vertically-integrated owner and operator , cim group has in-house onsite property management and leasing capabilities . property managers prepare annual capital and operating budgets and monthly operating reports , monitor results and oversee vendor services , maintenance and capital improvement schedules . in addition , they ensure that revenue objectives are met , lease terms are followed , receivables are collected , preventative maintenance programs are implemented , vendors are evaluated and expenses are controlled . cim group 's real assets management committee reviews and approves strategic plans for each asset , including financial , leasing , marketing , property positioning and disposition plans . in addition , the real assets management committee reviews and approves the annual business plan for each property , including its capital and operating budget . cim group 's organizational structure provides for continuity through multi-disciplinary teams responsible for an asset from the time of the original investment recommendation , through the implementation of the asset 's business plan , and any disposition activities . cim group 's investments and development teams are separate groups that work very closely together on transactions requiring development expertise . while the investments team is responsible for acquisition analysis , both the investments and development teams perform the due diligence , evaluate and determine underwriting assumptions and participate in the development management and ongoing asset management of cim group 's opportunistic assets . the development team is also responsible for the oversight and or execution of securing entitlements and the development/repositioning process . in instances where cim group is not the lead developer , cim group 's in-house development team continues to provide development and construction oversight to co-sponsors through a shadow team that oversees the progress of the development from beginning to end to ensure adherence to the budgets , schedules , quality and scope of the project to maintain cim group 's vision for the final product . the investments and development teams interact as a cohesive team when sourcing , underwriting , acquiring , executing and managing the business plan of an opportunistic acquisition . we seek to utilize the cim group platform to acquire , improve and develop real estate assets within cim group 's qualified communities . we believe that these assets will provide greater returns than similar assets in other markets , as a result of the population growth , public commitment , and significant private investment that characterize these areas . over time , we seek to expand our real estate assets in communities targeted by cim group , supported by cim group 's broad real estate capabilities , as part of our plan to prudently grow market value and earnings . as a matter of prudent management , we also regularly evaluate each asset within our portfolio as well as our strategies . such review may result in dispositions when an asset no longer fits our overall objectives or strategies or when our view of the market value of such asset is equal to or exceeds its intrinsic value . as a result of such review , we sold two hotels in 2016 ; six office properties , one parking garage , and five multifamily properties in 2017 ; and , in connection with the program to unlock embedded value in our portfolio and improve trading liquidity of our common stock , three office properties and one parking garage in oakland , california , one office property in washington , d.c. , and one office property in san francisco , california in march 2019. such review may result in additional dispositions from time to time . in 2016 and 2017 , we used a substantial portion of the net proceeds of such dispositions to provide liquidity to our common stockholders at prices reflecting our nav and cash flow prospects , and we expect to use a substantial portion of the net proceeds from the asset sale to do so in 2019. while we are principally focused on class a and creative office assets in vibrant and improving metropolitan communities throughout the united states ( including improving and developing such assets ) , we may also participate more actively in other cim group real estate strategies and product types in order to broaden our participation in cim group 's platform and capabilities for the benefit of all classes of stockholders . this may include , without limitation , engaging in real estate development activities as well as investing in other product types directly , side-by-side with one or more funds of cim group , through direct deployment of capital in a cim group real estate or debt fund , or deploying capital in or originating loans that are secured directly or indirectly by properties primarily located in qualified communities that meet our strategy . such loans may include limited and or non-recourse junior ( mezzanine , b-note or 2nd lien ) and senior acquisition , bridge or repositioning loans . story_separator_special_tag , and an increase from real estate tax refunds related to prior years received during the year ended december 31 , 2018 for the property in washington , d.c. that we sold in october 2017. the sale of three office properties and one parking garage in oakland , california , one office property in washington , d.c. , and one office property in san francisco , california , which were completed in march 2019 will , and the sale of any additional properties during 2019 would , cause office revenue to decline materially in 2019. however , the magnitude of any such decrease can not be predicted as it will depend on a number of factors such as the number and timing of such dispositions that may occur in 2019 , changes to revenue at existing properties , and any revenue increases from acquisitions . hotel revenue : hotel revenue increased to $ 38,789,000 , or by 0.5 % , for the year ended december 31 , 2018 compared to $ 38,585,000 for the year ended december 31 , 2017 . multifamily revenue : multifamily revenue of $ 13,566,000 for the year ended december 31 , 2017 was related to three multifamily properties in dallas , texas , which were sold in may and june 2017 , one multifamily property in new york , new york , which was sold in september 2017 , and one multifamily property in houston , texas , which was sold in december 2017. as a result of the aforementioned sales , there was no multifamily revenue during 2018. lending revenue : lending revenue represents revenue from our lending subsidiaries , including interest income on loans and other loan related fee income . lending revenue increased to $ 10,870,000 , or by 6.3 % , for the year ended december 31 , 2018 compared to $ 10,221,000 for the year ended december 31 , 2017 . the increase is primarily due to increases in the prime rate , an increase in the retained loan portfolio , and higher revenue resulting from the recognition of accretion for 76 discounts related to increased prepayments on our loans , partially offset by a decrease in premium income from the sale of the guaranteed portion of our sba 7 ( a ) loans and a decrease related to a break-up fee received during the year ended december 31 , 2017 . expenses office expenses : office expenses decreased to $ 57,258,000 , or by 17.9 % , for the year ended december 31 , 2018 compared to $ 69,782,000 for the year ended december 31 , 2017 . the decrease is primarily due to the sale of one office property in charlotte , north carolina in june 2017 , the sale of one office property and one parking garage in sacramento , california in june 2017 , the sale of two office properties in washington , d.c. in august and october 2017 , the sale of one office property in los angeles , california in september 2017 , a decrease in other tenant reimbursable expenses at one of our washington , d.c. properties , and a decrease in real estate taxes at certain california properties due to real estate tax refunds related to prior years , which were received during the year ended december 31 , 2018 , partially offset by the transfer of the right to collect supplemental real estate tax reimbursements which reduced real estate taxes at our office property in san francisco , california at the time of the property 's sale in march 2017 , an increase from the acquisition of one office property in san francisco , california in december 2017 , the acquisition of one office property in beverly hills , california in january 2018 , and an increase in operating expenses at certain of our california properties and at one of our washington , d.c. properties . the sale of three office properties and one parking garage in oakland , california , one office property in washington , d.c. , and one office property in san francisco , california , which were completed in march 2019 will , and the sale of any additional properties during 2019 would , cause office expenses to decline materially in 2019. however , the magnitude of any such decrease can not be predicted as it will depend on a number of factors such as the number and timing of such dispositions that may occur in 2019 , changes to expenses at existing properties , and any expense increases from acquisitions . hotel expenses : hotel expenses increased to $ 25,295,000 , or by 0.6 % , for the year ended december 31 , 2018 compared to $ 25,136,000 for the year ended december 31 , 2017 . multifamily expenses : multifamily expenses of $ 8,118,000 for the year ended december 31 , 2017 were related to three multifamily properties in dallas , texas , which were sold in may and june 2017 , one multifamily property in new york , new york , which was sold in september 2017 , and one multifamily property in houston , texas , which was sold in december 2017. as a result of the aforementioned sales , there were no multifamily expenses during 2018. lending expenses : lending expenses represent expenses from our lending subsidiaries , including general and administrative expenses and fees to related party , incurred in connection with the operation of the lending business . lending expenses increased to $ 5,714,000 , or by 16.9 % , for the year ended december 31 , 2018 compared to $ 4,888,000 for the year ended december 31 , 2017 . the increase is primarily due to interest expense that commenced in may 2018 as a result of the issuance of the sba 7 ( a ) loan-backed notes and an increase in interest expense in connection with our secured borrowings , partially offset by a decrease in payroll related

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liquidity and capital resources sources and uses of funds in september 2014 , cim commercial entered into an $ 850,000,000 unsecured credit facility with a bank syndicate which consisted of a $ 450,000,000 revolver , a $ 325,000,000 term loan and a $ 75,000,000 delayed-draw term loan . outstanding advances under the revolver bore interest at ( i ) the base rate plus 0.20 % to 1.00 % or ( ii ) london interbank offered rate ( `` libor '' ) plus 1.20 % to 2.00 % , depending on the maximum consolidated leverage ratio . outstanding advances under the term loans bore interest at ( i ) the base rate plus 0.15 % to 0.95 % or ( ii ) libor plus 1.15 % to 1.95 % , depending on the maximum consolidated leverage ratio . at december 31 , 2017 , $ 0 was outstanding under the credit facility . the unsecured credit facility matured on september 30 , 2018 . 82 in may 2015 , cim commercial entered into an unsecured term loan facility with a bank syndicate pursuant to which cim commercial could borrow up to a maximum of $ 385,000,000 . outstanding advances under the term loan facility bore interest at ( i ) the base rate plus 0.60 % to 1.25 % or ( ii ) libor plus 1.60 % to 2.25 % , depending on the maximum consolidated leverage ratio . the term loan facility had a maturity date in may 2022. on november 2 , 2015 , $ 385,000,000 was drawn under the term loan facility . proceeds from the term loan facility were used to repay balances outstanding under our unsecured credit facility . on august 3 , 2017 , we repaid $ 65,000,000 of outstanding borrowings on our unsecured term loan facility . in connection with such paydown , we wrote off deferred loan costs of $ 601,000 and related accumulated amortization of $ 193,000 , a proportionate amount to the borrowings being repaid . additionally , on november 29 , 2017 , we repaid $ 150,000,000 of outstanding borrowings on our unsecured term loan facility .

in recent years , management 's focus has been on improving our core earnings . core earnings can be described as income before taxes , with the exclusion of gain on sale of loans and adjustments to the market value of our loans serviced portfolio . management believes that we will need to continue to focus on increasing net interest margin , other areas of fee income , and control operating expenses to achieve earnings growth going forward . management 's strategy of growing the loan portfolio and deposit base is expected to help achieve these goals : loans typically earn higher rates of return than investments ; a larger deposit base will yield higher fee income ; increasing the asset base will reduce the relative impact of fixed operating costs . the biggest challenge to management 's strategy is funding the growth of our balance sheet in an efficient manner . though deposit growth this last year was steady , it may become more difficult to maintain due to significant competition and possible reduced customer demand for deposits as customers may shift into other asset classes . 23 other than in limited circumstances for certain high-credit-quality customers , we do not offer “ interest onl y ” mortgage loans on residential ( 1-4 family ) properties ( where the borrower pays interest but no principal for an initial period , after which the loan converts to a fully amortizing loan ) . we also do not offer loans that provide for negative amortization of principal , such as “ option arm ” loans , where the borrower can pay less than the interest owed on their loan , resulting in an increased principal balance during the life of the loan . we do not offer “ subprime loans ” ( loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies , previous charge-offs , judgments , bankruptcies , or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios ) or alt-a loans ( traditionally defined as loans having less than full documentation ) . the level and movement of interest rates impacts the bank 's earnings as well . the federal open market committee ( “ fomc ” ) increased the federal funds target rate during the year ended december 31 , 2017 from 0.75 % to 1.50 % . from time to time the bank has considered growth through mergers or acquisition as an alternative to its strategy of organ ic growth . on september 5 , 2017 , the company entered into an agreement and plan of merger with twinco and twinco 's wholly-owned subsidiary , ruby valley bank . the merger agreement provided that ruby valley bank would merge with and into opportunity bank of montana . ruby valley bank operated two branches in madison county , montana with approximately $ 96.00 million in assets , $ 81.00 million in deposits and $ 57.00 million in gross loans as of december 31 , 2017. this acquisition closed january 31 , 2018 , after receipt of approvals from regulatory authorities , approval of twinco shareholders and satisfaction of other closing conditions . the bank completed a core systems conversion during the third quarter of 2015. future cost savings are anticipated due to the core systems conversion . recent accounting pronouncements in may 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers ( topic 606 ) . this guidance is a comprehensive new revenue recognition standard that will supersede substantially all existing revenue recognition guidance . the new standard 's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services . in doing so , companies will need to use more judgment and make more estimates than under existing guidance . these may include identifying performance obligations in the contract , estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation . on july 9 , 2015 , the fasb agreed to delay the effective date of the standard by one year . therefore , the new standard will be effective in the first quarter of 2018. our revenue is comprised of net interest income on financial assets and financial liabilities , which is explicitly excluded from the scope of asu 2014-09 , and non-interest income . the largest percentage of our non-interest income is derived from the gain on sale of mortgage loans . the gains are recognized at the time of the sale of the loan , when proceeds are sent to us by the investor purchasing the loan . we do not expect to realize a change in the recognition of the revenue on that part of our noninterest income . we will evaluate the impact of this standard on our revenue from our wealth management division ; however we do not expect it to have a significant impact on our consolidated financial statements . in january 2016 , the fasb issued asu no . 2016-01 , financial instruments – overall : recognition and measurement of financial assets and financial liabilities ( subtopic 825-10 ) . the amendment has a number of provisions including the requirements that public business entities use the exit price notion when measuring the fair value of financial instruments for disclosure purposes , a separate presentation of financial assets and financial liabilities by measurement category and form of financial asset ( i.e . securities or loans receivables ) , and eliminating the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost . story_separator_special_tag million . construction and home equity loan originations totaled $ 29.26 million and $ 20.71 million , respectively , for the same period . consumer loan originations totaled $ 9.14 million . commercial loan originations totaled $ 36.87 million . there were no commercial loan originations from loan syndication programs with borrowers residing outside of montana during the year ended december 31 , 2017. loans held-for-sale decreased by $ 9.28 million , to $ 8.95 million at december 31 , 2017 from $ 18.23 million at december 31 , 2016 . 29 loan maturit ies . the following table sets forth the estimated maturity of the loan portfolio of the bank at december 31 , 2017. balances exclude deferred loan fees and allowance for loan losses . scheduled principal repayments of loans do not necessarily reflect the actual life of such assets . the average life of a loan is typically substantially less than its contractual terms because of prepayments . in addition , due on sale clauses on loans generally give the bank the right to declare loans immediately due and payable in the event , among other things , the borrower sells the real property , subject to the mortgage , and the loan is not paid off . all mortgage loans are shown to be maturing based on the date of the last payment required by the loan agreement , except as noted . loans having no stated maturity , those without a scheduled payment , demand loans and matured loans , are shown as due within six months . replace_table_token_5_th ( 1 ) includes loans held-for-sale . the following table includes loans by fixed or adjustable rates at december 31 , 2017 : replace_table_token_6_th ( 1 ) includes loans held-for-sale . 30 the following table sets forth information with respect to our loan originations , purchases and sales activity : replace_table_token_7_th ( 1 ) includes loans held-for-sale . nonperforming assets . generally , our collection procedures provide that when a loan is 15 or more days delinquent , the borrower is sent a past due notice . if the loan becomes 30 days delinquent , the borrower is sent a written delinquency notice requiring payment . if the delinquency continues , subsequent efforts are made to contact the delinquent borrower , including face to face meetings and counseling to resolve the delinquency . all collection actions are undertaken with the objective of compliance with the fair debt collection act . for mortgage loans and home equity loans , if the borrower is unable to cure the delinquency or reach a payment agreement , we will institute foreclosure actions . if a foreclosure action is taken and the loan is not reinstated , paid in full or refinanced , the property is sold at judicial sale at which we may be the buyer if there are no adequate offers to satisfy the debt . any property acquired as the result of foreclosure , or by deed in lieu of foreclosure , is classified as real estate owned until such time as it is sold or otherwise disposed of . when real estate owned is acquired , it is recorded at its fair market value less estimated selling costs . the initial recording of any loss is charged to the allowance for loan losses . subsequent write-downs are recorded as a charge to operations . as of december 31 , 2017 , the bank had $ 483,000 of real estate owned . loans are reviewed on a quarterly basis and are placed on non-accrual status when they are 90 days or more delinquent . loans may be placed on non-accrual status at any time if , in the opinion of management , the collection of additional interest is doubtful . interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income . subsequent payments are either applied to the outstanding principal balance or recorded as interest income , depending on the assessment of the ultimate collectability of the loan . at december 31 , 2017 , we had $ 977,000 ( $ 928,000 net of specific reserves for loan losses ) of loans that were nonperforming and held on non-accrual status . 31 the following table provides information regarding the bank 's loans that are delinquent 30 to 89 days : replace_table_token_8_th the following table sets forth information regarding nonperforming assets : replace_table_token_9_th during the year ended december 31 , 2017 , the bank sold five real estate owned and other repossessed assets resulting in a net loss of $ 29,000. there were two write-downs on fair value less cost to sell for foreclosed real estate property and other repossessed for a loss of $ 45,000 during the year ended december 31 , 2017. during the year ended december 31 , 2017 , a minimal amount of interest was recorded on loans previously accounted for on a non-accrual basis . during the year ended december 31 , 2016 , the bank sold five real estate owned and other repossessed assets resulting in a net gain of $ 6,000. there were no write-downs on fair value less cost to sell for foreclosed real estate property and other repossessed during the year ended december 31 , 2017. during the year ended december 31 , 2016 , a minimal amount of interest was recorded on loans previously accounted for on a non-accrual basis . 32 management , in compliance with regulatory guidelines , conducts an internal loan review program , whereby loans are placed or classified in categories depending upon the level of risk of nonpayment or loss . these categories are special mention , substandard , doubtful or loss . when a loan is classified as substandard or doubtful , management is required to establish an allowance for loan loss in an amount that is deemed prudent . when management classifies a loan as a loss asset , an allowance equal up

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liquidity and capital resources liquidity the bank is required to maintain minimum levels of liquid assets as defined by the montana division of banking and frb regulations . the liquidity requirement is retained for safety and soundness purposes , and that appropriate levels of liquidity will depend upon the types of activities in which the company engages . for internal reporting purposes , the bank uses policy minimums of 1.0 % , and 8.0 % for “ basic surplus ” and “ basic surplus with fhlb ” as internally defined . in general , the “ basic surplus ” is a calculation of the ratio of unencumbered short-term assets reduced by estimated percentages of cd maturities and other deposits that may leave the bank in the next 90 days divided by total assets . “ basic surplus with fhlb ” adds to “ basic surplus ” the additional borrowing capacity the bank has with the fhlb of des moines . the bank exceeded those minimum ratios as of december 31 , 2017 and 2016. the bank 's primary sources of funds are deposits , repayment of loans and mortgage-backed securities , maturities of investments , funds provided from operations , advances from the fhlb of des moines and other borrowings . scheduled repayments of loans and mortgage-backed securities and maturities of investment securities are generally predictable . however , other sources of funds , such as deposit flows and loan prepayments , can be greatly influenced by the general level of interest rates , economic conditions and competition . the bank uses liquidity resources principally to fund existing and future loan commitments . it also uses them to fund maturing certificates of deposit , demand deposit withdrawals and to invest in other loans and investments , maintain liquidity , and meet operating expenses . liquidity may be adversely affected by unexpected deposit outflows , higher interest rates paid by competitors , and similar matters . management monitors projected liquidity needs and determines the level desirable based in part on eagle 's commitments to make loans and management 's assessment of eagle 's ability to generate funds .

in addition , the low natural gas prices have in the past caused many natural gas producers to curtail capital budgets and these cuts in spending curtailed drilling programs , as well as discretionary spending on well services in certain shale areas , and accordingly reduced demand for our services in these areas . as a result of the decline in oil prices that began in the fourth quarter of 2014 and continued throughout 2015 and 2016 , drilling and completion activities in the oil and `` wet `` gas basins such as the eagle ford , utica and bakken shale areas experienced a dramatic decline . accordingly , our customer base reduced their capital programs and drilling and completion activity levels during both 2015 and 2016. due to oil prices remaining more stable in early 2017 , we are beginning to see drilling and completion activities increase in all basins . we would expect continued stability or further price growth to lead to increased drilling and completion activities by our customer base during 2017 when compared to 2016. increased drilling and completion activities would likely lead to a higher demand for our services in 2017 ; however , there is no guarantee that oil prices will remain stable , drilling and completion activities in basins will continue to increase , or we will see an increase in a demand for our services in 2017 . 40 our results are also driven by a number of other factors , including ( i ) availability of our equipment , which we have built through acquisitions and capital expenditures , ( ii ) transportation costs , which are affected by fuel costs , ( iii ) utilization rates for our equipment , which are also affected by the level of our customers ' drilling and production activities and competition , and our ability to relocate our equipment to areas in which oil and natural gas exploration and production activities are growing , ( iv ) the availability of qualified drivers ( or alternatively , subcontractors ) in the areas in which we operate , particularly in the bakken and marcellus/utica shale areas , ( v ) labor costs , which decreased during 2016 but are expected to increase during 2017 , ( vi ) developments in governmental regulations , ( vii ) seasonality and weather events ( viii ) pricing and ( ix ) our health , safety and environmental performance record . the following table summarizes our total revenues , loss from continuing operations before income taxes , loss from continuing operations and ebitda ( defined below ) for the years ended december 31 , 2016 , 2015 and 2014 ( in thousands ) : replace_table_token_6_th _ ( a ) represents revenues that are derived from predominantly oil-rich areas consisting of the bakken , eagle ford , mississippian and tuscaloosa marine shale areas ( prior to our substantial exit from the mississippian and tuscaloosa marine basins during the three months ended march 31 , 2015 ) . note that the utica shale area was previously included in the oil shale areas until the three months ended september 30 , 2015 when it was reclassified as a natural gas shale area . ( b ) represents revenues that are derived from predominantly natural gas-rich areas consisting of the marcellus , utica , haynesville and barnett shale areas ( prior to our substantial exit from the barnett basin during the three months ended march 31 , 2014 ) . note that the utica shale area was previously included in the oil shale areas until the three months ended september 30 , 2015 when it was reclassified as a natural gas shale area . ( c ) defined as consolidated net loss from continuing operations before net interest expense , income taxes and depreciation and amortization . ebitda is not a recognized measure under generally accepted accounting principles in the united states ( “ gaap ” ) . see the reconciliation between loss from continuing operations and ebitda under “ item 7. liquidity and capital resources - ebitda . ” ( d ) the financial covenants referred to in note 9 in the notes to the consolidated financial statements are based on ebitda adjusted for certain items as defined in the debt agreements . most notably , long-lived asset and goodwill impairments are allowed to be adjusted out of ebitda in calculating the adjusted ebitda for the asset-based revolving credit facility financial covenant . 41 results of operations year ended december 31 , 2016 compared to the year ended december 31 , 2015 the following table sets forth for each of the periods indicated our statements of operations data and expresses revenue and expense data as a percentage of total revenues for the periods presented ( dollars in thousands ) : replace_table_token_7_th non-rental revenue non-rental revenue consists of fees charged to customers for the sale and transportation of fresh water and saltwater by our fleet of logistics assets and or through water midstream assets owned by us to customer sites for use in drilling and completion activities and from customer sites to remove and dispose of flowback and produced water originating from oil and natural gas wells . non-rental revenue also includes fees for solids management services . non-rental revenue for the year ended december 31 , 2016 was $ 139.9 million , down $ 187.8 million , or 57.3 % , from $ 327.7 million for the year ended december 31 , 2015 . continued lower drilling and completion activities in all divisions during 2016 , as well as pricing pressures , led to lower non-rental revenue for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 . the primary driver of the decreased demand in the basins we serve was a 57 % decline in average operating oil rigs from those operating in the prior year . story_separator_special_tag in light of our continued losses , at december 31 , 2015 , we determined that our deferred tax liabilities were not sufficient to fully realize our deferred tax assets and , as a result , a valuation allowance continues to be required to be recorded against our deferred tax assets . accordingly , we recorded a valuation allowance of approximately $ 171.7 million as of december 31 , 2015. loss from discontinued operations loss from discontinued operations in the years ended december 31 , 2015 and 2014 represents the financial results of tfi , which comprised our industrial solutions business , which was sold in april of 2015. such loss , which is presented net of income taxes , was $ 0.3 million and $ 58.4 million for the years ended december 31 , 2015 and 2014 , respectively . the 2014 loss includes impairment charges of $ 74.4 million . liquidity and capital resources cash flows and liquidity our primary source of capital has historically been from borrowings available under our abl facility and term loan , with additional sources of capital in prior years from debt and equity accessed through the capital markets . our historical acquisition activity was highly capital intensive and required significant investments in order to expand our presence in existing shale basins , access new markets and to expand the breadth and scope of services we provide . additionally , we have historically issued equity as consideration in acquisition transactions . our sources of capital for 2016 included cash generated by our operations , restructuring transactions including borrowings from our term loan , asset sales and borrowings under our abl facility to the extent our borrowing base and financial covenants permitted such borrowings . cash generated by our operations alone is not sufficient to fund operations . at december 31 , 2016 our total indebtedness was $ 487.6 million . we have incurred losses from continuing operations of $ 167.6 million , $ 195.2 million and $ 457.2 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively , including impairments of goodwill and long-lived assets . at december 31 , 2016 we had cash and cash equivalents of $ 1.0 million and $ 11.6 million of net availability under the abl facility . the maturity date of our abl facility occurred on march 31 , 2017 , and , as a result , all commitments under the abl facility have been terminated , the lenders under the abl facility have no obligation to provide additional loans or otherwise extend credit under the abl facility , and all obligations under the abl facility are due and payable . as we have not repaid all outstanding obligations under the abl facility , we are in default under the abl facility and the lenders under the abl facility are entitled to exercise their rights and remedies . in addition , the default under the abl facility constituted an event of cross default under the term loan and the indentures governing the company 's 2018 notes and 2021 notes . the company does not have sufficient liquidity to repay the obligations under the abl facility , term loan , or indentures governing our 2018 notes and 2021 notes . in order to address our liquidity issues and provide for a restructuring of our indebtedness to improve our long-term capital structure , we have entered into a restructuring support agreement ( the “ restructuring support agreement ” ) with holders of over 80 % ( the “ supporting noteholders ” ) of our 2021 notes on april 9 , 2017. under the restructuring support agreement , the 47 supporting noteholders have agreed , subject to certain terms and conditions , to support a financial restructuring of nuverra ( the “ restructuring ” ) pursuant to a prepackaged plan of reorganization ( the “ plan ” ) to be filed in a case commenced under chapter 11 of the united states bankruptcy code ( “ chapter 11 ” ) . the company anticipates that it will file the plan on or before april 24 , 2017. among other terms and conditions , the restructuring support agreement provides for interim financing to the company prior to the filing of the plan , debtor in possession financing ( “ dip financing ” ) , a $ 150 million rights offering ( the “ rights offering ” ) and , if necessary after the rights offering , exit financing to fund required disbursements under the plan ( “ exit financing ” ) . the company anticipates that the restructuring will provide the company will sufficient liquidity to continue its operations ; however , there can be no assurances to that effect . there can also be no assurances that the company will be able to successfully implement the plan and consummate the restructuring . see the `` subsequent events related to indebtedness and restructuring plan `` discussions later in this section for further details on the restructuring . our consolidated financial statements have been prepared assuming that we will continue as a going concern , which contemplates continuity of operations , realization of assets , and liquidation of liabilities in the normal course of business . as reflected in the consolidated financial statements , we had an accumulated deficit at december 31 , 2016 and 2015 , and a net loss for the fiscal years ended december 31 , 2016 , 2015 and 2014. these factors , coupled with our large outstanding debt balance , raise substantial doubt about our ability to continue as a going concern . we are attempting to generate sufficient revenues and reduce costs ; however , our cash position may not be sufficient to support our daily operations if we are not successful . our ability to continue as a going concern is dependent upon our ability to generate sufficient liquidity to meet our obligations and operating needs . while we

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net cash provided by investing activities was $ 14.7 million for the year ended december 31 , 2016 , which primarily consisted of $ 10.7 million of proceeds from the sale of property , plant and equipment , $ 5.0 million in proceeds from the sale of ugsi , and a $ 2.8 million decrease in restricted cash due primarily to the release of funds from escrow as a result of the completion of the post-closing working capital reconciliation related to the sale of tfi , partially offset by $ 3.8 million of purchases of property , plant and equipment . net cash provided by investing activities was $ 68.2 million for the year ended december 31 , 2015 which consisted primarily of $ 78.9 million of proceeds from the sale of tfi and $ 12.7 million of proceeds from the sale of property , plant and equipment , offset by $ 19.2 million of purchases of property , plant and equipment net cash used in investing activities was $ 45.5 million for the year ended december 31 , 2014 and consisted primarily of $ 55.7 million of purchases of property , plant and equipment , partially offset by $ 10.2 million in proceeds from sales of property , plant and equipment . financing activities net cash used in financing activities was $ 26.8 million for the year ended december 31 , 2016 and was primarily comprised of $ 79.2 million of net repayments on our abl facility and $ 6.6 million for payments under capital leases , notes payable and other financing activities , offset by $ 55.0 million in proceeds from the issuance of the new term loan and $ 5.0 million due to the issuance of 20,312,500 shares of our common stock to mr. johnsrud , our chairman and chief executive officer , on november 15 , 2016 as a result of our election not to proceed with the previously contemplated rights offering ( see note 12 in the notes to the consolidated financial statements for more information on the rights offering ) .

in most instances , we ( 1 ) optimize the cost of traffic by using the least expensive cost routing , ( 2 ) negotiate lower variable usage-based costs with domestic and foreign service providers , ( 3 ) negotiate additional and lower cost foreign carrier agreements with the foreign incumbent carriers and others , and ( 4 ) continue to expand/reduce the capacity of our network when traffic volumes justify such actions . 59 our overall margin may fluctuate based on the relative volumes of international versus domestic long-distance services ; international carrier services versus business and residential long-distance services ; prepaid services versus traditional post-paid voice services ; internet , voip and data services versus fixed line voice services ; the amount of services that are resold ; and the proportion of traffic carried on our network versus resale of other carriers ' services . our margin is also affected by customer transfer and migration fees . we generally pay a charge to install and transfer a new customer onto our network and to migrate broadband and local customers . however , installing and migrating customers to our network infrastructure enables us to increase our margin on such services as compared to resale of services using other carriers ' networks . selling , general and administrative expenses are comprised primarily of salaries and benefits , commissions , occupancy costs , sales and marketing expenses , advertising , professional fees , and other administrative costs . all selling , general and administrative expenses are expensed when incurred . emphasis on cost containment and the shift of expenditures from non-revenue producing expenses to sales and marketing expenses has been heightened since growth in net revenue has been under pressure . emergence from voluntary reorganization under chapter 11 proceedings on march 16 , 2009 , the holding companies filed chapter 11 cases in the bankruptcy court for reorganization relief under chapter 11 of the bankruptcy code . subsequently , the holding companies sought and received an order directing the joint administration of the chapter 11 cases under the caption in re : primus telecommunications group , incorporated , et al . , debtors , case no . 09-10867. on april 24 , 2009 , an unsecured creditors ' committee was appointed by the united states trustee . on april 27 , 2009 , the bankruptcy court approved the holding companies ' use of a disclosure statement dated april 27 , 2009 ( the “disclosure statement” ) to solicit votes on the plan of reorganization . the disclosure statement was distributed to holders of record ( as of april 27 , 2009 ) of claims against , and interests in , the holding companies who were entitled to vote on the plan of reorganization ( the “record date” ) . the plan was confirmed by the bankruptcy court on june 12 , 2009 ( the “confirmation date” ) . on july 1 , 2009 ( the “effective date” ) , the holding companies consummated their reorganization under the bankruptcy code and the plan of reorganization became effective . see note 2—“emergence from voluntary reorganization under chapter 11 of the bankruptcy code” to our consolidated financial statements for further details . as of the effective date , we adopted fresh-start accounting in accordance with financial accounting standards board asc no . 852 , “reorganizations.” the adoption of fresh-start accounting resulted in the company becoming a new entity for financial reporting purposes . accordingly , the financial statements on or prior to the effective date are not comparable with the financial statements for periods after the effective date . see note 4—“fresh-start accounting” to our consolidated financial statements for further detail . impact of reorganization on our capital structure , long-term debt and financial statements . upon our emergence under the plan of reorganization on the effective date , the holding companies ' principal debt was reduced by $ 316 million , or over 50 % , interest payments were reduced by over 50 % and certain debt maturities were extended . the significant features of the plan included the developments summarized below : holding 's $ 96 million term loan facility due february 2011 was reinstated and amended ; ihc 's $ 173 million of outstanding 14 1 / 4 % senior secured notes due 2011 were cancelled and the holders thereof received their pro rata portion of $ 123.5 million of aggregate principal amount of 14 1 / 4 % senior subordinated secured notes due may 20 , 2013 and 4,800,000 shares of the new common stock of group ( the “new common stock” ) ; 60 the $ 209 million in aggregate outstanding 5 % exchangeable senior notes and 8 % senior notes issued by holding ( collectively , the “holding senior notes” ) were cancelled , and the holders thereof received 4,800,000 shares of the new common stock and class a warrants to purchase up to an aggregate of 3,000,000 shares of new common stock ; the 3 3 / 4 % senior notes due september 2010 , 12 3 / 4 % senior notes due october 2009 and step up convertible subordinated debentures due august 2009 issued by group ( collectively , the “group notes” ) were cancelled , and the holders thereof received class b warrants to purchase up to an aggregate of 1,500,000 shares of the new common stock ; all existing shares of common stock outstanding prior to the effective date ( the “old common stock” ) were cancelled on the effective date , and holders thereof received their pro rata share of contingent value rights ( “contingent value rights” or “cvrs” ) to acquire up to 2,665,000 shares of new common stock ; and all outstanding equity incentive grants of group were cancelled on the effective date , and the primus telecommunications group , incorporated management compensation plan ( the “management compensation plan” ) became effective . story_separator_special_tag for instance , when the usd weakens against the cad , there is a positive effect on reported profits and a negative effect on the reported losses for our canadian operating segment . 64 in the year ended december 31 , 2011 , as compared to the year ended december 31 , 2010 , the usd was weaker on average as compared to the cad , aud , gbp and eur . the following tables demonstrate the impact of currency fluctuations on our net revenue for the years ended december 31 , 2011 and 2010 : net revenue by location , including discontinued operations—in usd ( in thousands ) replace_table_token_8_th net revenue by location , including discontinued operations—in local currencies ( in thousands ) replace_table_token_9_th 1 europe includes only subsidiaries whose functional currency is the eur . 2 table includes revenues from discontinued operations which are subject to currency risk . in the year ended december 31 , 2010 , as compared to the year ended december 31 , 2009 , the usd was weaker on average as compared to the cad and aud ; the usd was stronger on average as compared to the gbp and eur . the following tables demonstrate the impact of currency fluctuations on our net revenue for the years ended december 31 , 2010 and 2009 : net revenue by location , including discontinued operations—in usd ( in thousands ) replace_table_token_10_th net revenue by location , including discontinued operations—in local currencies ( in thousands ) replace_table_token_11_th 1 europe includes only subsidiaries whose functional currency is the eur . 2 table includes revenues from discontinued operations which are subject to currency risk . 65 critical accounting policies to aid in the understanding of our financial reporting , our most critical accounting policies are described below . these policies have the potential to have a more significant impact on our financial statements , either because of the significance of the financial statement item to which they relate , or because they require judgment and estimation due to the uncertainty involved in measuring , at a specific point in time , events which are continuous in nature . revenue recognition and deferred revenue —net revenue is derived from carrying a mix of business , residential and carrier long-distance traffic , data and internet traffic , and also from the provision of local , data center and wireless services . for voice and international carrier services voip , net revenue is earned based on the number of minutes during a call and is recorded upon completion of a call , adjusted for allowance for doubtful accounts receivable , service credits and service adjustments . revenue for a period is calculated from information received through our network switches . customized software has been designed to track the information from the switch and analyze the call detail records against stored detailed information about revenue rates . this software provides us the ability to do a timely and accurate analysis of revenue earned in a period . separate prepaid services software is used to track additional information related to prepaid service usage such as activation date , monthly usage amounts , fees and charges , and expiration date . revenue on these prepaid services is recognized as service is provided until expiration , when all unused minutes , which are no longer available to the customers , are recognized as revenue . net revenue is also earned on a fixed monthly fee basis for unlimited local and long-distance plans and for the provision of data/internet ( including retail voip ) and hosting services . data/internet and hosting services include monthly fees collected for the provision of dedicated and dial-up access at various speeds and bandwidths and colocation services . these fees are recognized as access and colocation is provided on a monthly basis . additionally , service activation and installation fees are deferred and amortized over the longer of the average customer life or the contract term . we record payments received in advance for prepaid services and services to be provided under contractual agreements , such as internet broadband and dial-up access , as deferred revenue until such related services are provided . net revenue represents gross revenue , net of allowance for doubtful accounts receivable , service credits and service adjustments . allowance for doubtful accounts receivable— determining our allowance for doubtful accounts receivable requires significant estimates . due to the large number of customers that we serve , it is impractical to review the creditworthiness of each of our customers , although a credit review is performed for larger carrier and retail business customers . we consider a number of factors in determining the proper level of the allowance , including historical collection experience , current economic trends , the aging of the accounts receivable portfolio and changes in the creditworthiness of our customers . systems to detect fraudulent call activity are in place within our network , but if these systems fail to identify such activity , we may realize a higher degree of uncollectible accounts . cost of revenue— cost of revenue is comprised primarily of costs incurred from other domestic and foreign telecommunications carriers to originate , transport and terminate calls . the majority of our cost of revenue is variable , based upon the number of minutes of use , with transmission and termination costs being the most significant expense . call activity is tracked and analyzed with customized software that analyzes the traffic flowing through our network switches and calculates the variable cost of revenue with predetermined contractual rates . if the domestic or foreign telecommunications carriers have tracked and invoiced the volume of minutes at levels different than what our activity shows or have invoiced at different rates , we will dispute the charges invoiced . there is no guarantee that we will prevail in such disputes . we use significant estimates to determine the level of success in dispute resolution and

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liquidity and capital resources important long-term capital structure developments : exchange offers . on july 7 , 2011 , in connection with the consummation of the private ( i ) exchange offers ( the “exchange offers” ) for any and all outstanding units representing the 13 % senior secured notes due 2016 ( the “13 % notes” ) issued by primus telecommunications holding inc. ( “holding” ) and primus telecommunications canada inc. ( “primus canada” ) , and the 14 1 / 4 % senior subordinated secured notes due 2013 ( the “14 1 / 4 % notes” ) issued by primus telecommunications ihc , inc. ( “ihc” ) , ( ii ) consent solicitation ( the “consent solicitation” ) to amend the indenture governing the 13 % notes and release the collateral securing the 13 % notes , and ( iii ) related transactions , holding issued $ 240.2 million aggregate principal amount of 10 % senior secured notes due 2017 ( the “10 % notes” ) . an aggregate of $ 228.6 million principal amount of 10 % notes was issued pursuant to the exchange offers , and holding issued an additional $ 11.6 million aggregate principal amount of 10 % notes for cash , the proceeds of which were used to redeem all 14 1 / 4 % notes that were not exchanged pursuant to the exchange offers and thereby discharge all of our obligations with respect to the 14 1 / 4 % notes . in connection with the exchange offers , the company also incurred $ 6.9 million of third party costs which are included in gain ( loss ) on early extinguishment or restructuring of debt on the consolidated statement of operations . see “recent developments—recent developments involving existing notes that may impact future results and liquidity , ” above for further detail concerning the 10 % notes and the 10 % notes indenture . 14 1 / 4 % notes redemption and discharge . on april 15 , 2011 , ihc redeemed approximately $ 24.0 million principal amount of 14 1 / 4 % notes . there was $ 90.0 million aggregate principal amount of the 14 1 / 4 % notes remaining outstanding after this redemption .

we also sell complementary building products such as : ● vinyl siding ; ● doors , windows and millwork ; ● wood and fiber cement siding ; ● residential insulation ; and ● waterproofing systems . 19 of 65 the following is a summary of our net sales by product group ( in thousands ) for the last three full fiscal years ( “ 2011 ” , “ 2010 ” and “ 2009 ” ) . percentages may not total due to rounding . replace_table_token_5_th we have approximately 40,000 customers , none of which represents more than 2 % of our net sales . many of our customers are small to mid-size contractors with relatively limited capital resources . we maintain strict credit approval and review policies , which has helped to keep losses from customer receivables within our expectations . in 2011 , bad debts were slightly higher than normal levels at 0.4 % of net sales but still within our tolerance in consideration of the continued challenging economic and credit climate . our expenses consist primarily of the cost of products purchased for resale , labor , fleet , occupancy , and selling and administrative expenses . we compete for business and may respond to competitive pressures at times by lowering prices in order to maintain our market share . since 1997 , we have made twenty-five strategic and complementary acquisitions and opened 38 new branches ( two of which have been closed ) . we opened three new branches in 2011 , none in 2010 and three in 2009. we slowed the pace of new branch openings since 2007 , mostly as a result of the economic downturn . typically , when we open a new branch , we transfer a certain level of existing business from an existing branch to the new branch . this allows the new branch to commence with a base business and also allows the existing branch to target other growth opportunities . in managing our business , we consider all growth , including the opening of new branches , to be internal growth unless it is a result of an acquisition . in our management 's discussion and analysis of financial condition and results of operations , when we refer to growth in existing markets , we include growth from existing and newly-opened branches but exclude growth from acquired branches until they have been under our ownership for at least four full fiscal quarters at the start of the reporting period . our average annual internal sales growth over the seven fiscal years since our ipo was 3.1 % . when we refer to our net product costs , we are referring to our invoice cost less the impact of short-term buying programs ( also referred to as “ special buys ” given the manner in which they are offered ) . results of operations the following discussion compares our results of operations for 2011 , 2010 and 2009. the following table shows , for the periods indicated , information derived from our consolidated statements of operations expressed as a percentage of net sales for the periods presented . percentages may not total due to rounding . replace_table_token_6_th 20 of 65 2011 compared to 2010 the following table shows a summary of our results of operations for 2011 and 2010 , broken down by existing markets and acquired markets . replace_table_token_7_th net sales consolidated net sales increased $ 207.5 million , or 12.9 % , to $ 1,817.4 million in 2011 from $ 1,610.0 million in 2010. existing market sales increased $ 146.6 million or 9.3 % ( 8.8 % based on the same number of business days ) , while acquired market sales increased $ 60.9 million due to a full year 's sales impact from the 2010 acquisitions and the impact from the may 2011 enercon acquisition . we attribute the existing market sales increase primarily to the following factors : · strong growth in the markets affected by this spring 's hail storms ; · continued strong growth in non-residential roofing activity in most of the other regions ; and · industry-wide increases in asphalt shingle and other prices ; partially offset by : · volume declines in residential re-roofing activity in a few regions . in 2011 , we acquired six branches , opened three new branches , and closed three branches . we estimate the impact of inflation or deflation on our sales and gross profit by looking at changes in our net product costs and invoiced gross margins , and since last year we experienced an approximate 4 % increase in residential roofing product costs and approximately 4-7 % increases in non-residential and complementary product costs . the net impact of these factors increased our overall net product costs by approximately 5 % , although we believe average sales prices may have increased at a slightly higher rate as mentioned in the discussion of gross profit below . we had 254 business days in 2011 compared to 253 in 2010. net sales , excluding acquired branches , increased in every geographical region as follows : northeast 9.9 % ; mid-atlantic 8.5 % ; southeast 1.0 % ; southwest 6.0 % ; midwest 15.8 % ; west 18.7 % ; and canada 1.3 % . these variations were primarily caused by short-term factors such as local economic conditions , weather conditions and storm activity . the product group sales for our existing markets were as follows : for the fiscal years ended replace_table_token_8_th 21 of 65 for 2011 , our acquired markets recognized sales of $ 43.9 , $ 39.7 and $ 3.6 million in residential roofing products , non-residential roofing products and complementary building products , respectively . the 2011 existing market sales of $ 1,730.3 million plus the sales from acquired markets of $ 87.2 million agrees ( rounded ) to our reported total 2011 sales of $ 1,817.4 million . story_separator_special_tag we have funded our past capital expenditures through increased bank borrowings , including equipment financing , or through capital leases , and then have reduced these obligations with cash flows from operations . we believe we have adequate current liquidity and availability of capital to fund our present operations , meet our commitments on our existing debt and fund anticipated growth , including expansion in existing and targeted market areas . we continually seek potential acquisitions and from time to time hold discussions with acquisition candidates . if suitable acquisition opportunities or working capital needs arise that would require additional financing , we believe that our financial position and earnings history provide a strong base for obtaining additional financing resources at competitive rates and terms , as we have in the past . we may also issue additional shares of common stock to raise funds , which we did in december 2005 , or we may issue preferred stock . monitoring and assessing collectability of accounts receivable we perform periodic credit evaluations of our customers and typically do not require collateral , although we typically obtain payment and performance bonds for any type of public work and have the ability to lien projects under certain circumstances . consistent with industry practices , we require payment from most customers within 30 days , except for sales to our commercial roofing contractors , which we typically require to pay in 60 days . as our business is seasonal in certain regions , our customers ' businesses are also seasonal . sales are lowest in the winter months and our past due accounts receivable balance as a percentage of total receivables generally increases during this time . throughout the year , we closely monitor our receivables and record estimated reserves based upon our judgment of specific customer situations , aging of accounts and our historical write-offs of uncollectible accounts . 27 of 65 our regional credit offices are staffed to manage and monitor our receivable aging balances and our systems allow us to enforce pre-determined credit approval levels and properly leverage new business . the credit pre-approval process denotes the maximum requested credit amount that each level of management can approve , with the highest credit amount requiring approval by our ceo and cfo . there are daily communications with branch and field staff and the regional offices conduct periodic reviews with their branch managers , various regional management staff and the vp-credit . depending on the state of the respective region 's receivables , these reviews can be weekly , bi-weekly , or monthly . additionally , the regions are required to submit a monthly receivable forecast to the vp-credit . on a monthly basis , the vp-credit will review and discuss these forecasts , as well as a prior month recap , with the ceo and cfo . periodically , we perform a specific analysis of all accounts past due and write off account balances when we have exhausted reasonable collection efforts and determined that the likelihood of collection is remote based upon the following factors : aging statistics and trends ; customer payment history ; review of the customer 's financial statements when available ; independent credit reports ; and discussions with customers . we still pursue collection of amounts written off in certain circumstances and credit the allowance for any subsequent recoveries . in the past , bad debts typically averaged approximately 0.3 % of net sales . in 2011 , bad debts increased slightly to 0.4 % of net sales , which was still within our tolerance in consideration of the challenging economic and credit climate . indebtedness we currently have the following credit facilities : a senior secured credit facility in the u.s. ; a canadian senior secured credit facility ; and an equipment financing facility . senior secured credit facilities on november 2 , 2006 , we entered into an amended and restated seven-year $ 500 million u.s. senior secured credit facility and a c $ 15 million senior secured canadian credit facility with ge antares capital ( `` ge antares `` ) and a syndicate of other lenders ( combined , the `` credit facility `` ) . the credit facility refinanced the prior $ 370 million credit facilities that also were provided through ge antares . the credit facility provides us with lower interest rates and available funds for future acquisitions and ongoing working capital requirements . in addition , the credit facility increased the allowable total equipment financing and or capital lease financing to $ 35 million . the credit facility provides for a cash receipts lock-box arrangement that gives us sole control over the funds in lock-box accounts , unless excess availability is less than $ 10 million or an event of default occurs , in which case the senior secured lenders would have the right to take control over such funds and to apply such funds to repayment of the senior debt . the credit facility consists of a u.s. revolving credit facility of $ 150 million ( the `` us revolver `` ) , which includes a sub-facility of $ 20 million for letters of credit , and an initial $ 350 million term loan ( the `` term loan `` ) . the credit facility also includes a c $ 15 million senior secured revolving credit facility provided by ge canada finance holding company ( the `` canada revolver `` ) . there was a combined $ 159.7 million available for borrowings and less than $ 0.1 million was outstanding under the us revolver and canadian revolver at september 30 , 2011. there were $ 4.6 million of outstanding standby letters of credit at september 30 , 2011. the term loan requires amortization of 1 % per year , payable in quarterly installments of approximately $ 0.8 million , plus any required prepayments under the excess cash flow , discussed below , and with the remainder due in 2013.

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liquidity and capital resources we had cash and cash equivalents of $ 143.0 million at september 30 , 2011 compared to $ 117.1 million at september 30 , 2010. our net working capital was $ 410.8 million at september 30 , 2011 compared to $ 367.6 million at september 30 , 2010 . 2011 compared to 2010 our net cash provided by operating activities was $ 79.3 million in 2011 compared to $ 73.9 million in 2010. the higher cash from operations was due to the increase in net income of $ 24.7 million , mostly offset by cash used by working capital changes , net of the impact of businesses acquired . changes in working capital provided a favorable increase in accounts payable and accrued expenses of $ 53.0 million and a favorable decrease in prepaid expenses and other assets of $ 7.5 million . these were more than offset by unfavorable increases in accounts receivable and inventories of $ 35.3 and $ 35.0 million , respectively . the increase in accounts payable and accrued expenses was primarily due to a higher level of inventory purchases later this year and higher accrued income taxes . the increase in accounts receivable was due to stronger fourth quarter sales in 2011 as compared to 2010. our days sales outstanding ( calculated based on the ending accounts receivable balance and the most recent quarter 's sales ) were down slightly due to the stronger fourth quarter sales and a lower fourth-quarter mix of non-residential sales this year , which generally have longer payment terms . inventory turns were relatively flat year over year , as the impact of this year 's larger build-up of inventory was offset by the impact of the higher sales .

consumer borrowing rates , which are generally based on the same underlying benchmark interest rates , have increased over the past two years . if interest rates continue to rise , there may be an adverse impact on vehicle sales and vehicle affordability due to the direct relationship between interest rates and monthly loan payments , a critical factor for many vehicle buyers . 23 results of operations we had net income from continuing operations of $ 395.9 million and diluted earnings per share of $ 4.34 in 2018 , as compared to net income from continuing operations of $ 435.0 million and diluted earnings per share of $ 4.43 in 2017 , and net income from continuing operations of $ 431.7 million and diluted earnings per share of $ 4.16 in 2016 . our used vehicle gross profit increased 8 % , our finance and insurance gross profit increased 4 % , and our parts and service gross profit increased 4 % , each as compared to 2017 , due in part to our brand extension strategy . these increases were partially offset by a decrease in new vehicle gross profit of 12 % . our new vehicle unit volume and new vehicle gross profit on a per vehicle retailed ( “ pvr ” ) basis were adversely impacted by competitive market conditions , including disruptive manufacturer marketing and sales incentive programs and an increase in off-lease supply of late-model used vehicles , in a plateauing sales environment . sg & a expenses increased , as compared to 2017 , due to investments related to our brand extension strategy , as well as increases in costs associated with our self-insurance programs , including less favorable claims experience and higher premiums , deductibles , and hail-related losses . floorplan interest expense also increased as compared to the prior year period , primarily due to higher average interest rates . net income from continuing operations benefited from net after-tax gains related to store/property divestitures of $ 43.7 million in 2018 , $ 42.2 million in 2017 , and $ 30.1 million in 2016 , and after-tax gains of $ 8.7 million in 2018 related to certain legal settlements , $ 6.7 million in 2017 in connection with payments we received from manufacturers related to a legal settlement and for the waiver of certain franchise protest rights , and $ 8.9 million in 2016 related to legal settlements . in january 2019 , we announced a restructuring of certain of our corporate and regional organization as part of a plan to reduce our annual spending by approximately $ 50 million in preparation of a challenging automotive retail market in 2019. in connection with this restructuring , we recognized $ 9.4 million of restructuring expenses during the fourth quarter of 2018 , which is reflected as a component of our sg & a expenses . we expect to recognize additional expenses in the first quarter of 2019 related to this restructuring . chief executive officer transition on february 15 , 2019 , our board of directors appointed carl c. liebert iii as chief executive officer and president of autonation , and as a member of the board , effective as of march 11 , 2019. prior to his appointment , mr. liebert , age 53 , served as chief operating officer and executive vice president of united services automobile association ( “ usaa ” ) , where he was responsible for usaa 's business operations functions , including usaa 's bank , investment , life , property and casualty , real estate investment companies , and member contact functions . his responsibilities included delivering an integrated digital experience through usaa 's website , tablet , mobile devices , voice , and emerging channels . mr. liebert also previously served as president and chief executive officer of 24-hour fitness and as executive vice president , stores for the home depot . mike jackson , our current chairman , chief executive officer and president , will become our executive chairman until december 31 , 2021 , and he will no longer serve as our chief executive officer and president , effective as of march 11 , 2019. strategic initiatives we continue to implement our comprehensive , customer-focused brand extension strategy , which includes autonation-branded parts and accessories , autonation-branded customer financial services products ( including extended service and maintenance contracts and other vehicle protection products ) , the expansion of autonation-branded collision centers , autonation-branded automotive auctions , and autonation usa stand-alone used vehicle sales and service centers . during 2018 , we opened nine and acquired two collision centers , and we opened one automotive auction and two autonation usa stores . in october 2018 , we invested $ 50 million in vroom inc. , one of the largest online car retailers . our investment currently represents an equivalent ownership stake of approximately 7 % . in november 2018 , we announced a partnership with fair , the nation 's fastest growing car subscription company . our partnership with fair provides consumers with access to certain used and certified pre-owned vehicles at autonation dealerships , all through a mobile application . we also continue to partner with waymo , the self-driving technology company of alphabet inc. , in a multi-year agreement to support waymo 's autonomous vehicle program . we do not expect our agreements with waymo or fair or our investment in vroom to have a material effect on our financial results in the foreseeable future . 24 inventory management our new and used vehicle inventories are stated at the lower of cost or net realizable value in our consolidated balance sheets . we monitor our vehicle inventory levels based on current economic conditions and seasonal sales trends . story_separator_special_tag same store revenue pvr benefited from an increase in the average selling prices for vehicles in all three segments due in part to a shift in mix toward trucks and sport utility vehicles that have relatively higher average selling prices . this shift in mix is due to a combination of consumer preference , improved vehicle fuel efficiency , and relatively low average fuel prices . average selling prices also increased as a result of increases in the manufacturers ' suggested retail prices . same store gross profit pvr decreased during 2018 , as compared to 2017 , for all three segments resulting from competitive market conditions , including disruptive manufacturer marketing and sales incentive programs and an increase in off-lease supply of late-model used vehicles . 31 2017 compared to 2016 same store new vehicle revenue decreased during 2017 , as compared to 2016 , as a result of a decrease in same store unit volume , partially offset by an increase in revenue pvr . the decrease in same store unit volume was primarily due to declines in our florida and texas markets and overall competitive market conditions in a plateauing new vehicle sales environment , as well as certain manufacturers ' disruptive marketing and sales incentive programs . same store revenue pvr during 2017 benefited from an increase in the average selling prices for vehicles in all three segments . these increases were due in part to sustained low average fuel prices , which caused a shift in mix toward trucks and sport utility vehicles , which have relatively higher average selling prices . these increases were partially offset by a shift in mix toward import vehicles , which have relatively lower average selling prices . same store gross profit pvr decreased during 2017 , as compared to 2016 , primarily due to a decrease in gross profit pvr for domestic vehicles resulting from a competitive sales environment and certain manufacturers ' disruptive marketing and sales incentive programs . net new vehicle inventory carrying benefit ( cost ) the following table details net new vehicle inventory carrying benefit ( cost ) , consisting of new vehicle floorplan interest expense net of floorplan assistance earned ( amounts received from manufacturers specifically to support store financing of new vehicle inventory ) . floorplan assistance is accounted for as a component of new vehicle gross profit in accordance with u.s. generally accepted accounting principles . replace_table_token_11_th 2018 compared to 2017 during 2018 , we had a net new vehicle inventory carrying cost of $ 3.8 million compared to a net new vehicle inventory carrying benefit of $ 31.7 million in the prior year . up until the second quarter of 2018 , we had a net new vehicle inventory carrying benefit for nine consecutive years . floorplan interest rates are variable and therefore increase and decrease with changes in the underlying benchmark interest rates . with the increase in interest rates , our floorplan interest expense has increased , resulting in a net new vehicle inventory carrying cost for 2018 . if interest rates continue to increase without a corresponding increase in floorplan assistance or a decrease in average new vehicle inventory levels , we would expect that we will continue to incur a net new vehicle inventory carrying cost . 2017 compared to 2016 the net new vehicle inventory carrying benefit decreased in 2017 , as compared to 2016 , primarily due to an increase in floorplan interest expense . floorplan interest expense increased due to higher average interest rates , partially offset by lower average vehicle floorplan payable balances during 2017 . 32 used vehicle replace_table_token_12_th replace_table_token_13_th the following discussion of used vehicle results is on a same store basis . the difference between reported amounts and same store amounts in the above tables of $ 158.0 million , $ 179.3 million , and $ 148.0 million in retail used vehicle revenue and $ 8.1 million , $ 11.3 million , and $ 11.1 million in retail used vehicle gross profit for 2018 , 2017 , and 2016 , respectively , is related to acquisition and divestiture activity , as well as the opening of new add-points , autonation usa stores , and automotive auctions . 2018 compared to 2017 same store retail used vehicle revenue increased during 2018 , as compared to 2017 , as a result of increases in same store revenue pvr and same store retail unit volume . same store unit volume increased in the premium luxury and import segments due in part to the continued acceptance of our one price centralized pricing and appraisal strategy and an 33 increase in off-lease supply of late-model used vehicles . same store unit volume in the prior year was adversely impacted by declines in our florida markets , due in part to temporary store closures as a result of hurricane irma . same store revenue pvr increased during 2018 , as compared to 2017 , due in part to an increase in off-lease supply of late-model used vehicles and a shift in mix toward premium luxury vehicles and trucks and sport utility vehicles , all of which have relatively higher average selling prices . the shift in mix toward trucks and sport utility vehicles is due to a combination of consumer preference , improved vehicle fuel efficiency , and relatively low average fuel prices . same store gross profit pvr increased during 2018 , as compared to 2017 , due in part to the continued acceptance of our one price centralized pricing and appraisal strategy . in the prior year , gross profit pvr was adversely impacted by implementation challenges with our one price centralized pricing and appraisal strategy . same store gross profit pvr also benefited from a shift in mix toward premium luxury vehicles , which have relatively higher average gross profit pvrs . 2017 compared to 2016 same store retail used vehicle revenue increased during 2017 , as compared to 2016 , as

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cash flows from financing activities net cash flows from financing activities primarily include repurchases of common stock , debt activity , changes in vehicle floorplan payable-non-trade , and proceeds from stock option exercises . 2018 compared to 2017 net cash flows from financing activities during 2018 , as compared to 2017 , were impacted by the repayment of the outstanding $ 400.0 million of 6.75 % senior notes in 2018 and the debt activity that occurred in 2017. during 2017 , we amended and restated our existing unsecured credit agreement , and we also issued $ 450.0 million aggregate principal amount of 3.5 % senior notes due 2024 and $ 300.0 million aggregate principal amount of 3.8 % senior notes due 2027. cash flows from financing activities in 2017 reflect cash payments of $ 13.5 million for debt issuance costs for these transactions that are being amortized to interest expense over the terms of the related debt arrangements . during 2017 , we also repaid our mortgage facility . our mortgage facility required monthly principal and interest payments of $ 1.6 million based on a fixed amortization schedule with a balloon payment of $ 143.9 million , which was paid in the fourth quarter of 2017. cash flows from financing activities include changes in commercial paper notes outstanding totaling net proceeds of $ 300.0 million during 2018 and net repayments of $ 612.0 million during 2017 , as well as changes in vehicle floorplan payable-non-trade totaling net repayments of $ 34.2 million during 2018 compared to net proceeds of $ 130.2 million in 2017 . during 2018 , we repurchased 2.1 million shares of common stock for an aggregate purchase price of $ 100.0 million ( average purchase price per share of $ 47.58 ) . during 2017 , we repurchased 10.1 million shares of our common stock for an aggregate purchase price of $ 434.9 million ( average purchase price per share of $ 42.99 ) . during 2018 , we had no borrowings or repayments under our revolving credit facility . during 2017 , we borrowed $ 1.3 billion and repaid $ 1.3 billion under our revolving credit facility .

our reputation as an innovator is exemplified by recent new product introductions such as the y-knot® flex system for instability repairs featuring the smallest double-loaded ( 1.8mm ) anchors available and curved , flexible instrumentation to help 21 surgeons achieve ideal anchor placement and the y-knot® rc anchors for rotator cuffs are the world 's only self-punching all-suture anchors which helps simplify techniques while its small size is designed to improve placement options ; the new d4000 resection system featuring an intuitive touchscreen display and direct pump integration for a seamless clinical experience ; the im8000 2dhd camera system can be used in multi-specialty procedures and includes a new autoclavable camera head featuring proprietary cmos technology for clear , crisp imagery and a new ls8000 led light source providing improved light sensitivity for clearer visualization ; the new hall 50 powered instrument system can be used in total joint replacements featuring lighter , ergonomically-designed handpieces to provide a comfortable , high-performance clinical experience while the new hall ul-approved autoclavable lithium batteries deliver dependable , long-lasting power and the unique , multi-tray system also provides hospitals with new levels of sterilization convenience ; the new gs2000 50l insufflator features the market 's fastest flow rate and a dual-tank shuttle valve system to help provide clear and consistent laparoscopic visualization ; the entriport line of trocars help deliver effective sealing and clear visualization in a wide range of sizes optimal for nearly every minimally invasive abdominal surgical application ; our new d-flex probes were designed for use with the da vinci® surgical system and enable non-contact hemostasis with argon gas and our detachatip® iii multi-use endosurgery instruments offer the optimal blend of performance and cost efficiency - combining precise , reliable , and comfortable performance with dramatically reduced procedural costs . business challenges significant volatility in the financial markets and foreign currency exchange rates as well as depressed economic conditions in both domestic and international markets , have presented significant business challenges since the second half of 2008. while we returned to revenue growth in 2010 , 2011 and 2012 , we experienced a sales decline during 2013. we are cautiously optimistic that the domestic economic environment is improving , however conditions in europe and elsewhere may present significant business challenges for the company . while there can be no assurance that improvement in the overall economic environment will be sustained , we will continue to monitor and manage the impact of the overall economic environment on the company . over the past few years we successfully completed certain of our operational restructuring plans whereby we consolidated manufacturing and distribution centers as well as restructured certain of our administrative functions . we continue to restructure both operations and administrative functions as necessary throughout the organization . however , we can not be certain such activities will be completed in the estimated time period or that planned cost savings will be achieved . our facilities are subject to periodic inspection by the united states food and drug administration ( “ fda ” ) and foreign regulatory agencies or notified bodies for , among other things , conformance to quality system regulation and current good manufacturing practice ( “ cgmp ” ) requirements and foreign or international standards . we are committed to the principles and strategies of systems-based quality management for improved cgmp compliance , operational performance and efficiencies through our company-wide quality systems initiatives . however , there can be no assurance that our actions will ensure that we will not receive a warning letter or be the subject of other regulatory action , which may include consent decrees or fines , that we will not conduct product recalls or that we will not experience temporary or extended periods during which we may not be able to sell products in foreign countries . during the third quarter of 2013 , the fda inspected our centennial , co manufacturing facility and issued a form 483 with observations on september 20 , 2013. the company subsequently submitted responses to the observations , and the fda issued a warning letter on january 30 , 2014 relating to the inspection and the responses to the form 483 observations . accordingly , we are undertaking corrective actions that may involve additional costs for the company . these remediation costs are not expected to be material , however there can be no assurance that the actions undertaken by the company will ensure that the company will not undertake recalls , voluntary or otherwise , nor can there be any assurance that a future inspection by the fda will not result in an additional form 483 or warning letter , or other regulatory actions which may include consent decrees or fines . critical accounting policies preparation of our financial statements requires us to make estimates and assumptions which affect the reported amounts of assets , liabilities , revenues and expenses . note 1 to the consolidated financial statements describes the significant accounting policies used in preparation of the consolidated financial statements . the most significant areas involving management judgments and estimates are described below and are considered by management to be critical to understanding the financial condition and results of operations of conmed corporation . revenue recognition revenue is recognized when title has been transferred to the customer which is at the time of shipment . the following policies apply to our major categories of revenue transactions : 22 sales to customers are evidenced by firm purchase orders . title and the risks and rewards of ownership are transferred to the customer when product is shipped under our stated shipping terms . payment by the customer is due under fixed payment terms and collectability is reasonably assured . we place certain of our capital equipment with customers on a loaned basis in return for commitments to purchase related single-use products over time periods generally ranging from one to three years . story_separator_special_tag in accordance with the patient protection and affordable care act and health care and education affordability reconciliation act , the company was required in 2013 to begin paying a 2.3 % excise tax imposed upon sales within the u.s. of certain medical device products . the medical device excise tax expense totaled $ 5.9 million in 2013 . 26 as discussed in note 11 to the consolidated financial statements , other expense in 2013 consisted of an $ 8.8 million charge related to administrative consolidation expenses , $ 3.2 million in legal costs associated with a patent infringement claim and a $ 1.4 million pension settlement expense as further described in note 10. other expense in 2012 consisted of a $ 6.5 million charge related to administrative consolidation expenses , a $ 0.7 million charge related to the purchase of the company 's former distributor for the nordic region of europe , $ 1.6 million in costs associated with a contractual dispute with a former distributor and $ 1.2 million in costs associated with the purchase of viking systems , inc .. as discussed in note 5 to the consolidated financial statements , we entered into an amended and restated senior credit agreement on january 17 , 2013. in connection with the refinancing , we recorded a $ 0.3 million loss on the early extinguishment of debt related to the write-off of unamortized deferred financing costs under the then existing senior credit agreement . interest expense was $ 5.6 million in 2013 compared to $ 5.7 million in 2012 . the decrease in interest expense is due to lower weighted average interest rates on higher weighted average borrowings outstanding in 2013 as compared to the same period a year ago . the weighted average interest rates on our borrowings decreased to 2.39 % in 2013 as compared to 3.03 % in 2012 . a provision for income taxes was recorded at an effective rate of 29.0 % in 2013 and 31.9 % in 2012 as compared to the federal statutory rate of 35.0 % . the effective tax rate is lower than that recorded in the same period a year ago as a result of a greater proportion of earnings in foreign jurisdictions where the corporate tax rate and deduction for notional interest on equity allowed against taxable profits in europe result in effective tax rates lower than the statutory rate , tax benefits recorded in the third quarter of 2013 as a result of taxing authority determinations , and tax benefits related to business tax provisions , including the research and development credit ( $ 0.8 million ) , that were enacted in the first quarter of 2013 , retroactive to january 1 , 2012. a reconciliation of the united states statutory income tax rate to our effective tax rate is included in note 6 to the consolidated financial statements . 2012 compared to 2011 sales for 2012 were $ 767.1 million , an increase of $ 42.0 million ( 5.8 % ) compared to sales of $ 725.1 million in 2011 with the increases in our orthopedic surgery and surgical visualization product lines . the distribution agreement with musculoskeletal transplant foundation ( `` mtf `` ) accounted for a 3.9 % annual sales increase . in local currency , excluding the effects of the hedging program , sales increased 5.7 % . sales of capital equipment decreased $ 6.1 million ( -3.8 % ) to $ 155.9 million in 2012 from $ 162.0 million in 2011 ; sales of single-use products increased $ 48.1 million ( 8.5 % ) to $ 611.2 million in 2012 from $ 563.1 million in 2011 . in local currency , excluding the effects of the hedging program , sales of capital equipment decreased 3.7 % while single-use products increased 8.4 % . we believe the overall decline in capital sales is driven by capital purchasing constraints in hospitals due to depressed economic conditions . orthopedic surgery sales increased $ 42.7 million ( 11.5 % ) in 2012 to $ 413.9 million from $ 371.2 million in 2011 mainly due to the distribution agreement with mtf , increased sales of our procedure specific , large bone burs and blades and small bone handpiece product offerings . in local currency , excluding the effects of the hedging program sales increased 11.4 % . general surgery sales decreased $ 0.8 million ( -0.3 % ) in 2012 to $ 286.6 million from $ 287.4 million in 2011 mainly due to lower sales in our patient monitoring products and advanced energy products offset by increases in our gastrointestinal and pulmonary products . in local currency , excluding the effects of the hedging program , sales decreased -0.4 % . surgical visualization sales remained relatively flat , with a $ 0.1 million ( 0.2 % ) increase in 2012 to $ 66.6 million from $ 66.5 million in 2011 due to higher video systems sales . in local currency , excluding the effects of the hedging program , sales increased 0.7 % . cost of sales increased to $ 361.3 million in 2012 as compared to $ 350.1 million in 2011 . gross profit margins increased 1.2 percentage points to 52.9 % in 2012 as compared to 51.7 % in 2011 . the increase in gross profit margins of 1.2 percentage points is primarily a result of the distribution agreement we entered into during 2012 with mtf as further described in note 4 to the consolidated financial statements ( 1.5 percentage points ) and product mix offset by the impact of unfavorable foreign exchange rates on sales and higher restructuring charges than the same period a year ago . selling and administrative expense increased to $ 302.5 million in 2012 compared to $ 276.6 million in 2011 . selling and administrative expense as a percentage of net sales increased to 39.4 % in 2012 from 38.1 % in 2011 . this increase of 1.3 percentage points is

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liquidity and capital resources our liquidity needs arise primarily from capital investments , working capital requirements and payments on indebtedness under the amended and restated senior credit agreement , described below . we have historically met these liquidity requirements with funds generated from operations and borrowings under our revolving credit facility . in addition , we have historically used term borrowings , including borrowings under the amended and restated senior credit agreement and borrowings under separate loan facilities , in the case of real property purchases , to finance our acquisitions . we also have the ability to raise funds through the sale of stock or we may issue debt through a private placement or public offering . we believe that our cash on hand , cash from operating activities and proceeds from our amended and restated senior credit agreement provide us with sufficient financial resources to meet our anticipated capital requirements and obligations as they come due . we had total cash on hand at december 31 , 2013 of $ 54.4 million , of which approximately $ 45.2 million was held by our foreign subsidiaries outside the united states with unremitted earnings . during the fourth quarter of 2011 , we repatriated $ 16.2 million of foreign earnings to the united states . we do not currently intend to repatriate additional funds held outside of the united states in the foreseeable future . if we were to repatriate these funds , we would be required to accrue and pay taxes on such amounts . operating cash flows our net working capital position was $ 260.9 million at december 31 , 2013 . net cash provided by operating activities was $ 103.0 million in 2011 , $ 95.2 million in 2012 and $ 80.9 million in 2013 generated on net income of $ 0.8 million in 2011 , $ 40.5 million in 2012 and $ 35.9 million in 2013 .

visitor arrivals to hawaii , the primary driver of increases in demand for gas in hawaii , improved gradually during the fourth quarter over the third quarter following quarantine exemption for visitors with evidence of a negative covid-19 test prior to arrival in the islands , however further improvement is uncertain . the approval of multiple covid-19 vaccines may reduce the duration of the pandemic , however , the availability , distribution , and willingness of the public to accept the vaccines is also uncertain . further , changes in consumer travel preferences , the availability of commercial flights , and other factors remain unknown . to ensure that each of atlantic aviation and hawaii gas are prudently managing their liquidity and mitigating the impact of reduced activity levels , the businesses have implemented cost saving initiatives including hiring freezes , reductions in regular hours and overtime , furloughs , deferral of maintenance and repair work where such deferral will not jeopardize regulatory compliance or safety , and reductions in other general and administrative expenses . we believe these actions will support the liquidity of both businesses and , together with cash generated from operations , will be sufficient to fund their ongoing operations and the growth projects to which they have committed . to increase our available cash at the onset of the pandemic , we drew on certain of our revolving credit facilities that added to our approximately $ 300 million of cash on hand in mid-march . we drew $ 599 million on our holding company revolving credit facility and $ 275 million on the atlantic aviation revolving credit facility in mid-march . the $ 275 million drawn on the 40 results of operations : consolidated — ( continued ) atlantic aviation revolving credit facility was subsequently repaid on april 30 , 2020. on may 4 , 2020 , the atlantic aviation revolving credit facility commitments were reduced to $ 10 million , and further reduced to $ 1 million by december 31 , 2020 , solely with respect to letters of credit then outstanding . during the second half of 2020 , we fully repaid the drawn balance on our holding company revolving credit facility . we remain confident in our ability to fund our ongoing operations , meet our financial obligations , and fund the various investments to which our businesses have committed . our sources of funding include $ 328 million of cash we had on hand on december 31 , 2020 and the cash we expect our operating businesses to generate in 2021. the cash on hand at december 31 , 2020 is net of amounts reserved for : ( i ) the payment of the special dividend of $ 11.00 per share in january 2021 ; ( ii ) the payment of capital gains taxes and transaction costs related to the imtt transaction ; and ( iii ) the retirement of holding company debt . as of december 31 , 2020 , there had been no material deterioration in accounts receivable at any of our operating businesses . if the economic impact of the pandemic is protracted , collection times and the value of uncollectible accounts could increase . results of operations : 2019 vs. 2018 during the quarter ended september 30 , 2020 , imtt was classified as a discontinued operation and eliminated as a reportable segment . all periods reported herein reflect this change . for additional information , see note 4 , “ discontinued operations and dispositions ” , in our consolidated financial statements in `` financial statements and supplementary data `` in part ii , item 8 , of this form 10-k. unless specified below , for a comparison and discussion of our consolidated and operating businesses ' results of operations for 2019 compared with 2018 , see `` management 's discussion and analysis of financial condition and results of operations `` in part ii , item 7 , in our annual report on form 10-k for the year ended december 31 , 2019 , which was filed with the u.s. securities and exchange commission on february 25 , 2020 . 41 results of operations : consolidated — ( continued ) our consolidated results of operations for 2020 compared with 2019 are as follows : replace_table_token_4_th nm — not meaningful ( 1 ) interest expense includes non-cash losses on derivative instruments of $ 5 million and $ 8 million in 2020 and 2019 , respectively 42 results of operations : consolidated — ( continued ) revenue consolidated revenues decreased in 2020 compared with 2019 primarily as a result of : ( i ) a decrease in the amount of jet fuel and gas sold by atlantic aviation and mic hawaii , respectively , due to the impact of covid-19 ; and ( ii ) a lower wholesale cost of jet fuel and gas . cost of services and product sales consolidated cost of services and cost of product sales decreased in 2020 compared with 2019 primarily as a result of : ( i ) a decrease in the amount of jet fuel and gas sold by atlantic aviation and mic hawaii , respectively , due to the impact of covid-19 ; ( ii ) a lower wholesale cost of jet fuel and gas ; and ( iii ) a favorable mark-to-market adjustment of the value of the commodity hedge contracts on hawaii gas ' balance sheet ( see “ results of operations — mic hawaii ” below ) . story_separator_special_tag based on the contribution of each fbo to atlantic aviation 's results in 2019 , the ebitda weighted remaining lease life in 2020 would have been 20.1 years . 47 results of operations : atlantic aviation — ( continued ) replace_table_token_7_th ( 1 ) interest expense , net , includes non-cash adjustments to derivative instruments and non-cash amortization of deferred financing fees . ( 2 ) other non-cash expense , net , includes primarily non-cash compensation expense incurred in relation to incentive plans and non-cash gains ( losses ) related to the write-off or disposal of assets or liabilities . other non-cash expense , net , excludes the adjustment to bad debt expense related to the specific reserve component , net of recoveries , for which this adjustment is reported in working capital in the above table . see “ earnings before interest , taxes , depreciation , and amortization ( ebitda ) excluding non-cash items and free cash flow ” above for further discussion . atlantic aviation generates most of its revenue from sales of jet fuel at facilities located on the 69 u.s. airports on which the business operates . increases and decreases in the cost of jet fuel are generally passed through to customers . atlantic aviation seeks to maintain and , where appropriate , increase dollar-based margins on jet fuel sales . accordingly , reported revenue will fluctuate based on the cost of jet fuel to atlantic aviation and may not reflect the business ' ability to effectively manage the amount of jet fuel sold and the margin achieved on those sales . for example , an increase in revenue may be attributable to an increase in the cost of jet fuel and not an increase in the amount of jet fuel sold or 48 results of operations : atlantic aviation — ( continued ) margin per gallon . conversely , a decline in revenue may be attributable to a decrease in the cost of jet fuel and not a reduction in the amount of jet fuel sold or margin per gallon . gross margin , which we define as revenue less cost of services , excluding depreciation and amortization , is the effective “ top line ” for atlantic aviation as it reflects the business ' ability to drive growth in the amount of products and services sold and the margins earned on those sales over time . we believe that our investors view gross margin as reflective of our ability to manage the amount and price of jet fuel sold , notwithstanding variances in the wholesale cost of fuel through the commodity cycle . gross margin can be reconciled to operating income — the most comparable gaap measure — by subtracting selling , general and administrative expenses and depreciation and amortization in the table above . revenue and gross margin revenue decreased for 2020 compared with 2019 due to a reduction in the amount of jet fuel sold , a decrease in ancillary services provided and , to a lesser extent , a reduction in rental revenue . the decrease in rental revenue was attributable to a reduced number of short-term and overnight hangar rentals and aircraft parking , partially offset by the increase in rental revenue from base tenants versus the prior year . the reduced amount of revenue also reflected the lower wholesale cost of jet fuel during 2020 compared with 2019. in general , the decrease in the wholesale cost of jet fuel is typically reflected in a corresponding decrease in cost of services , resulting in no impact to gross margin . selling , general and administrative expenses selling , general and administrative expenses decreased for 2020 versus 2019 , primarily due to lower salaries and benefits , maintenance and repair costs , and credit card fees . the decrease in selling , general and administrative expenses for 2020 was partially offset by a $ 7 million provision for costs ( in excess of insurance recoveries ) of remediating certain environmental matters . excluding this provision , selling , general and administrative expenses would have been approximately $ 22 million lower for 2020 compared with 2019. depreciation and amortization depreciation and amortization decreased for 2020 compared with 2019 primarily due to the full amortization of certain airport contract rights , partially offset by assets placed in service . operating income operating income decreased for 2020 compared with 2019 due to the decrease in gross margin , partially offset by the decrease in selling , general and administrative expenses and depreciation and amortization . interest expense , net interest expense , net , includes non-cash losses on derivative instruments of $ 4 million for 2020 compared with non-cash losses of $ 7 million for 2019 , respectively , and amortization of deferred financing costs . excluding these non-cash adjustments , cash interest expense totaled $ 45 million and $ 58 million in 2020 and 2019 , respectively . the decrease in cash interest expense primarily reflects a lower weighted average interest rate . income taxes the taxable income generated by atlantic aviation is reported on our consolidated federal income tax return . the business files standalone state income tax returns in most of the states in which it operates . the tax expense in the table above includes both state income taxes and the portion of the consolidated federal income tax liability attributable to the business . the provision for current income taxes of $ 5 million for 2020 in the above table includes $ 3 million of state income tax expense and $ 2 million of federal income tax expense . atlantic aviation has state nol carryforwards that are specific to the state in which they were generated . the utilization of nol carryforwards may reduce or eliminate state taxable income in the future . maintenance capital expenditures atlantic aviation incurred maintenance capital expenditures of $ 13 million and $ 15 million on an accrual basis and cash basis ,

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liquidity and capital resources general cash requirements of our remaining operating businesses include primarily normal operating expenses , debt service , debt principal payments , payments of dividends to our holding company , and capital expenditures . their source of cash has been primarily operating activities although we have drawn on and may in the future draw on credit facilities , have issued and may in the future issue new equity or debt , and have sold and may in the future sell assets to generate cash . we may from time to time seek to purchase or retire our outstanding debt in open market purchases , privately negotiated transactions or otherwise . such repurchases , if any , could be material and will depend on market conditions , our liquidity needs , and other factors . response to covid-19 on march 17 , 2020 , we drew a total of $ 874 million on two revolving credit facilities . we drew $ 599 million on our $ 600 million holding company level revolving credit facility and drew $ 275 million on the $ 350 million revolving credit facility at atlantic aviation . the proceeds were additive to our approximately $ 300 million of cash on hand in mid-march 2020. the drawdowns were deemed prudent to preserve financial flexibility in light of the disruption and uncertainty surrounding the impact of covid-19 on our businesses . in addition to drawing on our revolving credit facilities , we determined to improve our liquidity and financial flexibility by suspending our quarterly dividend .

33 key business measures we track our results of operations and manage our business using the following key business measures , which include non-gaap financial measures : same-restaurant sales - we report same-restaurant sales commencing after new restaurants have been open for 15 continuous months and as soon as reimaged restaurants reopen . this methodology is consistent with the metric used by our management for internal reporting and analysis . the table summarizing same-restaurant sales below in “ results of operations ” provides the same-restaurant sales percent changes . same-restaurant sales exclude the impact of currency translation . restaurant margin - we define restaurant margin as sales from company-operated restaurants less cost of sales divided by sales from company-operated restaurants . cost of sales includes food and paper , restaurant labor and occupancy , advertising and other operating costs . restaurant margin is influenced by factors such as price increases , the effectiveness of our advertising and marketing initiatives , featured products , product mix , fluctuations in food and labor costs , restaurant openings , remodels and closures and the level of our fixed and semi-variable costs . systemwide sales - systemwide sales is a non-gaap financial measure , which includes sales by both company-operated restaurants and franchised restaurants . franchised restaurants ' sales are reported by our franchisees and represent their revenues from sales at franchised wendy 's restaurants . the company 's consolidated financial statements do not include sales by franchised restaurants to their customers . the company believes systemwide sales data is useful in assessing consumer demand for the company 's products , the overall success of the wendy 's brand and , ultimately , the performance of the company . the company 's royalty revenues are computed as percentages of sales made by wendy 's franchisees . as a result , sales by wendy 's franchisees have a direct effect on the company 's royalty revenues and therefore on the company 's profitability . average unit volumes - we calculate company-operated restaurant average unit volumes by summing the average weekly sales of all company-operated restaurants which reported sales during the week . franchised restaurant average unit volumes is a non-gaap financial measure , which includes sales by franchised restaurants , which are reported by our franchisees and represent their revenues from sales at franchised wendy 's restaurants . the company 's consolidated financial statements do not include sales by franchised restaurants to their customers . the company believes franchised restaurant average unit volumes is useful information for the same reasons described above for “ systemwide sales . ” we calculate franchised restaurant average unit volumes by summing the average weekly sales of all franchised restaurants which reported sales during the week . the company calculates same-restaurant sales and systemwide sales on a constant currency basis . constant currency results exclude the impact of foreign currency translation and are derived by translating current year results at prior year average exchange rates . the company believes excluding the impact of foreign currency translation provides better year over year comparability . the non-gaap financial measures discussed above do not replace the presentation of the company 's financial results in accordance with gaap . because all companies do not calculate non-gaap financial measures in the same way , these measures as used by other companies may not be consistent with the way the company calculates such measures . system optimization initiative in july 2013 , the company announced a system optimization initiative , as part of its brand transformation , which includes a shift from company-operated restaurants to franchised restaurants over time , through acquisitions and dispositions , as well as facilitating franchisee-to-franchisee restaurant transfers . in february 2015 , the company announced plans to reduce its ongoing company-operated restaurant ownership to approximately 5 % of the total system , which the company completed as of january 1 , 2017 . in 2017 , the company facilitated the transfer of 400 restaurants between franchisees ( excluding the davco and npc transactions discussed below ) . while the company has no plans to reduce its ownership below the 5 % level , wendy 's will continue to optimize its system by facilitating franchisee-to-franchisee restaurant transfers , as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of company-operated restaurants to existing and new franchisees , to further strengthen the franchisee base and drive new restaurant development and accelerate reimages in the image activation format . 34 davco and npc transactions as part of our system optimization initiative , the company acquired 140 wendy 's restaurants on may 31 , 2017 from davco restaurants , llc ( “ davco ” ) for total net cash consideration of $ 86.8 million , which were immediately sold to npc international , inc. ( “ npc ” ) , an existing franchisee of the company , for cash proceeds of $ 70.7 million ( the “ davco and npc transactions ” ) . as part of the transaction , npc has agreed to remodel 90 acquired restaurants in the image activation format by the end of 2021 and build 15 new wendy 's restaurants by the end of 2022. prior to closing the davco transaction , seven davco restaurants were closed . the acquisition of wendy 's restaurants from davco was not contingent on executing the sale agreement with npc ; as such , the company accounted for the transactions as an acquisition and subsequent disposition of a business . as part of the transactions , the company retained leases for purposes of subleasing such properties to npc . as a result of the transactions , the company recognized a loss of $ 43.6 million during 2017. costs related to dispositions under our system optimization initiative are recorded to “ reorganization and realignment costs . story_separator_special_tag net income , which resulted in a benefit of $ 5.2 million in 2017 ( see note 1 of the financial statements and supplementary data contained in item 8 herein for further discussion ) . in our initial analysis of the impact of the tax act , we have recorded a discrete net tax benefit of $ 140.4 million for the year ended december 31 , 2017. this net benefit primarily consists of a benefit of $ 164.9 million for the impact of the corporate rate reduction on our net deferred tax liabilities , partially offset by a net expense of $ 22.2 million for the international-related provisions , including the transition tax ( and the related impact to our recorded valuation allowance ) and deferred taxes recorded on foreign earnings previously considered permanently reinvested . the company has recognized the provisional tax impacts related to the revaluation of deferred tax assets and liabilities and the transition tax and included these amounts in its consolidated financial statements for the year ended december 31 , 2017. the ultimate impact may differ from these provisional amounts , possibly materially , due to , among other things , additional analysis , changes in interpretations and assumptions the company has made and additional regulatory guidance that may be issued . the company is not able to determine a provisional estimate for the global intangible low-taxed income ( “ gilti ” ) tax and , therefore , has not provided any deferred tax impacts of gilti in its consolidated financial statements for the year ended december 31 , 2017. the impact of our system optimization initiative on the provision for income taxes included the effects of the disposition of non-deductible goodwill , and changes to our state deferred taxes and valuation allowances on state net operating losses caused by the shifting relative taxable presence in the various states as our system optimization initiative is executed . these items , which are non-recurring , increased the provision for income taxes by $ 15.0 million , $ 2.8 million and $ 15.1 million during 2017 , 2016 and 2015 , respectively . based on certain provisions contained in the tax act , the unrepatriated earnings of foreign subsidiaries , primarily canadian , are no longer considered permanently invested outside of the u.s. as of december 31 , 2017 , we have provided a deferred foreign tax provision of $ 1.8 million on these unrepatriated earnings . net income from discontinued operations year ended 2015 income from discontinued operations before income taxes $ 14.9 provision for income taxes ( 4.4 ) income from discontinued operations , net of income taxes 10.5 gain on disposal of discontinued operations before income taxes 25.5 provision for income taxes on gain on disposal ( 14.9 ) gain on disposal of discontinued operations , net of income taxes 10.6 net income from discontinued operations $ 21.1 on may 31 , 2015 , wendy 's completed the sale of 100 % of its membership interest in the new bakery company , llc and its subsidiaries ( collectively , the “ bakery ” ) to east balt us , llc ( the “ buyer ” ) for $ 78.5 million in cash ( subject to customary purchase price adjustments ) . as a result of the sale , the bakery 's results of operations for the period from december 29 , 2014 through may 31 , 2015 have been included in “ income from discontinued operations , net of income taxes ” in the table above . the company recognized a gain on the disposal of the bakery of $ 10.6 million , net of income tax expense of $ 14.9 million which has been included in net income from discontinued operations . the provision for income taxes on the gain on disposal includes the impact of non-deductible goodwill disposed of as a result of the sale . 43 outlook for 2018 sales we expect sales will be favorably impacted primarily by improving our north america business through continuing core menu improvement , product innovation , strategic price increases on our menu items and focused execution of operational excellence and brand positioning . in addition , sales are expected to benefit from new restaurant openings and higher sales growth at our new and remodeled image activation restaurants . franchise royalty revenue and fees we expect that the sales trends for franchised restaurants will continue to be generally benefited by the factors described above under “ sales ” related to the improvements in the north america business . franchise fees will be negatively impacted by fewer franchisee-to-franchisee restaurant transfers under our system optimization initiative . beginning in 2018 , franchisee-to-franchisee restaurant transfers will be referred to as franchise flips . in addition , the company plans to be more selectively involved in the related real estate in these transactions . lastly , franchise fees in 2018 will be negatively impacted by the new revenue recognition guidance . see “ item 8. financial statements and supplementary data , ” note 1 to the consolidated financial statements , for further information on the new revenue recognition guidance . franchise rental income the impact of facilitating franchisee-to-franchisee restaurant transfers under our system optimization initiative during 2017 will continue to result in increased franchise rental income . cost of sales we expect cost of sales , as a percent of sales , will be favorably impacted by the same factors described above for sales . we expect these favorable impacts on cost of sales , as a percent of sales , to be partially offset by higher restaurant labor due to increases in wages , as well as an increase in commodity costs . general and administrative we expect general and administrative expense will be favorably impacted by the may 2017 g & a realignment plan . depreciation and amortization the impact of capital leases resulting from facilitating franchisee-to-franchisee restaurant transfers during 2017 will result in a slight increase in

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cash provided by operating activities increased $ 62.7 million during 2017 as compared to 2016 , due to an increase of $ 55.8 million in net income adjusted for non-cash expenses and a favorable change in operating assets and liabilities of $ 6.9 million . the favorable change in operating assets and liabilities resulted primarily from a decrease in income tax payments , net of refunds and a decrease in payments for incentive compensation for the 2016 fiscal year . cash provided by operating activities decreased $ 85.4 million during 2016 as compared to 2015 , due to a decrease of $ 145.9 million in net income adjusted for non-cash expenses , partially offset by a favorable change in operating assets and liabilities of $ 60.5 million . the favorable change in operating assets and liabilities resulted from ( 1 ) an increase as a result of cash restricted for the payment of interest under our securitized financing facility during the second quarter of 2015 , ( 2 ) an increase in real estate and property tax receivables in 2015 as a result of an increase in franchise restaurants in connection with our system optimization initiative and ( 3 ) a decrease in receivables for income tax refunds . these favorable changes were partially offset by the unfavorable impact of a decrease in the incentive compensation accrual for the 2016 fiscal year due to weaker operating performance as compared to plan in 2016 versus 2015 , as well as an increase in payments for the 2015 fiscal year . 45 investing activities cash used in investing activities increased $ 159.4 million during 2017 as compared to 2016 , primarily due to ( 1 ) a decrease in proceeds from dispositions of company-operated restaurants and other assets of $ 251.3 million and ( 2 ) net cash used in the davco and npc transactions of $ 16.1 million . these unfavorable changes were partially offset by ( 1 ) a decrease of $ 68.3 million in capital expenditures and ( 2 ) a decrease of $ 39.9 million in restricted cash primarily for the reinvestment in capital assets under our securitized financing facility . cash provided by investing activities increased $ 56.7

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

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

these policies , along with the disclosures presented in the notes to the financial statement and in this discussion , provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined . based on the valuation techniques used and the sensitivity of financial statement amounts to the methods , assumptions , and estimates underlying those amounts , management has determined that the accounting policy with respect to the allowance for credit losses to be the accounting area that requires the most subjective or complex judgments , and , as such , could be most subject to revision as new information becomes available . accordingly , the allowance for credit losses is considered to be a critical accounting policy , along with goodwill and other intangible assets and fair value , as discussed below . the allowance for credit losses represents management 's estimate of credit losses inherent in the loan portfolio as of the balance sheet date . determining the amount of the allowance for credit losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans , estimated losses on pools of homogeneous loans based on historical loss experience , and consideration of current economic trends and conditions , all of which may be susceptible to significant change . the loan portfolio also represents the largest asset type on the consolidated balance sheets . note 1 to the consolidated financial statements describes the methodology used to determine the allowance for credit losses . a discussion of the factors driving changes in the amount of the allowance for credit losses is included in the provision for credit losses and risk management section of this discussion . 23 goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired . other intangible assets represent purchased assets that also lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract , asset or liability . goodwill and other intangible assets are required to be recorded at fair value . determining fair value is subjective , requiring the use of estimates , assumptions and management judgment . goodwill and other intangible assets with indefinite lives are tested at least annually for impairment , usually during the third quarter , or on an interim basis if circumstances dictate . intangible assets that have finite lives are amortized over their estimated useful lives and also are subject to impairment testing . impairment testing requires that the fair value of each of the company 's reporting units be compared to the carrying amount of its net assets , including goodwill . the company 's reporting units were identified based on an analysis of each of its individual operating segments . if the fair value of a reporting unit is less than book value , an expense may be required to write down the related goodwill or purchased intangibles to record an impairment loss . the company measures certain financial assets and liabilities at fair value , with the measurements made on a recurring or nonrecurring basis . significant financial instruments measured at fair value on a recurring basis are investment securities and interest rate caps . impaired loans and other real estate and other assets owned are significant financial instruments measured at fair value on a nonrecurring basis . fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . in determining fair value , the company is required to maximize the use of observable inputs and minimize the use of unobservable inputs , reducing subjectivity . recent accounting pronouncements and developments the fasb 's asc became effective on july 1 , 2009. at that date , the codification became fasb 's officially recognized source of authoritative u.s. generally accepted accounting principles ( “ gaap ” ) applicable to all public and non-public non-governmental entities , superseding existing fasb , american institute of certified public accountants ( “ aicpa ” ) , emerging issues task force ( “ eitf ” ) and related literature . rules and interpretive releases of the sec under the authority of federal securities laws are also sources of authoritative gaap for sec registrants . all other accounting literature is considered non-authoritative . the switch to the codification affects the way companies refer to u.s. gaap in financial statements and accounting policies . citing particular content in the codification involves specifying the unique numeric path to the content through the topic , subtopic , section and paragraph structure . note 1 to the consolidated financial statements discusses new accounting policies that the company adopted during 2011 and the expected impact of accounting policies recently issued or proposed but not yet required to be adopted . to the extent the adoption of new accounting standards materially affects our financial condition , results of operations or liquidity , the impacts are discussed in the applicable section ( s ) of this discussion and notes to the consolidated financial statements . results of operations net interest income and net interest margin net interest income remains the most significant component of our earnings . it is the excess of interest and fees earned on total average earning assets ( loans , investment securities , federal funds sold and interest-bearing deposits with other banks ) over interest owed on average interest-bearing liabilities ( deposits and borrowings ) . as shown in the table below , tax-equivalent net interest income for 2011 was $ 40.0 story_separator_special_tag net unrealized holding gains and losses on these securities are reported net of related income taxes as accumulated other comprehensive income , a separate component of stockholders ' equity . investment securities in the held to maturity category are stated at cost adjusted for amortization of premiums and accretion of discounts . we have the intent and current ability to hold such securities until maturity . at december 31 , 2011 , 95 % of the portfolio was classified as available for sale and 5 % as held to maturity , compared to 94 % and 6 % , respectively , at december 31 , 2010 and 92 % and 8 % , respectively , at december 31 , 2009. the percentage of securities designated as available for sale reflects the amount needed to support our anticipated growth and liquidity needs . with the exception of municipal securities , our general practice is to classify all newly-purchased securities as available for sale . investment securities available for sale were $ 129.8 million at the end of 2011 and $ 99.1 million at the end of 2010. investment securities available for sale increased $ 30.7 million , or 31.0 % , in 2011 , much higher than the $ 1.5 million , or 1.5 % , in 2010. the larger increase in investment securities available for sale reflected that there were more funds available for investing in securities than were needed for funding loans during 2011 than in 2010. at year-end 2011 , 32.5 % of the securities in the portfolio were u.s. government agencies and 67.1 % of the securities were mortgage-backed securities , compared to 59.5 % and 40.0 % , respectively , at year-end 2010 , reflecting a shift in the composition of the portfolio to higher-yielding mortgage-backed securities . our investments in mortgage-backed securities are issued or guaranteed by u.s. government agencies or government-sponsored agencies . investment securities held to maturity , consisting primarily of tax-exempt municipal bonds , totaled $ 6.5 million at december 31 , 2011 , compared to $ 6.7 million at december 31 , 2010 and $ 8.9 million at december 31 , 2009. the balance continues to decline because there were only maturities and no purchases of investment securities held to maturity during 2011 and 2010. we do not typically invest in structured notes or other derivative securities . the following table sets forth the maturities and weighted average yields of the bond investment portfolio as of december 31 , 2011. replace_table_token_15_th 1 yields adjusted to reflect a tax equivalent basis assuming a federal tax rate of 34.0 % . loans during 2011 , loans declined when compared to the prior year because fewer high-quality loan opportunities and historically high levels of loan charge-offs continued to deter loan growth . loans , net of unearned income , totaled $ 841.1 million at december 31 , 2011 , a decrease of $ 54.4 million , or 6.1 % , from 2010. loans decreased $ 21.2 million , or 2.3 % , in 2010 when compared to 2009. most of our loans are secured by real estate . real estate loans are classified as construction , residential or commercial real estate loans . total real estate loans decreased $ 39.5 million , or 5.0 % , from year-end 2010 to year-end 2011. most of the decrease in real estate loans was due to a decline in construction loans of $ 24.1 million , or 16.7 % . commercial loans , which include financial and agricultural loans , decreased $ 13.3 million , or 16.1 % , and consumer loans , a small percentage of the overall loan portfolio , decreased $ 1.6 million , or 9.6 % , from the end of 2010 to the end of 2011. at the end of 2010 , real estate loans decreased by $ 8.9 million , or 1.1 % , commercial loans decreased $ 9.0 million , or 9.8 % , and consumer loans decreased $ 3.3 million or , 17.1 % , when compared to the end of 2009. at december 31 , 2011 , 56.6 % of the loan portfolio had fixed interest rates and 43.4 % had adjustable interest rates . at december 31 , 2011 and 2010 , there were no loans held for sale . we do not engage in foreign or subprime lending activities . 29 the table below sets forth trends in the composition of the loan portfolio over the past five years ( including net deferred loan fees/costs ) . replace_table_token_16_th the table below sets forth the maturities and interest rate sensitivity of the loan portfolio at december 31 , 2011. replace_table_token_17_th deposits we use core deposits primarily to fund loans and to purchase investment securities . total deposits increased $ 30.4 million from $ 979.5 million at december 31 , 2010 to $ 1.010 billion at december 31 , 2011. the increase in noninterest-bearing demand ( $ 9.6 million ) , interest-bearing demand ( $ 33.6 million ) , and money market and savings deposits ( $ 13.7 million ) more than offset the decrease in time deposits ( $ 26.5 million ) , primarily in certificates of deposit of $ 100,000 or more ( $ 20.1 million ) . average deposits increased $ 11.7 million , or 1.2 % , in 2011 , compared to a 3.2 % increase in 2010. the majority of the average deposit growth was in interest-bearing demand deposits , followed by noninterest-bearing deposits , and money market and savings deposits which increased in aggregate by $ 31.9 million , or 6.3 % . average time deposits decreased $ 20.1 million , or 4.3 % , during 2011 mainly due to a reduction in rates to reflect current market conditions , a reduction in the company 's liquidity needs , and a shift in customer investment needs . as with 2010 , average time deposits also declined because some of our largest customers

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liquidity management liquidity describes our ability to meet financial obligations that arise during the normal course of business . liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of customers and to fund current and planned expenditures . liquidity is derived through increased customer deposits , maturities in the investment portfolio , loan repayments and income from earning assets . to the extent that deposits are not adequate to fund customer loan demand , liquidity needs can be met in the short-term funds markets . we have arrangements with correspondent banks whereby we have $ 15.5 million available in federal funds lines of credit and a reverse repurchase agreement available to meet any short-term needs which may not otherwise be funded by the banks ' portfolio of readily marketable investments that can be converted to cash . the banks are also members of the fhlb , which provides another source of liquidity , and had credit availability of approximately $ 31.6 million from the fhlb as of december 31 , 2011. further information is provided in note 19 to the consolidated financial statements . at december 31 , 2011 , our loan to deposit ratio was approximately 83.3 % , which represents a more liquid position thanthe 91.4 % and 92.5 % at year-end 2010 and 2009 , respectively .

these performance improvements were also achieved despite an overall sluggish global economy and other headwinds , such as foreign exchange . this performance drove the fifth consecutive year of revenue , operating income and adjusted ebitda growth , as well as total shareholder return of approximately 21 % , due to the company 's continued dividend and stock price appreciation . overall , the company 's liquidity remains a strength , as its consolidated leverage ratio continues to be less than one times ebitda , despite added borrowings for its record year of acquisition activity . as the company looks to 2015 , the company expects further market share gains from its recent acquisitions and other strategic initiatives . however , the company continues to operate in a highly competitive and uncertain environment , with economic challenges in certain areas among its four regions , such as brazil . the company believes that its track record of increasing market share and leveraging recent acquisitions will continue , which should help offset potential market challenges . on balance , the company remains confident in its future and expects 2015 to be another good year for quaker , as the company strives to increase revenue , operating income and adjusted ebitda for a sixth consecutive year . critical accounting policies and estimates quaker 's discussion and analysis of its financial condition and results of operations are based upon quaker 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires quaker to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , quaker evaluates its estimates , including those related to customer sales incentives , product returns , bad debts , inventories , property , plant and equipment , 14 investments , goodwill , intangible assets , income taxes , financing operations , restructuring , incentive compensation plans ( including equity-based compensation ) , pensions and other postretirement benefits , and contingencies and litigation . quaker bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . however , actual results may differ from these estimates , under different assumptions or conditions . quaker believes the following critical accounting policies describe the more significant judgments and estimates used in the preparation of its consolidated financial statements : 1. accounts receivable and inventory exposures — quaker establishes allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments . if the financial condition of quaker 's customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . as part of its terms of trade , quaker may custom manufacture products for certain large customers and or may ship product on a consignment basis . further , a significant portion of quaker 's revenues is derived from sales to customers in industries where a number of bankruptcies have occurred in past years and where companies have experienced financial difficulties . when a bankruptcy occurs , quaker must judge the amount of proceeds , if any , that may ultimately be received through the bankruptcy or liquidation process . these matters may increase the company 's exposure , should a bankruptcy occur , and may require a write down or a disposal of certain inventory due to its estimated obsolescence or limited marketability . reserves for customers filing for bankruptcy protection are generally established at 75-100 % of the amount outstanding at the bankruptcy filing date . however , initially establishing a reserve and the amount thereto is dependent on the company 's evaluation of likely proceeds to be received from the bankruptcy process , which could result in the company recognizing minimal or no reserve at the date of bankruptcy . large and or financially distressed customers are generally reserved for on a specific review basis , while a general reserve is maintained for other customers based on historical experience . the company 's consolidated allowance for doubtful accounts was $ 6.5 million and $ 7.1 million at december 31 , 2014 and december 31 , 2013 , respectively . the company recorded a reduction in its provision for doubtful accounts of $ 0.3 million in 2014 , compared to increases to its provision for doubtful accounts of $ 1.1 million and $ 2.1 million in 2013 and 2012 , respectively . changing the recorded provisions by 10 % would have increased or decreased the company 's pre-tax earnings by less than $ 0.1 million , approximately $ 0.1 million and approximately $ 0.2 million in 2014 , 2013 and 2012 , respectively . 2. environmental and litigation reserves — accruals for environmental and litigation matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated . accrued liabilities are exclusive of claims against third parties and are not discounted . environmental costs and remediation costs are capitalized if the costs extend the life , increase the capacity or improve the safety or efficiency of the property from the date acquired or constructed , and or mitigate or prevent contamination in the future . estimates for accruals for environmental matters are based on a variety of potential technical solutions , governmental regulations and other factors , and are subject to a large range of potential costs for remediation and other actions . story_separator_special_tag earnings attributable to this equity interest were $ 2.4 million , or $ 0.18 per diluted share , in 2014 compared to $ 5.5 million , or $ 0.41 per diluted share , in 2013 , including a $ 1.0 million out-of-period adjustment . see the out-of-period adjustment section in this item , above . in addition , the company 's equity income includes comparable currency charges related to the conversion of the venezuelan bolivar fuerte to the u.s. dollar of $ 0.3 million , or $ 0.02 per diluted share , in 2014 , and $ 0.4 million , or $ 0.03 per diluted share , in 2013. the primary component of the $ 0.7 million decrease in net income attributable to noncontrolling interest in 2014 compared to 2013 was the company 's second quarter of 2014 acquisition of its noncontrolling interest in its australian equity affiliate . the company 's current year acquisitions generally performed in line with their expected positive operating results for 2014 , however , these results were largely offset by the acquisition-related costs , noted above , and initial adjustments related to fair value accounting . overall , the impact from the current year acquisitions to the company 's net income was slightly positive at less than $ 0.1 million , or less than $ 0.01 per diluted share , for 2014. changes in foreign exchange rates negatively impacted the 2014 net income , compared to 2013 , by approximately $ 1.2 million , or $ 0.09 per diluted share . consolidated operations review – comparison of 2013 with 2012 net sales for 2013 of $ 729.4 million increased approximately 3 % from $ 708.2 million in 2012. the increase in the company 's net sales from the prior year was primarily due to a 3 % increase in product volumes , including acquisitions , generally across all regions , partially offset by a decrease of $ 3.1 million , or less than 1 % , due to foreign exchange rate translation . the effects on net sales related to price and product mix were generally consistent in 2013 compared to 2012. gross profit increased by approximately $ 22.4 million , or approximately 9 % , from 2012 , which was primarily the result of an improvement in gross margin to 35.8 % in 2013 from 33.7 % in 2012 and the additional gross profit from the increased sales volumes , noted above . the increase in gross margin reflects the return of the company 's product margins to more acceptable levels . sg & a increased approximately $ 14.3 million from 2012 , which was primarily driven by higher labor-related costs on general year-over-year merit increases , increased selling and other related costs on improved company performance and costs added with our recent acquisitions . in addition , non-operating sg & a expenses increased due to certain uncommon costs . for instance , 2013 sg & a includes a non-income tax contingency charge of approximately $ 0.8 million , or $ 0.04 per diluted share , and , also , costs related to streamlining certain operations in the company 's emea and south american segments of approximately $ 1.2 million , or $ 0.07 per diluted share . whereas , in 2012 , there were costs associated with the bankruptcies of certain u.s customers of $ 1.3 million , or $ 0.06 per diluted share , the prior year costs associated with the company 's cfo transition of $ 0.6 million , or $ 0.03 per diluted share , and lower translation due to changes in foreign exchange rates . other income for 2013 was approximately $ 3.5 million , which was primarily driven by a refund of $ 2.5 million , or $ 0.14 per diluted share , related to past excise taxes paid on certain mineral oil sales , income of $ 0.5 million , or $ 0.03 per diluted share , related to a change in an acquisition-related earnout liability and earnings from third-party license fees , partially offset by foreign exchange losses and $ 0.2 million , or $ 0.01 per diluted share , of costs associated with the streamlining initiatives mentioned above . other income for 2012 was approximately $ 3.4 million , which was primarily driven by income of $ 1.7 million , or $ 0.09 per diluted share , related to a change in the acquisition-related earnout liability , noted above , earnings from third-party license fees and income from a change in a separate acquisition-related liability , partially offset by foreign exchange losses . the decrease in interest expense from 2012 to 2013 was primarily due to lower average borrowings and lower interest rates . the increase in interest income from 2012 to 2013 was primarily due to a higher level of the company 's cash on hand . 20 the company 's effective tax rates for 2013 and 2012 of 28.1 % and 24.7 % , respectively , reflect decreases in reserves for uncertain tax positions due to the expiration of applicable statutes of limitations for certain years of approximately $ 0.15 and $ 0.17 per diluted share , respectively . in addition , the company had certain one-time discrete items in the prior year that lowered its 2012 effective tax rate , which were partially offset by a change in the mix of income to lower tax jurisdictions in 2013. equity in net income of associated companies increased due to higher earnings related to the company 's equity interest in a captive insurance company in 2013 compared to 2012. earnings attributable to this equity interest increased from approximately $ 1.8 million , or $ 0.14 per diluted share , for 2012 to approximately $ 5.5 million , or $ 0.41 per diluted share , for 2013 , which includes a non-cash out-of-period adjustment of approximately $ 1.0 million recorded in 2013. see the out-of-period adjustment section in this item , above . partially

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liquidity and capital resources quaker 's cash and cash equivalents decreased to $ 64.7 million at december 31 , 2014 from $ 68.5 million at december 31 , 2013. the $ 3.8 million decrease was the net result of $ 54.7 million of cash provided by operating activities , $ 84.5 million of cash used in investing activities , $ 30.2 million of cash provided by financing activities and $ 4.2 million of a decrease due to foreign exchange . at 16 december 31 , 2014 , the company held approximately $ 60.4 million of its total cash and cash equivalents among its foreign subsidiaries , which is subject to possible limitations on repatriation to the united states . net cash flows provided by operating activities decreased $ 19.1 million to $ 54.7 million in 2014 compared to $ 73.8 million in 2013 , as the company 's improved operating performance in 2014 was offset by higher working capital investment . specifically , the company had higher cash outflow from accounts receivables due to increased sales at the end of 2014 and a delay in the timing of cash receipts in certain regions . a key driver in the delayed timing was a significant increase in the level of bank acceptance drafts that the company received on outstanding receivables in its asia/pacific region . this type of payment carries with it extended terms , if the company chooses not to immediately exchange it with the respective issuing bank for a discounted amount . to date , all of the company 's bank acceptance drafts have been carried to their full term . overall , the current year marked an uncommon increase in the use of such methods of payment by the company 's customers , which it expects to be at a more stable level in the next year . in addition to its receivables , the company had higher cash outflows from inventory due to re-establishing safety stock levels , that were low at year-end 2013 , and less cash inflows from accounts payable and accrued liabilities , primarily related to higher annual incentive compensation payouts on the company 's improved performance in the prior year .

asia pacific consists of our operations in australia , china , hong kong , japan , taiwan , and southeast asia . europe consists of our operations in france , germany , spain , and the u.k. north america consists of our operations in canada and the u.s. for the year ended december 31 , 2017 , asia pacific operations were 7 % of revenues , european operations were 32 % of revenues and north american op erations were 61 % of our total revenues . financial information with respect to our business segments and certain financial information about geographic areas appears in note 10 to the accompanying consolidated financial statements . when evaluating the financial condition and operating performance of the company , management focuses on financial and non-financial indicators such as growth in the number of members to the company 's newsletters , operating margin , growth in revenues in the absolute and relative to the growth in reach of the company 's publications measured as revenue per member and revenue per employee as a measure of productivity . how we generate revenues our revenues are advertising revenues , consisting primarily of listing fees paid by travel , entertainment and local businesses to advertise their offers on travelzoo 's media properties . listing fees are based on audience reach , placement , number of listings , number of impressions , number of clicks , number of referrals , or percentage of the face value of vouchers sold . insertion orders are typically for periods between one month and twelve months and are not automatically renewed . merchant agreements for local deals and getaway advertisers are typically for twelve months and are not automatically renewed . we have two separate groups of our advertising products : travel and local . our travel category of revenue includes the publishing revenue for negotiated high-quality deals from travel companies , such as hotels , airlines , cruises or car rentals and includes products such as top 20 , travelzoo website , newsflash , travelzoo network as well as getaway vouchers . the revenues generated from these products are based upon a fee for number of e-mails delivered to our audience , a fee for clicks delivered to the advertisers , a fee for placement of the advertising on our website or a fee based on a percentage of the face value of vouchers sold , hotel booking stays or other items sold . we recognize revenue upon delivery of the e-mails , delivery of the clicks , over the period of placement of the advertising , upon hotel booking stays and upon the sale of the vouchers or other items sold . our local category of revenue includes the publishing revenue for negotiated high-quality deals from local businesses , such as restaurants , spas , shows , and other activities and includes local deals vouchers and entertainment offers ( vouchers and direct bookings ) . the revenues generated from these products are based upon a percentage of the face value of vouchers or items sold or a fee for clicks delivered to the advertisers . we recognize revenue upon the sale of the vouchers , when we receive notification of the direct bookings or upon delivery of the clicks . the company earns a fee for acting as an agent in these transactions , which is recorded on a net basis and is included in revenue upon completion of the voucher sale . certain merchant contracts in foreign locations allow us to retain fees related to vouchers sold that are not redeemed by purchasers upon 33 expiration , which we recognize as revenue after the expiration of the redemption period and after there are no further obligations to provide funds to merchants , members or others . trends in our business our ability to generate revenues in the future depends on numerous factors such as our ability to sell more advertising to existing and new advertisers , our ability to increase our audience reach and advertising rates , our ability to have sufficient supply of hotels offered at competitive rates , and our ability to develop and launch new products . our current revenue model primarily depends on advertising fees paid primarily by travel , entertainment and local businesses . a number of factors can influence whether current and new advertisers decide to advertise their offers with us . we have been impacted and expect to continue to be impacted by external factors such as the shift from offline to online advertising , the relative condition of the economy , competition and the introduction of new methods of advertising , and the decline in consumer demand for vouchers . a number of factors will have impact on our revenue , such as the reduction in spending by travel intermediaries due to their focus on improving profitability , the trend towards mobile usage by consumers , the willingness of consumers to purchase the deals we advertise , and the willingness of certain competitors to grow their business unprofitably . in addition , we have been impacted and expect to continue to be impacted by internal factors such as introduction of new advertising products , hiring and relying on key employees for the continued maintenance and growth of our business and ensuring our advertising products continue to attract the audience that advertisers desire . existing advertisers may shift from one advertising service ( e.g . top 20 ) to another ( e.g . local deals and getaway ) . these shifts between advertising services by advertisers could result in no incremental revenue or less revenue than in previous periods depending on the amount purchased by the advertisers , and in particular with local deals and getaway , depending on how many vouchers are purchased by members . story_separator_special_tag advertising expenses accounted for 15 % , 18 % and 21 % , respectively , of total sales and marketing expenses and consisted primarily of online advertising , which we refer to as traffic acquisition cost and member acquisition costs . the goal of our advertising was to acquire new members for our e-mail products , increase the traffic to our websites and increase brand awareness . sales and marketing expenses decreased $ 1.1 million in 2017 compared to 2016 . the decrease was primarily due to a $ 1.2 million decrease in member acquisition costs and a $ 0.4 million decrease in salary and employee related expenses , offset partially by a $ 0.3 million increase in facility costs and $ 0.3 million increase in marketing costs . sales and marketing expenses decreased $ 7.2 million in 2016 compared to 2015 . the decrease was primarily due to a $ 4.0 million decrease in salary and employee related expenses due in part to a decrease in headcount , a $ 1.9 million decrease in trade and brand marketing expenses , $ 0.7 million decrease in member acquisition costs and a $ 0.4 million decrease in professional service expenses . product development product development expenses consist primarily of compensation for software development staff , fees for professional services , software maintenance and amortization and facilities costs . product development expenses were $ 9.2 million , $ 9.1 million and $ 12.2 million for 2017 , 2016 and 2015 , respectively . product development expenses increased $ 128,000 in 2017 compared to 2016 . the increase was primarily due to an increase in professional services related in part to our continuous enhancement to our website . product development expenses decreased $ 3.1 million in 2016 compared to 2015 . the decrease was primarily due to a $ 1.5 million decrease in salary and employee related expenses , a $ 1.0 million decrease in professional service expenses and a $ 0.3 million decrease in contractor expenses . 39 general and administrative general and administrative expenses consist primarily of compensation for administrative , executive , fees for professional services , rent , bad debt expense , amortization of intangible assets , and general office expense . general and administrative expenses were $ 22.6 million , $ 22.7 million and $ 24.2 million for 2017 , 2016 and 2015 , respectively . general and administrative expenses decreased $ 139,000 in 2017 compared to 2016 . the decrease was primarily due to a $ 548,000 decrease in professional services expenses related to various outside services , offset partially by a $ 435,000 increase in salary and employee related expenses . general and administrative expenses decreased $ 1.5 million in 2016 compared to 2015 . the decrease was primarily due to a $ 2.2 million decrease in salary and employee related expenses due in part to a decrease in headcount , offset partially by a $ 0.5 million increase in professional services expenses . other income ( loss ) other income ( loss ) consisted primarily of foreign exchange transactions gains and losses , interest income earned on cash , cash equivalents and restricted cash as well as interest expense . other income ( loss ) was $ 173,000 , $ ( 187,000 ) and $ ( 1.2 ) million for 2017 , 2016 and 2015 , respectively . other income ( loss ) increased $ 360,000 from 2016 to 2017 primarily due to foreign exchange transaction gains in 2017. other income ( loss ) decreased $ 1.1 million from 2015 to 2016 primarily due to foreign exchange transaction losses in 2015. income taxes on december 22 , 2017 , the u.s. government enacted the tax cuts and jobs act ( the “ tax act ” ) . the tax act includes significant changes to the u.s. corporate income tax system including : a federal corporate rate reduction from 35 % to 21 % ; limitations on the deductibility of interest expense and executive compensation ; creation of new minimum taxes such as the base erosion anti-abuse tax ( “ beat ” ) and global intangible low taxed income ( “ gilti ” ) tax ; and the transition of u.s. international taxation from a worldwide tax system to a modified territorial tax system , which will result in a one time u.s. tax liability on those earnings which have not previously been repatriated to the u.s. ( the “ transition tax ” ) . in connection with the company 's initial analysis of the impact of the tax act , the company has recorded a provisional estimate of discrete net tax expense of $ 508,000 for the period ended december 31 , 2017. this discrete expense consists of provisional estimates of zero net expense for the transition tax , $ 173,000 net benefit for the decrease in the company 's deferred tax liability on unremitted foreign earnings , and $ 681,000 net expense for remeasurement of the company 's deferred tax assets/liabilities for the corporate rate reduction . we have not completed our accounting for the income tax effects of certain elements of the tax act , including the new gilti and beat taxes . due to the complexity of these new tax rules , we are continuing to evaluate these provisions of the tax act and whether such taxes are recorded as a current-period expense when incurred or whether such amounts should be factored into a company 's measurement of its deferred taxes . as a result , we have not included an estimate of the tax expense/benefit related to these items for the period ended december 31 , 2017. our income is generally taxed in the u.s. , canada and u.k. our income tax provision reflects federal , state and country statutory rates applicable to our worldwide income , adjusted to take into account expenses that are treated as having no recognizable tax benefit . income tax expense ( benefit ) was $

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liquidity and capital resources as of december 31 , 2017 , we had $ 22.6 million in cash and cash equivalents , of which $ 16.4 million was held outside the u.s. in certain of our foreign operations . if these assets are distributed to the u.s. , we may be subject to additional u.s. taxes in certain circumstances . cash and cash equivalents decreased from $ 26.8 million as of december 31 , 2016 primarily as a result of cash used for repurchases of our common stock . we expect that cash on hand will be sufficient to provide for working capital needs for at least the next twelve months . replace_table_token_11_th net cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities . net cash provided by operating activities was $ 2.1 million for 2017 , which consisted of a net income of $ 3.5 million , adjustments for non-cash items of $ 265,000 , offset partially a $ 1.7 million decrease in cash from changes in operating assets and liabilities . a dj ustments for non-cash items primarily consisted of the $ 2.9 million discontinued operations gain on the sale of the fly.com domain name , offset by $ 2.1 million of depreciation and amortization expense on property and equipment and $ 1.0 million of stock-based compensation expense . the decrease in cash from changes in operating assets and liabilities primarily consisted of $ 2.5 million decrease in other non-current liabilities primarily associated with the resolution of 2009 irs audit related to the sale of our asia pacific business segment and $ 1.6 million decrease in accounts payable , offset partially by $ 3.1 million decrease in accounts receivable .

on september 27 , 2016 , we issued new $ 775.0 million term b loans ( term loan b ) at an interest rate of libor , with a 1.0 % libor floor , plus 4.25 % , a reduction of 75 basis points from the previous term loan credit agreement ( term loan ) , and repaid in full the remaining outstanding balance of the term loan . this transaction was accounted for as an extinguishment of debt and accordingly , we recognized a loss of $ 47.8 million primarily associated with the write off of the remaining unamortized debt discount and issuance costs . 42 additionally , on september 27 , 2016 , we amended our u.s. asset-based lending credit agreement ( u.s. abl ) to increase the amount available to $ 200.0 million , reduce the applicable margin by 25 basis points for both eurodollar loans and abr loans , and reduce the letters of credit facilities to $ 50 million . on december 22 , 2016 , we amended our asia asset-based lending credit agreement ( asia abl ) to reduce the interest margin by 35 basis points . during the year ended january 2 , 2017 , we made net debt principal payments totaling $ 217.6 million , representing normally scheduled principal payments as well as additional prepayments of principal . financial overview for the fiscal year 2016 , we experienced higher demand in our automotive and aerospace and defense end markets and additional sales from the full year contribution of viasystems compared to that of fiscal year 2015. this increase in sales resulted in higher capacity utilization at our automotive focused facilities resulting in higher gross margins . additionally , we have improved operating efficiencies at certain of our north american plants . we operate on a 52 or 53 week year ending on the monday nearest december 31. fiscal 2016 consisted of 53 weeks ended on january 2 , 2017 with the additional week included in the fourth quarter . we estimate the additional week contributed approximately $ 29.2 million of additional revenue and approximately $ 1.1 million of additional operating income for the year ended january 2 , 2017. fiscal year 2015 and 2014 were 52 weeks ended december 28 , 2015 and december 29 , 2014 , respectively . while our customers include both oems and ems providers , we measure customers based on oem companies as they are the ultimate end customers . sales to our five largest customers accounted for 33 % , 37 % and 44 % of our net sales in fiscal years 2016 , 2015 and 2014 , respectively . we sell to oems both directly and indirectly through ems providers . the following table shows the percentage of our net sales attributable to each of the principal end markets we served for the periods indicated : replace_table_token_9_th ( 1 ) sales to ems companies are classified by the end markets of their oem customers . ( 2 ) certain reclassifications of prior year end market percentages have been made to conform to the current year presentation . beginning 2015 , automotive has been reclassified from the other end market . ( 3 ) smartphones are included in the cellular phone end market , tablets are included in the computing/storage/peripherals end market and other mobile devices such as e-readers are included in the other end market . ( 4 ) amounts includes 211 days of activity of viasystems , which we acquired on may 31 , 2015. we derive revenues primarily from the sale of pcbs and custom electronic assemblies using customer-supplied engineering and design plans . we recognize revenues when persuasive evidence of a sales arrangement exists , the sales terms are fixed or determinable , title and risk of loss have transferred , and collectability is reasonably assured — generally when products are shipped to the customer . net sales consist of gross sales less an allowance for returns , which typically have been less than 3 % of gross sales . we provide our customers a limited right of return for defective pcbs and backplane assemblies . we record an estimate for sales returns and 43 allowances at the time of sale based on historical results . purchase orders may be cancelled prior to shipment . we generally charge customers a fee , based on the percentage completed , if an order is cancelled once it has entered production . cost of goods sold consists of materials , labor , outside services , and overhead expenses incurred in the manufacture and testing of our products . shipping and handling fees and related freight costs and supplies associated with shipping products are also included as a component of cost of goods sold . many factors affect our gross margin , including capacity utilization , product mix , production volume , and yield . we generally do not participate in any significant long-term contracts with suppliers , and we believe there are a number of potential suppliers for the raw materials we use . selling and marketing expenses consist primarily of salaries , labor related benefits , and commissions paid to our internal sales force , independent sales representatives , and our sales support staff , as well as costs associated with marketing materials and trade shows . general and administrative costs primarily include the salaries for executive , finance , accounting , information technology , facilities and human resources personnel , as well as expenses for accounting and legal assistance , incentive compensation expense , and gains or losses on the sale or disposal of property , plant and equipment . critical accounting policies and estimates our consolidated financial statements included in this report have been prepared in accordance with accounting principles generally accepted in the united states of america . story_separator_special_tag 48 overall gross margin increased from 14.7 % for the year ended december 29 , 2014 to 14.8 % for the year ended december 28 , 2015. gross margin for the pcb operating segment increased from 15.0 % for the year ended december 29 , 2014 to 15.5 % for the year ended december 28 , 2015 primarily due to higher utilization at our advanced technology plants , partially offset by the acquisition of viasystems with lower margins than our existing business and $ 13.3 million of increased costs due to the fair value mark up of acquired inventory associated with the acquisition of viasystems . gross margin for the e-m solutions operating segment decreased from 9.4 % for the year ended december 29 , 2014 to 6.6 % for the year ended december 28 , 2015 primarily due to the acquisition of viasystems . selling and marketing expenses selling and marketing expenses increased $ 9.0 million from $ 57.4 million for the year ended december 28 , 2015 to $ 66.4 million for the year ended january 2 , 2017. additionally , selling and marketing expenses increased $ 20.5 million , from $ 36.9 million for the year ended december 29 , 2014 to $ 57.4 million for the year ended december 28 , 2015. the increase in selling and marketing expense for the years ended january 2 , 2017 and december 28 , 2015 primarily related to additional selling and marketing activities resulting from the acquisition of viasystems . as a percentage of net sales , selling and marketing expenses were 2.6 % for the year ended january 2 , 2017 , as compared to 2.7 % for the year ended december 28 , 2015 , and 2.8 % for the year ended december 29 , 2014. the decrease in selling and marketing expense as a percentage of net sales for the periods noted was primarily due to higher net sales . general and administrative expenses general and administrative expenses decreased $ 20.5 million from $ 167.7 million , or 8.0 % of net sales , for the year ended december 28 , 2015 to $ 147.2 million , or 5.8 % of net sales , for the year ended january 2 , 2017. the decrease in expense primarily related to a decrease of $ 32.8 million in acquisition-related costs as compared to the year ended december 28 , 2015 , partially offset by increased expenses resulting from the acquisition of viasystems . the decrease in general and administrative expense as percentage of net sales was primarily due to the decrease in acquisition-related costs and higher net sales . general and administrative expenses increased $ 66.7 million from $ 101.0 million , or 7.6 % of net sales , for the year ended december 29 , 2014 to $ 167.7 million , or 8.0 % of net sales , for the year ended december 28 , 2015. the increase in expense was primarily due to $ 34.4 million of acquisition-related costs for the year ended december 28 , 2015 associated with the acquisition of viasystems and seven months of general and administrative expense resulting from viasystems post acquisition through december 28 , 2015. impairment of long-lived assets and restructuring charges for the years ended january 2 , 2017 and december 28 , 2015 , we incurred restructuring charges of $ 8.9 million and $ 7.4 million , respectively , related to the consolidation plan announced on september 29 , 2015 , that resulted in the closure of our facilities in cleveland , ohio , milpitas , california , and juarez , mexico and other global realignment efforts . during the year ended january 2 , 2017 , in connection with the consolidation plan , we recognized restructuring charges of $ 3.7 million , $ 4.5 million and $ 0.7 million in our pcb , e-m solutions and corporate segments , respectively . for the year ended december 28 , 2015 , we recognized restructuring charges of $ 2.0 million in both our pcb and e-m solutions segments and $ 3.4 million in our corporate segment . these charges primarily represent employee separation and contract termination and other costs associated with the consolidation plan and other global realignment restructuring efforts . as of january 2 , 2017 , the company has incurred approximately $ 16.3 million of restructuring charges since the september 29 , 2015 announcement . additionally , as a result of the above mentioned plant closures and other plant realignment efforts , we also recognized impairment charges of $ 3.3 million for the year ended january 2 , 2017 , of which $ 1.4 million were recognized in our pcb operating segment and $ 1.9 million were recognized in the corporate operating segment . the impairment charge for the pcb operating segment related to machinery and equipment while the impairment charge for the corporate operating segment related to the write-off of capitalized software costs . 49 if forecasts and assumptions used to support the realizability of our long-lived assets change in the future , significant impairment or restructuring charges could result that would adversely affect our results of operations and financial condition . other income ( expense ) other expense , net increased $ 54.1 million from $ 52.4 million for the year ended december 28 , 2015 to $ 106.5 million for the year ended january 2 , 2017. the increase in other expense , net was primarily due to the loss on extinguishment of debt of $ 47.8 million related to the full repayment of the may 31 , 2015 term loan and newly issued $ 775.0 million term b loan on september 27 , 2016. another factor contributing to the increase in other expense , net was the increase in interest expense of $ 16.2 million related to our term loan , which was paid off , and currently outstanding term loan b and abl revolving loans , compared with only seven months of

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liquidity and capital resources our principal sources of liquidity have been cash provided by operations , the issuance of convertible senior notes , and term and revolving debt . our principal uses of cash have been to acquire viasystems , finance capital expenditures , meet debt service requirements , fund working capital requirements , and refinance existing debt . we anticipate that servicing debt , financing capital expenditures , financing acquisitions , and funding working capital requirements will continue to be the principal demands on our cash in the future . cash flow provided by operating activities during the year ended january 2 , 2017 was $ 298.3 million as compared to $ 237.5 million in the same period in 2015. the improved cash flow was the result of stronger 50 operational performance and the full year contribution of viasystems . as of january 2 , 2017 , we had net working capital of approximately $ 323.8 million compared to $ 277.5 million as of december 28 , 2015. at january 2 , 2017 cash cycle days improved to 43 days as compared to 49 days at december 28 , 2015. net cash used in investing activities was approximately $ 78.0 million for the year ended january 2 , 2017 primarily reflecting the purchases of property , plant and equipment of $ 85.1 million , offset by net of proceeds from sales of property , plant and equipment and assets held for sale of $ 3.6 million and the release of restricted cash to cash and cash equivalents of $ 3.5 million . net cash used in financing activities was approximately $ 217.1 million for the year ended january 2 , 2017 primarily reflecting the full repayment of the may 31 , 2015 term loan , and the repayments of normally scheduled principal payments and additional prepayments of principal of our long-term debt , which amounts totaled $ 1,022.6 million , offset by $ 775.0 million newly issued term b loan and proceeds from our asia abl revolving loan of $ 30.0 million .

even if we succeed in developing and commercializing one or more of our drug candidates , we may not be able to generate sufficient revenue and we may never be able to achieve or sustain profitability . financial operations overview revenue to date , we have not generated any revenues . our ability to generate revenues from our drug candidates , which we do not expect will occur for many years , if ever , will depend heavily on the successful development and eventual commercialization of our drug candidates . research and development expenses research and development expenses consist of costs associated with our research activities , including the development of our drug candidates . our research and development expenses consist of : · expenses related to research and development personnel , including salaries , benefits , travel and stock-based compensation ; · external research and development expenses incurred under arrangements with third parties , such as contract research organizations , clinical sites , manufacturing organizations and consultants ; 42 · license fees , including maintenance fees and patent expense paid to md anderson in connection with the license agreement ; and · costs of materials used during research and development activities . costs and expenses that can be clearly identified as research and development are charged to expense as incurred in accordance with generally accepted accounting policies ( “ gaap ” ) . advance payments , including nonrefundable amounts , for goods or services that will be used or rendered for future research and development activities are deferred and capitalized . such amounts will be recognized as an expense as the related goods are delivered or the related services are performed . if the goods will not be delivered , or services will not be rendered , then the capitalized advance payment is charged to expense . we expect research and development expenses associated with the completion of the associated clinical trials to be substantial and to increase over time . the successful development of our drug candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete development of our drug candidates or the period , if any , in which material net cash inflows from our drug candidates may commence . this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : · the rate of progress , results and costs of completion of ongoing clinical trials of our drug candidates ; · the size , scope , rate of progress , results and costs of completion of any potential future clinical trials and preclinical trials of our drug candidates that we may initiate ; · competing technological and market developments ; · the performance of third-party manufacturers and suppliers ; · the ability of our drug candidates , if they receive regulatory approval , to achieve market success ; and · disputes or other developments relating to proprietary rights , including patents , litigation matters and our ability to obtain patent protection for our drug candidates . a change in the outcome of any of these variables with respect to the development of a drug candidate could mean a significant change in the costs and timing associated with the development of that drug 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 drug 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 . general and administrative expenses our general and administrative expenses consist primarily of salaries and benefits for management and administrative personnel , professional fees for legal , accounting and other services , travel costs and facility-related costs such as rent , utilities and other general office expenses . results of operations comparisons of the year ended december 31 , 2015 to the year ended december 31 , 2014 research and development expenses . our research and development expense , which includes non-cash stock-based compensation expense and amortization expense related to the license agreement , was $ 3.0 million for the year ended december 31 , 2015 , an increase of $ 1.2 million compared to the year ended december 31 , 2014. the increase in research and development expense was primarily due to increased clinical trial expenses , manufacturing development , preclinical studies and personnel costs associated with the addition of our support staff hired in the second half of 2014. these were partially offset by a decrease in drug material used in 2015. research and development – related party expense has been consolidated with research and development expense on our financial statements in 2015 as md anderson is no longer a greater than 5 % stockholder in the company . 43 replace_table_token_2_th general and administrative expenses . our general and administrative expense was $ 2.5 million for the year ended december 31 , 2015 , a decrease of $ 0.3 million compared to the year ended december 31 , 2014. the decrease in general and administrative expense was primarily due to decreased management and administrative personnel costs . replace_table_token_3_th net loss . our net loss was $ 5.5 million for the year ended december 31 , 2015 , an increase of $ 0.9 million compared the year ended december 31 , 2014. net loss per share , both basic and diluted , was $ 0.06 per share for the year ended december 31 , 2015 compared to $ 0.05 per share for the year ended december 31 , 2014. comparisons of the year ended december 31 , 2014 to the year ended december 31 , 2013 research and development expenses . story_separator_special_tag the balances are insured by the federal deposit insurance corporation ( the “ fdic ” ) up to $ 250,000. as a result , as of december 31 , 2015 , approximately $ 8.6 million of our cash balances was not covered by the fdic . as of december 31 , 2014 we had approximately $ 13.9 million in cash on-hand , of which approximately $ 13.6 million was not covered by the fdic . furniture , fixtures and equipment — furniture , fixtures and equipment are stated at cost and depreciated using the straight line method over the estimated useful lives of the assets . depreciation expense was approximately $ 41,000 , $ 10,000 and $ 0 for the years ended december 31 , 2015 , 2014 and 2013 , respectively . the estimated useful lives are as follows : furniture – 3 years fixtures – 3 years equipment – 3 years major additions and improvements are capitalized , while costs for minor replacements , maintenance , and repairs that do not increase the useful life of an asset are expensed as incurred . long lived assets — our long lived assets consist of furniture , fixtures and equipment , and a technology license . long lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of the asset is measured by a comparison of the asset 's carrying amount to the estimated undiscounted future cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated undiscounted future cash flows , an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset . intangible assets/impairment of long-lived assets — as of december 31 , 2015 , other assets totaled $ 1.1 million for our technology license , comprised of $ 2.5 million in value acquiring our technology license and our intellectual property , less accumulated amortization of $ 1.4 million . the technology value consists of approximately $ 836,200 in cash paid or accrued to be paid to md anderson , plus 3,138,889 shares of common stock granted to md anderson valued at approximately $ 2.35 million less approximately $ 690,000 for impairment expense taken in december of 2011 and june of 2012. this value is being amortized over a 15 year period from november 7 , 2007 , the date that the technology license became effective . we account for the impairment and disposition of our long-lived assets in accordance with gaap . long-lived assets are reviewed for events of changes in circumstances which indicate that their carrying value may not be recoverable . we estimate that approximately $ 160,000 will be amortized per year for each future year for the current value of the technology licenses acquired until approximately 2022. as of december 31 , 2014 other assets totaled $ 1.25 million , comprised of $ 2.5 million in value acquiring our technology licenses and our intellectual property , less accumulated amortization of $ 1.25 million . research and development costs — costs and expenses that can be clearly identified as research and development are charged to expense as incurred in accordance with gaap . advance payments , including nonrefundable amounts , for goods or services that will be used or rendered for future research and development activities are deferred and capitalized . such amounts will be recognized as an expense as the related goods are delivered or the related services are performed . if the goods will not be delivered , or services will not be rendered , then the capitalized advance payment is charged to expense . for the year 2015 , we had $ 3.0 million of costs classified as research and development expense . research and development – related party expense has been consolidated with research and development expense on our financial statements in 2015 as md anderson is no longer a greater than 5 % stockholder in the company . for the year 2014 , we had $ 1.6 million of costs classified as research and development expense and $ 0.2 million of related party research and development expense . for the year 2013 , we had $ 1.5 million of costs classified as research and development expense and $ 0.1 million of related party research and development expense . stock-based compensation — we have accounted for stock-based compensation under the provisions of gaap . the provisions require us to record an expense associated with the fair value of stock-based compensation . we currently use the black-scholes option valuation model to calculate stock-based compensation at the date of grant . option pricing models require the input of highly subjective assumptions , including the expected price volatility . changes in these assumptions can materially affect the fair value estimate . 47 net loss per share — basic net loss per common share is computed by dividing net loss for the period by the weighted average number of common shares outstanding during the period . although there were warrants and stock options outstanding during 2015 , 2014 and 2013 , no potential common shares shall be included in the computation of any diluted per-share amount when a loss from continuing operations exists . consequently , diluted net loss per share as presented in the financial statements is equal to basic net loss per share for the years 2015 , 2014 and 2013. the calculation of basic and diluted earnings per share for 2015 did not include 5,078,611 shares and 10,000 shares issuable pursuant to the exercise of vested common stock options and vested warrants , respectively , as of december 31 , 2015 as the effect would be anti-dilutive . the calculation of basic and diluted earnings per share for 2014 did not include 4,734,861 shares and 10,000 shares issuable pursuant to the exercise of vested common

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cash flows comparisons of the year ended december 31 , 2015 to the year ended december 31 , 2014 operating activities . net cash used in operating activities for the year ended december 31 , 2015 was $ 5.0 million . net cash used in operating activities for the year ended december 31 , 2015 consisted primarily of the net loss for the period of $ 5.5 million , an increase in prepaid drug product for testing of $ 0.4 million and an increase in other current assets of $ 0.1 million . these are partially offset by a net increase in current liabilities of $ 0.4 million , non-cash stock-based compensation expense of $ 0.4 million and technology license amortization expense of $ 0.2 million . comparisons of the year ended december 31 , 2014 to the year ended december 31 , 2013 operating activities . net cash used in operating activities was $ 3.8 million for the year ended december 31 , 2014 , an increase of $ 1.5 million compared to the year ended december 31 , 2013. the increase in net cash used in operating activities is primarily due to an increase in cash operating loss of $ 1.5 million . financing activities . net cash provided by financing activities was $ 14.2 million for the year ended december 31 , 2014 , an increase of $ 8.9 million compared to the year ended december 31 , 2013. the increase in net cash provided by financing activities is primarily due to us selling an aggregate of 5.0 million shares of our common stock and warrants to purchase a total of 2.5 million shares of our common stock to an institutional investor for gross proceeds of approximately $ 15.0 million . 2014 shelf registration on november 5 , 2013 , we filed a shelf registration statement on form s-3 with the sec , which was declared effective by the sec on january 13 , 2014 ( the “ shelf registration statement ” ) .

the company 's class 8 truck sales accounted for 5.2 % of the u.s. class 8 retail truck sales market in 2011. the increase in the class 8 truck sales was primarily the result of continued strong demand by oilfield services customers and replacement purchases by large fleet customers . similarly , rush 's u.s. class 4 through 7 medium-duty commercial vehicle sales were up 94 % over 2010 , significantly outpacing the u.s. class 4 through 7 market , which increased by 23 % . rush 's medium-duty retail sales accounted for 3.8 % of u.s. class 4 through 7 retail sales in 2011. the majority of our medium-duty growth was achieved through navistar division dealerships and ford and isuzu dealerships in texas , florida , oklahoma and california that were acquired during 2010 and 2011. the company continues to pursue its acquisition strategy . in the fourth quarter , the company purchased certain assets of west texas peterbilt , which included five locations in west texas , and peck road ford in whittier , california . the company now operates five ford franchises and sixteen isuzu franchises in its network of rush truck centers . the acquisition of west texas peterbilt expanded the company 's representation of peterbilt in texas to include the entire state . improvements to the company 's existing network of rush truck centers continue . the company relocated its dealerships in ft. worth , texas and orlando , florida at the end of 2011. in 2012 , the company plans to relocate its phoenix , arizona , open a new rush bus center in houston to better serve its bus customers in the houston market and construct a new dealership facility in corpus christi , texas . in 2011 , the company also expanded operations to take advantage of strong demand for ancillary services not traditionally performed by truck dealerships . the company leased a 237,000 square foot facility in houston to support demand from several long-term oilfield services customers for oilfield vehicle preparation and service , and also established a new 50,000 square foot modification center in the dallas area . the company continues to evaluate opportunities to expand its navistar division . the 17 locations in the navistar division have now become a solid contributor to the company 's overall profitability and represent a significant opportunity to enlarge the network of rush truck centers . the company remains committed to work with navistar to expand its navistar division . key performance indicator absorption rate . management uses several performance metrics to evaluate the performance of its commercial vehicle dealerships , and considers rush truck centers ' “absorption rate” to be of critical importance . absorption rate is calculated by dividing the gross profit from the parts , service and body shop departments by the overhead expenses of all of a dealership 's departments , except for the selling expenses of the new and used commercial vehicle departments and carrying costs of new and used commercial vehicle inventory . when 100 % absorption is achieved , then gross profit from the sale of a commercial vehicle , after sales commissions and inventory carrying costs , directly impacts operating profit . in 1999 , the company 's commercial vehicle dealerships ' absorption rate was approximately 80 % . the company has made a concerted effort to increase its absorption rate since 1999. the company 's commercial vehicle dealerships achieved a 113.9 % absorption rate for the year in 2011 and 105.5 % absorption rate for the year in 2010 . 24 critical accounting policies and estimates the company 's discussion and analysis of its financial condition and results of operations are based on the company 's consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these consolidated financial statements requires the company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . there can be no assurance that actual results will not differ from those estimates . the company believes the following accounting policies , which are also described in note 2 of the notes to the consolidated financial statements , affect its more significant judgments and estimates used in the preparation of its consolidated financial statements . inventories inventories are stated at the lower of cost or market value . cost is determined by specific identification of new and used commercial vehicles inventory and by the first-in , first-out method for tires , parts and accessories . as the market value of our inventory typically declines over time , reserves are established based on historical loss experience and market trends . these reserves are charged to cost of sales and reduce the carrying value of our inventory on hand . an allowance is provided when it is anticipated that cost will exceed net realizable value plus a reasonable profit margin . goodwill goodwill and other intangible assets that have indefinite lives are not amortized but instead are tested at least annually by reporting unit for impairment , or more frequently when events or changes in circumstances indicate that the asset might be impaired . goodwill is reviewed for impairment utilizing a two-step process . the first step requires the company to compare the fair value of the reporting unit , which is the same as the segment , to the respective carrying value . the company considers its segment to be a reporting unit for purposes of this analysis . if the fair value of the reporting unit exceeds its carrying value , the goodwill is not considered impaired . if the carrying value is greater than the fair value , there is an indication that an impairment may exist and a second step is required . story_separator_special_tag 29 the company sold 4,649 used commercial vehicles in 2011 , a 34.3 % increase compared to 3,461 used commercial vehicles in 2010. the company expects to sell approximately 5,200 to 6,000 used commercial vehicles in 2012. the company expects used commercial vehicle sales to be largely dependent upon our ability to acquire quality used commercial vehicles and maintain an adequate used commercial vehicle inventory throughout 2012. truck lease and rental revenues increased $ 16.0 million , or 23.7 % , in 2011 , compared to 2010. the increase in lease and rental revenue is consistent with management 's expectations , which are based upon the increased number of units put into service in the lease and rental fleet during 2010 and 2011 and increasing rental fleet utilization . the company expects lease and rental revenue to increase 20 % to 25 % during 2012 , compared to 2011 based on the increase of units in the lease and rental fleet . finance and insurance revenues increased $ 2.9 million , or 37.2 % , in 2011 , compared to 2010. the increase in finance and insurance revenue is primarily a result of the increase in new and used commercial vehicle sales . the company expects finance and insurance revenue to fluctuate proportionately with the company 's new and used commercial vehicle sales in 2012. finance and insurance revenues have limited direct costs and , therefore , contribute a disproportionate share of the company 's operating profits . other income increased $ 2.3 million , or 34.7 % in 2011 , compared to 2010. other income consists primarily of the gain on sale realized on trucks from the lease and rental fleet , document fees related to commercial vehicle sales and mineral royalties . gross profit gross profit increased $ 138.4 million , or 48.6 % , in 2011 , compared to 2010. gross profit as a percentage of sales decreased to 16.4 % in 2011 , from 19.0 % in 2010. this decrease in gross profit as a percentage of sales is primarily a result of a change in our product sales mix . commercial vehicle sales , a lower margin revenue item , increased as a percentage of total revenue to 69.8 % in 2011 , from 61.9 % in 2010. parts and service revenue , a higher margin revenue item , decreased as a percentage of total revenue to 26.2 % in 2011 , from 32.7 % in 2010. gross margins from the company 's parts , service and body shop operations increased to 39.5 % in 2011 , from 38.5 % in 2010. gross profit for the parts , service and body shop departments increased to $ 266.7 million in 2011 , from $ 188.5 million in 2010. the company expects gross margins on parts , service and body shop operations to range 39.0 % to 41.0 % in 2012. gross margins on class 8 truck sales decreased to 7.1 % in 2011 , from 7.4 % in 2010. in 2012 , the company expects overall gross margins from class 8 truck sales of approximately 6.5 % to 7.5 % . the company recorded expense of $ 1.6 million to increase its new heavy-duty truck valuation allowance in 2011 and $ 1.9 million in 2010. gross margins on medium-duty commercial vehicle sales decreased to 4.8 % in 2011 , from 5.6 % in 2010. gross margins on medium-duty commercial vehicles are difficult to forecast accurately because gross margins vary significantly depending upon the mix of fleet and non-fleet purchasers and types of medium-duty commercial vehicles sold . for 2012 , the company expects overall gross margins from medium-duty commercial vehicle sales of approximately 4.5 % to5.5 % , but this will largely depend upon general economic conditions and the mix of purchasers and types of vehicles sold . the company recorded expense of $ 1.9 million to increase its new medium-duty commercial vehicle valuation allowance in 2011 and $ 0.6 million in 2010. gross margins on used commercial vehicle sales decreased to 9.4 % in 2011 , from 12.2 % in 2010. in 2012 , the company expects margins on used commercial vehicles to remain between 8.0 % and 10.0 % , but this will largely depend upon general economic conditions and the availability of quality used vehicles . the company recorded expense of $ 2.3 million to increase its used commercial vehicle valuation allowance in 2011 and $ 1.5 million in 2010. gross margins from truck lease and rental sales increased to 16.5 % in 2011 , from approximately 14.9 % in 2010. the increase in lease and rental gross profit is primarily attributable to increased utilization of vehicles in the company 's rental fleet and increased variable rental revenue that is based on the miles that vehicles being leased are driven . the company expects gross margins from lease and rental sales of approximately 16.0 % to 18.0 % during 2012. the company 's policy is to depreciate its lease and rental fleet using a straight line method over the customer 's contractual lease term . the lease unit is depreciated to a residual value that approximates fair value at the expiration of the lease term . this policy results in the company realizing reasonable gross margins while the unit is in service and a corresponding gain or loss on sale when the unit is sold at the end of the lease term . 30 finance and insurance revenues and other income , as described above , have limited direct costs and , therefore , contribute a disproportionate share of gross profit . selling , general and administrative expenses selling , general and administrative ( “sg & a” ) expenses increased $ 78.8 million , or 34.6 % , in 2011 , compared to 2010. sg & a expenses as a percentage of total revenue decreased to 11.9 % in 2011 , from 15.2 % in 2010. sg & a expenses as a percentage

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cash flows cash and cash equivalents increased by $ 38.8 million during the year ended december 31 , 2011 , and increased by $ 19.9 million during the year ended december 31 , 2010. the major components of these changes are discussed below . cash flows from discontinued operations are included in the components of the statement of cash flows as described below . cash flows from operating activities cash flows from operating activities include net income adjusted for non-cash items and the effects of changes in working capital . during 2011 , operating activities resulted in net cash used in operations of $ 81.4 million . cash used in operating activities was primarily impacted by the increased levels of inventory and the increase in accounts receivable , offset by increases in accounts payable and accrued expenses . the majority of commercial vehicle inventory is financed through the company 's floor plan credit agreement . during 2010 , operating activities resulted in net cash provided by operations of $ 66.4 million . cash flows from operating activities as adjusted for all draws and ( payments ) on floor plan notes ( “adjusted cash flows from operating activities” ) was $ 188.3 million for the year ended december 31 , 2011 , and $ 110.2 million for the year ended december 31 , 2010. generally , all vehicle dealers finance the purchase of vehicles with floor plan borrowings , and our agreements with our floor plan providers require us to repay amounts borrowed for the purchase of such vehicles immediately after they are sold . as a result , changes in floor plan notes payable are directly linked to changes in vehicle inventory . however , as reflected in our consolidated statements of cash flows , changes in inventory are recorded as cash flows from operating activities , and draws and ( payments ) on floor plan notes are recorded as cash flows from financing activities .

the average securities balances decreased as a result of sales and maturities of , and payments on , securities throughout the year ended december 31 , 2019. the decrease in the average yield is the result of a federal home loan bank ( “ fhlb ” ) special dividend 29 of $ 83 thousand received during december 2018. interest income from our short-term investments , including our federal funds sold and interest-bearing deposits , was $ 5.3 million and $ 3.8 million for the year ended december 31 , 2019 and 2018 , respectively , yielding 2.20 % and 1.92 % on average balances of $ 239.3 million and $ 195.7 million , respectively . the increase in the average balance is the result of increased liquidity as a result of deposit growth . the increase in the average yield is a result of the rising interest rate environment throughout 2018 and early 2019 , offset by decreasing rates in the latter half of 2019. as a result , total interest income on investments increased for the year ended december 31 , 2019 . 2018 vs. 2017 . total interest income increased 21.3 % to $ 62.5 million for the year ended december 31 , 2018 from $ 51.6 million for the year ended december 31 , 2017 . this increase is primarily due to an increase in interest income on loans during the year ended december 31 , 2018 compared to the prior year due to an increase in average loan balances , as well as an increase in the average yield on loans . during the years ended december 31 , 2018 and 2017 , interest income on loans was $ 57.6 million and $ 49.0 million , respectively , yielding 5.38 % and 4.91 % on average loan balances of $ 1.07 billion and $ 996.7 million , respectively . the increase in the average loan balances is attributable to an increase in loan demand . the increase in the average yield on loans was primarily the result of the rising interest rate environment and the recovery of $ 1.6 million in interest income on two loans that had been on nonaccrual status but were paid in full during the year ended december 31 , 2018 as compared to $ 1.1 million recovered on one loan relationship during the year ended december 31 , 2017. the average yield on interest-earning assets was 4.78 % for the year ended december 31 , 2018 compared to 4.41 % for the year ended december 31 , 2017 . during the years ended december 31 , 2018 and 2017 , interest income from our securities available-for-sale and stock , was $ 1.2 million and $ 1.2 million , respectively , yielding 2.92 % and 2.49 % on average balances of $ 39.7 million and $ 49.7 million , respectively . the average securities balances decreased as a result of sales and maturities of , and payments on , securities throughout the year ended december 31 , 2018 , which was partially offset by purchases during the second half of the year . the increase in the average yield is attributable to the rising interest rate environment and the result of the fhlb special dividend of $ 83 thousand during december 2018. interest income from our short-term investments , including our federal funds sold and interest-bearing deposits , was $ 3.8 million and $ 1.4 million for the years ended december 31 , 2018 and 2017 , respectively , yielding 1.92 % and 1.11 % on average balances of $ 195.7 million and $ 123.8 million , respectively . the increase in the average yield is a result of the rising interest rate environment . as a result , total interest income on investment increased for the year ended december 31 , 2018. interest expense 2019 vs. 2018 . total interest expense increased 18.4 % to $ 16.1 million for the year ended december 31 , 2019 from $ 13.6 million for the year ended december 31 , 2018 . the increase was primarily due to an increase in the volume of and average cost of funds of our interest-bearing liabilities to 1.85 % at december 31 , 2019 from 1.60 % at december 31 , 2018 , which was primarily the result of new client acquisition and our decision to increase the rate of interest paid on our non-maturity interest bearing deposits and our certificates of deposit while in a rising interest rate environment , and an increase in our fhlb borrowings . interest expense on our certificates of deposit for the years ended december 31 , 2019 and 2018 was $ 6.0 million and $ 5.3 million , respectively , with a cost of funds of 2.26 % and 1.70 % on average balances of $ 265.9 million and $ 315.2 million , respectively . 2018 vs. 2017 . total interest expense increased 73.9 % to $ 13.6 million for the year ended december 31 , 2018 from $ 7.8 million for the year ended december 31 , 2017 . the increase was primarily due to an increase in the volume of and average cost of funds of our interest-bearing liabilities to 1.60 % at december 31 , 2018 from 1.05 % at december 31 , 2017 , which consisted of deposits , borrowings and junior subordinated debentures , which was primarily the result of new client acquisition , our decision to increase the rate of interest paid on our certificates of deposit resulting from the rising interest rate environment , and an increase in our fhlb borrowings . interest expense on our certificates of deposit for the years ended december 31 , 2018 and 2017 was $ 5.3 million and $ 3.8 million , respectively , with a cost of funds of 1.70 % and 1.26 % , on average balances of $ 315.2 million and $ 298.5 million , respectively . story_separator_special_tag the tax code allows net operating losses to be carried forward for 20 years from the date of the loss , and while management believes that the company will be able to realize the deferred tax asset within the period that our net operating losses may be carried forward , we are unable to assert the timing as to when that realization will occur . due to the hierarchy of evidence that the accounting rules specify , management determined that a full valuation allowance that was previously established on the balance of our deferred tax asset was still required at december 31 , 2017. see `` – critical accounting policies - utilization and valuation of deferred income tax benefits ” below for additional information regarding our deferred tax asset . financial condition assets our total consolidated assets increased by $ 67 million at december 31 , 2019 from $ 1.3 billion at december 31 , 2018 . the following table sets forth the composition of our interest earning assets at : replace_table_token_12_th ( 1 ) includes interest-earning balances maintained at the federal reserve bank of san francisco ( “ frbsf ” ) . 35 securities available for sale securities available for sale . securities that we intend to hold for an indefinite period of time , but which may be sold in response to changes in liquidity needs , interest rates , or prepayment risks or other similar factors , are classified as “ securities available for sale ” . such securities are recorded on our balance sheet at their respective fair values and increases or decreases in those values are recorded as unrealized gains or losses , respectively , and are reported as other comprehensive income ( loss ) on our accompanying consolidated balance sheet , rather than included in or deducted from our earnings . the following is a summary of the major components of securities available for sale and a comparison of the amortized cost , estimated fair values and the gross unrealized gains and losses attributable to those securities , as of december 31 , 2019 , 2018 and 2017 : replace_table_token_13_th at december 31 , 2019 , 2018 and 2017 , u.s. agency mortgage backed securities and collateralized mortgage obligations with an aggregate fair market value of $ 9.2 million , $ 18.2 million and $ 22.7 million , respectively , were pledged to secure fhlb borrowings , repurchase agreements , local agency deposits and treasury , tax and loan accounts . the amortized cost of securities available for sale at december 31 , 2019 is shown in the table below by contractual maturities taking into consideration historical prepayments based on the prior twelve months of principal payments . expected maturities will differ from contractual maturities and historical prepayments , particularly with respect to collateralized mortgage obligations , primarily because prepayment rates are affected by changes in conditions in the interest rate market and , therefore , future prepayment rates may differ from historical prepayment rates . 36 december 31 , 2019 maturing in one year or less over one year through five years over five years through ten years over ten years total ( dollars in thousands ) amortized cost weighted average yield amortized cost weighted average yield amortized cost weighted average yield amortized cost weighted average yield amortized cost weighted average yield securities available for sale : residential mortgage backed securities issued by u.s. agencies $ 4,759 1.46 % $ 11,060 1.50 % $ 3,457 1.66 % $ 104 2.72 % $ 19,380 1.53 % commercial mortgage backed securities issued by u.s. agencies 527 2.62 % 1,972 2.51 % 3,385 2.80 % 3,263 2.52 % 9,147 2.63 % total securities available for sale $ 5,286 1.58 % $ 13,032 1.66 % $ 6,842 2.22 % $ 3,367 2.53 % $ 28,527 1.88 % the table below indicates , as of december 31 , 2019 , the gross unrealized losses and fair values of our investments , aggregated by investment category , and length of time that the individual securities have been in a continuous unrealized loss position . replace_table_token_14_th we regularly monitor investments for significant declines in fair value . we have determined that declines in the fair values of these investments below their respective amortized costs , as set forth in the tables above , are temporary because ( i ) those declines were due to interest rate changes and not to a deterioration in the creditworthiness of the issuers of those investment securities , and ( ii ) we have the ability to hold those securities until there is a recovery in their values or until their maturity . 37 loans the following table sets forth the composition , by loan category , of our loan portfolio at december 31 , 2019 , 2018 , 2017 , 2016 and 2015 : replace_table_token_15_th commercial loans are loans to businesses to finance capital purchases or improvements , or to provide cash flow for operations . real estate and residential mortgage loans are loans secured by trust deeds on real properties , including commercial properties and single family and multi-family residences . construction loans are interim loans to finance specific construction projects . land development loans are loans secured by non-arable bare land . consumer loans include installment loans to consumers . the following table sets forth the maturity distribution of our loan portfolio ( excluding single and multi-family residential mortgage loans and consumer loans ) at december 31 , 2019 : replace_table_token_16_th ( 1 ) does not include mortgage loans on single or multi-family residences or consumer loans , which totaled $ 195.3 million and $ 90.9 million , respectively , at december 31 , 2019 . 38 nonperforming assets and allowance for loan and lease losses nonperforming assets . non-performing loans consist of ( i ) loans on non-accrual status which are loans on which the accrual of interest has been discontinued and include restructured loans when there has not been a

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cash flow provided by operating activities . in 2019 , operating activities provided net cash of $ 17.0 million primarily attributable to our net income of $ 5.7 million and provision for loan and lease losses of $ 9.2 million , partially offset by a decrease of $ 7.3 million in other liabilities . in 2018 , operating activities provided net cash of $ 17.3 million primarily attributable to net income of $ 27.3 million offset by a non-cash recognition of $ 11.1 million in our deferred tax asset . cash flow used in investing activities . in 2019 , investing activities used net cash of $ 38.7 million , primarily attributable to $ 43.0 million used to fund an increase in loans and $ 5.0 million used to purchase securities available for sale and other stock , partially offset $ 8.6 million of cash from maturities of and principal payments on securities available for sale , and $ 1.1 million from the sale of other real estate owned properties . in 2018 , investing activities used net cash of $ 24.0 million , primarily attributable to $ 32.3 million used to fund an increase in loans and $ 5.2 million used to purchase securities available for sale and other stock , partially offset by $ 6.9 million of cash from the sale of debt and equity securities available for sale and $ 6.0 million from maturities and principal payments on securities available for sale . cash flow provided by financing activities . in 2019 , financing activities provided net cash of $ 54.1 million , consisting primarily of a $ 56.6 million increase in non-interest bearing deposits and a $ 7.0 million increase in interest bearing deposits , partially offset by a net decrease of $ 10.0 million in fhlb borrowings . in 2018 , financing activities used net cash of $ 3.7 million , consisting primarily of a $ 5.5 million net decrease in interest bearing deposits , and a $ 727 thousand net decrease in borrowings , partially offset by a $ 2.1 million net increase in noninterest bearing deposits . ratio of loans to deposits .

moving into the first quarter of fiscal 2014 , we are currently seeing a reduction in orders from another large customer and a few of our new programs are not ramping up as rapidly as anticipated . net sales for the first quarter of fiscal year 2014 are expected to be within the range o f $ 73 million to $ 78 million . future results will depend on actual levels of customers ' orders , the timing of the start up of production of new product programs and the potential impact of the macroeconomic uncertainty . we believe that we are well positioned in the ems industry to continue expansion of our customer base and continue long-term growth . the concentration of our largest customers decreased during fiscal year 2013 with the top five customers ' sales decreasing to 71 percent of total sales in 2013 from 73 percent in 2012 , and 62 percent in 2011 . our current customer relationships involve a variety of products , including consumer electronics , electronic storage devices , plastics , household products , gaming devices , specialty printers , telecommunications , industrial equipment , military supplies , computer accessories , electronic whiteboards , medical , educational , irrigations , automotive , transportation management , robotics , rfid , power supply and offroad vehicle equipment . the growth during fiscal year 2013 was powered by an increasingly diverse mix of new customer programs . gross profit as a percent of sales was 9.6 percent in fiscal year 2013 compared to 8.6 percent for the prior fiscal year . this 1.0 percentage point increase in gross profit as a percentage of net sales during fiscal year 2013 as compared to fiscal year 2012 is primarily related to a 1.9 percentage point improvement in material costs , as a percent of sales , partially offset by a 0.9 percentage point increase in certain overhead costs as we brought on additional headcount and equipment to support new customer programs . the level of gross margin is impacted by product mix , timing of the start up of new programs , facility utilization , pricing within the electronics industry and material costs , which can fluctuate significantly from quarter to quarter and year to year . operating income as a percentage of sales for fiscal year 2013 was 5.0 percent compared to 4.1 percent for fiscal year 2012 . the increase in operating income as a percentage of sales was due to an increase in gross margin , while keeping operating expenses relatively flat and by improving efficiencies during fiscal year 2013 . net income for fiscal year 2013 was $ 12.6 million or $ 1.15 per diluted share , as compared to net income of $ 11.6 million or $ 1.10 per diluted share for fiscal year 2012 . the increase in net income for fiscal year 2013 as compared to fiscal year 2012 was primarily due to the increase in net sales that led an improvement in our gross margin and operating income , partially offset by an increase in income tax expense . 18 we maintain a strong balance sheet with a current ratio of 2.9 and a long-term debt to equity ratio of 0.01 . total cash provided by operating activities as defined on our cash flow statement was $ 29.3 million during fiscal year 2013 . we maintain sufficient liquidity for our expected future operations . we did not have an outstanding balance on our revolving line of credit with wells fargo bank , n.a . as of june 29 , 2013 . as a result , $ 30.0 million remained available to borrow as of june 29 , 2013 . we believe cash flow from operations , our borrowing capacity , and equipment lease financing should provide adequate capital for planned growth over the long term . results of operations comparison of the fiscal year ended june 29 , 2013 with the fiscal year ended june 30 , 2012 the following table sets forth for the periods indicated certain items of the consolidated statements of income expressed as a percentage of net sales . the financial information and discussion below should be read in conjunction with the consolidated financial statements and notes contained in this annual report . replace_table_token_5_th net sales the increase in net sales from prior year was primarily driven by an approximate $ 11.7 million increase in revenues related to new programs for both new and longstanding customers and to a lesser extent a net $ 5.5 million increase related to increased demand from current customer programs , which was partially offset by the previously disclosed slowdown from the large customer that began to reduce production levels in the second quarter of fiscal year 2013. in addition , the increases were negatively impacted by $ 2.6 million related to customer program losses . the negative impact resulting from the previously discussed slowdown of demand from one of our larger customers is reflected in the analysis above . the following table shows the revenue by industry sectors as a percentage of revenue for fiscal years 2013 and 2012 : replace_table_token_6_th we provide services to customers in a number of industries and produce a variety of products for our customers in each industry . as we continue to diversify our customer base and win new customers we will continue to see a change in the industry concentrations of our revenue . 19 sales to foreign locations outside the united states represented 31.8 percent , and 40.6 percent of our total net sales in fiscal years 2013 , and 2012 , respectively . story_separator_special_tag if expected sales do not materialize , then we would have inventory in excess of our reserves and would have to charge the excess against future earnings . in the case where we have purchased material based upon a customer 's forecast or purchase orders , we are usually covered by lead-time assurance agreements or purchase orders with each customer . these contracts state that the financial liability for material purchased within agreed upon lead-time and based upon the customer 's forecasts , lies with the customer . if we purchase material outside the lead-time assurance agreement and the customer 's forecasts do not materialize or if we have no lead-time assurance agreement for a specific program , we would have the financial liability and may have to charge inactive , obsolete or surplus inventory against earnings . allowance for doubtful accounts we value our accounts receivable net of an allowance for doubtful accounts . the allowance for doubtful accounts was $ 40,000 as of june 29 , 2013. as of june 30 , 2012 , we deemed that no allowance was necessary . this allowance is based on estimates of the portion of accounts receivable that may not be collected in the future . the estimates used are based primarily on specific identification of potentially uncollectible accounts . such accounts are identified using publicly available information in conjunction with evaluations of current payment activity . however , if any of our customers were to develop unexpected and immediate financial problems that would prevent payment of open invoices , we could incur additional and possibly material expenses that would negatively impact earnings . accrued warranty an accrual is made for expected warranty costs , with the related expense recognized in cost of goods sold . we review the adequacy of this accrual quarterly based on historical analysis and anticipated product returns and rework costs . as we have made the transition from manufacturing primarily keyboards to primarily ems products , our exposure to warranty claims has declined significantly . our warranty period for keyboards is generally longer than that for ems products . we only warrant materials and workmanship on ems products , and we do not warrant design defects for ems customers . income taxes income tax expense includes u.s. and international income taxes and the provision for u.s. taxes on undistributed earnings of foreign subsidiaries not deemed to be permanently invested . we do not record u.s. tax liabilities on undistributed earnings of international subsidiaries that are deemed to be permanently reinvested . certain income and expenses are not reported in tax returns and financial statements in the same year . the tax effect of such temporary differences is reported as deferred income taxes . the deferred income taxes are classified as current or long-term based on the classification of the related asset or liability . the most significant areas involving management judgments include deferred income tax assets and liabilities , uncertain tax positions , and research and development tax credits . our estimates of the realization of the deferred tax assets related to our tax credits are based upon our estimates of future taxable income which may change . stock-based compensation stock-based compensation is accounted for according to financial accounting standards board ( fasb ) accounting standards codification ( asc ) 718 , compensation—stock compensation . asc 718 requires us to expense the fair value of employee stock options , stock appreciation rights and other forms of stock-based compensation . under the fair value recognition provisions of asc 718 , share-based compensation cost is estimated at the grant date based upon the fair value of the award and is recognized as expense ratably over the requisite service period of the award ( generally the vesting period ) . determining the appropriate fair value model and calculating the fair value of share-based awards requires judgment , including estimating the expected life of the share-based award , the expected stock price volatility over the expected life of the share-based award and forfeitures . 26 to determine the fair value of stock based awards on the date of grant we use the black-scholes option-pricing model . inherent in this model are assumptions related to expected stock price volatility , option life , risk-free interest rate and dividend yield . the risk-free interest rate is a less-subjective assumption as it is based on factual data derived from public sources . we use a dividend yield of zero as we have never paid cash dividends and have no intention to pay cash dividends in the foreseeable future . the expected stock price volatility and option life assumptions require a greater level of judgment . our expected stock-price volatility assumption is based upon the historical volatility of our stock which is obtained from public data sources . the expected life represents the weighted average period of time that share-based awards are expected to be outstanding , giving consideration to vesting schedules and historical exercise patterns . we determine the expected life assumption based upon the exercise and post-vesting behavior that has been exhibited historically , adjusted for specific factors that may influence future exercise patterns . if expected volatility or expected life were to increase , that would result in an increase in the fair value of our stock options which would result in higher compensation charges , while a decrease in volatility or the expected life would result in a lower fair value of our stock option awards resulting in lower compensation charges . we estimate forfeitures for all of our awards based upon historical experience of stock-based pre-vesting forfeitures . we believe that our estimates are based upon outcomes that are reasonably likely to occur . if actual forfeitures are higher than our estimates it would result in lower compensation expense and to the extent the actual forfeitures are lower than our estimate we would record higher compensation expense . impairment of long-lived assets long-lived assets , such as property ,

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capital resources and liquidity operating cash flow net cash provided by operating activities for fiscal year 2013 was $ 29.3 million compared to net cash used in operating activities of $ 5.1 million and $ 2.6 million in fiscal years 2012 and 2011 , respectively . cash flows provided by operating activities increased primarily due to a drop in working capital caused by decreased revenue in the fourth quarter of fiscal 2013 when compared to fiscal 2012. the decreased revenue allowed the company to decrease its accounts receivable and inventories . additionally , the company improved its inventory turns through better management of order quantities and requiring certain customer payments on aged inventory purchased to forecast but subsequently not consumed . the working capital increase year-over-year is primarily related to a $ 13.3 million decrease in inventory , and a $ 13.6 million decrease in accounts receivable partially offset by a $ 16.6 million decrease in accounts payable . the working capital changes during fiscal year 2012 , are primarily due to a $ 17.6 million increase in inventory and a $ 20.3 million increase in accounts receivable , which were partially offset by a $ 16.9 million increase in accounts payable . the increase in working capital during fiscal 2012 was related to a significant increase in revenue occurring during the year . we purchase inventory based on customer forecasts and orders , and when those forecasts and orders change , the amount of inventory may also fluctuate . accounts receivable fluctuates based on the timing of shipments , terms offered and collections . accounts payable fluctuates with changes in inventory levels , volume of inventory purchases , negotiated supplier terms , and taking advantage of early pay discounts . investing cash flow cash flows used in investing activities were $ 3.3 million , $ 4.6 million , and $ 3.7 million in fiscal years 2013 , 2012 and 2011 , respectively . our investing cash flows primarily consist of capital expenditures to purchase manufacturing equipment to support production and to a lesser extent leasehold improvements at our corporate headquarters .

certain accounting policies involve significant judgments and assumptions by management which have a material impact on the carrying value of certain assets and liabilities ; management considers these accounting policies to be critical accounting policies . the judgments and assumptions used by management are based on historical experience and other factors which are believed to be reasonable under the circumstances . because of the nature of the judgments and assumptions made by management , actual results could differ from the judgments and estimates adopted by management which could have a material impact on the carrying values of assets and liabilities and the results of our operations . we believe the following accounting policies applied by ameris represent critical accounting policies . allowance for loan losses we believe the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in the preparation of our consolidated financial statements . the allowance for loan losses represents management 's estimate of probable incurred losses in the company 's loan portfolio . calculation of the allowance for loan losses represents a critical accounting estimate due to the significant judgment , assumptions and estimates related to the amount and timing of estimated losses , consideration of subjective environmental factors and the amount and timing of cash flows related to impaired loans . 29 index to financial statements management believes that the allowance for loan losses is adequate . while management uses available information to recognize losses on loans , future additions to the allowance for loan losses may be necessary based on changes in economic conditions . in addition , various regulatory agencies , as an integral part of their examination processes , periodically review the company 's allowance for loan losses . such agencies may require the company to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination . considering current information and events regarding a borrower 's ability to repay its obligations , management considers a loan to be impaired when the ultimate collectability of all amounts due , according to the contractual terms of the loan agreement , is in doubt . when a loan is considered to be impaired , the amount of impairment is measured based on the present value of expected future cash flows discounted at the loan 's effective interest rate or if the loan is collateral-dependent , the fair value of the collateral is used to determine the amount of impairment . impairment losses are included in the allowance for loan losses through a charge to the provision for losses on loans . subsequent recoveries are credited to the allowance for loan losses . cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreement . cash receipts on impaired loans for which the accrual of interest has been discontinued are applied first to principal and then to interest income . certain economic and interest rate factors could have a material impact on the determination of the allowance for loan losses . an improving economy could result in the expansion of businesses and creation of jobs which would positively affect our loan growth and improve our gross revenue stream . conversely , certain factors could result from an expanding economy which could increase our credit costs and adversely impact our net earnings . a significant rapid rise in interest rates could create higher borrowing costs and shrinking corporate profits which could have a material impact on a borrower 's ability to pay . we will continue to concentrate on maintaining a high quality loan portfolio through strict administration of our loan policy . another factor that we have considered in the determination of the allowance for loan losses is loan concentrations to individual borrowers or industries . at december 31 , 2014 , we had one non-covered loan with an outstanding balance of $ 15.1 million , which exceeded our in-house credit limit of $ 15.0 million . we also had four relationships consisting of 18 different non-covered loans that exceeded our $ 15.0 million in-house credit limit . total exposure resulting from these four relationships was $ 88.9 million . additional disclosure concerning the company 's largest loan relationships is provided below . a substantial portion of our loan portfolio is in the commercial real estate and residential real estate sectors . those loans are secured by real estate in our primary market areas . a substantial portion of oreo is located in those same markets . therefore , the ultimate collectability of a substantial portion of our loan portfolio and the recoverability of a substantial portion of the carrying amount of oreo are susceptible to changes to market conditions in our primary market area . fair value accounting estimates gaap requires the use of fair values in determining the carrying values of certain assets and liabilities , as well as for specific disclosures . the most significant include impaired loans , oreo , and the net assets acquired in business combinations . certain of these assets do not have a readily available market to determine fair value and require an estimate based on specific parameters . when market prices are unavailable , we determine fair values utilizing estimates , which are constantly changing , including interest rates , duration , prepayment speeds and other specific conditions . in most cases , these specific parameters require a significant amount of judgment by management . at december 31 , 2014 , the percentage of the company 's assets measured at fair value was 18 % . see note 22 , “fair value of financial instruments , ” in the notes to consolidated financial statements herein for additional disclosures regarding the fair value of our assets and liabilities . story_separator_special_tag 35 index to financial statements noninterest expense following is a comparison of noninterest expense for 2014 , 2013 and 2012. replace_table_token_7_th 2014 compared to 2013. operating expenses increased from $ 121.9 million in 2013 to $ 150.9 million in 2014. the primary drivers of the increase in operating expenses are the increased number of branch locations and continued growth and expansion in the company 's mortgage and sba divisions . salaries and employee benefits increased 30.4 % from $ 56.7 million in 2013 to $ 73.9 million in 2014. equipment and occupancy expense increased 42.6 % from $ 12.3 million in 2013 to $ 17.5 million in 2014. data processing and telecommunications expense increased during 2014 to $ 15.6 million , an increase of 34.8 % compared to the $ 11.5 million reported in 2013. advertising and public relations increased $ 1.2 million during 2014 , as the company incurred these costs to support various revenue and growth strategies throughout the year . postage and delivery , printing and supplies , legal fees and other professional fees all increased during 2014 to support the increases assets of the company . acquisition expenses of $ 3.9 million in 2014 relate to the coastal acquisition , compared to the $ 4.4 million recorded in 2013 related to the prosperity acquisition . problem loan and oreo expenses decreased $ 2.0 million in 2014 , as the level of oreo and problem loans declined and general economic conditions improved . excluding acquisition and credit related expenses , total operating expenses were $ 133.4 million for the year ended december 31 , 2014 , compared to $ 102.1 million for 2013. expressed as a percentage of average assets , total operating expense net of credit related and non-recurring acquisition costs in 2013 was 3.58 % , a slight increase from 3.47 % reported in 2013 . 2013 compared to 2012. operating expenses increased from $ 119.5 million in 2012 to $ 121.9 million in 2013. salaries and employee benefits increased 6.7 % from $ 53.1 million in 2012 to $ 56.7 million in 2013. equipment and occupancy expense decreased 7.0 % from $ 13.2 million in 2012 to $ 12.3 million in 2013. data processing and telecommunications expense increased during 2013 to $ 11.5 million , an increase of 8.0 % compared to the $ 10.7 million reported in 2012. postage and delivery , printing and supplies , legal fees and other professional fees all decreased during 2013 due to the efforts to reduce core operating expenses . acquisition expenses of $ 4.4 million in 2013 relate to the prosperity acquisition . problem loan and oreo expenses decreased $ 6.9 million in 2013 , as the level of oreo and problem loans declined and general economic conditions improved . excluding acquisition and credit related expenses , total operating expenses were $ 102.1 million for the year ended december 31 , 2013 , compared to $ 97.1 million for 2012. expressed as a percentage of average assets , total operating expense net of credit related and non-recurring acquisition costs in 2013 was 3.47 % , a slight increase from 3.25 % reported in 2012 . 36 index to financial statements income taxes federal income tax expense is influenced by the amount of taxable income , the amount of tax-exempt income and the amount of non-deductible expenses . for the year ended december 31 , 2014 , the company recorded income tax expense of approximately $ 17.5 million , compared to $ 9.3 million recorded in 2013 and $ 7.3 million recorded in 2012. the company 's effective tax rate was 31 % , 32 % and 34 % for the years ended december 31 , 2014 , 2013 and 2012 , respectively . balance sheet comparison loans management believes that our loan portfolio is adequately diversified . the loan portfolio contains no foreign loans or significant concentrations in any one industry . as of december 31 , 2014 , approximately 80.7 % of our legacy loan portfolio was secured by real estate . the amount of loans outstanding , excluding purchased non-covered and covered loans , at the indicated dates is shown in the following table according to type of loans . replace_table_token_8_th the following table provides additional disclosure on the various loan types comprising the subgroup “real estate – commercial & farmland” at december 31 , 2014 ( in thousands ) : replace_table_token_9_th 37 index to financial statements the amount of purchased , non-covered loans outstanding , at the indicated dates is shown in the following table according to type of loans . replace_table_token_10_th assets covered by loss-sharing agreements with the fdic - loans that were acquired in fdic-assisted transactions that are covered by the loss-sharing agreements with the fdic ( “covered loans” ) totaling $ 271.3 million and $ 390.2 million at december 31 , 2014 and 2013 , respectively , are not included in the preceding tables . oreo that is covered by the loss-sharing agreements with the fdic totaled $ 19.9 million and $ 45.9 million at december 31 , 2014 and 2013 , respectively . the loss-sharing agreements are subject to the servicing procedures as specified in the agreements with the fdic . the expected reimbursements under the loss-sharing agreements were recorded as an indemnification asset at their estimated fair value at the respective acquisition dates . the fdic loss-share receivable reported at december 31 , 2014 and 2013 was $ 31.4 million and $ 65.4 million , respectively . the company recorded the loans at their fair values , taking into consideration certain credit quality , risk and liquidity marks . if the company determines that a loan or group of loans has deteriorated from its initial assessment of fair value , the identified loss is charged off and a provision for loan loss is recorded . for the years ended december 31 , 2014 , 2013 and 2012 , the company recorded approximately $ 843,000 , $ 1.5 million

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liquidity and interest rate sensitivity liquidity management involves the matching of the cash flow requirements of customers , who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs , and the ability of our company to meet those needs . we seek to meet liquidity requirements primarily through management of short-term investments ( principally interest-bearing deposits in banks ) and monthly amortizing loans . another source of liquidity is the repayment of maturing single payment loans . in addition , our company maintains relationships with correspondent banks , including the fhlb and the federal reserve bank of atlanta , which could provide funds on short notice , if needed . a principal objective of our asset/liability management strategy is to minimize our exposure to changes in interest rates by matching the maturity and repricing horizons of interest-earning assets and interest-bearing liabilities . this strategy is overseen in part through the direction of our asset and liability committee ( the “alco committee” ) which establishes policies and monitors results to control interest rate sensitivity . as part of our interest rate risk management policy , the alco committee examines the extent to which its assets and liabilities are “interest rate sensitive” and monitors its interest rate-sensitivity “gap.” an asset or liability is considered to be interest rate sensitive if it will reprice or mature within the time period analyzed , usually one year or less . the interest rate-sensitivity gap is the difference between the interest-earning assets and interest-bearing liabilities scheduled to mature or reprice within such time period . a gap is considered positive when the amount of interest rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities . a gap is considered negative when the amount of interest rate-sensitive liabilities exceeds the interest rate-sensitive assets . during a period of rising interest rates , a negative gap would tend to adversely affect net interest income , while a positive gap would tend to result in an increase in net interest income .

we generally bill maintenance fees annually in advance and recognize the resulting revenues ratably over the term of the maintenance agreement . we derive revenues from services which primarily include consulting , implementation , training , software as a service ( saas ) , hosting and managed services . we bill for these services primarily under time and materials arrangements and recognize fees as we perform the services . deferred revenues represent advance payments or billings for software licenses , services , and maintenance billed in advance of the time we recognize revenues . we record revenues from sales of third-party products in accordance with principal agent considerations within the revenue recognition topic of the fasb accounting standards codification . furthermore , we evaluate sales through our indirect channel on a case-by-case basis to determine whether the transaction should be recorded gross or net , including but not limited to assessing whether or not we ( 1 ) act as principal in the transaction , ( 2 ) take title to the products , ( 3 ) have risks and rewards of ownership , such as the risk of loss for collection , delivery , or returns , and ( 4 ) act as an agent or broker with compensation on a commission or fee basis . accordingly , our sales through the dmi channel are typically recorded on a gross basis . generally , our software products do not require significant modification or customization . installation of the products is routine and is not essential to their functionality . our sales frequently include maintenance contracts and professional services with the sale of our software licenses . we have established vsoe for our maintenance contracts and professional services . we determine fair value based upon the prices we charge to customers when we sell these elements separately . we defer maintenance revenues , including those sold with the initial license fee , based on vsoe , and recognize the revenue ratably over the maintenance contract period . we recognize consulting and training service revenues , including those sold with license fees , as we perform the services based on their 43 established vsoe . we determine the amount of revenue we allocate to the licenses sold with services or maintenance using the “residual method” of accounting . under the residual method , we allocate the total value of the arrangement first to the undelivered elements based on their vsoe and allocate the remainder to license fees . saas revenues are recognized ratably over the subscription term as the customer has no ability to take delivery of the software , and the underlying arrangements typically include a single fee for the service that is billed monthly , quarterly or annually . stock-based compensation . we estimate the value of options granted on the date of grant using the black-scholes option pricing model . management judgments and assumptions related to volatility , the expected term and the forfeiture rate are made in connection with the calculation of stock compensation expense . we periodically review all assumptions used in our stock option pricing model . changes in these assumptions could have a significant impact on the amount of stock compensation expense . income taxes . we provide for the effect of income taxes on our financial position and results of operations in accordance with the income tax topic of the fasb accounting standards codification . under this accounting guidance , income tax expense is recognized for the amount of income taxes payable or refundable for the current year and for the change in net deferred tax assets or 44 liabilities resulting from events that are recorded for financial reporting purposes in a different reporting period than recorded in the tax return . management must make significant assumptions , judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset . our judgments , assumptions and estimates relative to the current provision for income tax take into account current tax laws , our interpretation of current tax laws , allowable deductions , tax planning strategies , projected tax credits and possible outcomes of current and future audits conducted by foreign and domestic tax authorities . changes in tax laws or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our financial position and results of operations . our assumptions , judgments and estimates relative to the value of our deferred tax asset take into account our expectations of the amount and category of future taxable income . actual operating results and the underlying amount and category of income in future years , which could significantly increase tax expense , could render inaccurate our current assumptions , judgments and estimates of recoverable net deferred taxes . business combinations and intangible assets including goodwill . we account for business combinations using the acquisition method of accounting and accordingly , the identifiable assets acquired and liabilities assumed are recorded based upon management 's estimates of current fair values as of the acquisition date . the estimation process includes analyses based on income and market approaches . goodwill represents the excess purchase price over the fair value of net assets , including the amount assigned to identifiable intangible assets . the goodwill generated is due in part to the synergies that are not included in the fair value of identifiable intangible assets . goodwill recorded in an acquisition is assigned to applicable reporting units based on expected revenues . identifiable intangible assets with finite lives are amortized over there useful lives . amortization of current technology is recorded in cost of revenues-license and amortization of all other intangible assets is recorded in amortization of acquisition-related intangibles . story_separator_special_tag maintenance revenues replace_table_token_8_th the 3 % increase in total maintenance revenues for the year ended april 30 , 2018 was due to a 4 % increase in maintenance revenues from our scm segment due to improved customer retention and additional license sales . this increase was partially offset by a 4 % decrease in our other segment due lower customer renewals and lower software license sales . the 4 % increase in total maintenance revenues for the year ended april 30 , 2017 was primarily due to a 4 % increase in maintenance revenues from our scm and other segments as a result of an increase in maintenance revenue from recent software license sales . the scm segment 's maintenance revenues constituted 96 % of total maintenance revenues for the years ended april 30 , 2018 , 2017 and 2016. typically , our maintenance revenues have had a direct relationship to current and historic license fee revenues , since new licenses are the potential source of new maintenance customers . gross margin : the following table provides both dollar amounts and percentage measures of gross margin : replace_table_token_9_th the total gross margin percentage for the year ended april 30 , 2018 increased to 56 % in fiscal 2018 when compared to 52 % in fiscal 2017 due to the increase in gross margin percentage for license fees margins , services and other gross margins and maintenance gross margin . the total gross margin percentage for the year ended april 30 , 2017 was primarily the same as the prior fiscal year due to the increase in gross margin percentage on services and other gross margins . this was partially offset by a decrease in license fees margins when compared to the prior year . gross margin on license fees the increase in license fee gross margin percentage for the year ended april 30 , 2018 when compared to fiscal 2017 was primarily due to lower capitalized software amortization expense . we expect capitalized software amortization expense to increase in fiscal 2019 when compared to fiscal 2018. the decrease in license fee gross margin percentage for the year ended april 30 , 2017 when compared to fiscal 2016 was primarily due to the 29 % decrease in license fees in fiscal 2017 when compared to the prior year . license fee gross margin percentage tends to be directly related to the level of license fee revenues due to the relatively fixed cost of computer software amortization expense , amortization of acquired software and the sales mix between our direct and indirect channel . 50 gross margin on services and other for the year ended april 30 , 2018 , our gross margin percentage on services and other revenues increased from 30 % in fiscal 2017 to 37 % in fiscal 2018 primarily due to higher gross margins in our scm segment services gross margin which increased from 38 % in fiscal 2017 to 46 % in fiscal 2018 primarily due to an increase in our cloud service revenue which has higher margins . our it consulting segment services gross margin also increased from 18 % in fiscal 2017 to 21 % in fiscal 2018 due to an increase in project related billing . our other segment increased from 33 % in fiscal 2017 to 44 % in fiscal 2018 due to improved billing utilization rates . for the year ended april 30 , 2017 , our gross margin percentage on services and other revenues increased from 27 % in fiscal 2016 to 30 % in fiscal 2017 due to higher gross margins in our other segment , which increased from 20 % in fiscal 2016 to 39 % in fiscal 2017 due to improved billing utilization rates . our scm segment services gross margin was 38 % and 39 % in fiscal 2017 and fiscal 2016 , respectively . our it consulting segment services gross margin was 18 % in fiscal 2017 and fiscal 2016. as discussed above , our it consulting segment typically has lower margins when compared to the other segments that have higher margin implementation service revenue , so a decrease in the percentage of services revenues from our it consulting segment tends to cause our overall services gross margin percentage to increase . the it consulting segment was 34 % , 41 % and 47 % of the company 's services revenues in fiscal 2018 , 2017 and 2016 , respectively . our scm segment was 64 % , 57 % and 51 % of the company 's services revenues in fiscal 2018 , 2017 and 2016 , respectively . our other segment was 2 % , 2 % and 2 % of the company 's services revenues in fiscal 2018 , 2017 and 2016 , respectively . gross margin on maintenance maintenance gross margin percentage remained relatively consistent for the years ended april 30 , 2018 , 2017 and 2016 in the range of 77 % to 79 % . expenses replace_table_token_10_th 51 research and development gross product research and development costs include all non-capitalized and capitalized software development costs . a breakdown of the research and development costs is as follows : replace_table_token_11_th * included in cost of license fees for the year ended april 30 , 2018 , gross product research and development costs increased by 7 % primarily due to increased headcount from the halo acquisition and additional hiring . capitalized software development costs increased in fiscal 2018 compared to fiscal 2017 due to timing of project work . amortization of capitalized software development decreased 13 % in fiscal 2018 when compared to fiscal 2017 due to timing of project releases . for the year ended april 30 , 2017 , gross product research and development costs increased by 8 % primarily due to increased headcount from the adapchain acquisition and additional hiring . capitalized software development costs increased in fiscal 2017 compared to fiscal 2016 due to timing of project work .

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liquidity and capital resources sources and uses of cash we have historically funded , and continue to fund , our operations and capital expenditures primarily with cash generated from operating activities . the changes in net cash that our operating activities provide generally reflect the changes in net earnings and non-cash operating items plus the effect of changes in operating assets and liabilities , such as investment trading securities , trade accounts receivable , trade accounts payable , accrued expenses and deferred revenue . we have no debt obligations or off-balance sheet financing arrangements , and therefore , we used no cash for debt service purposes . the following tables show information about our cash flows and liquidity positions as of and for the fiscal years ended april 30 , 2018 , 2017 and 2016. you should read these tables and the discussion that follows in conjunction with our consolidated statements of cash flows contained in item 8 of this report . replace_table_token_13_th the decrease in cash provided by operating activities in fiscal 2018 compared to fiscal 2017 was due primarily to : ( 1 ) an increase in the purchases of trading securities due to timing , ( 2 ) a decrease in accounts payable and other liabilities in fiscal 2018 when compared to an increase in fiscal 2017 due primarily to timing and the amount of sales commissions , bonuses and tax liabilities , ( 3 ) an increase in accounts receivable in fiscal 2018 when compared to an decrease in fiscal 2017 due to timing of sales and billing , ( 4 ) a decrease in net earnings , ( 5 ) a decrease in the net proceeds from sales and maturities of trading securities in fiscal 2018 compared to fiscal 2017 due to timing of purchases and maturity dates , ( 6 ) an increase in prepaid expenses and other assets in fiscal 2018 compared to the increase in fiscal 2017 due to timing of purchases and ( 7 ) lower depreciation and amortization expense due to timing of closing capitalized software projects and the sale of real estate in fiscal 2017 ( 8 ) higher gains on unrealized investments due to timing of sales of investments , and (

during the year ended december 29 , 2014 , we experienced a decline in gross and operating margins in our asia pacific operating segment resulting from the underutilization of certain advanced technology production facilities and an unexpected power outage . we experienced underutilization in the first and second quarters of 2014 caused by an increase in capacity to service an expected higher level of business which did not materialize . additionally , in the third quarter of 2014 , we experienced a 5 day production shut down due to an unexpected 43 power outage at one of our advanced technology production facilities which negatively impacted our productivity and yield improvement efforts as we were launching new products and significantly ramping for increased volumes . although we believe these to be unique challenges , we may experience similar challenges in the future which could negatively impact gross margins . while our customers include both oems and ems providers , we measure customers based on oem companies as they are the ultimate end customers . sales to our 5 largest customers accounted for 44 % , 41 % and 33 % of our net sales in 2014 , 2013 and 2012 , respectively . we sell to oems both directly and indirectly through ems providers . the following table shows the percentage of our net sales attributable to each of the principal end markets we served for the periods indicated : replace_table_token_9_th ( 1 ) sales to ems companies are classified by the end markets of their oem customers . ( 2 ) certain reclassifications of prior year end market percentages have been made to conform to the current year presentation . beginning in the first quarter of 2013 , we reclassified substrate pcbs , which were included in the other end market , into the end markets that the substrate pcbs are sold into — predominantly cellular phone . ( 3 ) smartphones are included in the cellular phone end market , touchscreen tablets are included in the computing/storage/peripherals end market and other mobile devices such as e-readers are included in the other end market . purchase orders may be cancelled prior to shipment . we charge customers a fee , based on percentage completed , if an order is cancelled once it has entered production . we derive revenues primarily from the sale of pcbs and backplane assemblies using customer-supplied engineering and design plans . we recognize revenues when persuasive evidence of a sales arrangement exists , the sales terms are fixed or determinable , title and risk of loss have transferred , and collectability is reasonably assured — generally when products are shipped to the customer . net sales consist of gross sales less an allowance for returns , which typically have been less than 3 % of gross sales . we provide our customers a limited right of return for defective pcbs and backplane assemblies . we record an estimate for sales returns and allowances at the time of sale based on historical results . cost of goods sold consists of materials , labor , outside services , and overhead expenses incurred in the manufacture and testing of our products . many factors affect our gross margin , including capacity utilization , product mix , production volume , and yield . we generally do not participate in any significant long-term contracts with suppliers , and we believe there are a number of potential suppliers for the raw materials we use . selling and marketing expenses consist primarily of salaries , labor related benefits , and commissions paid to our internal sales force , independent sales representatives , and our sales support staff , as well as costs associated with marketing materials and trade shows . general and administrative costs primarily include the salaries for executive , finance , accounting , information technology , facilities and human resources personnel , discretionary meals for employees in asia , as well as insurance expenses , expenses for accounting and legal assistance , incentive compensation expense , and gains or losses on the sale or disposal of property , plant and equipment . 44 critical accounting policies and estimates our consolidated financial statements included in this report have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , net sales and expenses , and related disclosure of contingent assets and liabilities . a critical accounting policy is defined as one that is both material to the presentation of our consolidated financial statements and requires us to make judgments that could have a material effect on our financial condition or results of operations . these policies require us to make assumptions about matters that are highly uncertain at the time of the estimate . different estimates we could reasonably have used , or changes in the estimates that are reasonably likely to occur , or could have a material effect on our financial condition or results of operations . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . management has discussed the development , selection and disclosure of these estimates with the audit committee of our board of directors . actual results may differ from these estimates under different assumptions or conditions . our critical accounting policies include asset valuation related to bad debts and inventory ; sales returns and allowances ; impairment of long-lived assets , including goodwill and intangible assets ; derivative instruments and hedging activities ; realizability of deferred tax assets ; and determining self-insurance reserves . story_separator_special_tag overall gross margin decreased from 16.7 % for the year ended december 31 , 2012 to 15.9 % for the year ended december 30 , 2013. gross margin for the asia pacific segment decreased from 15.8 % for the year ended december 31 , 2012 to 15.5 % for the year ended december 30 , 2013 primarily due to a specific product warranty claim amounting to $ 8.0 million , increased equipment related expenses , and higher labor costs . gross margin for the north america segment decreased from 18.2 % for the year ended december 31 , 2012 to 16.6 % for the year ended december 30 , 2013 , primarily due to higher direct material content , labor costs and incentive compensation expense . selling and marketing expenses selling and marketing expenses decreased $ 0.2 million , or 0.5 % , from $ 37.1 million for the year ended december 30 , 2013 to $ 36.9 million for the year ended december 29 , 2014. as a percentage of net sales , selling and marketing expenses were 2.7 % and 2.8 % for the years ended december 30 , 2013 and december 29 , 2014 , respectively . the decrease in selling and marketing expenses for the year ended december 29 , 2014 , was primarily due to reduced commissions and lower travel expenses over the comparable periods of the prior year . additionally , the increase in selling and marketing expense as a percentage of net sales for the year ended december 29 , 2014 was primarily due to lower net sales . selling and marketing expenses increased $ 1.1 million , or 3.1 % , from $ 36.0 million for the year ended december 31 , 2012 to $ 37.1 million for the year ended december 30 , 2013. the increase in selling and marketing expenses was primarily due to an increase in labor costs and stock-based compensation expense . as a percentage of net sales , selling and marketing expenses were 2.7 % for both of the years ended december 31 , 2012 and december 30 , 2013. general and administrative expenses general and administrative expenses decreased $ 4.9 million from $ 105.9 million , or 7.7 % of net sales , for the year ended december 30 , 2013 to $ 101.0 million , or 7.6 % of net sales , for the year ended december 29 , 2014. the decrease in general and administrative expense for the year ended december 29 , 2014 is primarily due to costs savings resulting from the sale of our controlling equity interest in a subsidiary in the asia pacific operating segment and lower incentive compensation expense , offset by the $ 6.0 million of acquisition-related costs recorded in the third and fourth quarters of 2014. general and administrative expenses increased $ 7.9 million from $ 98.0 million , or 7.3 % of net sales , for the year ended december 31 , 2012 to $ 105.9 million , or 7.7 % of net sales , for the year ended december 30 , 2013. the increase in expense primarily relates to an increase in incentive compensation expense as well as increased labor costs , partially offset by lower stock-based compensation expense . impairment of long-lived assets and restructuring charges for the year ended december 29 , 2014 and december 30 , 2013 , in conjunction with the shutdown of the suzhou , china facility , we recorded charges of $ 1.8 million and $ 10.8 million , respectively , primarily arising from the impairment of certain machinery and equipment . additionally , in conjunction with the shutdown , we recorded restructuring charges of $ 3.4 million during the year ended december 30 , 2013 , consisting of separation costs associated with the layoff of 774 employees . during the year ended december 31 , 2012 , we recorded an impairment charge in the asia pacific operating segment in the amount of $ 18.1 million . this impairment charge related specifically to two real estate assets for which there was expected underutilization and limited market demand . 50 if forecasts and assumptions used to support the realizability of our long-lived assets change in the future , significant impairment charges could result that would adversely affect our results of operations and financial condition . impairment of goodwill and definite-lived intangibles during the year ended december 31 , 2012 , we performed an interim evaluation of goodwill and definite-lived intangibles as we believed there were impairment triggering events and circumstances that warranted an evaluation . these circumstances included continued decreases in operating profit due to softer revenues and shifts in product mix when compared with projected results . these factors led to weaker than expected performance for the year ended december 31 , 2012. as a result , we recorded a charge for the impairment of goodwill and definite-lived intangibles in the amount of $ 200.3 million for the year ended december 31 , 2012 , consisting of charges of $ 171.4 million for goodwill and $ 28.9 million for definite-lived intangibles . other income ( expense ) other expense , net decreased $ 5.2 million from $ 29.4 million for the year ended december 30 , 2013 to $ 24.2 million for year ended december 29 , 2014. the decrease in other expense , net was primarily due to the absence of a $ 10.7 million loss on the extinguishment of debt related to repurchase of a portion of convertible senior notes due 2015 for the year ended december 30 , 2013 , offset by an increase in foreign currency transaction and derivative losses of $ 5.5 million , which includes a $ 3.6 million foreign currency transaction and derivative loss recognized in the first quarter of 2014 primarily due to the rapid depreciation of the rmb against the u.s. dollar . other expense , net increased $ 3.0 million from $ 26.4 million for year ended december 31 ,

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liquidity and capital resources our principal sources of liquidity have been cash provided by operations , the issuance of convertible senior notes , and term and revolving debt . our principal uses of cash have been to finance capital expenditures , meet debt service requirements , fund working capital requirements , finance acquisitions , and refinance existing debt . we anticipate that financing acquisitions , servicing debt , financing capital expenditures , and funding working capital requirements , will continue to be the principal demands on our cash in the future . as of december 29 , 2014 , we had net working capital of approximately $ 302.1 million compared to $ 347.0 million as of december 30 , 2013. this decrease in working capital is primarily attributable to the payment of debt obligations and the reclassification of our convertible notes due in 2015 from long-term to current . as of december 29 , 2014 , we had cash and cash equivalents of approximately $ 279.0 million , of which approximately $ 82.1 million was held by our foreign subsidiaries . of the cash and cash equivalents held by our foreign subsidiaries as of december 29 , 2014 , $ 79.1 million was located in asia and $ 3.0 million was located in europe . cash and cash equivalents located in our asia pacific operating segment are expected to be used in local operations . cash and cash equivalents located in our backplane assembly facility in shanghai , china , as well as in europe , which are managed in conjunction with our u.s. operations , totaled approximately $ 13.2 million and are available for repatriation and a deferred tax liability for u.s. income taxes on undistributed earnings has been recorded . our 2015 capital expenditure plan is expected to total approximately $ 100 million ( of which approximately $ 80 million relates to our asia pacific operating segment ) . the expenditures will fund capital equipment purchases to increase production capacity , especially for advanced technology manufacturing , comply with increased environmental regulations , replace aging equipment , and expand our technological capabilities .

as well as “ thank you ” bonuses and bonuses for certain salaried associates in our field operations and distribution centers ; ◦ provided pay continuation for associates who test positive or who are group 1 associates who have to self-quarantine ; ◦ created a “ store ” within each distribution center to allow our associates to shop for needed supplies at work when supplies were scarce in retail locations ; ◦ eliminated all non-essential air travel ; ◦ utilized technology options for all large group meetings ; ◦ prohibited external visitors ' access to the store support center ; ◦ enabled the majority of our store support center teams to work remotely ; ◦ enabled contactless payments to our pos systems for our customers ; 28 ◦ followed local municipality , county , and state guidelines and regulations needed to be open as an essential business ; ◦ encouraged safe social distancing protocols for our customers with signing , graphics and communications ; ◦ enabled health prescreening questionnaire for all store and distribution associates before entering work ; and ◦ established temperature check protocols for our associates at all distribution centers and the store support center . given the level of volatility and uncertainty surrounding the future impact of covid-19 on our customers , suppliers and the broader economies in the locations that we operate as well as uncertainty around the future impact on our supply chain , it is challenging to predict our future operations and financial results . following is a discussion of the impacts that we have seen and the factors which could influence our future performance . during march 2020 , our dollar tree and family dollar stores began to experience a significant increase in customer demand and sales related to essential products and comparable store net sales increased significantly . however , beginning the last week of march 2020 and continuing into april during the peak of the easter selling season , comparable store net sales at our dollar tree stores decreased . beginning in mid-april , comparable store net sales at our dollar tree stores increased as the comparable easter period from 2019 had passed . for fiscal 2020 , enterprise comparable store net sales increased 6.1 % resulting from an increase in average ticket of 20.0 % , partially offset by decreased traffic of 11.6 % . after the easter selling season , in both banners , we saw an increase in demand for and sales of discretionary products and our seasonal business for the other holidays throughout the year was strong . the future impact of covid-19 on our customers and our business is difficult to predict . the course of the pandemic , the effectiveness of health measures such as vaccines , and the impact of ongoing economic stabilization efforts is uncertain and government assistance payments may not provide enough funding to support current spending . the american rescue plan act of 2021 ( “ rescue act ” ) , which was enacted on march 11 , 2021 , provides u.s. government funding to address the continuing impact of covid-19 on the economy , public health , individuals and businesses . among other things , the rescue act provides for $ 1,400 direct payments to individuals , continues supplemental unemployment benefits until september 2021 , extends a prior increase in food stamp benefits , expands the child tax credit and earned income tax credit , provides for rent and utility assistance , and funds covid-19 vaccinations , testing , treatment and prevention . an increase in the federal minimum wage was not included in the rescue act as enacted . the demand for essential supplies has increased and we are dependent on our suppliers to replenish the goods in our stores . disruptions in our supply chain or sources of supply could adversely impact our sales . our new store openings in fiscal 2020 were affected by construction delays due to challenges with the permitting process during covid-19 . during 2020 , we opened 341 new dollar tree stores and 156 new family dollar stores compared to an original plan of 350 new dollar tree stores and 200 new family dollar stores . with the increase in customer activity in our family dollar stores and covid-19-related travel restrictions , we paused the roll-out of our h2 stores during the first quarter of 2020. we resumed the roll-out during the second quarter of 2020 and renovated approximately 770 stores to this format in fiscal 2020 compared with our original plan of 1,250 renovations . also , as a result of covid-19-related delays in obtaining permits , we added adult beverage product to approximately 570 stores in fiscal 2020 compared with our original plan of 1,000. for further discussion of the impacts that covid-19 had on our financial condition and results of operations during fiscal 2020 , refer to “ results of operations ” in this item 7. below . family dollar ◦ in 2018 , based on our strategic and operational reassessment of the family dollar segment following challenges that the business experienced that impacted our ability to grow the business at the originally estimated rate when we acquired family dollar in 2015 , management determined there were indicators that the goodwill of the business may be impaired . accordingly , a goodwill impairment test was performed in the fourth quarter of fiscal 2018 and we recorded a $ 2.73 billion non-cash pre-tax and after-tax goodwill impairment charge . the results of our 2019 annual impairment test showed that the fair value of the family dollar reporting unit was lower than its carrying value resulting in a $ 313.0 million non-cash pre-tax and after-tax goodwill impairment charge . ◦ in march 2019 , we announced plans for a store optimization program for family dollar . story_separator_special_tag fiscal 2020 included $ 26.5 million , or 10 basis points , of costs for the installation of plexiglass sneeze guards at all registers in our stores as well as incremental costs for masks , gloves and cleaning supplies due to the covid-19 pandemic and $ 2.7 million of uninsured costs associated with stores damaged in civil unrest . store facility costs decreased 20 basis points due to leverage from the comparable store net sales increase and lower electricity costs . fiscal 2020 included $ 1.3 million of covid-19-related expenses and $ 4.5 million of expenses for stores damaged in civil unrest . depreciation costs decreased 5 basis points due primarily to the leverage from the comparable store net sales increase . payroll expenses increased 65 basis points primarily due to incremental costs associated with the covid-19 pandemic and increases in incentive compensation , store sales bonuses and stock compensation expenses resulting from improved operating performance in the family dollar segment . these increases were partially offset by leverage from the comparable store net sales increase , lower benefits costs and lower temporary help expenses as a result of the prior year including higher expenses to support store-level initiatives . office payroll costs also decreased resulting from the store support center consolidation in the prior year and other leadership changes made in the fourth quarter of fiscal 2019. incremental payroll costs associated with the covid-19 pandemic , including a wage premium paid to all store hourly associates for all hours worked march 8 , 2020 through september 26 , 2020 , bonuses for certain field management associates , guaranteed bonus payouts and “ thank you ” bonuses for store managers , quarantine pay and sick pay as well as the related payroll taxes , totaled $ 212.6 million , or 85 basis points . operating income ( loss ) replace_table_token_12_th excluding the non-cash goodwill impairment charges in 2019 and 2018 , operating income margin was 6.7 % in 2019 and 7.8 % in 2018. operating income margin increased to 7.4 % in fiscal 2020 compared to 6.7 % in fiscal 2019 , excluding the goodwill impairment charge , as operating income margin in the family dollar segment increased 330 basis points , partially offset by a 140 basis point decrease in the dollar tree segment operating income margin . operating income in fiscal 2020 includes $ 279.0 million of covid-19-related expenses and $ 18.2 million of uninsured expenses related to civil unrest . 34 interest expense , net replace_table_token_13_th interest expense , net decreased $ 14.8 million in fiscal 2020 compared to the prior year , resulting from lower average debt outstanding in the current year , partially offset by lower interest income . in fiscal 2018 , we refinanced our debt , resulting in the acceleration of the expensing of $ 41.2 million of amortizable non-cash deferred financing costs and prepayment penalties totaling $ 114.3 million . provision for income taxes replace_table_token_14_th the effective tax rate for 2020 was 22.9 % compared to 24.7 % for 2019. the 2020 effective rate decreased compared to the prior year rate as the $ 313.0 million goodwill impairment charge in 2019 was not tax deductible . partially offsetting that decrease , the 2020 rate reflects higher state tax rates , higher income amounts taxed at the statutory rate and additional tax expense for restricted stock vestings due to the stock price for certain grants being lower at the vest date than the grant date . the 2019 effective tax rate also includes the benefit of the reversal of a valuation allowance of $ 24.6 million . segment information we operate a chain of more than 15,600 retail discount stores in 48 states and five canadian provinces . our operations are conducted in two reporting business segments : dollar tree and family dollar . we define our segments as those operations whose results our chief operating decision maker ( “ codm ” ) regularly reviews to analyze performance and allocate resources . we measure the results of our segments using , among other measures , each segment 's net sales , gross profit and operating income . the codm reviews these metrics for each of our reporting segments . we may revise the measurement of each segment 's operating income , as determined by the information regularly reviewed by the codm . if the measurement of a segment changes , prior period amounts and balances are reclassified to be comparable to the current period 's presentation . corporate , support and other consists primarily of store support center costs that are considered shared services and therefore these selling , general and administrative costs are excluded from our two reporting business segments . these costs include operating expenses for our store support centers in chesapeake , virginia and matthews , north carolina . during fiscal 2019 , we consolidated our matthews , north carolina store support center with our store support center in chesapeake , virginia . corporate , support and other also includes the results of operations for our summit pointe property in chesapeake , virginia . prior year amounts have been reclassified to be comparable to the current year presentation . dollar tree the following table summarizes the operating results of the dollar tree segment : replace_table_token_15_th net sales for the dollar tree segment increased 6.1 % , or $ 757.1 million , in 2020 compared to 2019 due to sales from new stores of $ 591.0 million and a 2.2 % increase in comparable store net sales . average ticket increased 17.9 % and customer traffic declined 13.3 % in 2020 . 35 gross profit margin for the dollar tree segment decreased to 34.3 % in 2020 from 34.7 % in 2019. the decrease is due to the net of the following : distribution costs increased 50 basis points resulting primarily from higher distribution center payroll and depreciation costs . we paid our hourly distribution center associates a wage premium for

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liquidity and capital resources our business requires capital to build and open new stores , expand and renovate existing stores , expand our distribution network and operate our existing stores . our working capital requirements for existing stores are seasonal in nature and typically reach their peak in the months of september and october . historically , we have satisfied our seasonal working capital requirements for existing 37 stores and have funded our store opening and distribution network expansion programs from internally generated funds and borrowings under our credit facilities . the following table compares cash-flow related information for the years ended january 30 , 2021 , february 1 , 2020 and february 2 , 2019 : replace_table_token_17_th operating activities net cash provided by operating activities increased $ 846.5 million in 2020 compared to 2019 primarily as a result of higher accounts payable , current liabilities and other liabilities and lower inventory levels at january 30 , 2021 , and higher earnings before depreciation and amortization in the current year . investing activities net cash used in investing activities decreased $ 130.5 million in 2020 compared with 2019 primarily due to 2019 including higher capital expenditures related to the family dollar segment store optimization program , including h2 renovations and re-banners .

the following summaries of the merger and related transactions , the merger agreement and the other agreements entered into by the parties are qualified in their entirety by reference to the text of the agreements , certain of which are attached as exhibits hereto and are incorporated herein by reference . on november 4 , 2011 , pursuant to the terms of the merger agreement , the merger was consummated and merger sub was merged with and into sg building , with sg building surviving the merger and becoming a wholly-owned subsidiary , and only operating business of the company . in connection with the merger , ( i ) each of the 1,786,000 shares of sg building common stock which were outstanding immediately prior to the effective date of the merger were exchanged for 20.1851851852 shares of the company 's common stock and ( ii ) each of the 51,750 outstanding sg building warrants were cancelled and substituted with company warrants of a similar tenor to purchase an aggregate of 1,044,584 shares of the company 's common stock . also , in connection with the merger , 408,750 shares of the company 's common stock were issued for services related to the merger . 18 the number of shares of common stock of the company issued and outstanding immediately following the consummation of the merger on november 4 , 2011 is summarized as follows : number of shares sg building shares outstanding prior to the merger 1,786,000 share exchange ratio ( 20.1851851852 to 1 ) 20.1851851852 x 36,050,764 sg blocks shares outstanding prior to the merger 3,269,992 shares issued in connection with the merger 408,750 39,729,506 in connection with the merger agreement , the company entered into an escrow agreement with former shareholders of sg building in order to provide for any payment to which the company may be entitled with respect to post-closing rights to indemnification under the merger agreement . under the terms of the escrow agreement , the former stockholders of sg building placed in escrow ( with an independent escrow agent ) a total of 817,500 shares of common stock received by them in the merger . such shares of common stock held in escrow will be the company 's sole remedy for rights to indemnification under the merger agreement . claims for indemnification may be asserted by the company until the 5 th business day after the company has filed the annual report on form 10-k with the securities and exchange commission for the year ended december 31 , 2011. general sg building , our wholly-owned subsidiary and only operating business , offers the construction industry a safer , greener , faster , longer lasting and more economical alternative to conventional construction methods . sg building redesigns , repurposes , and converts heavy-gauge steel cargo shipping containers into safe green building blocks for commercial , industrial , and residential building construction . sg building is a provider of code engineered cargo shipping containers that it modifies and delivers to meet the growing demand for safe and green construction . rather than consuming new steel and lumber , sg building capitalizes on the structural engineering and design parameters a shipping container must meet and repurposes them for use in building . results of operations years ended december 31 , 2011 , 2010 and 2009 : year ended december 31 replace_table_token_1_th year ended december 31 , 2011 compared to the year ended december 31 , 2010 : revenue revenue for the year ended december 31 , 2011 was $ 3,964,796 compared to $ 1,916,565 for the year ended december 31 , 2010. this increase of $ 2,048,231 results from significantly increased block “ green steel ” sales to three customers ( approximately $ 2,400,000 of sales in 2011 ) offset by a decrease of approximately $ 200,000 in engineering and project management jobs during 2011 . 19 the decrease of sales in engineering and project management jobs resulted from sg building having fewer customers in these product areas with lower contracted dollar amounts than during 2010. the reduced number of customers and sales revenue in these product areas is due to management 's decision to focus resources on larger block “ green steel ” projects and thus forgoing proposing on additional engineering and project management jobs during 2011. cost of revenue and gross profit cost of revenue increased by $ 2,068,759 to $ 3,407,918 for the year ended december 31 , 2011 from $ 1,339,159 for the year ended december 31 , 2010. the increase in cost of revenue results from an increase in sales as well as a decrease in gross profit percentage . gross profit decreased to $ 556,878 for the year ended december 31 , 2011 from a gross profit of $ 577,406 for the year ended december 31 , 2010. the gross profit percentage was 14.1 % for the year ended december 31 , 2011 as compared to a gross profit percentage of 30.1 % for the year ended december 31 , 2010. this decrease in gross profit percentage results from a decrease in gross profit percent in block “ green steel ” sales ( from 32.5 % in 2010 to 14.8 % in 2011 ) , engineering ( from 42.4 % in 2010 to 14 % in 2011 ) and project management ( from 20.9 % in 2010 to 7.4 % in 2011 ) projects . the decrease in gross profit percentage for block “ green steel ” sales and engineering projects resulted from jobs that were priced below our normal margin in order to obtain product acceptance and building approvals as well as a single block “ green steel ” sale job for approximately $ 1,400,000 which had a gross profit percentage of 5 % . story_separator_special_tag accordingly no warranty reserve is considered necessary for any of the periods presented . sg building also supplies repurposed containers to its customers . in these cases , sg building serves as a supplier to its customers for standard and made to order products that it sells at fixed prices . revenue from these contracts is generally recognized when the products have been delivered to the customer , accepted by the customer and collection is reasonably assured . revenue is recognized upon completion of the following : an order for product is received from a customer ; written approval for the payment schedule is received from the customer and the corresponding required deposit or payments are received ; a common carrier signs documentation accepting responsibility for the unit as agent for the customer ; and the unit is delivered to the customer 's shipping point . amounts billed to customers in a sales transaction for shipping and handling are classified as revenue . products sold are generally paid for based on schedules provided for in each individual customer contract including upfront deposits and progress payments as products are being manufactured . funds received in advance of meeting the criteria for revenue recognition are deferred and are recorded as revenue when they are earned . new accounting pronouncements in january 2010 , fasb issued asu no . 2010-06 – improving disclosures about fair value measurements . this update provides amendments to subtopic 820-10 that requires new disclosure as follows : 1 ) transfers in and out of levels 1 and 2 fair value measurements . a reporting entity should disclose separately the amounts of significant transfers in and out of level 1 and level 2 fair value measurements and describe the reasons for the transfers . 2 ) activity in level 3 fair value measurements . in the reconciliation for fair value measurements using significant unobservable inputs ( level 3 ) , a reporting entity should present separately information about purchases , sales , issuances , and settlements ( that is , on a gross basis rather than as one net number ) . this update provides amendments to subtopic 820-10 that clarifies existing disclosures as follows : 1 ) level of disaggregation . a reporting entity should provide fair value measurement disclosures for each class of assets and liabilities . a class is often a subset of assets or liabilities within a line item in the statement of financial position . a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities . 2 ) disclosures about inputs and valuation techniques . a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements . those disclosures are required for fair value measurements that fall in either level 2 or level 3. the adoption of this guidance did not have a material impact on sg building 's consolidated financial statements . in february 2010 , fasb issued asu no . 2010-9 –amendments to certain recognition and disclosure requirements . this update addresses certain implementation issues related to an entity 's requirement to perform and disclose subsequent-events procedures and removes the requirement that public companies disclose the date of their financial statements in both issued and revised financial statements . according to the fasb , the revised statements include those that have been changed to correct an error or conform to a retrospective application of u.s. gaap . the adoption of this asu did not have a material impact on sg building 's consolidated financial statements . in march 2010 , fasb issued asu no . 2010-11 –scope exception related to embedded credit derivatives . embedded credit-derivative features related only to the transfer of credit risk in the form of subordination of one financial instrument to another are not subject to potential bifurcation and separate accounting as clarified by recently issued fasb guidance . other embedded credit-derivative features are required to be analyzed to determine whether they must be accounted for separately . this update provides guidance on whether embedded credit-derivative features in financial instruments issued by structures such as collateralized debt obligations ( cdos ) and synthetic cdos are subject to bifurcation and separate accounting . the guidance is effective at the beginning of a company 's first fiscal quarter beginning after june 15 , 2010. we do not expect the adoption of this asu to have a material impact on the company 's consolidated financial statements . 24 in april 2010 , the fasb issued asu no . 2010-13 , compensation – stock compensation : effect of denominating the exercise price of a share-based payment award in the currency of the market in which the underlying equity security trades . asu 2010-13 clarifies that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity 's equity securities trades should not be considered to contain a condition that is not a market , performance , or service condition . therefore , such an award should not be classified as a liability if it otherwise qualifies as equity . asu 2010-13 is effective for fiscal years , and interim periods within those fiscal years , beginning on or after december 15 , 2010 , with early adoption permitted . sg building is currently evaluating the potential impact of this standard . in may 2011 , fasb issued asu no . 2011-04 , “ fair value measurement ( topic 820 ) – amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss . ” this asu addresses fair value measurement and disclosure requirements within accounting standards codification topic 820 for the purpose of providing consistency and common meaning between u.s. gaap and ifrss . generally , this asu is not intended to change the application of the requirements in topic 820. rather , this asu primarily

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liquidity and capital resources since sg building 's inception in 2008 , sg building has generated losses from operations and it anticipates that it will continue to generate losses from operations for the foreseeable future . as of december 31 , 2011 and december 31 , 2010 , sg building 's stockholders ' equity/ ( deficiency ) was approximately ( $ 185,000 ) and $ 440,000 , respectively . sg building 's net loss from operations for the years ended december 31 , 2011 and 2010 was $ 2,059,080 and $ 933,858 , respectively . net cash used in operating activities was $ 1,591,506 and $ 804,405 for the years ended december 31 , 2011 and december 31 , 2010 , respectively . operations since inception have been funded with the proceeds from equity and debt financings and sales activity . as of december 31 , 2011 , we had cash and cash equivalents of $ 561,759. we anticipate that our existing capital resources will enable us to continue operations through at least march 31 , 2013. sg building incurred a net loss of $ 1,909,575 for the year ended december 31 , 2011. sg building 's cash balance as of december 31 , 2011 was $ 561,759 and sg building had working capital as of that date of ( $ 192,597 ) . since inception , sg building has funded its operations and working capital needs primarily with proceeds from equity and debt financings and sales activity . during 2010 , sg building generated net cash proceeds of $ 2,739,797 from the issuance of notes payable and issuance of common stock .

our strategy also includes the possible acquisition of additional intellectual property assets in the future to develop , commercialize , license or otherwise monetize such intellectual property . in addition , we may enter into strategic relationships with third parties to develop , commercialize , license or otherwise monetize their intellectual property . the form of such relationships may differ depending upon the opportunity and may include , among other things , a strategic investment in such third party , the provision of financing to such third party or the formation of a joint venture with such third party for the purpose of monetizing its intellectual property assets . in september 2011 , we initiated patent litigation against 16 data networking equipment manufacturers in the united states district court for the eastern district of texas , tyler division , for infringement of our remote power patent . named as defendants in the lawsuit , excluding related parties , were alcatel-lucent usa , inc. , allied telesis , inc. , avaya inc. , axis 24 communications inc. , dell , inc. , garrettcom , inc. , hewlett-packard company , huawei technologies usa , juniper networks , inx . , motorola solutions , inc. , nec corporation , polycom inc. , samsung electronics co. , ltd. , shoretel , inc. , sony electronics , inc. , and transitions networks , inc. network-1 seeks monetary damages based upon reasonable royalties . several of the defendants ( samsung , polycom , alcatel , shortel and allied telesis ) have filed motions to dismiss the complaint for failure to state a cause of action . network-1 has filed opposition in response to the motions to dismiss . all such motions are pending . in july 2010 , we announced that we had agreed to settle our patent litigation pending in the united states district court for the eastern district of texas , tyler division , against adtran , inc , cisco systems , inc. and cisco-linksys , llc , ( collectively , “ cisco ” ) , enterasys networks , inc. , extreme networks , inc. , foundry networks , inc. , and 3com corporation , inc. as part of the settlement , adtran , cisco , enterasys , extreme networks and foundry networks each entered into a settlement agreement with us and entered into non-exclusive licenses for our remote power patent ( the “ licensed defendants ” ) . under the terms of the licenses , the licensed defendants paid us aggregate upfront payments of approximately $ 32 million and also agreed to license the remote power patent for its full term , which expires in march 2020. in accordance with our settlement and license agreement , dated may 25 , 2011 , which expanded upon the july 2010 agreement , cisco is obliged to pay us royalties ( which began in the first quarter of 2011 ) based on its sales of poe products up to maximum royalty payments per year of $ 8 million through 2015 and $ 9 million per year thereafter for the remaining term of the patent . the royalty payments are subject to certain conditions including the continued validity of our remote power patent , and the actual royalty amounts received may be less than the caps stated above , as was the case in 2011. due to our annual royalty rate structure with cisco which includes declining rates as the volume of poe product sales increase during the year , annual royalties from cisco are anticipated to be highest in the first quarter and decline for each of the remaining quarters of the year . under the terms of the agreement , if we grant other licenses with lower royalty rates to third parties ( as defined in the agreement ) , cisco shall be entitled to the benefit of the lower royalty rates provided it agrees to the material terms of such other license . under the terms of the agreement , we have certain obligations to cisco and if we materially breach such terms , cisco will be entitled to stop paying royalties to us . this would have a material adverse effect on our business , financial condition and results of operations . for more details about the july 2010 settlement , please see our current reports on form 8-k filed with the securities and exchange commission on july 20 , 2010 and june 1 , 2011. for the years ended 2011 and 2010 , our royalty revenue from cisco constituted 87 % and 79 % of our revenue , respectively . due to our annual royalty rate structure with cisco which includes declining rates as the volume of poe product sales increase during the year , royalties from cisco are anticipated to be highest in the first quarter of the year and decline for each of the remaining quarters of the year . at december 31 , 2011 , we had net operating loss carryforwards ( nols ) totaling approximately $ 27,000,000 expiring through 2029 , with a future tax benefit of approximately $ 9,450,000. during 2011 , as a result of the company 's recent results and projected future operating results , management determined that a portion of the nol was more likely than not to be utilized resulting in the recording of a one-time , non-cash tax benefit . accordingly , at december 31 , 2011 , $ 6,903,000 has been recorded as a deferred tax benefit on the company 's balance sheet and $ 6,903,000 ( or $ 0.22 per share on a diluted basis ) has also been recorded as income for the year ended december 31 , 2011. to the extent that we earn income in the future , we will report income tax expense and such expenseattributable to 25 federal income taxes will reduce the recorded income tax benefit asset reflected on the balance sheet . story_separator_special_tag management will continue to evaluate the recoverability of the nol and adjust the deferred tax asset appropriately . utilization of nol credit carryforwards can be subject to a substantial annual limitation due to ownership change limitations that could occur in the future , as required by section 382 of the internal revenue code of 1986 , as amended , as well as similar state provisions . results of operations : year ended december 31 , 2011 compared to year ended december 31 , 2010 revenue . we had revenue of $ 7,398,000 for the year ended december 31 , 2011 ( “ 2011 ” ) as compared to revenue of $ 33,037,000 for the year ended december 31 , 2010 ( “ 2010 ” ) . all such revenue was related to the receipt of royalties pursuant to license agreements for our remote power patent . the revenue for 2010 includes $ 32,320,000 received from the settlement of our patent litigation in july 2010 ( see note j [ 2 ] to our financial statements included in this annual report ) . excluding the july 2010 settlement payments of $ 32,320,000 , royalty revenue was $ 717,000 for 2010 as compared to royalty revenue of $ 7,398,000 for 2011. cost of revenue . we had a cost of revenue of $ 2,160,000 and $ 9,595,000 for 2011 and 2010 , respectively . included in the cost of revenue for 2010 were significant costs associated with the settlement of our patent litigation in july 2010 ( see note j [ 2 ] to our financial statements included in this annual report ) including contingent legal fees of $ 7,471,000 payable to our patent litigation counsel ( see note e [ 2 ] to our financial statements included in this annual report ) and $ 1,651,000 of bonus compensation payable to our chairman and chief executive officer pursuant to his employment agreement ( see note i to our financial statements included in this annual report ) . included in the cost of revenue for 2011 were contingent legal fees of $ 1,736,000 incurred to our patent litigation counsel and $ 370,000 of bonus compensation payable to our chairman and chief executive officer pursuant to his employment agreement . gross profit . the gross profit for 2011 was $ 5,292,000 or 71.5 % of our revenue as compared to $ 23,442,000 or 70.9 % of our revenue . the decrease in gross profit of $ 18,150,000 for 2011 was largely attributable to our patent litigation settlement in july 2010. general and administrative expenses . general and administrative expenses include overhead expenses , and finance , accounting , legal and other professional services incurred by us . general and administrative expenses decreased by $ 1,315,000 from $ 3,771,000 for 2010 to $ 2,456,000 for 2011 , due primarily to decreased legal fees and expenses as compared to such fees and expenses associated with our july 2010 patent litigation settlement ( see note e [ 2 ] to our financial statements included in this annual report ) . general and administrative expenses for 2011 include a payment of $ 250,000 to our chairman and chief executive officer to reduce certain royalty bonus compensation ( see note h [ 2 ] to our financial statements included in this annual report ) . we also incurred additional patent expenses of $ 1,000,000 in 2011 relating to net royalties due with respect to our purchase of the remote power patent ( see note c to our financial statements included in this annual report ) . interest income . interest income for 2011 was $ 48,000 as compared to interest income of $ 41,000 for 2010 . 26 operating income . we had an operating income of $ 1,533,000 for 2011 compared with operating income of $ 19,269,000 for 2010 , which we achieved primarily as a result of our patent litigation settlement in july 2010 ( see note j [ 2 ] to our financial statements included in this annual report ) . income taxes ( benefit ) . state and local income taxes ( benefit ) of ( $ 9,000 ) and $ 74,000 were recorded for 2011 and 2010 , respectively . deferred tax benefit/nols . at december 31 , 2011 , we had net operating loss carryforwards ( nols ) totaling approximately $ 27,000,000 expiring through 2029 , with a future tax benefit of approximately $ 9,450,000. during 2011 , as a result of the company 's recent results and projected future operating results , management determined that a portion of the nol was more likely than not to be utilized resulting in the recording of a one-time , non-cash tax benefit . accordingly , at december 31 , 2011 , $ 6,903,000 has been recorded as a deferred tax benefit on the company 's balance sheet and $ 6,903,000 ( or $ 0.22 per share on a diluted basis ) has also been recorded as income for the year ended december 31 , 2011. to the extent we earn income in the future , we will report income tax expense and such expense attributable to federal income taxes will reduce the recorded income tax benefit asset reflected on the balance sheet . management will continue to evaluate the recoverability of the nol and adjust the deferred tax asset appropriately . utilization of nol credit carryforwards can be subject to a substantial annual limitation due to ownership change limitations that could occur in the future , as required by section 382 of the internal revenue code of 1986 , as amended , as well as similar state provisions . net income . as a result of the foregoing , we realize net income of $ 8,493,000 or $ 0.33 per share ( basic ) and $ 0.27 per share ( diluted ) for 2011 compared with net income of $ 19,236,000 or $ 0.79 per share ( basic ) and $ 0.67 per share (

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liquidity and capital resources we have financed our operations primarily from royalty revenue from licensing our remote power patent . in accordance with our patent litigation settlement achieved in july 2010 , we received aggregate upfront payments of approximately $ 32 million and cisco agreed to pay us quarterly royalties ( which began for the first quarter of 2011 ) ( see note j [ 2 ] to our financial statements included in this annual report ) . as of december 31 , 2011 our principal sources of liquidity consisted of working capital of approximately of $ 20,402,000 which includes cash and cash equivalents of approximately $ 20,661,000. as of march 1 , 2012 , we had cash and cash equivalents of approximately $ 20,500,000. we believe based on our current cash position and projected licensing revenue from our existing licensing agreements that we will have sufficient cash to fund our operations for the foreseeable future , although this may not be the case . we maintain our cash primarily in savings accounts . we do not have any derivative financial instruments . accordingly , we do not believe that our investments have significant exposure to interest rate risk .

please see “important note about forward–looking statements” at the beginning of this form 10-k. overview mitek systems , inc. is engaged in the development , sale and service of its proprietary software solutions related to mobile imaging solutions and intelligent character recognition software . we apply our patented technology in image capture , correction and intelligent data extraction in the mobile financial and business applications market . our technology for extracting data from any image taken using camera-equipped smartphones and tablets enables the development of consumer-friendly software products that use the camera as a simple mechanism to enter data and complete transactions . users take a picture of the document and our products correct image distortion , extract relevant data , route images to their desired location and process transactions through users ' financial institutions . our mobile deposit ® product is software that allows users to remotely deposit a check using their camera-equipped smartphone or tablet . as of september 30 , 2012 , 564 financial institutions , including 28 of the top 50 u.s. retail banks and payment processing companies , have signed agreements to deploy our mobile deposit ® product . of the 564 financial institutions , 205 have deployed our mobile deposit ® product with their customers . other mobile imaging software solutions we offer include mobile photo bill pay™ , a mobile bill payment product that allows users to pay their bills using their camera-equipped smartphone or tablet , mobile balance transfer™ , a product that allows credit card issuers to provide an offer to users and transfer an existing credit card balance by capturing an image of the user 's current credit card statement , mobile enrollment ™ , a product that enables users to enroll their checking account as a funding source for mobile payments by taking a photo of a blank check with their camera-equipped smartphone or tablet , and mobile photo quoting™ , a product that enables users to receive insurance quotes by using their camera-equipped smartphone or tablet to take a picture of their driver 's license and insurance card . our mobile imaging software solutions can be deployed on all major smartphone and tablet operating systems . we market and sell our mobile imaging software solutions through channel partners or directly to enterprise customers and end-users that typically purchase licenses based on the number of transactions or subscribers that use our mobile software . our mobile imaging software solutions are often embedded in other mobile banking or enterprise applications developed by banks , insurance companies or their partners , and marketed under their own proprietary brands . market opportunities , challenges and risks the acceptance of mobile banking by financial institutions and their customers has helped drive demand for our mobile imaging software products . during fiscal year 2012 , a significant number of financial institutions deployed our mobile imaging software products , particularly mobile deposit ® , as part of their offering of mobile banking choices for their customers . we believe that financial institutions see our patented solutions as a way to provide an all-around better retail customer experience in mobile banking . to continue the growth in market acceptance , we must continue to offer mobile imaging software products that address the growing market for mobile banking and mobile imaging solutions sold into other vertical 19 markets . factors adversely affecting the pricing of or demand for our mobile applications , such as competition from other products or alternative technologies , any decline in the demand for mobile applications or negative publicity , or the obsolescence of the software environments in which our products operate , could result in lower revenues or gross margins . further , because most of our revenues are derived from a single type of technology , our product concentration may make us especially vulnerable to fluctuations in market demand and competition from alternative technologies , which could reduce our revenues . the implementation cycles for our software products and services by our channel partners and customers can be lengthy , often a minimum of three to six months and sometimes longer for larger customers , subject to delays and require significant investments . if implementation of our software products by our channel partners and customers are delayed or otherwise not completed , our business , financial condition , and results of operations may be adversely affected . we derive revenue predominately from the sale of software licenses to use the products covered by our patented technologies , such as mobile deposit ® , and to a lesser extent , by providing maintenance and professional services for the products we offer . the revenue we derive from these software licenses is primarily derived from product sales to our channel partners . revenues related to our licenses for mobile imaging software products are required to be recognized upon satisfaction of all applicable revenue recognition criteria . the recognition of future revenues from these licenses is dependent on a number of factors , including but not limited to the timing of implementation of our products by our channel partners and customers and the timing of additional software licenses and or license renewals by our channel partners and customers . during fiscal years 2012 and 2011 , sales of software licenses to channel partners have comprised a significant part of our revenue each quarter . this customer concentration is attributable to the timing of the purchase or renewal of licenses and does not represent a dependence on any channel partner . story_separator_special_tag as a percentage of net sales , general and administrative expenses increased to 62 % in 2012 compared to 33 % in 2011. other income ( expense ) , net interest and other expense , net was $ 239,984 in 2012 compared to $ 427,547 in 2011 , a decrease of $ 187,563 , or 44 % . during fiscal year 2011 , we incurred expenses associated with the accretion of the discount on our convertible debentures and accrued interest on the principal amount of those convertible debentures , including the remaining unamortized discount of approximately $ 320,000 related to the beneficial conversion feature at the time of the conversion of the debentures . these expenses did not recur in fiscal year 2012. this decrease was partially offset by an increase in amortization expense related to investment returns in fiscal year 2012. interest income was $ 277,144 in 2012 compared to $ 48,584 in 2011 , an increase of $ 228 , 560 due to higher cash balances and related investment returns during 2012 . ( benefit from ) provision for income taxes we recorded an income tax benefit of $ 4,008 in 2012. in 2011 , we recorded a provision for income taxes of $ 2,492 , primarily for state franchise taxes . story_separator_special_tag these contractual arrangements is fully described in note 1 to our financial statements included in this form 10-k. we consider many factors when applying gaap to revenue recognition . these factors include , but are not limited to , whether : persuasive evidence of an arrangement exists ; delivery of the product or performance of the service has occurred ; the fees are fixed or determinable ; collection of the contractual fee is probable ; and vendor-specific objective evidence of the fair value of undelivered elements or other appropriate method of revenue allocation exists . 24 each of the relevant factors is analyzed to determine its impact , individually and collectively with other factors , on the revenue to be recognized for any particular contract with a customer . management is required to make judgments regarding the significance of each factor in applying the revenue recognition standards , as well as whether or not each factor complies with such standards . any misjudgment or error by management in its evaluation of the factors and the application of the standards , especially with respect to complex or new types of transactions , could have a material adverse effect on our future revenues and operating results . accounts receivable we consistently monitor collections from our customers and maintain a provision for estimated credit losses that is based on historical experience and on specific customer collection issues . while such credit losses have historically been within our expectations and the provisions established , we can not guarantee that we will continue to experience the same credit loss rates that we have in the past . since our revenue recognition policy requires customers to be deemed creditworthy , our accounts receivable are based on customers whose payment is reasonably assured . our accounts receivable are derived from sales to a wide variety of customers . we do not believe a change in liquidity of any one customer or our inability to collect from any one customer would have a material adverse impact on our financial position . investments we determine the fair value of our assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs . we use a fair value hierarchy with three levels of inputs , of which the first two are considered observable and the last unobservable , to measure fair value : level 1—quoted prices in active markets for identical assets or liabilities ; level 2—inputs other than level 1 that are observable , either directly or indirectly , such as quoted prices for similar assets or liabilities ; quoted prices in markets that are not active ; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities ; and level 3—unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . in using this fair value hierarchy , management may be required to make assumptions about pricing by market participants and assumptions about risk , specifically when using unobservable inputs to determine fair value . these assumptions are subjective in nature and may significantly affect our results of operations . fair value of equity instruments the valuation of certain items , including valuation of warrants , the beneficial conversion feature related to convertible debt and compensation expense related to stock options granted , involves significant estimates based on underlying assumptions made by management . the valuation of warrants and stock options are based upon a black-scholes valuation model , which involves estimates of stock volatility , expected life of the instruments and other assumptions . deferred income taxes deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . we maintain 25 a valuation allowance against deferred tax assets due to uncertainty regarding the future realization based on historical taxable income , projected future taxable income , and the expected timing of the reversals of existing temporary differences . until such time as we can demonstrate that we will no longer incur losses or if we are unable to generate sufficient future taxable income , we could be required to maintain the valuation allowance against

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liquidity and capital resources on september 30 , 2012 , we had $ 14,607,317 in cash and cash equivalents and short-term and long-term investments compared to $ 16,260,584 on september 30 , 2011 , a decrease of $ 1,653,267 , or 10 % . the decrease in cash and cash equivalents and short-term and long-term investments was primarily due to an increase in cash used in operating activities . 22 credit facility in january 2011 , we entered into a loan and security agreement with our primary operating bank . the loan agreement permits us to borrow , repay and re-borrow , from time to time until january 31 , 2013 , up to $ 400,000 subject to the terms and conditions of the agreement . our obligations under the loan agreement are secured by a security interest in our equipment and other personal property . interest on the credit facility accrues at an annual rate equal to one percentage point above the prime rate , fixed on the date of each advance . interest on the outstanding amount under the loan agreement is payable monthly . the loan agreement contains customary covenants for credit facilities of this type , including limitations on the disposition of assets , mergers and reorganizations . we are also obligated to meet certain financial covenants under the loan agreement , including minimum liquidity , for which we were in compliance as of september 30 , 2012. we had no amounts outstanding under this credit facility as of september 30 , 2012. net cash ( used in ) provided by operating activities net cash used in operating activities during the fiscal year ended september 30 , 2012 was $ 1,778,764 and resulted primarily from hiring additional personnel and other investments in the business .

to facilitate the regulatory approval of the schurz acquisition , we ( i ) exchanged the assets of kake-tv ( abc ) ( and its satellite stations ) for the assets of lockwood broadcasting , inc. 's television station wbxx-tv ( cw ) and $ 11.2 million of cash , on february 1 , 2016 ; ( ii ) exchanged the assets of wsbt-tv for the assets of sinclair broadcast group , inc. 's television station wluc-tv ( nbc/fox ) on february 16 , 2016 ; and ( iii ) sold the schurz radio broadcast assets to three separate radio broadcasters on february 16 , 2016 ( collectively with the schurz acquisition , the “ schurz acquisition and related transactions ” ) . 37 on may 13 , 2016 , we announced that we agreed to acquire television stations wdtv-tv ( cbs ) and wvfx-tv ( fox , cw ) , a legal duopoly in the clarksburg-weston , west virginia television market ( the “ clarksburg acquisition ” ) from withers broadcasting company of west virginia and withers broadcasting company of clarksburg , llc ( collectively “ withers ” ) for a maximum total purchase price of $ 26.5 million in cash . on june 1 , 2016 , we made a partial payment of $ 16.5 million to withers and acquired the non-license assets of these stations . also , on that date we began to provide services to withers under a local programming and marketing agreement ( an “ lma ” ) . subject to regulatory approval , we currently expect to complete this acquisition later in the first quarter or in the second quarter of 2017. on june 27 , 2016 , we completed the acquisition of kyes-tv ( my , ant . ) , in the anchorage , alaska television market , from fireweed communications , llc ( the “ kyes-tv acquisition ” ) for a purchase price of $ 0.5 million , plus transaction related expenses . collectively , we refer to the stations acquired and retained in 2016 , as well as those which we began operating under an lma in 2016 , as the “ 2016 acquired stations . ” for a more detailed discussion of the 2016 acquired stations , including the consideration paid to complete such transactions and their impact on our operations since the respective acquisition dates , see note 2 “ acquisitions and dispositions . ” during 2015 , we completed six acquisitions which collectively added seven television stations in six markets ( four new markets ) to our operations , and we refer to those stations as the “ 2015 acquired stations . ” during 2014 , we completed seven acquisitions which collectively added 22 television stations in 12 markets ( 10 new markets ) to our operations , and we refer to those stations as the “ 2014 acquired stations . ” unless the context requires otherwise , we refer to the 2016 acquired stations , the 2015 acquired stations and the 2014 acquired stations , collectively , as the “ acquired stations . ” on january 13 , 2017 , we acquired ktvf-tv ( nbc ) , kxdf-tv ( cbs ) , and kfxf-tv ( fox ) in the fairbanks , alaska television market , from tanana valley television company and tanana valley holdings , llc for $ 8.0 million ( the “ fairbanks acquisition ” ) . we completed the fairbanks acquisition with cash on hand . on january 17 , 2017 , we acquired two television stations that were divested by nextstar broadcasting group , inc. ( “ nexstar ” ) upon its merger with media general , inc. ( “ media general ” ) : wbay-tv ( abc ) , in the green bay , wisconsin television market ( the “ green bay acquisition ” ) , and kwqc-tv ( nbc ) , in the davenport , iowa , rock island , illinois , and moline , illinois ( or “ quad cities ” ) television market ( the “ davenport acquisition ” ) , for an adjusted purchase price of $ 269.9 million . we completed these acquisitions with cash on hand . the green bay acquisition and the davenport acquisition were completed , in part , through a transaction with gray midwest eat , llc ( “ gme ” ) , pursuant to which , we loaned gme $ 106.0 million which gme in turn used to acquire the broadcast licenses of the stations . gme is a variable interest entity ( “ vie ” ) for which we are the primary beneficiary . as a result , we will include the assets , liabilities and results of operations of gme in our consolidated financial statements beginning in january 2017 and continuing for so long as we remain the primary beneficiary . on february 16 , 2017 , we announced that we had reached an agreement with diversified communications , inc. ( “ diversified ” ) to acquire two television stations : wabi-tv ( cbs/cw ) in the bangor , maine television market ( dma 156 ) and wcjb-tv ( abc/cw ) in the gainesville , florida television market ( dma 161 ) for $ 85.0 million . subject to receipt of regulatory and other approvals , we expect this transaction will close in the second quarter of 2017 , with cash on hand and , if necessary , borrowings under our senior credit facility . recent financing transactions in connection with the consummation of the schurz acquisition and related transactions , effective february 16 , 2016 , we entered into the second amendment and incremental facility agreement ( the “ second amendment ” ) to our then-existing senior credit facility ( the “ 2014 senior credit facility ” ) . story_separator_special_tag % for 2015 from 39.8 % for 2014. our effective income tax rates differed from the statutory rate due to the following items : replace_table_token_9_th 45 liquidity and capital resources general the following tables present data that we believe is helpful in evaluating our liquidity and capital resources ( dollars in thousands ) : replace_table_token_10_th replace_table_token_11_th on february 7 , 2017 , gray amended and restated the 2014 senior credit facility in the form of the 2017 senior credit facility to , among other things , reduce our interest rate under the term loan facility to libor plus 2.50 % , increase our availability under the revolving credit facility from $ 60.0 million to $ 100.0 million , and extend the maturity of the revolving credit facility and term loan facility to 2022 and 2024 , respectively . see note 11 “ subsequent events ” to our audited consolidated financial statements included elsewhere herein for more information on the 2017 senior credit facility . prior to entry into the 2017 senior credit facility , the 2014 senior credit facility consisted of a revolving loan and a term loan . excluding accrued interest , the amount outstanding under our 2014 senior credit facility as of december 31 , 2016 and 2015 consisted solely of a term loan balance of $ 556.4 million . as of december 31 , 2016 , we had $ 700.0 million of our 2026 notes outstanding and $ 525.0 million of our 2024 notes outstanding . as of december 31 , 2016 and 2015 , the interest rate on the balance outstanding under the 2014 senior credit facility was 3.9 % and 3.8 % , respectively . as of december 31 , 2016 , the interest rate and yield on the original 2026 notes were each 5.875 % ; the interest rate and yield on the additional 2026 notes were 5.875 % and 5.398 % , respectively ; and the interest rate and yield on the 2024 notes were each 5.125 % . as of december 31 , 2016 and 2015 , we had a deferred loan cost balance , net of accumulated amortization , of $ 12.2 million and $ 6.1 million , respectively , related to the senior credit facility . as of december 31 , 2016 , we had a deferred loan cost balance , net of accumulated amortization , of $ 10.6 million related to our 2026 notes and $ 7.7 million related to our 2024 notes . our obligations under the 2017 senior credit facility are secured by substantially all of the assets of gray and substantially all of our subsidiaries , excluding real estate . in addition , substantially all of our subsidiaries are joint and several guarantors of , and our ownership interests in those subsidiaries are pledged to collateralize , our obligations under the 2017 senior credit facility . 46 the 2017 senior credit facility contains affirmative and restrictive covenants that we must comply with , including ( a ) limitations on additional indebtedness , ( b ) limitations on liens , ( c ) limitations on the sale of assets , ( d ) limitations on guarantees , ( e ) limitations on investments and acquisitions , ( f ) limitations on the payment of dividends and share repurchases , ( g ) limitations on mergers , and ( h ) maintenance of a first lien leverage ratio not to exceed certain maximum limits while any amount is outstanding under the revolving credit facility as well as other customary covenants for credit facilities of this type . the 2026 notes and 2024 notes each include covenants with which we must comply and are typical for borrowing transactions of their nature . as of december 31 , 2016 and 2015 , we were in compliance with all required covenants under all our debt obligations . for further information concerning our debt obligations , see note 3 “ long-term debt ” and note 11 “ subsequent events ” to our audited consolidated financial statements included elsewhere herein . for estimates of future principal and interest payments under our debt obligations , see “ tabular disclosure of contractual obligations as of december 31 , 2016 ” included elsewhere in this management 's discussion and analysis of financial condition and results of operations . income taxes we file a consolidated federal income tax return and such state or local tax returns as are required based on our current forecasts , we expect to make minimal federal and state income tax payments in 2017 and expect to begin paying significant federal and state income taxes in 2018. liquidity giving effect to the the amendment and restatement of our credit facility , as of february 7 , 2017 , we have $ 5.6 million in debt principal repayments due during the remainder of 2017. we estimate that we will make approximately $ 122.4 million in debt interest payments , including accrued interest of $ 32.5 million as of december 31 , 2016 , and we will pay approximately $ 35.0 million for capital expenditures during the twelve months immediately following december 31 , 2016. although our cash flows from operations are subject to a number of risks and uncertainties , we anticipate that our cash on hand , future cash expected to be generated from operations , borrowings from time to time under the 2017 senior credit facility ( or any such other credit facility as may be in place at the appropriate time ) and , potentially , external equity or debt financing , will be sufficient to fund these debt service obligations and estimated capital expenditures . any potential equity or debt financing would depend upon , among other things , the costs and availability of such financing at the appropriate time . we also presently believe that our future cash expected to be generated from operations and borrowing availabity under the 2017 senior credit facility ( or any such other credit

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loss from early extinguishment of debt in connection with the completion of the tender offer and the redemption , we recorded a loss from early extinguishment of debt of approximately $ 32.0 million ( $ 19.5 million net of tax ) in 2016 , consisting of tender offer premiums of $ 18.2 million , premiums related to the redemption of $ 9.1 million , the write off of unamortized deferred financing costs of $ 8.0 million and the payment of approximately $ 0.2 million in legal and other professional fees ; reduced by the recognition of un-accreted net premium of $ 3.5 million . income tax expense our effective income tax rate increased to 41.1 % for 2016 from 40.2 % for 2015. our effective income tax rates differed from the statutory rate due to the following items : replace_table_token_8_th year ended december 31 , 2015 compared to year ended december 31 , 2014 ( “ 2014 ” ) revenue total revenue increased $ 89.2 million , or 18 % , to $ 597.4 million for 2015 compared to 2014. local advertising revenue increased approximately $ 62.5 million , or 23 % , to $ 336.5 million . national advertising revenue increased approximately $ 16.2 million , or 25 % , to $ 81.1 million . the 2015 acquired stations and the 2014 acquired stations had a significant impact on our revenues . together , the stations acquired in those years accounted for approximately $ 163.4 million and $ 72.1 million of our total revenue in 2015 and 2014 , respectively . local and national advertising revenue in 2014 benefited from approximately $ 3.8

the trial met its primary endpoint by demonstrating that treatment with 5mg of ccx140 given orally once daily added to a standard of care angiotensin converting enzyme , or ace , inhibitor or angiotensin ii receptor blocker , or arb treatment resulted in a statistically significant improvement in urinary albumin to creatinine ratio , or uacr , beyond that achieved with standard of care alone . we are preparing to conduct an end-of-phase ii meeting with the u.s. food and drug administration , or fda . other inflammatory and autoimmune diseases : th-17 cell-driven inflammation and ccr6 — th-17 driven cells have been implicated in a variety of autoimmune and inflammatory diseases such as psoriasis , rheumatoid arthritis , and asthma . th-17 cells express high levels of the chemokine receptor known as ccr6 , which induces their migration to and activation within disease sites . we have a preclinical program in the inhibition of ccr6 which has produced several unique ccr6 inhibitor leads that are now being optimized through medicinal chemistry approaches , which we plan to advance to a clinical candidate . vercirnon ( also known as traficet-en , or ccx282 ) is an inhibitor of the chemokine receptor known as ccr9 , and being developed as an orally administered therapy for the treatment of patients with moderate-to-severe crohn 's disease . vercirnon is ready to continue development in phase iii with a partner , should an alliance partner be identified for this program . ccx507 is our second generation ccr9 inhibitor for the treatment of inflammatory bowel disease , or ibd . ccx507 has successfully completed phase i clinical development , which demonstrated that ccx507 was safe and well-tolerated , and blocked ccr9 on circulating leukocytes . we also presented preclinical data with ccx507 in combination with an anti- a 4ß7 or anti-tnf antibody showing combined treatment reduced the severity of colitis better than monotherapy with either drug alone . all of our drug candidates are wholly owned and being developed independently by us . our strategy also includes identification of next generation compounds related to our drug candidates , all of which have been internally discovered . since commencing our operations in 1997 , our efforts have focused on research , development and the advancement of our drug candidates into and through clinical trials . as a result , we have incurred significant losses . we have funded our operations primarily through the sale of convertible preferred and common stock , contract revenue under our collaborations , government contracts and grants and borrowings under equipment financing arrangements . in february 2012 , we completed our initial public offering , or ipo , pursuant to which we received net proceeds of $ 45.0 million , after underwriting discounts , commissions and offering expenses . we also received gross proceeds of $ 12.0 million from concurrent private placements of common stock at the ipo price of $ 10.00 per share . in addition , the outstanding principal amount of $ 10.0 million and accrued interest under a convertible note we had issued to bio-techne corporation ( formerly techne corporation ) , or bio-techne , one of our principal stockholders , automatically converted into shares of our common stock in connection with our ipo at a conversion price equal to the ipo price . in april 2013 , we completed a follow-on public offering of 5,750,000 shares of our common stock at $ 12.00 per share . we received net proceeds of $ 64.4 million , after deducting underwriting discounts , commissions and offering expenses . as of december 31 , 2015 , we had an accumulated deficit of $ 267.1 million . we expect to continue to incur net losses as we develop our drug candidates , expand clinical trials for our drug candidates currently in clinical development , expand our research and development activities , expand our systems and facilities , seek regulatory approvals and engage in commercialization preparation activities in anticipation of fda approval of our drug candidates . in addition , if a product is approved for commercialization , we will need to expand our organization . significant capital is required to launch a product and many expenses are incurred before revenues are received . we are unable to predict the extent of any future losses or when we will become profitable , if at all . 65 jobs act in april 2012 , the jobs act was enacted . section 107 of the jobs act provides that an emerging growth company can utilize the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for implementing new or revised accounting standards . in other words , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected to delay such adoption of new or revised accounting standards , and as a result , we may not implement new or revised accounting standards on the relevant dates on which adoption of such standards is required for other companies . subject to certain conditions set forth in the jobs act , as an emerging growth company , we intend to rely on certain of these exemptions , including without limitation , providing an auditor 's attestation report on our system of internal controls over financial reporting pursuant to section 404 and implementing any requirement that may be adopted regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( auditor discussion and analysis ) . story_separator_special_tag the following table summarizes our research and development expenses by project ( in thousands ) : replace_table_token_8_th we track specific project expenses that are directly attributable to our preclinical and clinical development candidates that have been nominated and selected for further development . such project specific expenses include third-party contract costs relating to formulation , manufacturing , preclinical studies and clinical trial activities . unlike our early stage research and drug discovery programs , we allocate research and development salaries , benefits or indirect costs to our development candidates and we have included such costs in the project specific expenses . all remaining research and development expenses are reflected in “other” which represents early stage drug discovery programs . such expenses include unallocated employee salaries and related benefits , stock-based compensation , consulting and contracted services to supplement our in-house laboratory activities , laboratory consumables and allocated facility costs associated with these earlier stage programs . at any given time , we typically have several active early stage research and drug discovery projects . our internal resources , employees and infrastructure are not directly tied to any individual research or drug discovery 69 project and are typically deployed across multiple projects . as such , we do not maintain information regarding these costs incurred for our early stage research and drug discovery programs on a project specific basis . we expect our research and development expenses to increase as we advance our development programs further and increase the number and size of our clinical trials . the process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming . we or our partners may never succeed in achieving marketing approval for any of our drug candidates . the probability of success for each drug candidate may be affected by numerous factors , including preclinical data , clinical data , competition , manufacturing capability and commercial viability . our strategy includes entering into additional partnerships with third parties for the development and commercialization of some of our independent drug candidates . most of our product development programs are at an early-to-mid-stage ; therefore the successful development of our drug candidates is highly uncertain and may not result in approved products . completion dates and completion costs can vary significantly for each drug candidate and are difficult to predict for each product . given the uncertainty associated with clinical trial enrollments and the risks inherent in the development process , we are unable to determine the duration and completion costs of the current or future clinical trials of our drug candidates or if , or to what extent , we will generate revenues from the commercialization and sale of any of our drug candidates . we anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each drug candidate , as well as ongoing assessment as to each drug candidate 's commercial potential . we will need to raise additional capital or may seek additional strategic alliances in the future in order to complete the development and commercialization of our drug candidates , including ccx168 , ccx140 , and vercirnon . general and administrative expenses total general and administrative expenses were as follows ( in thousands ) : replace_table_token_9_th general and administrative expenses consist primarily of salaries and related benefits , including stock-based compensation and travel expenses , in executive , finance , business and corporate development and other administrative functions . other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses , legal costs of pursuing patent protection of our intellectual property , and professional fees for auditing , tax , and legal services . the increase from 2014 to 2015 was primarily due to increases in stock based compensation expense for stock option grants and restricted stock unit awards , intellectual property related expenses , and professional fees . further , travel expenses and professional fees relating to our business development efforts also contributed to the increase . the increase from 2013 to 2014 was primarily due to an increase in employment-related expenses , including stock-based compensation expense for stock option grants and restricted stock unit awards , intellectual property-related expenses , and professional service expenses relating to corporate governance and our business development efforts . we expect that general and administrative expenses will increase in the future as we expand our operating activities and incur additional costs associated with being a public company . these public company related increases will likely include , but not be limited to , investor and public relations expenses , legal and accounting related fees , and expenses associated with preparing to meet the requirements pursuant to the sarbanes-oxley act of 2002 . 70 other income ( expense ) other income ( expense ) primarily consists of interest income earned on our marketable securities and interest expense incurred on our equipment financing obligations . total other income , net , as compared to prior years was as follows ( in thousands ) : replace_table_token_10_th the decrease in total other income , net from 2014 to 2015 was primarily due to a decrease in interest income earned on lower cash balances , which was partially offset by a decrease in interest expense as a result of full repayment of our equipment financing debt in the fourth quarter of 2014. the increase in total other income , net from 2013 to 2014 was primarily due to a decrease in interest expense as a result of repayment of our equipment financing debt in 2014 , and a shift in the composition of the portfolio to treasuries and other government sponsored agency securities in 2014. story_separator_special_tag style= `` border-collapse : collapse `` width= `` 100 % `` > the extent to which we acquire or invest in businesses , products or

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liquidity and capital resources as of december 31 , 2015 , we had approximately $ 76.3 million in cash , cash equivalents and investments . the following table shows a summary of our cash flows for each of the three years ended december 31 , 2015 , 2014 , and 2013 ( in thousands ) : replace_table_token_11_th operating activities . net cash used by operating activities increased to $ 39.3 million for the year ended december 31 , 2015 , from $ 34.3 million for the same period in 2014 due primarily to changes in working capital items and a higher net loss . net cash used by operating activities increased to $ 34.3 million for the year ended december 31 , 2014 , from $ 33.3 million for the same period in 2013 due primarily to a higher net loss in 2014. investing activities . net cash provided by or used in investing activities for periods presented primarily relate to the purchase , sale and maturity of investments used to fund the day-to-day needs of our business . following our february 2012 ipo and the follow-on public offering in april 2013 , we invested the majority of our net proceeds received in short-term and long-term investments .

we also expect to spend a total of approximately $ 55 million in incremental capital expenditure , primarily information technology , in 2018 and 2019 that we expect to be amortized over a period of three to five years from the start of 2020. in 2017 , we have recognized $ 15.2 million of expense associated with the effectiveness and efficiency program . in our insurance segment , we experienced a significant underwriting loss due to a combination of catastrophe losses and an increased incidence of large losses and attritional losses . gross written premium for the insurance segment was $ 1.81 billion in 2017 , an increase of 4.5 % from 2016 . our combined ratio in insurance was 117.9 % in 2017 compared to 99.6 % in 2016 . in our reinsurance segment , our results were dominated by the significant level of natural catastrophe losses primarily in the u.s. gross written premium for the reinsurance segment for 2017 was $ 1.55 billion , an increase of 9.6 % from 2016 , with growth primarily in specialty lines . the combined ratio was 125.1 % in 2017 compared to 90.0 % in 2016 . on december 18 , 2017 , the company acquired through its wholly-owned subsidiary , aspen u.s. holdings , a 23.2 % share of crop re services llc ( “ crop re ” ) , a newly formed u.s.-based subsidiary of cgb diversified services , inc ( “ cgb ds ” ) in exchange for the sale of ag logic holdings , llc and its affiliates ( “ agrilogic ” ) , the company 's u.s. crop insurance business . for further information regarding this transaction , see note 6 of our consolidated financial statements , “ investments . ” total ceded written premiums in 2017 increase d by $ 595.1 million compared to 2016 . ceded written premiums increased in both our insurance and reinsurance segments due to the purchase of a whole account quota share contract . ceded reinsurance premiums increased for our insurance segment due to the restructure of our ceded reinsurance arrangements through the use of significant quota share reinsurance arrangements and the recognition of ceded premiums to reinstate cover following catastrophe and other large losses . ceded premiums also increased in the reinsurance segment due to increased gross written premiums written in conjunction with increased retrocession to third parties , an increase in ceded reinsurance premiums following the sale of agrilogic in december 2017 and due to the recognition of additional ceded premiums as a result of reinstating cover following catastrophe losses . capital management . we continue to focus on capital management and maintain our capital at an appropriate level . in 2017 , we repurchased 648,941 ordinary shares for a total consideration of $ 30.0 million . in addition , in the second quarter of 2017 , we increased our quarterly dividend on our ordinary shares from $ 0.22 to $ 0.24 per ordinary share . on february 8 , 2017 , our board of directors also authorized a new share repurchase program of $ 250.0 million . the share repurchase authorization , which is effective through february 8 , 2019 , permits us to effect repurchases from time to time through a combination of transactions . 74 on january 3 , 2017 , we also elected to redeem all of the outstanding 7.401 % preference shares . each holder of a 7.401 % preference share received $ 25 per 7.401 % preference share , plus any declared and unpaid dividends . we likewise elected to redeem all of the outstanding 7.250 % preference shares on july 3 , 2017. each holder of a 7.250 % preference share received $ 25 per 7.250 % preference share , plus any declared and unpaid dividends . investment management . we follow an investment strategy designed to emphasize the preservation of capital and provide sufficient liquidity for the prompt payment of claims . as of december 31 , 2017 , our investments consisted of a diversified portfolio of fixed income securities including u.s. dollar bbb emerging market debt , global equities and money market funds . our overall portfolio strategy remains focused on high quality fixed income investments . in the third quarter of 2017 , we took advantage of rising equity markets and sold $ 208.1 million of our equity portfolio . proceeds from the sales were reinvested into a core fixed income strategy . as at december 31 , 2017 , we had a 5.8 % ( 2016 — 6.8 % ) position in equities , a 4 % ( 2016 — 3.8 % ) position in u.s. dollar bbb emerging market debt and 0.2 % ( 2016 — 0.2 % ) in risk asset portfolio cash . as at december 31 , 2017 , approximately 10 % of our total cash and investments , excluding catastrophe bonds and funds held by variable interest entities ( the “ managed portfolio ” ) , was invested in equities and u.s. dollar bbb emerging market debt ( 2016 — 10.8 % ) . 75 financial overview the following overview of our 2017 , 2016 and 2015 operating results and financial condition is intended to identify important themes and should be read in conjunction with the more detailed discussion further below . operating highlights gross written premiums of $ 3,360.9 million in 2017 , an increase of 6.8 % from 2016 . combined ratio of 125.7 % for 2017 , including $ 561.9 million , or 24.6 percentage points of pre-tax catastrophe losses , net of reinsurance and reinstatements , compared with 98.5 % for 2016 , which included $ 164.4 million or 6.3 percentage points of pre-tax catastrophe losses , net of reinsurance and reinstatements , and 91.9 % for 2015 , which included $ 90.5 million or 3.7 percentage points of pre-tax catastrophe losses , net of reinsurance and reinstatements . story_separator_special_tag in addition , we expect the recently enacted u.s. tax cuts and jobs act of 2017 to have a modest impact on the amount of tax that we will pay . we expect that the u.s. tax bill will decrease net income by approximately $ 10 million or more in 2018 although the ultimate impact will depend on where our profits are generated . see “ risk factors ” and “ cautionary statement regarding forward-looking statements ” included in this report . recent developments on january 5 , 2018 , we notified the prudential regulation authority of our intention to close aspen u.k. 's branches in paris , france and cologne , germany . we expect these branches to be closed during the first quarter of 2018. during january 2018 , we sold $ 206.9 million of equity securities from our investment portfolio and realized a net gain of $ 36.7 million . 79 on january 26 , 2018 , s & p affirmed the ratings of our operating subsidiaries but changed their outlook to negative from stable . on february 6 , 2018 , moody 's affirmed the ratings of our operating subsidiaries but changed their outlook to negative from stable . both rating agencies stated certain factors which , if not achieved , could lead the relevant rating agency to downgrade the ratings of our operating subsidiaries . see “ risk factors — our operating subsidiaries are rated and our lloyd 's business benefits from a rating by one or more of a.m. best , s & p and moody 's and a decline in any of these ratings could adversely affect our standing among brokers and customers and cause our premiums and earnings to decrease and limit our ability to pay dividends on our ordinary shares ” for a discussion of some potential risks relating to our ratings . critical accounting policies our consolidated financial statements contain certain amounts that are inherently subjective in nature and require management to make assumptions and best estimates to determine the reported values . we believe that the following critical accounting policies affect the more significant estimates used in the preparation of our consolidated financial statements . a statement of all the significant accounting policies we use to prepare our financial statements is included in the notes to the consolidated financial statements . if factors such as those described in part i , item 1a , “ risk factors ” cause actual events to differ from the assumptions used in applying the accounting policy and calculating financial results , there could be a material adverse effect on our operating results , financial condition and liquidity . written premiums written premiums comprise the estimated premiums on contracts of insurance and reinsurance entered into in the reporting period , except in the case of proportional reinsurance contracts , where written premiums relate only to our estimated proportional share of premiums due on contracts entered into by the ceding company prior to the end of the reporting period . all premium estimates are reviewed regularly , comparing actual reported premiums to expected ultimate premiums along with a review of the collectability of premiums receivable . based on management 's review , the appropriateness of the premium estimates is evaluated , and any adjustments to these estimates are recorded in the periods in which they become known . adjustments to original premium estimates could be material and these adjustments may directly and significantly impact earnings in the period they are determined because the subject premium may be fully or substantially earned . we refer to premiums receivable which are not fixed at the inception of the contract as adjustment premiums . the proportion of adjustment premiums included in the premium estimates varies between business lines with the largest adjustment premiums associated with property and casualty reinsurance business and the smallest with property and liability insurance lines . adjustment premiums are most significant in relation to reinsurance contracts . different considerations apply to non-proportional and proportional treaties as follows : non-proportional treaties . a large number of the reinsurance contracts we write are written on a non-proportional or excess of loss treaty basis . as the ultimate level of business written by each cedant can only be estimated at the time the reinsurance is placed , the reinsurance contracts generally stipulate a minimum and deposit premium payable under the contract with an adjustable premium determined by variables such as the number of contracts covered by the reinsurance , the total premium received by the cedant and the nature of the exposures assumed . minimum and deposit premiums generally cover the majority of premiums due under such treaty reinsurance contracts and the adjustable portion of the premium is usually a small portion of the total premium receivable . for excess of loss contracts , the minimum and deposit premium , as defined in the contract , is generally considered to be the best estimate of the contract 's written premium at inception . accordingly , this is the amount we generally record as written premium in the period the underlying risks incept . during the life of a contract , notifications from cedants and brokers may affect the estimate of ultimate premium and result in either increases or reductions in reported revenue . changes in estimated adjustable premiums do not generally have a significant impact on short-term liquidity as the payment of adjustment premiums generally occurs after the expiration of a contract . many non-proportional treaties also include a provision for the payment to us by the cedant of reinstatement premiums based on loss experience under such contracts . reinstatement premiums are the premiums charged for the restoration of the reinsurance limit of an excess of loss contract to its full amount after payment by the reinsurer of losses as a result of an occurrence . these premiums relate to the future coverage obtained during the remainder of the initial policy term and are included in revenue

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liquidity liquidity is a measure of a company 's ability to generate cash flows sufficient to meet short-term and long-term cash requirements of its business operations . management monitors the liquidity of aspen holdings and of each of its operating subsidiaries and arranges credit facilities to enhance short-term liquidity resources on a stand-by basis . as a holding company , aspen holdings relies on dividends and other distributions from its operating subsidiaries to provide cash flow to meet ongoing cash requirements , including any future debt service payments and other expenses , and to pay dividends , if any , to our preference and ordinary shareholders . during the year ended december 31 , 2017 , aspen holdings received dividends of $ 360.0 million ( 2016 — $ 234.5 million ) from aspen bermuda and $ 13.6 million ( 2016 — $ 63.4 million ) from aspen european . in addition , aspen holdings received $ 18.7 million in respect of an intercompany loan from aspen european ( 2016 — $ 21.6 million ) . as at december 31 , 2017 , aspen holdings held $ 111.4 million ( december 31 , 2016 — $ 327.1 million ) of cash , cash equivalents and investments with the reduction largely due to the costs associated with the redemption of the 7.401 % preference shares on january 3 , 2017 and the redemption of the 7.250 % preference shares on july 3 , 2017. management considers the current cash and cash equivalents , together with dividends declared or expected to be declared by subsidiary companies and our credit facilities , sufficient to appropriately satisfy the liquidity requirements of aspen holdings . aspen holdings ' liquidity depends on dividends , capital distributions and interest payments from our operating subsidiaries . aspen holdings has recourse to the credit facility described below .

since our inception in 2006 , we have adhered to a disciplined investment process that employs these principles with the goal of delivering strong risk-adjusted investment returns while protecting investor capital . we believe that our ability to directly originate , structure and lead deals enables us to achieve these goals . in addition , the loans we manage generally have a contractual maturity of between three and seven years and are typically floating rate , which we believe positions our business well for rising interest rates . the significant majority of our revenue is derived from management fees , which include base management fees earned on all of our investment products as well as part i incentive fees earned from our permanent capital vehicles and certain of our long-dated private funds . our base management fees are generally calculated based upon fee earning assets and paid quarterly in cash . our part i incentive fees are typically calculated based upon net investment income , subject to a hurdle rate , and are also paid quarterly in cash . we also may earn carried interest from our long-dated funds and contractual performance fees from our smas . typically , these fees are 15.0 % to 20.0 % of the total return above a hurdle rate . carried interest represent fees that are a capital allocation to the general partner or investment manager , are accrued quarterly and paid after the return of all invested capital and an amount sufficient to achieve the hurdle rate of return . we also may receive incentive fees related to realized capital gains in our permanent capital vehicles and certain of our long-dated private funds that we refer to as part ii incentive fees . part ii incentive fees are payable annually and are calculated at the end of each applicable year by subtracting ( i ) the sum of cumulative realized capital losses and unrealized capital depreciation from ( ii ) cumulative aggregate realized capital gains . if the amount calculated is positive , then the part ii incentive fee for such year is equal to 20 % of such amount , less the aggregate amount of part ii incentive fees paid in all prior years . if such amount is negative , then no part ii incentive fee will be payable for such year . as our investment strategy is focused on generating yield from senior secured credit , historically we have not generated part ii incentive fees . for the years ended december 31 , 2018 , 2017 and 2016 , 84 % , 90 % and 86 % , respectively , of our revenues were generated from management fees and carried interest derived primarily from net interest income on senior secured loans . our primary expenses are compensation to our employees and general , administrative and other expenses . compensation includes salaries , discretionary bonuses , stock-based compensation and benefits paid and payable to our employees . performance fee compensation includes compensation related to performance fees and carried interest , generally consisting of profit interests that we grant to certain of our employees . general and administrative expenses include costs primarily related to professional 44 services , office rent and related expenses , depreciation and amortization , travel and related expenses , information technology , communication and information services , placement fees and third-party marketing expenses and other general operating items . reorganization and initial public offering medley management inc. was incorporated on june 13 , 2014 and commenced operations on september 29 , 2014 upon the completion of its ipo of its class a common stock . we raised $ 100.4 million , net of underwriting discounts , through the issuance of 6,000,000 shares of class a common stock at a public offering price of $ 18.00 per share . the offering proceeds were used to purchase 6,000,000 newly issued llc units from medley llc . prior to the ipo , medley management inc. had not engaged in any business or other activities except in connection with its formation and ipo . in connection with the ipo , medley management inc. issued 100 shares of class b common stock to medley group llc ( “ medley group ” ) , an entity wholly owned by the pre-ipo members of medley llc . for so long as the pre-ipo members and then-current medley personnel hold at least 10 % of the aggregate number of shares of class a common stock and llc units ( excluding those llc units held by medley management inc. ) then outstanding , the class b common stock entitles medley group to a number of votes that is equal to 10 times the aggregate number of llc units held by all non-managing members of medley llc that do not themselves hold shares of class b common stock and entitle each other holder of class b common stock , without regard to the number of shares of class b common stock held by such other holder , to a number of votes that is equal to 10 times the number of membership units held by such holder . in connection with the ipo , medley llc amended and restated its limited liability agreement to modify its capital structure by reclassifying the 23,333,333 interests held by the pre-ipo members into a single new class of units . the pre-ipo members also entered into an exchange agreement under which they ( or certain permitted transferees thereof ) have the right , subject to the terms of the exchange agreement , to exchange their llc units for shares of medley management inc. 's class a common stock on a one-for-one basis , subject to customary conversion rate adjustments for stock splits , stock dividends and reclassifications . in addition , pursuant to the amended and restated limited liability agreement , medley management inc. became the sole managing member of medley llc . story_separator_special_tag base management fees are generally based on a defined percentage of ( i ) average or total gross assets , including assets acquired with leverage , ( ii ) total commitments , ( iii ) net invested capital , ( iv ) nav or ( v ) lower of cost or market value of a fund 's portfolio investments . these fees are calculated quarterly and are paid in cash in advance or in arrears . base management fees are recognized as revenue in the period advisory services are rendered , subject to our assessment of collectability . 48 in addition , we also receive non asset-based management fees that may include special fees such as origination fees , transaction fees and similar fees paid to us in connection with portfolio investments of our funds . these fees are specific to particular transactions and the contractual terms of the portfolio investments , and are recognized when earned . part i incentive fees . we also include part i incentive fees that we receive from our permanent capital vehicles and certain of our long-dated private funds in management fees . part i incentive fees are paid quarterly , in cash , and are driven primarily by net interest income on senior secured loans . as it relates to mcc , these fees are subject to netting against realized and unrealized losses . we are primarily an asset manager of yield-oriented products and our incentive fees are primarily derived from spread income rather than trading or capital gains . in addition , we also carefully manage interest rate risk . we are generally positioned to benefit from a raising rate environment , which should benefit fees paid to us from our vehicles and funds . performance fees . performance fees are contractual fees which do not represent a capital allocation to the general partner or investment manager that are earned based on the performance of certain funds , typically our separately managed accounts . performance fees are earned based on the fund performance during the period , subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund 's investment management agreement . prior to the adoption of the new revenue recognition standard on january 1 , 2018 , we accounted for contractual based performance fees under method 2 of asc 605 , revenue recognition , for revenue based on a formula . under this method , performance fees for any period were based upon an assumed liquidation of the underlying fund 's net assets on the reporting date and were subject to reversal to the extent that cumulative previously recognized performance fees exceeded the amount due to the general partner or investment manager based on a fund 's cumulative investment returns . effective january 1 , 2018 , we account for such performance fees in accordance with asc 606 , revenue from contracts with customers , and will only recognize contractual based performance fees when it is probable that a significant reversal of such fees will not occur in the future . the timing and amount of performance fees generated by our funds is uncertain . if we were to have a realization event in a particular quarter or year , it may have a significant impact on our results for that particular quarter or year that may not be replicated in subsequent periods . refer to “ risk factors — risks related to our business and industry ” included in this annual report on form 10-k. part ii incentive fees . for our permanent capital vehicles and certain of our long-dated private funds , part ii incentive fees generally represent 20.0 % of each fund 's cumulative realized capital gains ( net of realized capital losses and unrealized capital depreciation ) . we have not received these fees historically , and do not expect such fees to be material in the future given our focus on senior secured lending . other revenues and fees . we provide administrative services to certain of our vehicles that are reported as other revenues and fees . such fees are recognized as revenue in the period that administrative services are rendered . these fees are generally based on expense reimbursements for the portion of overhead and other expenses incurred by certain professionals directly attributable to each respective fund . we also act as the administrative agent on certain deals for which we may earn loan administration fees and transaction fees . we may also earn consulting fees for providing non-advisory services related to our managed funds . additionally , this line item includes reimbursable origination and deal expenses as well as reimbursable entity formation and organizational expenses . carried interest . carried interest are performance based fees that represent a capital allocation of income to the general partner or investment manager . carried interest is allocated to us based on cumulative fund performance to date , subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund 's governing documents . prior to january 1 , 2018 , we accounted for carried interest under method 2 of asc 605 , as previously described above . upon adoption of the new revenue recognition standard , we reassessed our accounting policy for carried interest , and determined that carried interest is within the scope of the accounting for equity method investments , and , as such , is not within the scope of the new revenue recognition guidance . under the equity method of accounting , we will record carried interest in a consistent manner as we historically had which is based upon an assumed liquidation of that fund 's net assets as of the reporting date , regardless of whether such amounts have been realized . for any given period , carried interest on our consolidated statements of operations may include reversals of previously recognized carried interest due to

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make prepayments of junior debt . in addition , the credit agreement governing our revolving credit facility contains financial covenants that require us to maintain a maximum net leverage ratio of not greater than 5.0 to 1.0 , a total leverage ratio of not greater than 7.0 to 1.0 , and core ebitda of not less than $ 15.0 million . these ratios are calculated on a trailing twelve months basis and are calculated using our standalone financial results and include adjustments to calculate core ebitda . in september 2018 , we requested and received a waiver from city national bank that permits us to exclude the maximum net leverage ratio with respect to the fiscal periods ending on each of september 30 , 2018 and december 31 , 2018. as of december 31 , 2018 , we were not in compliance with the remaining financial covenants and had obtained a waiver covering the period then ended . our non compliance was attributed to the impact of costs associated with our pending merger with sic . as a condition to issuing the waiver , we are restricted to any borrowing of up to one times core ebitda . we are currently in discussions with city national bank to amend the covenants under the revolving credit facility which would be effective for us commencing in the second quarter of 2019 through the revolving credit facility 's maturity date . as of the year ended december 31 , 2018 , there were no amounts drawn under the revolving credit facility . our revolving credit facility contains certain customary representations and warranties , affirmative covenants and events of default . if an event of default occurs , the lender under the revolving credit facility will be entitled to take various actions , including the acceleration of any amounts due under the revolving credit facility and all actions permitted to be taken by a secured creditor . non-recourse promissory notes in april 2012 , we borrowed $ 5.0 million under a non-recourse promissory note with a foundation , and $ 5.0 million under a non-recourse promissory note with a trust .

we also use leverage in our non-agency strategies , albeit significantly less leverage than that used in our agency rmbs strategy . through december 31 , 2013 , we financed our asset purchases almost exclusively through reverse repurchase agreements , or `` reverse repos , `` which we account for as collateralized borrowings . in january 2012 , we completed a small resecuritization transaction using one of our non-agency rmbs assets ; this transaction is accounted for as a collateralized borrowing and is classified on our consolidated statement of assets , liabilities , and equity as `` securitized debt . `` this securitized debt represents long-term financing for the related asset , in contrast to our reverse repos collateralized by non-agency assets , which typically have 30 to 180 day terms . however , we expect to continue to obtain the vast majority of our financing through the use of reverse repos . the strategies that we employ are intended to capitalize on opportunities in the current market environment . we intend to adjust our strategies to changing market conditions by shifting our asset allocations across various asset classes as credit and liquidity trends evolve over time . we believe that this flexibility , combined with ellington 's experience , will help us generate more consistent returns on our capital throughout changing market cycles . in may 2013 , we completed a follow-on common share offering which resulted in net proceeds of $ 125.3 million , after offering costs . proceeds from the offering were fully deployed during the second quarter into our targeted assets . in the latter part of the second quarter of 2013 , we increased our level of cash holdings , both as a buffer against increased market volatility and so as to be able to take advantage of potential investment opportunities . for similar reasons , we maintained a higher level of cash holdings through the remainder of 2013. as of december 31 , 2013 , outstanding borrowings under reverse repos and securitized debt were $ 1.2 billion and our debt-to-equity ratio was 1.98 to 1. our debt-to-equity ratio does not account for liabilities other than debt financings . of our total borrowings outstanding as of december 31 , 2013 , approximately 68.1 % or $ 842.3 million relates to our agency rmbs holdings . the remaining outstanding borrowings relate to our non-agency mbs , mortgage loans , and other abs ( which we refer to collectively as our non-agency portfolio ) . we opportunistically hedge our credit risk , interest rate risk , and foreign currency risk ; however , at any point in time we may choose not to hedge all or a portion of these risks , and we will generally not hedge those risks that we believe are appropriate for us to take at such time , or that we believe would be impractical or prohibitively expensive to hedge . we believe that we have been organized and have operated so that we have qualified , and will continue to qualify , to be treated for u.s. federal income tax purposes as a partnership and not as an association or a publicly traded partnership taxable as a corporation . as of december 31 , 2013 , our diluted book value per share was $ 23.99 as compared to $ 24.38 as of december 31 , 2012 . 53 trends and recent market developments key trends and recent market developments for the u.s. mortgage market include the following : federal reserve and monetary policy— in december 2013 , the u.s. federal reserve , or the `` federal reserve , `` announced its intention to reduce , beginning in january 2014 , the pace of its asset purchases under its accommodative monetary policies ; the timing and degree of the federal reserve 's reduction in asset purchases , or `` taper , `` had been the subject of heightened market speculation since mid-2013 ; housing and mortgage market statistics— data released by s & p indices for its s & p/case-shiller home price indices for december 2013 showed that , on average , home prices had increased from december 2012 by 13.6 % for its 10-city composite and by 13.4 % for its 20-city composite , resulting in its best calendar year return since 2005 ; meanwhile , the freddie mac survey 30-year mortgage rate ended the year at 4.48 % , up 34 % from its 3.35 % level at the end of 2012 ; non-performing residential loan market— the u.s. distressed residential market has an estimated $ 600 billion of supply , representing roughly 3.3 million units , as inventories of seriously delinquent loans , foreclosures , and reo ( real estate owned ) remain elevated ; government sponsored enterprise , or `` gse , `` developments— on december 10 , 2013 , the u.s. senate confirmed mel watt as the next head of the federal housing finance agency , or `` fhfa , `` ; bank regulatory capital— recent proposed changes , if finalized , will increase regulatory capital requirements for the largest , most systemically significant u.s. banks and their holdings companies ; this could potentially alter these institutions ' appetite for various risk-taking activities , and could ultimately affect the terms and availability of our reverse repo financing ; and portfolio overview , liquidity , and valuations— non-agency mbs rallied for most of 2013 as underlying strength in housing market data continued to provide support to valuations , while agency rmbs experienced a heightened level of volatility as uncertainty and speculation around future actions of the federal reserve dominated the market . federal reserve and monetary policy in december 2013 and then again in january 2014 , the federal reserve announced reductions in its purchases of agency rmbs and u.s. treasury securities under its monthly asset purchase program . story_separator_special_tag in addition , banks will likely want to reduce the risk of their afs securities holdings , which will incentivize them to hold lower duration assets such as 15-year agency rmbs . while our access to repo financing has not been adversely affected to date , it is still possible that certain of our lending institutions could , in the future , decide to curtail their repo lending activities in response to these developments , particularly in connection with repo financing on agency rmbs , which typically provides lower profit margins . however , it is also possible that these changes will create opportunities for smaller banks and or non-bank lenders to enter the repo financing market , and in fact we continue to see smaller broker-dealers becoming more active in the agency pool repo financing market . portfolio overview , liquidity , and valuations notwithstanding the late second quarter market pullback that impacted virtually all u.s. fixed income sectors , non-agency mbs rallied for most of the year ended december 31 , 2013. continued strength in home price appreciation , which was fairly widely dispersed across the united states , provided a lift to prices of non-agency rmbs over the course of the year . improvements in borrower behavior , as measured by mortgage delinquency rates , together with a declining inventory of foreclosed homes , also provided support to non-agency rmbs valuations . finally , sales of non-agency mbs by the gses , large european banks , and liquidating cdos were generally well supported by the market over the course of the year , as healthy investor appetite from regional banks , insurance companies , and money managers helped to absorb the additional supply . however , despite the strong 2013 performance of non-agency rmbs assets , the securitization market for newly issued non-agency mortgage loans remains far from fully recovered . non-agency cmbs also performed well during 2013. new issuance of cmbs in 2013 reached $ 86 billion , a nearly 80 % increase from 2012. we continued to find attractive opportunities both in `` legacy `` cmbs ( i.e . , cmbs issued before the 2008 financial crisis ) and in the new issue market . within the new issue market , we found numerous opportunities in select `` b-pieces `` , which are the most subordinated ( and therefore highest yielding and riskiest ) tranches of cmbs . we believe these investment types are attractive complements to our other cmbs holdings , which tend to be lower yielding , but can be traded more actively . during the year ended december 31 , 2013 , we also became active in or increased our activity in certain other non-agency asset classes . for example , and as discussed above , in the fourth quarter we purchased our first pool of non-performing 57 residential mortgage loans from hud under its dasp program . we have also become more active in distressed commercial loans , which comprised $ 18.9 million , or 33.2 % , of our total cmbs and commercial mortgage loan holdings of $ 56.9 million as of december 31 , 2013. activity within the distressed commercial mortgage loan sector of our portfolio can fluctuate from period to period based on the opportunities in that sector . additionally , we continue to opportunistically acquire and trade clos , especially legacy clos . as of december 31 , 2013 , our aggregate debt and equity clo holdings comprised 5.4 % of our non-agency portfolio . throughout the year ended december 31 , 2013 , we actively traded our non-agency portfolio . our portfolio turnover during 2013 , as measured by sales excluding principal paydowns , was 73 % . as non-agency mbs rallied over the course of the year , we sold certain assets and used the proceeds to purchase what we believe to be more attractive assets , including assets purchased in connection with sales by the gses , and in connection with some of the big portfolio liquidations from large european banks . over the course of 2013 , we continued to hedge our non-agency portfolio against credit-related risks , although the instruments that we use as credit hedges have continued to migrate away from credit default swaps on abx indices and single issuer abs , and more towards other instruments that , in our view , will provide greater protection in the event of a macro-economic downturn . these hedging instruments include , among others , short positions ( through credit default swaps , or `` cds , `` ) on corporate bond indices , and short positions ( through total return swaps ) in certain publicly traded reits . throughout the year , our credit hedges were , in significant part , comprised of short positions in corporate bond indices . during the fourth quarter , corporate credit generally outperformed structured credit products , including non-agency mbs , and in anticipation of a reversal of this trend , we actually increased our corporate credit hedge position towards the end of the fourth quarter . over the course of the late second quarter and the remaining months of 2013 , the agency rmbs market was among the most volatile and poorly performing fixed income sectors , as the market anticipated a tapering by the federal reserve of purchases under its asset purchase program . `` specified `` agency rmbs pools , which are pools with prepayment protection characteristics , were particularly hard hit . as interest rates have risen over the course of the year , prepayments have declined , thereby reducing the perceived value of the prepayment protection in many specified pools . these specified pools have generally underperformed tbas , their generic counterparts . a big factor contributing to this underperformance is that the federal reserve , which is by far the largest purchaser of agency pools generally purchases tbas , not specified pools . specified pools have also suffered from reduced

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liquidity and capital resources liquidity refers to our ability to meet our cash needs , including repaying our borrowings , funding and maintaining positions in mbs and other assets , making distributions in the form of dividends , and other general business needs . our short-term ( one year or less ) and long-term liquidity requirements include acquisition costs for assets we acquire , payment of our base management fee and incentive fee , compliance with margin requirements under our repurchase agreement , or `` repo , '' reverse repo , tba , and financial derivative contracts , repayment of reverse repo borrowings to the extent we are unable or unwilling to extend our reverse repos , payment of our general operating expenses , and payment of our quarterly dividend . our capital resources primarily include cash on hand , cash flow from our investments ( including monthly principal and interest payments received on our investments and proceeds from the sale of investments ) , borrowings under reverse repos , and proceeds from equity offerings . we expect that these sources of funds will be sufficient to meet our short-term and long-term liquidity needs . the following summarizes our reverse repos : reverse repurchase agreements ( in thousands ) average borrowed funds during the period borrowed funds outstanding at end of the period year ended december 31 , 2013 $ 1,162,502 $ 1,236,166 year ended december 31 , 2012 $ 836,305 $ 905,718 the following summarizes our borrowings under reverse repos by remaining maturity : replace_table_token_20_th reverse repos involving underlying investments that we sold prior to december 31 , 2013 , for settlement following december 31 , 2013 , are shown using their original maturity dates even though such reverse repos may be expected to be terminated early upon settlement of the sale of the underlying investment . not included are any reverse repos that we may have entered into prior to december 31 , 2013 for which delivery of the borrowed funds is not scheduled until after december 31 , 73 2013 . our reverse repo agreements are subject to the application of `` haircuts . ''

we believe that these additions move us to a leading position in the attractive u.s. condiments category and provide significant international growth opportunities for our consumer and flavor solutions segments . the rb foods acquisition resulted in acquisitions contributing more than one-third of our sales growth in 2018 and 2017 . 18 cost savings and business transformation : we are fueling our investment in growth with cost savings from our cci program , an ongoing initiative to improve productivity and reduce costs throughout the organization , that also includes savings from the organization and streamlining actions described in note 3 of the accompanying financial statements . in addition to funding brand marketing support , product innovation and other growth initiatives , our cci program helps offset higher costs and is contributing to higher operating income and earnings per share . we are making investments to build the mccormick of the future , including in our global enablement ( ge ) organization to transform mccormick through globally aligned , innovative services to enable growth . as more fully described in note 3 of notes to our consolidated financial statements , we expect to incur special charges of approximately $ 60 million to $ 65 million associated with our ge initiative of which approximately $ 38 million have been recognized through november 30 , 2019. as technology provides the backbone for this greater process alignment , information sharing and scalability , we are also making investments in our information systems . in 2019 , we have progressed in implementing our global enterprise resource planning ( erp ) replacement program which will enable us to accelerate the transformation of our ways of working and provide a scalable platform for growth . we expect that , in total over the course of the erp replacement program from late 2018 through 2022 , we will invest from approximately $ 300 million to $ 350 million , including expenses related to the go-live activities in our operations , to enable the anticipated completion of the global roll out of our new information technology platform in 2022. of that projected , $ 300 million to $ 350 million , we expect capitalized software to account for approximately 40 % and program expenses to account for approximately 60 % . of the approximately $ 180 million to $ 210 million of operating expenses included in our projected total spending related to our erp replacement program , approximately $ 20 million have been recognized through november 30 , 2019. the ge initiative is expected to generate annual savings , ranging from approximately $ 45 million to $ 55 million , once all actions are implemented , including those that are dependent on the replacement of our global erp platform . cash flow : we continue to generate strong cash flow . net cash provided by operating activities reached $ 946.8 million in 2019 , an increase of $ 125.6 million from the $ 821.2 million realized in 2018. in 2019 , we continued to have a balanced use of cash for debt repayment , capital expenditures and the return of cash to shareholders through dividends and share repurchases . we are using our cash to fund shareholder dividends , with annual increases in each of the past 34 years , and to fund capital expenditures , acquisitions and share repurchases . in 2019 , the return of cash to our shareholders through dividends and share repurchases was $ 397.3 million . on a long-term basis , we expect a combination of acquisitions and share repurchases to add about 2 % to earnings per share growth . in 2019 , we achieved further growth of our business with net sales rising 0.8 % over the 2018 level due to the following factors : we grew volume and product mix , with increases in both our consumer and flavor solutions segments . this added 2.5 % of sales growth . the increases were driven by new products as well as growth in the base business . pricing actions contributed 0.2 % of the increase in net sales . net sales growth was negatively impacted by fluctuations in currency rates that reduced sales growth by 1.9 % . excluding this impact , we grew sales 2.7 % on a constant currency basis . operating income was $ 957.7 million in 2019 and $ 891.1 million in 2018. we recorded $ 20.8 million and $ 16.3 million of special charges in 2019 and 2018 , respectively , related to organization and streamlining actions . in 2018 , we also recorded $ 22.5 million of transaction and integration expenses related to our acquisition of rb foods that reduced operating income . in 2019 , compared to the year-ago period , the favorable impact of higher sales , $ 118.9 million of cost savings from our cci program , including organization and streamlining actions , and the impact of the previously mentioned 2018 integration costs more than offset increased conversion costs , higher stock-based compensation expense , and the unfavorable impact of foreign currency exchange rates . excluding special charges together with , for 2018 , transaction and integration expenses related to our acquisition of rb foods , adjusted operating income was $ 978.5 million in 2019 , an increase of 5.2 % , compared to $ 929.9 million in the year-ago period . in constant currency , adjusted operating income rose 6.7 % . for further details and a reconciliation of non-gaap to reported amounts , see non-gaap financial measures . story_separator_special_tag in 2019 , the company transferred management responsibility for certain export operations in both its consumer and flavor solutions segments between geographies within each respective segment , shifting from the americas to the asia/pacific regions within each segment , with no change in segment sales or segment operating income for either the consumer or flavor solutions segment in total . the discussion that follows reflects the effect of that realignment of export operations for all periods presented . consumer segment replace_table_token_12_th sales of our consumer segment in 2019 grew by 0.7 % as compared to 2018 and grew by 2.5 % on a constant currency basis . higher volume and product mix added 2.4 % to sales , and pricing actions added 0.1 % . these factors offset an unfavorable impact from foreign currency exchange rates that reduced consumer segment sales by 1.8 % compared to 2018 and is excluded from our measure of sales growth of 2.5 % on a constant currency basis . in the americas , consumer sales rose 2.4 % in 2019 as compared to 2018 and rose by 2.7 % on a constant currency basis . higher volume and product mix added 2.7 % to sales , driven by new product sales as well as base business growth . the unfavorable impact of foreign currency exchange rates decreased sales by 0.3 % compared to 2018 and is excluded from our measure of sales growth of 2.7 % on a constant currency basis . in the emea region , consumer sales decreased 5.5 % in 2019 as compared to 2018 and decreased 0.2 % on a constant currency basis . volume and product mix increased sales by 1.0 % , led by new products and promotions that were partially offset by declines in private label sales . the impact of pricing actions reduced sales by 1.2 % . the unfavorable impact of foreign currency exchange rates decreased sales by 5.3 % compared to 2018 and is excluded from our measure of sales decline of 0.2 % on a constant currency basis . in the asia/pacific region , consumer sales increased 0.8 % as compared to 2018 and increased 5.7 % on a constant currency basis . higher volume and product mix added 2.9 % to sales , led by strong sales in india and southeast asia . pricing actions , primarily in china , added 2.8 % to sales as compared to 2018. these factors offset an unfavorable impact from foreign currency exchange rates that decreased sales by 4.9 % compared to 2018 and is excluded from our measure of sales growth of 5.7 % on a constant currency basis . we grew segment operating income for our consumer segment by $ 39.2 million , or 6.1 % , in 2019 compared to 2018. the favorable impact of higher sales and cci-led cost savings more than offset increased conversion costs . on a constant currency basis , segment operating income for our consumer segment rose 7.3 % . segment operating income margin for our consumer segment rose by 110 basis points to 20.7 % in 2019 from 19.6 % in 2018 , driven by an improvement in gross margin . 24 flavor solutions segment replace_table_token_13_th sales of our flavor solutions segment increased 1.1 % in 2019 as compared to 2018 and increased by 3.2 % on a constant currency basis . higher volume and product mix added 2.9 % to sales and pricing actions added 0.3 % . these factors partially offset an unfavorable impact from foreign currency exchange rates that reduced flavor solutions segment sales by 2.1 % compared to 2018 and is excluded from our measure of sales growth of 3.2 % on a constant currency basis . in the americas , flavor solutions sales rose 2.2 % in 2019 as compared to 2018 and rose 2.6 % on a constant currency basis . higher volume and product mix added 2.4 % to sales and included growth in new products as well as in base business , led by sales to packaged food companies . pricing actions added 0.2 % to sales in 2019. these factors offset an unfavorable impact from foreign currency exchange rates that reduced sales by 0.4 % in 2019 compared to 2018 and is excluded from our measure of sales growth of 2.6 % on a constant currency basis . in the emea region , flavor solutions sales decreased 0.3 % in 2019 as compared to 2018 and increased 6.7 % on a constant currency basis . higher volume and product mix added 5.4 % to sales in 2019 with contributions from new products as well as base business growth . the increase was led by sales to quick service restaurants and packaged foods companies . pricing actions added 1.3 % to sales in 2019. these factors partially offset an unfavorable impact from foreign currency exchange rates that decreased sales by 7.0 % in 2019 compared to 2018 and is excluded from our measure of sales growth of 6.7 % on a constant currency basis . in the asia/pacific region , flavor solutions sales decreased 3.4 % in 2019 as compared to 2018 and increased 0.6 % on a constant currency basis . higher volume and product mix added 0.9 % to sales and included increased sales to quick service restaurants , partially offset by the exit of certain low margin business . pricing actions reduced sales in 2019 by 0.3 % . these factors partially offset an unfavorable impact from foreign currency exchange rates that reduced sales by 4.0 % in 2019 compared to 2018 and is excluded from our measure of sales growth of 0.6 % on a constant currency basis . we grew segment operating income for our flavor solutions segment by $ 9.4 million , or 3.2 % , in 2019 compared to 2018. the increase in segment operating income was driven by higher sales as well as lower sg & a costs . on a

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net cash used in financing activities was $ 725.8 million in 2019 and $ 751.1 million in 2018. net cash provided by financing activities was $ 3,756.0 million in 2017. the variability between years is principally a result of changes in our net borrowings , share repurchase activity and dividends , all as described below . in 2019 and 2018 , our net borrowing activity used cash of $ 406.7 million and $ 466.5 million , respectively . in 2017 , our net borrowing activity provided cash of $ 3,574.6 million . in 2019 , we increased our short-term borrowings , on a net basis , by $ 41.0 million . we also repaid $ 447.7 million of long-term debt , including $ 436.3 million of our $ 1,500.0 million term loans issued in august 2017. of that $ 436.3 million , $ 361.3 million represent prepayments . through november 30 , 2019 , we have repaid $ 1,250.0 million of the $ 1,500.0 million term loans issued in august 2017 , including pre-payments of $ 1,081.3 million . in 2018 , we increased our short-term borrowings , on a net basis , by $ 305.5 million and borrowed $ 25.9 million under long-term borrowing arrangements .

we expect to begin the phase 2b clinical trial in the second quarter of 2014. we also began conducting a clinical trial of our orally ingested exenatide in january 2013 , and commenced a first human clinical trial on healthy volunteers with our oral insulin capsule delivered in combination with our oral exenatide capsule . clinical trials are planned in order to substantiate our results as well as for purposes of making future filings for drug approval . we also plan to conduct further research and development by deploying our proprietary drug delivery technology for the delivery of other polypeptides in addition to insulin , and to develop other innovative pharmaceutical products . long term business strategy if our oral insulin capsule or other drug delivery solutions show significant promise in clinical trials , we plan to ultimately seek a strategic commercial partner , or partners , with extensive experience in the development , commercialization , and marketing of insulin applications and or other orally digestible drugs . we anticipate such partner or partners would be responsible for , or substantially support , late stage clinical trials ( phase 3 ) to increase the likelihood of obtaining regulatory approvals and registrations in the appropriate markets in a timely manner . we further anticipate that such partner , or partners , would also be responsible for sales and marketing of our oral insulin capsule in these markets . such planned strategic partnership , or partnerships , may provide a marketing and sales infrastructure for our products as well as financial and operational support for global clinical trials , post marketing studies , label expansions and other regulatory requirements concerning future clinical development in the united states and elsewhere . any future strategic partner , or partners , may also provide capital and expertise that would enable the partnership to develop new oral dosage form for other polypeptides . while our strategy is to partner with an appropriate party , no assurance can be given that any third party would be interested in partnering with us . under certain circumstances , we may determine to develop one or more of our oral dosage form on our own , either world-wide or in select territories . 29 other planned strategic activities in addition to developing our own oral dosage form drug portfolio , we are , on an on-going basis , considering in-licensing and other means of obtaining additional technologies to complement and or expand our current product portfolio . our goal is to create a well-balanced product portfolio that will enhance and complement our existing drug portfolio . results of operations critical accounting policies our significant accounting policies are more fully described in the notes to our accompanying consolidated financial statements . we believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations . the discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which we prepared in accordance with u.s. generally accepted accounting principles . the preparation of our consolidated 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 consolidated financial statements , as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate such estimates and judgments . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . marketable securities : consist mainly of equity securities classified as available-for-sale and are recorded at fair value . until august 26 , 2013 , the fair value of the restricted securities was measured based on the quoted prices of the otherwise identical unrestricted securities , adjusted for the effect of the restriction by applying a proper discount . the discount was determined with reference to other similar restricted instruments . similar securities , with no restriction on tradability , are quoted on an active market . as of august 31 , 2013 , the securities are not restricted and the fair value of the securities is measured based on the quoted prices of the securities on an active market . changes in fair value , net of taxes , are reflected in other comprehensive income . factors considered in determining whether a loss is temporary include the extent to which fair value has been less than the cost basis , and the financial condition and near-term prospects of the investee based on our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value . the loss is recorded as a charge to comprehensive income . 30 valuation of options and warrants : we grant options to purchase shares of our common stock to employees and consultants and issue warrants in connection with some of our financings and to certain other consultants . we account for share-based payments in accordance with the guidance that requires awards classified as equity awards be accounted for using the grant-date fair value method . the fair value of share-based payment transactions is recognized as an expense over the requisite service period , net of estimated­ forfeitures . we estimate forfeitures based on historical experience and anticipated future conditions . we elected to recognize compensation cost for an award with only service conditions that has a graded vesting schedule using the accelerated method based on the multiple-option award approach . story_separator_special_tag result of the deletion of the anti-dilution provisions of the warrants ( as described below ) , which resulted in a cost of $ 296,982 and by a gain on sale of marketable securities of $ 90,370 in fiscal year 2013. taxes on income / tax benefit taxes on income for the years ended august 31 , 2013 and august 31 , 2012 , a benefit of $ 205,062 and tax of $ 90,218 , respectively , are a result of recognizing and measuring uncertain tax positions . the decrease in uncertain tax positions as of august 31 , 2013 , is a result of the expiration of the statute of limitations with respect to the 2008 tax year of oramed ltd. other comprehensive income a subsequent increase in the fair value of available for sale securities previously written down as impaired for the year ended august 31 , 2013 of $ 130,845 resulted from the increase in fair value of our d.n.a ordinary shares . reclassification adjustment for gains included in net loss for the year ended august 31 , 2013 of $ 90,370 , resulted from the sale of 7,000,000 of our d.n.a ordinary shares in february and march 2013. unrealized gain on available for sale securities for the year ended august 31 , 2013 of $ 262,928 , resulted from the increase in fair value of our d.n.a ordinary shares . impairment of available for sale securities for the year ended august 31 , 2012 of $ 184,254 resulted from the decrease in fair value of our d.n.a ordinary shares . 35 story_separator_special_tag in such private placements and received certain special rights , including preemptive rights as long as they hold at least 5 % of our outstanding common stock . with respect to regals ' participation in the august 2012 private placement , we undertook to file a registration statement to register their shares and the shares underlying their warrants , by december 27 , 2012. since such registration statement was not timely filed , we may be required to pay liquidated damages of $ 10,000 or , at regals ' discretion , 27,027 shares of common stock . the liquidated damages may not exceed , in the aggregate , $ 100,000. regals has not notified us that they plan to request such payment , and such damages may be waived by regals . ● in october 2012 , we entered into a securities purchase agreement with d.n.a , according to which we issued to d.n.a 199,172 shares of our common stock in consideration for an option to purchase up to 21,637,611 ordinary shares of d.n.a , or the d.n.a option . we had previously acquired 8,404,667 ordinary shares of d.n.a issued in march 2011 , as further discussed in “ our business—out-licensed technology . ” in february 2013 , we exercised the d.n.a option . in addition , in february and march 2013 we sold a total amount of 7,000,000 of our d.n.a ordinary shares , of which 5,250,000 ordinary shares were issued to us in march 2011 and 1,750,000 ordinary shares were issued to us in february 2013 upon our exercise of the d.n.a option . the ordinary shares were sold in private transactions for a total of nis 840,000 ( or approximately $ 226,670 , based on the exchange rate between the nis and the u.s. dollar , as quoted by the bank of israel on the dates of sale ) , before brokerage fees . in october and november 2013 we also sold in the market total of 1,025,991 of our d.n.a ordinary shares , all of which were issued to us in march 2011 , for total consideration of nis 152,453 ( or approximately $ 43,208 ) . as of november 25 , 2013 , we own approximately 10.6 % of d.n.a 's outstanding ordinary shares . the market price for d.n.a 's ordinary shares may decline , which could result in a loss to us if we sell such shares at a price below the value on the date we acquired such shares . the ordinary shares of d.n.a have historically experienced low trading volume ; as a result there is no guarantee that we will be able to resell the ordinary shares of d.n.a at the prevailing market prices . 37 · in november 2012 , we entered into the agreement with regals in connection with the warrants . pursuant to the agreement , we and regals agreed to amend the warrants to provide that the anti-dilution protection of the warrants shall be deleted in its entirety . in addition , as to the warrants issued in august and november 2012 , the parties agreed to reduce the exercise price to $ 3.7656 per share , the current exercise price per share of the warrants originally issued in january 2011. at such time , we also issued to regals the new warrant . · in connection with the new warrant , nadav kidron , our president , chief executive officer and a director , in his personal capacity as one of our stockholders , agreed that following the execution and delivery of the agreement , in the event that an adjustment pursuant to the anti-dilution protection of the warrants ( had they not been amended by the agreement ) would have been triggered and the number of shares of our common stock that regals would have been able to purchase under the warrants would have increased by an aggregate number in excess of 137,311 common shares , then regals shall have the right to purchase from mr. kidron such number of shares of our common stock owned by mr. kidron , up to a maximum of 112,690 shares of our common stock . this right shall survive until the termination of the warrants . · in may 2013 , a total of 10,180 warrants were exercised via a `` cashless `` manner , resulting in the issuance of 3,787

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liquidity and capital resources from inception through august 31 , 2013 , we incurred losses in an aggregate amount of $ 22,123,589. we have financed our operations through several private placements of our common stock , as well as and a public offering of our common stock in july 2013 , raising a total of $ 20,859,553 , net of transaction costs . we will seek to obtain additional financing through similar sources in the future as needed . as of august 31 , 2013 , we had $ 2,272,228 of available cash , $ 5,246,627 of short term bank deposits and $ 956,376 of marketable securities . marketable securities are presented at fair value and their realization is subject to certain limitations if sold through the market , and we are therefore exposed to market risk . there is no assurance that at the time of sale of the marketable securities the price per share will be the same or higher , nor that we will be able to sell all of the securities at once given the volume of securities we hold . we anticipate that we will require approximately $ 5.7 million to finance our activities during the 12 months following august 31 , 2013. management is in the process of evaluating various financing alternatives as we will need to finance future research and development activities and general and administrative expenses through fund raising in the public or private equity markets . although there is no assurance that we will be successful with those initiatives , management believes that it will be able to secure the necessary financing as a result of ongoing financing discussions with third party investors and existing stockholders , future public offerings , and additional funding from the ocs . during the year ended august 31 , 2013 , cash and cash equivalents decreased by $ 2,158,512 from the $ 4,430,740 reported as of august 31 , 2012 , which is primarily due to proceeds from the issuance of common stock and the purchase of short term deposits .

international operations experienced increases in both gross written and earned premiums during 2018 as compared to 2017 , primarily due to growth in our property , liability and professional lines , as well as the timing of the ariel re acquisition . ariel re has a significant property contract that is subject to renewal in january of each year . the ariel re transaction closed in february 2017 ; as such the january 2017 gross written premiums for ariel re is not included while the 2018 renewal is included in our gross written premiums . as part of the full integration of the reinsurance business of ariel re , beginning in 2018 we changed the capital structure supporting that business by introducing certain third-party trade capital to participate in the exposures we underwrite . this trade capital receives a corresponding proportion of the gross written premiums . as such , this structure has the effect of reducing the gross written premiums reported in our financial statements . in exchange , we receive certain remuneration for generating this business and for the underlying underwriting performance . there was no such structure for our ariel re business in 2017. our gross written and earned premiums are further discussed by reporting segment and major lines of business under the heading “ segment results ” below . net investment income the increase in consolidated net investment income for the year ended december 31 , 2019 as compared to the same period in 2018 was primarily due to a $ 17.9 million increase in net investment income from our core portfolio due to growth in our invested asset base and higher investment yields . net investment income from our alternative investment portfolio was relatively flat , increasing $ 0.1 million for the year ended december 31 , 2019 as compared to the same period in 2018. the decrease in consolidated net investment income for the year ended december 31 , 2018 as compared to the same period in 2017 was primarily due to a $ 29.7 million decrease in the net investment income of our alternative investment portfolio , partially offset by a $ 22.8 million increase in the net investment income of our core portfolio . the decline in the alternative investment portfolio was due to the volatility experienced in the securities markets primarily during the fourth quarter of 2018 , as well as the impact of a $ 12.2 million pre-tax net investment gain recognized in 2017 related to a sale process initiated by an equity investee . the increase in net investment income from our core portfolio was primarily due to higher asset balances and increased investment yields . total invested assets at december 31 , 2019 were $ 4,940.8 million , net of $ 158.6 million of invested assets attributable to our syndicate 1200 and 1910 trade capital providers . total invested assets at december 31 , 2018 were $ 4,653.6 million , net of $ 133.4 million of invested assets attributable to our syndicate 1200 and 1910 trade capital providers . total invested assets at december 31 , 2017 were $ 4,612.1 million , net of $ 130.8 million of invested assets attributable to syndicate 1200 's trade capital providers . net realized investment gains/losses consolidated net realized investment gains for the year ended december 31 , 2019 consisted of $ 142.0 million in realized gains from the sale of invested assets , including $ 129.0 million from the sale of equity securities . the majority of these asset sales were recognized during the fourth quarter of 2019 , primarily as a result of a shift in capital management and tax planning strategies , and were partially offset by an associated $ 40.8 million decrease in the fair value of equity securities . during the year ended december 31 , 2019 , we recognized $ 20.3 million in other-than-temporary impairment losses related to fixed maturity securities . the remaining $ 0.9 million net realized investment loss related to net foreign currency exchange losses . consolidated net realized investment gains for the year ended december 31 , 2018 included a $ 105.1 million decrease in the fair value of equity securities . the remaining $ 33.1 million net realized investment gain consisted of $ 38.2 million in realized gains primarily from the sale of equity securities and $ 2.5 million of foreign currency exchange gains , including $ 2.7 million on our forward currency forward contracts . additionally , for the year ended december 31 , 2018 , we recognized $ 7.6 million in other-than-temporary impairment losses within our fixed maturity and other invested asset portfolios . 51 consolidated net realized investment gains for the year ended december 31 , 2017 consisted of $ 60.1 million in realized gains primarily from the sale of fixed maturity and equity securities . partially offsetting these realized gains was $ 17.6 million of realized foreign currency exchange losses , including $ 8.6 million on our foreign currency forward contracts and $ 9.0 million on our fixed maturity and equity securities portfolios , as well as $ 0.7 million of losses from other invested assets , primarily overseas deposits . additionally , for the year ended december 31 , 2017 , we recognized a $ 2.5 million other-than-temporary impairment loss within our equity and fixed maturity portfolios . loss and loss adjustment expense consolidated losses and loss adjustment expenses were $ 1,220.7 million , $ 1,040.8 million and $ 1,050.2 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . story_separator_special_tag 56 specialty the increase in gross written and net earned premiums for the year ended december 31 , 2019 compared to the same period in 2018 was primarily due to the growth in surety , and to a lesser extent , premium from fronted marine programs that were launched in late 2018. the increase in gross written and earned premiums for the year ended december 31 , 2018 as compared to the same period in 2017 was primarily due to the continued growth in our surety lines , partially offset by planned reductions in certain programs . loss and loss adjustment expenses the loss ratios for the years ended december 31 , 2019 , 2018 and 2017 were 61.7 % , 58.2 % and 56.4 % , respectively . the higher loss ratio in 2019 , as compared to 2018 , was driven by a deterioration of 3.3 percentage points from net unfavorable prior-year reserve development in 2019 , as compared to net favorable prior-year reserve development in 2018. the higher loss ratio in 2018 , as compared to 2017 , was driven by a deterioration of 2.2 percentage points related to lower net favorable prior-year reserve development in 2018 , as compared to 2017. the current accident year non-catastrophe loss ratio for the years ended december 31 , 2019 , 2018 and 2017 were 59.0 % , 58.3 % and 58.4 % , respectively . the deterioration in 2019 was driven by an increased level of property losses and , to a lesser extent , loss experience in certain liability lines . the current accident year non-catastrophe loss ratios were comparable for the years ended december 31 , 2018 and 2017. net unfavorable prior-year reserve development for the year ended december 31 , 2019 was $ 15.7 million ( 1.4 percentage points ) and related primarily to unfavorable prior-year reserve development on liability claims within our e & s lines business , as well as in property lines , partially offset by favorable prior-year reserve development in specialty lines . the net favorable prior-year reserve development for the year ended december 31 , 2018 was $ 20.8 million ( 1.9 percentage points ) which was primarily concentrated in our general liability and surety lines , partially offset by unfavorable loss reserve development on prior accident years in commercial multi-peril lines . the net favorable prior-year reserve development for the year ended december 31 , 2017 was $ 38.7 million ( 4.1 percentage points ) was primarily concentrated in our general liability , workers compensation , surety and commercial automobile lines . catastrophe losses for the year ended december 31 , 2019 were $ 14.4 million ( 1.3 percentage points ) and included hurricane dorian and other u.s. storms , including midwest floods . catastrophe losses for the year ended december 31 , 2018 were $ 15.6 million ( 1.8 percentage points ) and were primarily attributable to the woolsey and camp california wildfires , hurricane florence , and other smaller storms in the united states . catastrophe losses for the year ended december 31 , 2017 were $ 16.8 million ( 2.1 percentage points ) and related to hurricanes harvey and irma , other smaller storms and the california wildfires . underwriting , acquisition and insurance expenses the expense ratio was unchanged at 32.9 % for each of the years ended december 31 , 2019 and 2018. the decrease in the expense ratio for the year ended december 31 , 2018 as compared to the same period in 2017 was primarily attributable to the impact of the 15.2 % year-over-year increase in earned premiums combined with lower acquisition costs , primarily offset by strategic investments in people and technology , including digital initiatives in support of premium growth . fee and other income/expense fee and other income , and the associated fee and other expense , improved on a net basis for the year ended december 31 , 2019 as compared to the same period in 2018 , as our operations for third party claims handling showed improved results , which offset an adverse profit commission adjustment recognized on the runoff of the discontinued brokerage book of business that was sold during the year ended 2017. fee and other income , and the associated fee and other expense , decreased for the year ended december 31 , 2018 as compared to the same period in 2017 primarily due to the result of a transaction that was executed in the third quarter of 2017 to transfer to a third-party the distribution rights and operations of certain business managed on behalf of unaffiliated insurance companies . the fee income and expense related to this program were recorded as part of our fee and other income and expense , respectively . 57 international operations the following table summarizes the results of operations for the international operations segment : replace_table_token_13_th the following table contains a reconciliation of certain non-gaap financial measures , specifically the current accident year non-catastrophe loss , expense and combined ratios , to their most directly comparable gaap measures for our international operations . replace_table_token_14_th ( 1 ) for purposes of calculating the percentage points impact on the loss , expense and combined ratios , earned premiums were adjusted to exclude outward reinstatement and other catastrophe-related premium adjustments of $ 0.8 million , $ 1.3 million , and $ 12.8 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . ( 2 ) catastrophe losses ' percentage point impact are calculated as the difference between the reported combined ratio and the combined ratio excluding incurred catastrophe losses and associated reinstatement and other catastrophe-related premium adjustments . 58 gross written and earned premiums gross written and earned premiums by our four primary insurance lines were as follows : replace_table_token_15_th property the increase in gross written premiums for the year ended december 31 , 2019 as compared to the same period in 2018 was due to

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cash flows the primary sources of our cash flows are premiums , reinsurance recoveries , proceeds from sales and redemptions of investments and investment income . the primary cash outflows are claim payments , loss adjustment expenses , reinsurance costs , underwriting , acquisition and overhead expenses , purchases of investments and income taxes . management believes that cash receipts from premiums , proceeds from investment sales and redemptions and investment income are sufficient to cover cash outflows in the foreseeable future . we believe we have access to additional sources of liquidity should the need for additional cash arise . 64 cash provided by operating activities can fluctuate due to timing differences in the collection of premiums and reinsurance recoveries and the payment of losses and expenses . for the years ended december 31 , 2019 , 2018 and 2017 , cash provided by operating activities was $ 183.3 million , $ 301.3 million and $ 165.0 million , respectively . the decrease in cash flows provided by operating activities in 2019 compared to 2018 and in 2017 compared to 2018 was attributable to various fluctuations within our operating activities . the decrease in cash flows from operating activities in 2019 compared to 2018 was primarily related to payments on prior accident year claims during 2019 , primarily driven by catastrophe claims .