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25 expenses our level of profitability is also impacted by our expenses , including direct costs to support our revenue such as bandwidth and co-location costs . we have observed the following trends related to our profitability in recent years : network bandwidth costs represent a significant portion of our cost of revenue . historically , we have been able to mitigate increases in these costs by reducing our network bandwidth costs per unit and investing in internal-use software development to improve the performance and efficiency of our network . our total bandwidth costs may increase in the future as a result of expected higher traffic levels and serving more traffic from higher cost regions . we will need to continue to effectively manage our bandwidth costs to maintain current levels of profitability . co-location costs are also a significant portion of our cost of revenue . by improving our internal-use software and managing our hardware deployments to enable us to use servers more efficiently , we have been able to manage the growth of co-location costs . we expect to continue to scale our network in the future and will need to continue to effectively manage our co-location costs to maintain current levels of profitability . due to the fixed nature of some of our co-location and bandwidth costs over a minimum time period , it may not be possible to quickly reduce those costs . if our revenue growth rate declines , our profitability could decrease . payroll and related compensation costs have grown as we have increased headcount to support our revenue growth and strategic initiatives . we increased our headcount by 406 employees during the year ended december 31 , 2016 . during the year ended december 31 , 2015 , we increased our headcount by 979 employees . we expect to continue to hire additional employees , both domestically and internationally , in support of our strategic initiatives . fluctuations in foreign currency exchange rates have also impacted our reported results . revenue and expenses of our operations outside of the u.s. are important contributors to our overall financial performance , and as currencies have weakened against the u.s. dollar , our revenue has been negatively impacted and our expenses have been positively impacted . if foreign currency exchange rates during the year ended december 31 , 2016 had remained the same as exchange rates during the year ended december 31 , 2015 , our revenue would have increased by 7 % as opposed to 6 % . conversely , diluted earnings per share would have decreased by 1 % as opposed to increasing by 1 % . if foreign currency exchange rates during the year ended december 31 , 2015 had remained the same as exchange rates during the year ended december 31 , 2014 , our revenue would have increased by 16 % as opposed to 12 % . similarly , diluted earnings per share would have increased by 2 % as opposed to decreasing 3 % had exchange rates remained constant during the same period . in recent years , we have used strategic acquisitions to complement and augment existing technological capabilities . during 2016 , 2015 and 2014 we completed various acquisitions which were immaterial to our financial results as a whole during those years , but have contributed to increases in our revenue and level of expenses . also in february 2014 , we completed an offering of $ 690.0 million in par value of convertible senior notes . the notes do not bear regular interest , but have an effective interest rate of 3.2 % attributable to the conversion feature . 26 results of operations the following sets forth , as a percentage of revenue , consolidated statements of income data for the years indicated : replace_table_token_3_th revenue revenue during the periods presented is as follows ( in thousands ) : replace_table_token_4_th the increase in our revenue from 2015 to 2016 was primarily the result of continued strong growth from our cloud security solutions , which grew 43 % . our web performance solutions also contributed to our revenue growth in 2016. our overall revenue growth rate was lower than it has been in the past , primarily due to the `` do-it-yourself `` efforts of our internet platform customers , some of which have developed internal infrastructure to deliver more of their media content themselves rather than rely on our media services . revenue from these six customers ( amazon , apple , facebook , google , microsoft and netflix ) in the aggregate was $ 250.4 million and $ 379.3 million for the years ended december 31 , 2016 and 2015 , respectively . the increase in our revenue from 2014 to 2015 was driven by higher demand for our services across all of our solutions and geographies , with particularly strong growth from our cloud security solutions . revenue from our internet platform customers was $ 379.3 million and $ 358.9 million for the years ended december 31 , 2015 and 2014 , respectively . 27 the following table quantifies the contribution to revenue from our solution categories for the years ended december 31 , 2016 , 2015 and 2014 ( in thousands ) : replace_table_token_5_th the increases in performance and security solutions revenue for 2016 as compared to 2015 , and 2015 as compared to 2014 , were due to increased demand across all major product lines , with especially strong growth in our cloud security solutions . cloud security solutions revenue for the year ended december 31 , 2016 was $ 364.9 million , as compared to $ 254.4 million and $ 170.0 million for the years ended december 31 , 2015 and 2014 , respectively . story_separator_special_tag stock-based compensation and amortization of capitalized stock-based compensation – although stock-based compensation is an important aspect of the compensation paid to our employees , the grant date fair value varies based on the stock price at the time of grant , varying valuation methodologies , subjective assumptions and the variety of award types . this makes the comparison of our current financial results to previous and future periods difficult to evaluate ; therefore , we believe it is useful to exclude stock-based compensation and amortization of capitalized stock-based compensation from our non-gaap financial measures in order to highlight the performance of our core business and to be consistent with the way many investors evaluate our performance and compare our operating results to peer companies . acquisition-related costs – acquisition-related costs include transaction fees , advisory fees , due diligence costs and other direct costs associated with strategic activities . in addition , subsequent adjustments to our initial estimated amounts of contingent consideration and indemnification associated with specific acquisitions are included within acquisition-related costs . these amounts are impacted by the timing and size of the acquisitions . we exclude acquisition-related costs from our non-gaap financial measures to provide a useful comparison of our operating results to prior periods and to our peer companies because such amounts vary significantly based on the magnitude of our acquisition transactions . 34 restructuring charges – we have incurred restructuring charges that are included in our gaap financial statements , primarily related to workforce reductions and estimated costs of exiting facility lease commitments . we exclude these items from our non-gaap financial measures when evaluating our continuing business performance as such items vary significantly based on the magnitude of the restructuring action and do not reflect expected future operating expenses . in addition , these charges do not necessarily provide meaningful insight into the fundamentals of current or historical operations of our business . benefit from adoption of software development activities – in 2014 , we recognized a benefit to non-income related tax expense associated with the adoption of software development activities . we exclude this item from our non-gaap financial measures because transactions of this nature occur infrequently and are not considered part of our core business operations . amortization of debt discount and issuance costs and amortization of capitalized interest expense – in february 2014 , we issued $ 690 million of convertible senior notes due 2019 with a coupon interest rate of 0 % . the imputed interest rate of the convertible senior notes was approximately 3.2 % . this is a result of the debt discount recorded for the conversion feature that is required to be separately accounted for as equity under gaap , thereby reducing the carrying value of the convertible debt instrument . the debt discount is amortized as interest expense together with the issuance costs of the debt . all of our interest expense is comprised of these non-cash components and is excluded from management 's assessment of our operating performance because management believes the non-cash expense is not representative of ongoing operating performance . gains and losses on investments – we have recorded gains and losses from the disposition and impairment of certain investments . we believe excluding these amounts from our non-gaap financial measures is useful to investors as the types of events giving rise to them occur infrequently and are not representative of our core business operations and ongoing operating performance . legal matter costs – we have incurred losses from the settlement of legal matters and costs with respect to our internal u.s. foreign corrupt practices act investigation in addition to the disgorgement we were required to pay to resolve it . we believe excluding these amounts from our non-gaap financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations . income tax effect of non-gaap adjustments and certain discrete tax items – the non-gaap adjustments described above are reported on a pre-tax basis . the income tax effect of non-gaap adjustments is the difference between gaap and non-gaap income tax expense . non-gaap income tax expense is computed on non-gaap pre-tax income ( gaap pre-tax income adjusted for non-gaap adjustments ) and excludes certain discrete tax items ( such as recording or releasing of valuation allowances ) , if any . we believe that applying the non-gaap adjustments and their related income tax effect allows us to highlight income attributable to our core operations . the following table reconciles gaap income from operations to non-gaap income from operations and non-gaap operating margin for the years ended december 31 , 2016 , 2015 and 2014 ( in thousands ) : replace_table_token_16_th 35 the following table reconciles gaap net income to non-gaap net income for the years ended december 31 , 2016 , 2015 and 2014 ( in thousands ) : replace_table_token_17_th the following table reconciles gaap net income per diluted share to non-gaap net income per diluted share for the years ended december 31 , 2016 , 2015 and 2014 ( share in thousands ) : replace_table_token_18_th non-gaap net income per diluted share is calculated as non-gaap net income divided by diluted weighted average common shares outstanding . gaap diluted weighted average shares outstanding are adjusted in non-gaap per share calculations for the shares that would be delivered to us pursuant to the note hedge transactions entered into in connection with the issuance of our convertible senior notes . under gaap , shares delivered under hedge transactions are not considered offsetting shares in the fully-diluted share calculation until they are delivered . however , we would receive a benefit from the note hedge transactions and would not allow the dilution to occur , so management believes that adjusting for this benefit provides a meaningful view of net income per share . unless and until our weighted average stock price is greater than $ 89.56 , the initial conversion price , there

cash provided by operating activities replace_table_token_20_th the increase in cash provided by operating activities for 2016 , as compared to 2015 , was primarily due to higher cash collection from customers due to increased revenue , and lower commissions and annual bonus payments due to lower award attainment levels . these increases to cash provided by operating activities were partially offset by higher cash paid for taxes during 2016 , as compared to 2015. accounts receivable days outstanding was 54 days as of the year ended december 31 , 2016 , compared to 59 days as of the year ended december 31 , 2015. the increase in cash provided by operating activities for 2015 as compared to 2014 , was primarily due to the decrease in cash paid for income taxes of $ 75.0 million versus $ 166.2 million for the years ended december 31 , 2015 and 2014 , respectively . the increase is also due to an increase in cash collections from customers as a result of increased revenue , offset by the increase in operating expenditures and the overall timing of our working capital payments . accounts receivable days outstanding was 59 days as of the year ended december 31 , 2015 , compared to 56 days as of the year ended december 31 , 2014 .

all of the shares issued in the ipo were primary shares offered by us as none of our stockholders sold any shares in the ipo . the offering price of the shares sold in the ipo was $ 27.00 per share , resulting in net proceeds to us , after underwriters ' discounts and commissions and other expenses payable by us , of $ 639.1 million . our class a common stock is currently traded on the nasdaq global select market under the symbol `` inov . `` on september 1 , 2015 , pursuant to the terms of a share purchase agreement between the company and avalere ( the `` purchase agreement `` ) , we acquired 100 percent of the capital stock of avalere for an aggregate stated purchase price of $ 140.0 million , consisting of cash and 235,737 shares of the company 's class a common stock which are subject to resale restrictions . the addition of avalere , with its more than 200 pharmaceutical and life sciences clients , as well as an extensive array of client relationships with payors , providers and research institutions , is expected to expand our capabilities and client base into the expansive and adjacent markets of the pharmaceutical and life sciences industry . we incurred transaction costs in connection with the acquisition of approximately $ 1.5 million , which are included in general and administrative expenses . see note 3 ( business combinations ) , included elsewhere within this annual report on form 10-k for more information . during 2015 inovalon announced the introduction of data diagnostics™ to the healthcare marketplace . this technology provides a suite of hundreds of patient-specific analyses that can be ordered individually by clinicians on demand with the answer provided within seconds—all without leaving the clinician 's workflow . the capability leverages vast amounts of data across billions of medical events , interconnectivity , and high-speed cloud-based analytics to allow physician organizations , health 56 plans , accountable care organizations ( acos ) , hospitals , integrated healthcare delivery systems , aso employer groups , government programs , and individual physicians to achieve valuable clinical insights , strong clinical and quality outcomes , utilization efficiency , and overall financial performance on demand and in real time . the technology is delivered in collaboration with quest diagnostics , the nation 's largest laboratory organization , providing large-scale distribution to clinicians through quest 's more than 200,000 care360® provider portal installations and more than 400 integrated ehr platforms serving approximately half of the physicians and hospitals in the united states . during 2015 inovalon invested significant resources as part of the development and anticipated operation and support of data diagnostics™ . while still in the early stages of this platform 's introduction , initial feedback from the marketplace has been very positive . key metrics we review a number of metrics , including the key metrics shown in the table below . we believe that these metrics are indicative of our overall level of analytical activity and the underlying growth in our business . ( in thousands , except percentages ) replace_table_token_8_th ( 1 ) more 2 registry® dataset metrics , and trailing 12 month patient analytics months ( pam ) , each of which is presented in the table , are key operating metrics that management uses to assess our level of operational activity . while we believe that each of these metrics is indicative of our overall level of analytical activity and the underlying growth in our business , increases or decreases in these metrics do not necessarily correlate to proportional increases or decreases in revenue , adjusted ebitda , net income or non-gaap net income . for instance , although increased levels of analytical activity historically have corresponded to increases in revenue over the long term , differences in fees charged for different analytical packages exist and differences in how analytics trigger the applicability of our data-driven intervention platforms may result in increases in analytical activity that do not result in proportional increases in revenue , adjusted ebitda , net income or non-gaap net income ( and vice versa ) . accordingly , while we believe the presentation of these operating metrics is helpful to investors in understanding our business , these metrics have limitations and should not be considered as substitutes for analysis of our financial results reported under gaap . in addition , we believe that other companies , including companies in our industry , do not present similar operating metrics and that there is no commonly accepted method of calculating these metrics , which may reduce their usefulness as comparative measures . ( 2 ) unique patient count is defined as each unique , longitudinally matched , de-identified natural person represented in our more 2 registry® as of the end of the period presented . 57 ( 3 ) medical event count is defined as the total number of discrete medical events as of the end of the period presented ( for example , a discrete medical event typically results from the presentation of a patient to a physician for the diagnosis of diabetes and congestive heart failure in a single visit , the presentation of a patient to an emergency department for chest pain , etc . ) . ( 4 ) patient analytics months , or pam , is defined as the sum of the analytical processes performed on each respective patient within patient populations covered by clients under contract . as used in the metric , an `` analytical process `` is a distinct set of data calculations undertaken by us which is initiated and completed by our analytical platform to examine a specific question such as whether a patient is believed to have a condition such as diabetes , or worsening of the disease , during a specific time period . ( 5 ) revenue mix excludes advisory services . story_separator_special_tag results of operations the following tables set forth our consolidated statement of operations data for each of the periods presented ( in thousands ) : replace_table_token_10_th 63 the following table sets forth our consolidated statement of operations data for each of the periods presented as a percentage of revenue : replace_table_token_11_th years ended december 31 , 2015 , 2014 , and 2013 revenue replace_table_token_12_th 2015 compared with 2014. revenue during the year ended december 31 , 2015 increased by approximately $ 75.7 million , or 21 % , as compared with the year ended december 31 , 2014. the increase was primarily attributable to an increase in revenue from new clients of $ 36.0 million along with a net increase of $ 39.7 million from existing clients . revenue for 2015 includes $ 17.5 million related to the acquisition of avalere . 2014 compared with 2013. revenue during the year ended december 31 , 2014 increased by approximately $ 65.7 million , or 22 % , as compared with the year ended december 31 , 2013. the increase was primarily attributable to an increase in revenue from new clients of $ 50.5 million along with a net increase of $ 15.2 million from existing clients . 64 cost of revenue replace_table_token_13_th 2015 compared with 2014. in 2015 , cost of revenue increased by approximately $ 33.4 million , or 30 % , compared with the year ended december 31 , 2014. the increase in cost of revenue was primarily due to the corresponding increase in revenue of $ 75.7 million or 21 % , during the period and also resulted from an increase in employee-related expenses related partially to the newly acquired data-driven advisory services service line and a greater volume of data-driven intervention platform services as a percentage of total revenue . cost of revenue as a percentage of revenue was 33 % in 2015 compared to 31 % in 2014 . 2014 compared with 2013. in 2014 , cost of revenue decreased by approximately $ 7.3 million , or 6 % , as compared to the year ended december 31 , 2013 , despite the increase in revenue of approximately $ 65.7 million or 22 % , over the same period . the $ 7.3 million decrease in cost of revenue was primarily due to a reduction in employee related expenses . the reduction in employee related expenses was primarily enabled by advances in our technology platform efficiency and a shift in revenue mix towards a greater proportion of analytics versus data-driven intervention services , as well as a greater proportion of automation within the data-driven intervention services mix . cost of revenue as a percentage of revenue was 31 % in 2014 compared to 41 % in 2013. sales and marketing replace_table_token_14_th 2015 compared with 2014. in 2015 , sales and marketing expenses increased by approximately $ 7.5 million , or 106 % , compared to 2014. the increase was primarily attributable to increased employee related expenses of approximately $ 6.5 million , and marketing program spend of approximately $ 1.0 million , both of which was driven by our investment in additional sales personnel to focus on adding new clients and capturing an increased amount of our market opportunity , as well as the addition of the sales and marketing personnel acquired with avalere . 2014 compared with 2013. in 2014 , sales and marketing expenses increased by $ 1.2 million , or 20 % , compared to 2013. the increase primarily was attributable to an increase in employee-related costs . 65 research and development replace_table_token_15_th 2015 compared with 2014. in 2015 , research and development expenses decreased $ 2.8 million as a result of incremental capitalization of internally developed software efforts related to our on-going investment in platform and product innovation , and was partially offset by an increase of $ 2.0 million , which includes $ 1.0 million attributable to stock based compensation expense , attributable to an increase in employee related expenses and professional fees . 2014 compared with 2013. in 2014 , research and development expense increased by $ 1.9 million , or 9 % , compared to 2013. the increase was attributable to our on-going investment in innovation and platform development . general and administrative replace_table_token_16_th 2015 compared with 2014. in 2015 , general and administrative expense increased by approximately $ 26.5 million , or 30 % , compared with 2014. throughout the second half of 2014 and throughout 2015 , we increased our investment in incremental personnel to support our growth and our transition from a private to a public company . our investment resulted in an increase in employee related costs of $ 22.4 million , which includes an increase of approximately $ 3.1 million related to stock-based compensation expense and an increase of $ 7.5 million related to our growth and expansion . in addition , general and administrative expenses for 2015 includes incremental expenses that are not comparable to the prior year , comprised of $ 1.5 million for acquisition-related transaction costs , $ 2.9 million of post-acquisition contingent consideration expense related to the acquisition of avalere , and $ 0.7 million for employer taxes related to stock option awards exercised by employees . the increases in general and administrative expenses for 2015 were partially offset by capitalization of internal-use software development costs of $ 1.0 million compared to the prior period . 2014 compared with 2013. in 2014 , general and administrative expense increased by approximately $ 7.9 million , or 10 % , compared to 2013. the increase was primarily attributable to an increase in employee-related costs of $ 4.2 million , which includes an increase of approximately $ 1.1 million related to stock based compensation expense , professional fees of $ 1.8 million , occupancy costs of $ 1.1 million , and software licensing and maintenance expenses of $ 0.5 million . 66 depreciation and amortization replace_table_token_17_th 2015 compared with 2014. in 2015 ,

cash provided by operating activities replace_table_token_20_th the increase in cash provided by operating activities for 2016 , as compared to 2015 , was primarily due to higher cash collection from customers due to increased revenue , and lower commissions and annual bonus payments due to lower award attainment levels . these increases to cash provided by operating activities were partially offset by higher cash paid for taxes during 2016 , as compared to 2015. accounts receivable days outstanding was 54 days as of the year ended december 31 , 2016 , compared to 59 days as of the year ended december 31 , 2015. the increase in cash provided by operating activities for 2015 as compared to 2014 , was primarily due to the decrease in cash paid for income taxes of $ 75.0 million versus $ 166.2 million for the years ended december 31 , 2015 and 2014 , respectively . the increase is also due to an increase in cash collections from customers as a result of increased revenue , offset by the increase in operating expenditures and the overall timing of our working capital payments . accounts receivable days outstanding was 59 days as of the year ended december 31 , 2015 , compared to 56 days as of the year ended december 31 , 2014 .

all of the shares issued in the ipo were primary shares offered by us as none of our stockholders sold any shares in the ipo . the offering price of the shares sold in the ipo was $ 27.00 per share , resulting in net proceeds to us , after underwriters ' discounts and commissions and other expenses payable by us , of $ 639.1 million . our class a common stock is currently traded on the nasdaq global select market under the symbol `` inov . `` on september 1 , 2015 , pursuant to the terms of a share purchase agreement between the company and avalere ( the `` purchase agreement `` ) , we acquired 100 percent of the capital stock of avalere for an aggregate stated purchase price of $ 140.0 million , consisting of cash and 235,737 shares of the company 's class a common stock which are subject to resale restrictions . the addition of avalere , with its more than 200 pharmaceutical and life sciences clients , as well as an extensive array of client relationships with payors , providers and research institutions , is expected to expand our capabilities and client base into the expansive and adjacent markets of the pharmaceutical and life sciences industry . we incurred transaction costs in connection with the acquisition of approximately $ 1.5 million , which are included in general and administrative expenses . see note 3 ( business combinations ) , included elsewhere within this annual report on form 10-k for more information . during 2015 inovalon announced the introduction of data diagnostics™ to the healthcare marketplace . this technology provides a suite of hundreds of patient-specific analyses that can be ordered individually by clinicians on demand with the answer provided within seconds—all without leaving the clinician 's workflow . the capability leverages vast amounts of data across billions of medical events , interconnectivity , and high-speed cloud-based analytics to allow physician organizations , health 56 plans , accountable care organizations ( acos ) , hospitals , integrated healthcare delivery systems , aso employer groups , government programs , and individual physicians to achieve valuable clinical insights , strong clinical and quality outcomes , utilization efficiency , and overall financial performance on demand and in real time . the technology is delivered in collaboration with quest diagnostics , the nation 's largest laboratory organization , providing large-scale distribution to clinicians through quest 's more than 200,000 care360® provider portal installations and more than 400 integrated ehr platforms serving approximately half of the physicians and hospitals in the united states . during 2015 inovalon invested significant resources as part of the development and anticipated operation and support of data diagnostics™ . while still in the early stages of this platform 's introduction , initial feedback from the marketplace has been very positive . key metrics we review a number of metrics , including the key metrics shown in the table below . we believe that these metrics are indicative of our overall level of analytical activity and the underlying growth in our business . ( in thousands , except percentages ) replace_table_token_8_th ( 1 ) more 2 registry® dataset metrics , and trailing 12 month patient analytics months ( pam ) , each of which is presented in the table , are key operating metrics that management uses to assess our level of operational activity . while we believe that each of these metrics is indicative of our overall level of analytical activity and the underlying growth in our business , increases or decreases in these metrics do not necessarily correlate to proportional increases or decreases in revenue , adjusted ebitda , net income or non-gaap net income . for instance , although increased levels of analytical activity historically have corresponded to increases in revenue over the long term , differences in fees charged for different analytical packages exist and differences in how analytics trigger the applicability of our data-driven intervention platforms may result in increases in analytical activity that do not result in proportional increases in revenue , adjusted ebitda , net income or non-gaap net income ( and vice versa ) . accordingly , while we believe the presentation of these operating metrics is helpful to investors in understanding our business , these metrics have limitations and should not be considered as substitutes for analysis of our financial results reported under gaap . in addition , we believe that other companies , including companies in our industry , do not present similar operating metrics and that there is no commonly accepted method of calculating these metrics , which may reduce their usefulness as comparative measures . ( 2 ) unique patient count is defined as each unique , longitudinally matched , de-identified natural person represented in our more 2 registry® as of the end of the period presented . 57 ( 3 ) medical event count is defined as the total number of discrete medical events as of the end of the period presented ( for example , a discrete medical event typically results from the presentation of a patient to a physician for the diagnosis of diabetes and congestive heart failure in a single visit , the presentation of a patient to an emergency department for chest pain , etc . ) . ( 4 ) patient analytics months , or pam , is defined as the sum of the analytical processes performed on each respective patient within patient populations covered by clients under contract . as used in the metric , an `` analytical process `` is a distinct set of data calculations undertaken by us which is initiated and completed by our analytical platform to examine a specific question such as whether a patient is believed to have a condition such as diabetes , or worsening of the disease , during a specific time period . ( 5 ) revenue mix excludes advisory services . story_separator_special_tag results of operations the following tables set forth our consolidated statement of operations data for each of the periods presented ( in thousands ) : replace_table_token_10_th 63 the following table sets forth our consolidated statement of operations data for each of the periods presented as a percentage of revenue : replace_table_token_11_th years ended december 31 , 2015 , 2014 , and 2013 revenue replace_table_token_12_th 2015 compared with 2014. revenue during the year ended december 31 , 2015 increased by approximately $ 75.7 million , or 21 % , as compared with the year ended december 31 , 2014. the increase was primarily attributable to an increase in revenue from new clients of $ 36.0 million along with a net increase of $ 39.7 million from existing clients . revenue for 2015 includes $ 17.5 million related to the acquisition of avalere . 2014 compared with 2013. revenue during the year ended december 31 , 2014 increased by approximately $ 65.7 million , or 22 % , as compared with the year ended december 31 , 2013. the increase was primarily attributable to an increase in revenue from new clients of $ 50.5 million along with a net increase of $ 15.2 million from existing clients . 64 cost of revenue replace_table_token_13_th 2015 compared with 2014. in 2015 , cost of revenue increased by approximately $ 33.4 million , or 30 % , compared with the year ended december 31 , 2014. the increase in cost of revenue was primarily due to the corresponding increase in revenue of $ 75.7 million or 21 % , during the period and also resulted from an increase in employee-related expenses related partially to the newly acquired data-driven advisory services service line and a greater volume of data-driven intervention platform services as a percentage of total revenue . cost of revenue as a percentage of revenue was 33 % in 2015 compared to 31 % in 2014 . 2014 compared with 2013. in 2014 , cost of revenue decreased by approximately $ 7.3 million , or 6 % , as compared to the year ended december 31 , 2013 , despite the increase in revenue of approximately $ 65.7 million or 22 % , over the same period . the $ 7.3 million decrease in cost of revenue was primarily due to a reduction in employee related expenses . the reduction in employee related expenses was primarily enabled by advances in our technology platform efficiency and a shift in revenue mix towards a greater proportion of analytics versus data-driven intervention services , as well as a greater proportion of automation within the data-driven intervention services mix . cost of revenue as a percentage of revenue was 31 % in 2014 compared to 41 % in 2013. sales and marketing replace_table_token_14_th 2015 compared with 2014. in 2015 , sales and marketing expenses increased by approximately $ 7.5 million , or 106 % , compared to 2014. the increase was primarily attributable to increased employee related expenses of approximately $ 6.5 million , and marketing program spend of approximately $ 1.0 million , both of which was driven by our investment in additional sales personnel to focus on adding new clients and capturing an increased amount of our market opportunity , as well as the addition of the sales and marketing personnel acquired with avalere . 2014 compared with 2013. in 2014 , sales and marketing expenses increased by $ 1.2 million , or 20 % , compared to 2013. the increase primarily was attributable to an increase in employee-related costs . 65 research and development replace_table_token_15_th 2015 compared with 2014. in 2015 , research and development expenses decreased $ 2.8 million as a result of incremental capitalization of internally developed software efforts related to our on-going investment in platform and product innovation , and was partially offset by an increase of $ 2.0 million , which includes $ 1.0 million attributable to stock based compensation expense , attributable to an increase in employee related expenses and professional fees . 2014 compared with 2013. in 2014 , research and development expense increased by $ 1.9 million , or 9 % , compared to 2013. the increase was attributable to our on-going investment in innovation and platform development . general and administrative replace_table_token_16_th 2015 compared with 2014. in 2015 , general and administrative expense increased by approximately $ 26.5 million , or 30 % , compared with 2014. throughout the second half of 2014 and throughout 2015 , we increased our investment in incremental personnel to support our growth and our transition from a private to a public company . our investment resulted in an increase in employee related costs of $ 22.4 million , which includes an increase of approximately $ 3.1 million related to stock-based compensation expense and an increase of $ 7.5 million related to our growth and expansion . in addition , general and administrative expenses for 2015 includes incremental expenses that are not comparable to the prior year , comprised of $ 1.5 million for acquisition-related transaction costs , $ 2.9 million of post-acquisition contingent consideration expense related to the acquisition of avalere , and $ 0.7 million for employer taxes related to stock option awards exercised by employees . the increases in general and administrative expenses for 2015 were partially offset by capitalization of internal-use software development costs of $ 1.0 million compared to the prior period . 2014 compared with 2013. in 2014 , general and administrative expense increased by approximately $ 7.9 million , or 10 % , compared to 2013. the increase was primarily attributable to an increase in employee-related costs of $ 4.2 million , which includes an increase of approximately $ 1.1 million related to stock based compensation expense , professional fees of $ 1.8 million , occupancy costs of $ 1.1 million , and software licensing and maintenance expenses of $ 0.5 million . 66 depreciation and amortization replace_table_token_17_th 2015 compared with 2014. in 2015 ,

debt on september 19 , 2014 , we and our subsidiaries entered into a credit and guaranty agreement with a group of lenders including goldman sachs bank usa , as administrative agent ( the `` credit agreement '' ) . the terms of the credit agreement provide for credit facilities in the aggregate maximum principal amount of $ 400.0 million , consisting of a senior unsecured term loan facility in the original principal amount of $ 300,000 ( the `` term loan facility '' ) and a senior unsecured revolving credit facility in the maximum principal amount of $ 100,000 ( the `` revolving credit facility '' and , together with the term loan facility , the `` credit facilities '' ) . proceeds of the revolving credit facility may be used for our working capital and general corporate purposes . the obligations under the credit facilities are guaranteed by our domestic , wholly owned subsidiaries . the credit facilities contain customary affirmative and negative covenants , including limitations on negative pledges and liens . in addition , under the credit agreement , we are required to maintain certain minimum liquidity levels ( $ 50.0 million while the term loan facility remains available , or , if the term loan facility has been repaid , $ 20.0 million ) , measured at the end of each of our fiscal quarters . in addition , our ability to incur debt is subject to compliance with a 4.00 to 1.00 leverage ratio under certain circumstances . the credit agreement also contains certain mandatory prepayment requirements in connection with certain assets sales and customary events of default , including as a result of certain specified change of control events . as of , and during , the year ended december 31 , 2015 , the company was in compliance with the financial covenants under the credit agreement . term loan facility we utilized the entire principal amount of the term loan facility to redeem approximately 8.33 % of our class b common stock on a pro rata basis in september 2014. as of december 31 , 2015 , the principal amount outstanding under the term loan facility was $ 281.3 million .

we are based in los angeles , california but car owners and drivers can currently use the platform in all 50 states plus the district of columbia . we believe our unique revenue opportunity for both owners ( “ owners ” ) and drivers ( “ drivers ” ) is providing a safe , secure , and reliable marketplace . we categorize our operations into one reportable business segment : rental , consisting primarily of our vehicle rental operations in the united states . business and trends we primarily generate revenue by taking a fee from each rental processed on our platform and through insurance related fees . each rental transaction represents a driver renting a car from an owner . drivers pay a daily , weekly or monthly rental rate , plus direct insurance costs and a 10 % hyrecar fee , while owners receive their rental rate minus a 15 % hyrecar fee . gross billings are an important measure by which we evaluate and manage our business . we define gross billings as the amount billed to drivers , without any adjustments for amounts paid to owners , refunds or rebates . gross billings include transactions from both our revenues recorded on a net and a gross basis . it is important to note that gross billings is a non-u.s. gaap measure and as such , is not recorded in our financial statements as revenue . however , we use gross billings to asses our business growth , scale of operations and our ability to generate gross billings is strongly correlated to our ability to generate revenues . gross billings may also be used to calculate net revenue margin , defined as the company 's u.s. gaap reportable revenue over gross billings . using the definition of net revenue margin , hyrecar 's net revenue margin has increased to approximately 43.2 % ( $ 9,777,079 hyrecar 's 2018 u.s. gaap revenue over $ 22,645,941 2018 total gross billings ) . - 19 - our operating results are subject to variability due to seasonality , macroeconomic conditions and other factors . car rental volumes tend to be associated with driving holidays , where there is an influx of uber/lyft demand . thus far in 2018 , we have continued to operate in an uncertain and uneven economic environment marked by heightened geopolitical risks . nonetheless , we continue to anticipate that demand for vehicle rental and car sharing services will increase in 2018 , most likely against a backdrop of modest and uneven global economic growth . our objective is to focus on strategically accelerating our growth , strengthening our position as a leading provider of vehicle rental services to uber and lyft drivers , continuing to enhance our customers ' rental experience , and controlling costs and driving efficiency throughout the organization . we operate in a high growth industry and we expect to continue to face challenges and risks . we seek to mitigate our exposure to risks in numerous ways , including delivering upon our core strategic initiatives , continued growth of fleet levels to match changes in demand for vehicle rentals , and appropriate investments in technology . during 2018 : ● our net revenues totaled approximately $ 9,777,079 during the year ended december 31 , 2018 and increased 203.3 % compared to the total of $ 3,223,874 for the year ended december 31 , 2017 as a result of higher business levels as demonstrated by approximately 393,000 rental days and increased rental volumes . ● in the year ended december 31 , 2018 , our net loss was approximately $ 11,243,903 , as compared to $ 4,271,732 for the year ended december 31 , 2017 , representing an increase in net loss of $ 6,972,171. management 's plan we have incurred operating losses since inception and historically relied on debt and equity financing for working capital . throughout the next 12 months , the company intends to fund its operations through increased revenue from operations and the funds raised through the company 's ipo . we have increased our annualized run rate of rental days to approximately 550,000 through the first 60 days of 2019 , so based on increasing revenues and margins through the normal course of business , as well as our current capital , we believe the company 's has sufficient resources to operate its business . - 20 - components of our results of operations the following describes the various components that make up our results of operations , discussed below : revenue is earned from fees associated with matching drivers to owners of idle cars that meet the strict requirements imposed by ride-sharing services such as uber and lyft with drivers . a driver will typically rent a car through one transaction via our on-line marketplace . we recognize gaap reportable revenue primarily from a transaction fee and an insurance fee when a car is rented on our platform when ( a ) persuasive evidence that an agreement exists which occurs when the rental contract is signed electronically between the two parties involved ; ( b ) the services have been delivered ; ( c ) the prices are fixed and determinable and not subject to refund or adjustment ; and ( d ) collection of the amounts due is reasonably assured which occurs simultaneously when the booking is accepted and the credit card or account on file is charged . the company defers revenue where the earnings process is not yet complete . cost of revenues primarily include direct fees paid for driver insurance , merchant processing fees , and motor vehicle record fees incurred for paid driver applications . story_separator_special_tag in limited circumstances , the company provides contingent consideration in the form of a rebate or refund that is redeemable only if the customer completes a specific level of transaction over a specific time period . in such cases , the rebate or refund obligation is recognized as a reduction of revenues . measurement of the total rebate or refund obligation is based on management estimates using historical data . the following is a breakout of revenue components by subcategory for the years ended december 31 , 2018 and 2017. replace_table_token_3_th transaction fees and insurance fees are charged to a driver in a single transaction . drivers currently do not have an option to decline insurance at any point during the transaction . principal agent considerations in accordance with asc 605-45 , revenue recognition : principal agent considerations , we evaluate our service offerings to determine if we are acting as the principal or as an agent , which we consider in determining if revenue should be reported gross or net . our primary revenue source is a transaction fee made from a confirmed booking of a vehicle on our platform . key indicators that we evaluate to reach this determination include : ● the terms and conditions of our contracts ; ● whether we are paid a fixed percentage of the arrangement 's consideration or a fixed fee for each transaction ; ● the party which sets the pricing with the end-user , has the credit risk and provides customer support ; and ● the party responsible for delivery/fulfillment of the product or service to the end consumer . - 23 - we have determined that we act as the agent in the transaction for vehicle bookings , as we are not the primarily obligor of the arrangement and receive a fixed percentage of the transaction . therefore , revenue is recognized on a net basis . for other fees such as insurance fees and motor vehicle records ( application fees ) we have determined that revenue should be recorded on a gross basis . in such arrangements , the company sets pricing , has risk of economic loss , has certain credit risk , provides support services related to these transactions , and has decision making ability about service providers used . income taxes the company applies asc 740 “ income taxes ” ( “ asc 740 ” ) . deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end , based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income . valuation allowances are established , when necessary , to reduce deferred tax assets to the amount expected to be realized . the provision for income taxes represents the tax expense for the period , if any , and the change during the period in deferred tax assets and liabilities . at december 31 , 2017 and 2016 , the company has established a full allowance against all deferred tax assets . asc 740 also provides criteria for the recognition , measurement , presentation and disclosure of uncertain tax positions . a tax benefit from an uncertain position is recognized only if it is “ more likely than not ” that the position is sustainable upon examination by the relevant taxing authority based on its technical merit . internal use software we incur software development costs to develop software programs to be used solely to meet our internal needs and cloud-based applications used to deliver our services . in accordance with asc 350-40 , internal-use software , we capitalize development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function intended . insurance reserve the company records a loss reserve for insurance deductible or damage that the company pays to car owners based on the company 's policy in relation to the insurance policy in effect at the time . this addition of the reserve is based on changes to the company 's insurance policy that occurred during the second quarter of 2018 in relation to the insurance policy in effect for car owners . this reserve represents an estimate for both reported accidents claims not yet paid , and claims incurred but not yet reported and are recorded on a non-discounted basis . the lag time in reported claims is minimal and as such represents a low risk of unreported claims being excluded from the loss reserve assessment . the adequacy of the reserve is monitored quarterly and is subject to adjustment in the future based upon changes in claims experience , including the number of incidents for which the company is ultimately responsible and changes in the cost per claim , or changes to the company 's policy as to what amounts of the deductible or claim will be paid by the company . liability insurance claims may take several years to completely settle , and the company has limited historical loss experience . because of the limited operational history , the company makes certain assumptions based on currently available information to estimate the reserves as well as third party claims adjuster data provided on existing claims . a number of factors can affect the actual cost of a claim , including the length of time the claim remains open , economic and healthcare cost trends and the results of related litigation . furthermore , claims may emerge in future periods for events that occurred in a prior period that differs from expectations . accordingly , actual losses may vary significantly from the estimated amounts reported in the financial statements . reserves are continually reviewed and adjusted as necessary as experience develops or new information becomes known

debt on september 19 , 2014 , we and our subsidiaries entered into a credit and guaranty agreement with a group of lenders including goldman sachs bank usa , as administrative agent ( the `` credit agreement '' ) . the terms of the credit agreement provide for credit facilities in the aggregate maximum principal amount of $ 400.0 million , consisting of a senior unsecured term loan facility in the original principal amount of $ 300,000 ( the `` term loan facility '' ) and a senior unsecured revolving credit facility in the maximum principal amount of $ 100,000 ( the `` revolving credit facility '' and , together with the term loan facility , the `` credit facilities '' ) . proceeds of the revolving credit facility may be used for our working capital and general corporate purposes . the obligations under the credit facilities are guaranteed by our domestic , wholly owned subsidiaries . the credit facilities contain customary affirmative and negative covenants , including limitations on negative pledges and liens . in addition , under the credit agreement , we are required to maintain certain minimum liquidity levels ( $ 50.0 million while the term loan facility remains available , or , if the term loan facility has been repaid , $ 20.0 million ) , measured at the end of each of our fiscal quarters . in addition , our ability to incur debt is subject to compliance with a 4.00 to 1.00 leverage ratio under certain circumstances . the credit agreement also contains certain mandatory prepayment requirements in connection with certain assets sales and customary events of default , including as a result of certain specified change of control events . as of , and during , the year ended december 31 , 2015 , the company was in compliance with the financial covenants under the credit agreement . term loan facility we utilized the entire principal amount of the term loan facility to redeem approximately 8.33 % of our class b common stock on a pro rata basis in september 2014. as of december 31 , 2015 , the principal amount outstanding under the term loan facility was $ 281.3 million .

we are based in los angeles , california but car owners and drivers can currently use the platform in all 50 states plus the district of columbia . we believe our unique revenue opportunity for both owners ( “ owners ” ) and drivers ( “ drivers ” ) is providing a safe , secure , and reliable marketplace . we categorize our operations into one reportable business segment : rental , consisting primarily of our vehicle rental operations in the united states . business and trends we primarily generate revenue by taking a fee from each rental processed on our platform and through insurance related fees . each rental transaction represents a driver renting a car from an owner . drivers pay a daily , weekly or monthly rental rate , plus direct insurance costs and a 10 % hyrecar fee , while owners receive their rental rate minus a 15 % hyrecar fee . gross billings are an important measure by which we evaluate and manage our business . we define gross billings as the amount billed to drivers , without any adjustments for amounts paid to owners , refunds or rebates . gross billings include transactions from both our revenues recorded on a net and a gross basis . it is important to note that gross billings is a non-u.s. gaap measure and as such , is not recorded in our financial statements as revenue . however , we use gross billings to asses our business growth , scale of operations and our ability to generate gross billings is strongly correlated to our ability to generate revenues . gross billings may also be used to calculate net revenue margin , defined as the company 's u.s. gaap reportable revenue over gross billings . using the definition of net revenue margin , hyrecar 's net revenue margin has increased to approximately 43.2 % ( $ 9,777,079 hyrecar 's 2018 u.s. gaap revenue over $ 22,645,941 2018 total gross billings ) . - 19 - our operating results are subject to variability due to seasonality , macroeconomic conditions and other factors . car rental volumes tend to be associated with driving holidays , where there is an influx of uber/lyft demand . thus far in 2018 , we have continued to operate in an uncertain and uneven economic environment marked by heightened geopolitical risks . nonetheless , we continue to anticipate that demand for vehicle rental and car sharing services will increase in 2018 , most likely against a backdrop of modest and uneven global economic growth . our objective is to focus on strategically accelerating our growth , strengthening our position as a leading provider of vehicle rental services to uber and lyft drivers , continuing to enhance our customers ' rental experience , and controlling costs and driving efficiency throughout the organization . we operate in a high growth industry and we expect to continue to face challenges and risks . we seek to mitigate our exposure to risks in numerous ways , including delivering upon our core strategic initiatives , continued growth of fleet levels to match changes in demand for vehicle rentals , and appropriate investments in technology . during 2018 : ● our net revenues totaled approximately $ 9,777,079 during the year ended december 31 , 2018 and increased 203.3 % compared to the total of $ 3,223,874 for the year ended december 31 , 2017 as a result of higher business levels as demonstrated by approximately 393,000 rental days and increased rental volumes . ● in the year ended december 31 , 2018 , our net loss was approximately $ 11,243,903 , as compared to $ 4,271,732 for the year ended december 31 , 2017 , representing an increase in net loss of $ 6,972,171. management 's plan we have incurred operating losses since inception and historically relied on debt and equity financing for working capital . throughout the next 12 months , the company intends to fund its operations through increased revenue from operations and the funds raised through the company 's ipo . we have increased our annualized run rate of rental days to approximately 550,000 through the first 60 days of 2019 , so based on increasing revenues and margins through the normal course of business , as well as our current capital , we believe the company 's has sufficient resources to operate its business . - 20 - components of our results of operations the following describes the various components that make up our results of operations , discussed below : revenue is earned from fees associated with matching drivers to owners of idle cars that meet the strict requirements imposed by ride-sharing services such as uber and lyft with drivers . a driver will typically rent a car through one transaction via our on-line marketplace . we recognize gaap reportable revenue primarily from a transaction fee and an insurance fee when a car is rented on our platform when ( a ) persuasive evidence that an agreement exists which occurs when the rental contract is signed electronically between the two parties involved ; ( b ) the services have been delivered ; ( c ) the prices are fixed and determinable and not subject to refund or adjustment ; and ( d ) collection of the amounts due is reasonably assured which occurs simultaneously when the booking is accepted and the credit card or account on file is charged . the company defers revenue where the earnings process is not yet complete . cost of revenues primarily include direct fees paid for driver insurance , merchant processing fees , and motor vehicle record fees incurred for paid driver applications . story_separator_special_tag in limited circumstances , the company provides contingent consideration in the form of a rebate or refund that is redeemable only if the customer completes a specific level of transaction over a specific time period . in such cases , the rebate or refund obligation is recognized as a reduction of revenues . measurement of the total rebate or refund obligation is based on management estimates using historical data . the following is a breakout of revenue components by subcategory for the years ended december 31 , 2018 and 2017. replace_table_token_3_th transaction fees and insurance fees are charged to a driver in a single transaction . drivers currently do not have an option to decline insurance at any point during the transaction . principal agent considerations in accordance with asc 605-45 , revenue recognition : principal agent considerations , we evaluate our service offerings to determine if we are acting as the principal or as an agent , which we consider in determining if revenue should be reported gross or net . our primary revenue source is a transaction fee made from a confirmed booking of a vehicle on our platform . key indicators that we evaluate to reach this determination include : ● the terms and conditions of our contracts ; ● whether we are paid a fixed percentage of the arrangement 's consideration or a fixed fee for each transaction ; ● the party which sets the pricing with the end-user , has the credit risk and provides customer support ; and ● the party responsible for delivery/fulfillment of the product or service to the end consumer . - 23 - we have determined that we act as the agent in the transaction for vehicle bookings , as we are not the primarily obligor of the arrangement and receive a fixed percentage of the transaction . therefore , revenue is recognized on a net basis . for other fees such as insurance fees and motor vehicle records ( application fees ) we have determined that revenue should be recorded on a gross basis . in such arrangements , the company sets pricing , has risk of economic loss , has certain credit risk , provides support services related to these transactions , and has decision making ability about service providers used . income taxes the company applies asc 740 “ income taxes ” ( “ asc 740 ” ) . deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end , based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income . valuation allowances are established , when necessary , to reduce deferred tax assets to the amount expected to be realized . the provision for income taxes represents the tax expense for the period , if any , and the change during the period in deferred tax assets and liabilities . at december 31 , 2017 and 2016 , the company has established a full allowance against all deferred tax assets . asc 740 also provides criteria for the recognition , measurement , presentation and disclosure of uncertain tax positions . a tax benefit from an uncertain position is recognized only if it is “ more likely than not ” that the position is sustainable upon examination by the relevant taxing authority based on its technical merit . internal use software we incur software development costs to develop software programs to be used solely to meet our internal needs and cloud-based applications used to deliver our services . in accordance with asc 350-40 , internal-use software , we capitalize development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function intended . insurance reserve the company records a loss reserve for insurance deductible or damage that the company pays to car owners based on the company 's policy in relation to the insurance policy in effect at the time . this addition of the reserve is based on changes to the company 's insurance policy that occurred during the second quarter of 2018 in relation to the insurance policy in effect for car owners . this reserve represents an estimate for both reported accidents claims not yet paid , and claims incurred but not yet reported and are recorded on a non-discounted basis . the lag time in reported claims is minimal and as such represents a low risk of unreported claims being excluded from the loss reserve assessment . the adequacy of the reserve is monitored quarterly and is subject to adjustment in the future based upon changes in claims experience , including the number of incidents for which the company is ultimately responsible and changes in the cost per claim , or changes to the company 's policy as to what amounts of the deductible or claim will be paid by the company . liability insurance claims may take several years to completely settle , and the company has limited historical loss experience . because of the limited operational history , the company makes certain assumptions based on currently available information to estimate the reserves as well as third party claims adjuster data provided on existing claims . a number of factors can affect the actual cost of a claim , including the length of time the claim remains open , economic and healthcare cost trends and the results of related litigation . furthermore , claims may emerge in future periods for events that occurred in a prior period that differs from expectations . accordingly , actual losses may vary significantly from the estimated amounts reported in the financial statements . reserves are continually reviewed and adjusted as necessary as experience develops or new information becomes known

liquidity and capital resources at december 31 , 2018 , our cash balance totaled $ 6,764,870 compared to $ 213,944 at december 31 , 2017. this increase was a result of our ipo in which the company issued and sold 2,520,000 shares of common stock at $ 5.00 per share for gross proceeds of $ 12,600,000 , net of underwriters ' discounts and commissions totaling $ 1,260,000. accordingly , net proceeds from the ipo totaled $ 11,340,000 , before deducting offering costs of $ 569,665. as of march 28 , 2019 , our cash balance totaled over $ 6,000,000 , meaning that our quarterly cash burn has been reduced to approximately $ 500,000 for the first fiscal quarter of 2019. at december 31 , 2018 , our current assets totaled $ 7,075,311 and our current liabilities totaled $ 2,044,617 resulting in working capital of $ 5,030,694 compared to a working capital deficit of $ 1,337,331 at december 31 , 2017. this deficit resulted primarily from a lack of operating capital . throughout the next 12 months , the company intends to fund its operations through increased revenue from operations and the funds raised through the ipo . based on our current capital and ability to reduce cash burn if needed , as well as the increasing revenues through normal course of business , the company believes it has sufficient capital to operate for the next twelve ( 12 ) months . we do not have any contractual obligations for ongoing capital expenditures at this time .

the increase from 2018 to 2019 was primarily the result of an increase of $ 11.7 million in broker-dealer fees and $ 6.1 million in banking and service fees due to increased fees from our trustee and fiduciary services , increased levels of prepayment penalty fee income of $ 2.0 million , partially offset by a mortgage banking income decrease of $ 8.5 million . non-interest expense for the fiscal year ended june 30 , 2020 was $ 275.8 million compared to $ 251.2 million and $ 173.9 million for the years ended june 30 , 2019 and 2018 , respectively . the increase was primarily due to an increase of $ 16.9 million in staffing for lending , information technology infrastructure development , clearing services , trustee and fiduciary services and regulatory compliance , an increase in depreciation and amortization of $ 8.0 million , an increase in data processing and internet of $ 6.5 million , and a decrease in other general and administrative costs of $ 11.2 million . our staffing rose to 1099 employees compared to 1007 and 801 at june 30 , 2020 , 2019 and 2018 , respectively . total assets were $ 13.9 billion at june 30 , 2020 compared to $ 11.2 billion at june 30 , 2019 . assets grew $ 2.6 billion or 23.5 % during the last fiscal year , primarily due to loan originations , primarily from c & i and income property lending and total cash from increased deposits . the loan growth was funded primarily with growth in deposits . covid-19 impact . we are closely monitoring the rapid developments of and uncertainties caused by the covid-19 pandemic . in response to the changes in economic and business conditions as a result of the covid-19 pandemic , we have taken the following actions to support customers , employees , partners and shareholders : 47 actively communicating with borrowers and partners to assess individual needs ; participating as a lender in the ppp and evaluating various components of the cares act applicability to the company ; provided secure and efficient remote work options for our team members ; increasing provisions for loan and lease losses as a result of a weakening economy and reduced business activities ; tightening underwriting standards ; reallocated personnel to increase resources for customer service and portfolio management ; and limiting business travel . for our borrowers who are one or less payments past due on april 1 , 2020 , based on our application under the guidelines set forth in the cares act , we delayed payments for an agreed upon timeframe , depending on each individual borrower 's characteristics . as of june 30 , 2020 we granted forbearance on $ 95.8 million of loans , primarily single family residential secured loans . additionally , we provided deferrals for $ 28.2 million and $ 2.7 million of auto and unsecured consumer loans during the year . lastly , we provided one commercial and industrial loan a period of three months of interest only payments . no other deferrals of payment obligations have been provided . there have been no loan modifications as a result of the covid-19 pandemic as of june 30 , 2020. these covid-19 payment deferrals are not categorized as a tdr as the cares act allows the bank to suspend the tdr requirements for certain short-term loan modifications . the extent to which these measures will impact our bank is uncertain , and any progression of loans receiving covid-19 payment deferrals into non-performing assets , during future periods is uncertain and will depend on future developments that can not be predicted . our future performance will depend on many factors in addition to the covid-19 pandemic : changes in interest rates , competition for deposits and quality loans , the credit performance of our assets , regulatory actions , strategic transactions , and our ability to improve operating efficiencies . see “ item 1a . risk factors . ” mergers and acquisitions from time to time we undertake acquisitions or similar transactions consistent with our company 's operating and growth strategies . we completed no business acquisitions or asset acquisitions during the fiscal year ended june 30 , 2020 and two business acquisitions and two asset acquisitions during the fiscal year ended june 30 , 2019 . mwabank deposit acquisition . on march 15 , 2019 , the bank closed the deposit assumption agreement with mwabank and acquired approximately $ 173 million of deposits , including approximately $ 151 million of checking , savings and money market accounts and $ 22 million of time deposits , from mwabank . axos did not acquire any assets , employees or branches in this transaction . the bank received cash equal to the book value of the deposit liabilities . wisebanyan . on february 26 , 2019 the company 's subsidiary , axos securities , llc , had completed the acquisition of wisebanyan holding , inc. and its subsidiaries ( collectively “ wisebanyan ” ) . headquartered in las vegas , nevada , wisebanyan is a provider of personal financial and investment management services through a proprietary technology platform . when acquired , wisebanyan served approximately 24,000 clients with approximately $ 150 million of assets under management . the company paid $ 3.2 million in cash to acquire the assets of wisebanyan and recorded $ 2.7 million in intangible assets.the company purchased the whole wisebanyan business and has the entire voting interest . goodwill is not expected to be deducted for tax purposes . cor securities holdings . on january 28 , 2019 ( “ acquisition date ” ) , axos clearing , llc and axos clarity mergeco . story_separator_special_tag tangible book value per common share , a non-gaap financial measure , is calculated by dividing tangible book value by the common shares outstanding at the end of the period . we believe tangible book value per common share is useful in evaluating the company 's capital strength , financial condition , and ability to manage potential losses . below is a reconciliation of total stockholders ' equity , the nearest compatible gaap measure , to tangible book value ( non-gaap ) as of the dates indicated : replace_table_token_17_th 52 average balances , net interest income , yields earned and rates paid the following tables set forth , for the periods indicated , information regarding ( i ) average balances ; ( ii ) the total amount of interest income from interest-earning assets and the weighted average yields on such assets ; ( iii ) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities ; ( iv ) net interest income ; ( v ) interest rate spread ; and ( vi ) net interest margin : replace_table_token_18_th 1 average balances are obtained from daily data . 2 loans and leases include loans held for sale , loan and lease premiums , discounts and unearned fees . 3 interest income includes reductions for amortization of loan and lease and investment securities premiums and earnings from accretion of discounts and loan and lease fees . loan and lease fee income is not significant . also includes $ 28.0 million as of june 30 , 2020 , $ 28.7 million as of june 30 , 2019 and $ 29.3 million as of june 30 , 2018 of loans that qualify for community reinvestment act credit which are taxed at a reduced rate . 4 interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities . 5 net interest margin represents net interest income as a percentage of average interest-earning assets . 53 results of operations our results of operations depend on our net interest income , which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities . our net interest income has increased as a result of the growth in our interest earning assets and is subject to competitive factors in online banking and other markets . our net interest income is reduced by our estimate of loss provisions for our loan and lease portfolio . we also earn non-interest income primarily from mortgage banking activities , banking products and service activity , our securities business , prepaid card fee income , prepayment fee income from multifamily borrowers who repay their loans before maturity and from gains on sales of other loans and investment securities . losses on investment securities reduce non-interest income . the largest component of non-interest expense is salary and benefits , which is a function of the number of personnel , which increased to 1099 full-time equivalent employees at june 30 , 2020 , from 1007 full time employees at june 30 , 2019 . we are subject to federal and state income taxes , and our effective tax rates were 30.15 % , 27.10 % and 36.42 % for the fiscal years ended june 30 , 2020 , 2019 , and 2018 , respectively . other factors that affect our results of operations include expenses relating to data processing , advertising , depreciation , occupancy , professional services , and other miscellaneous expenses . comparison of the fiscal years ended june 30 , 2020 and june 30 , 2019 net interest income . net interest income totaled $ 477.6 million for the fiscal year ended june 30 , 2020 compared to $ 408.6 million for the fiscal year ended june 30 , 2019 . the following table sets forth the effects of changing rates and volumes on our net interest income . information is provided with respect to ( i ) effects on interest income and interest expense attributable to changes in volume ( changes in volume multiplied by prior rate ) ; and ( ii ) effects on interest income and interest expense attributable to changes in rate ( changes in rate multiplied by prior volume ) . the change in interest due to both volume and rate has been allocated proportionally to both , based on their relative absolute values . replace_table_token_19_th interest income . interest income for the fiscal year ended june 30 , 2020 totaled $ 622.8 million , an increase of $ 58.0 million , or 10.3 % , compared to $ 564.9 million in interest income for the fiscal year ended june 30 , 2019 primarily due to growth in volume of interest-earning assets from loan originations , primarily from commercial & industrial lending and a full year of securities borrowed and margin lending from our new securities segment . average interest-earning assets for the fiscal year ended june 30 , 2020 increased by $ 1,560.8 million compared to the fiscal year ended june 30 , 2019 primarily due to loan and lease originations for investment which totaled $ 6,798.0 million during the year ended june 30 , 2020 . yields on loans and leases decreased by 11 basis points to 5.74 % for the fiscal year ended june 30 , 2020 , primarily due to declines in market interest rates . for the fiscal year ended june 30 , 2020 , the growth in average balances contributed additional interest income of $ 79.4 million , which was partially offset by a $ 21.4 million decrease in interest income due to declines in market interest rates . the average yield earned on our interest-earning assets decreased to 5.37 % for the fiscal year ended june 30 , 2020 , compared to 5.63 % in 2019 primarily due to the decrease in rate from loans and leases . as a result of the federal

liquidity and capital resources at december 31 , 2018 , our cash balance totaled $ 6,764,870 compared to $ 213,944 at december 31 , 2017. this increase was a result of our ipo in which the company issued and sold 2,520,000 shares of common stock at $ 5.00 per share for gross proceeds of $ 12,600,000 , net of underwriters ' discounts and commissions totaling $ 1,260,000. accordingly , net proceeds from the ipo totaled $ 11,340,000 , before deducting offering costs of $ 569,665. as of march 28 , 2019 , our cash balance totaled over $ 6,000,000 , meaning that our quarterly cash burn has been reduced to approximately $ 500,000 for the first fiscal quarter of 2019. at december 31 , 2018 , our current assets totaled $ 7,075,311 and our current liabilities totaled $ 2,044,617 resulting in working capital of $ 5,030,694 compared to a working capital deficit of $ 1,337,331 at december 31 , 2017. this deficit resulted primarily from a lack of operating capital . throughout the next 12 months , the company intends to fund its operations through increased revenue from operations and the funds raised through the ipo . based on our current capital and ability to reduce cash burn if needed , as well as the increasing revenues through normal course of business , the company believes it has sufficient capital to operate for the next twelve ( 12 ) months . we do not have any contractual obligations for ongoing capital expenditures at this time .

the increase from 2018 to 2019 was primarily the result of an increase of $ 11.7 million in broker-dealer fees and $ 6.1 million in banking and service fees due to increased fees from our trustee and fiduciary services , increased levels of prepayment penalty fee income of $ 2.0 million , partially offset by a mortgage banking income decrease of $ 8.5 million . non-interest expense for the fiscal year ended june 30 , 2020 was $ 275.8 million compared to $ 251.2 million and $ 173.9 million for the years ended june 30 , 2019 and 2018 , respectively . the increase was primarily due to an increase of $ 16.9 million in staffing for lending , information technology infrastructure development , clearing services , trustee and fiduciary services and regulatory compliance , an increase in depreciation and amortization of $ 8.0 million , an increase in data processing and internet of $ 6.5 million , and a decrease in other general and administrative costs of $ 11.2 million . our staffing rose to 1099 employees compared to 1007 and 801 at june 30 , 2020 , 2019 and 2018 , respectively . total assets were $ 13.9 billion at june 30 , 2020 compared to $ 11.2 billion at june 30 , 2019 . assets grew $ 2.6 billion or 23.5 % during the last fiscal year , primarily due to loan originations , primarily from c & i and income property lending and total cash from increased deposits . the loan growth was funded primarily with growth in deposits . covid-19 impact . we are closely monitoring the rapid developments of and uncertainties caused by the covid-19 pandemic . in response to the changes in economic and business conditions as a result of the covid-19 pandemic , we have taken the following actions to support customers , employees , partners and shareholders : 47 actively communicating with borrowers and partners to assess individual needs ; participating as a lender in the ppp and evaluating various components of the cares act applicability to the company ; provided secure and efficient remote work options for our team members ; increasing provisions for loan and lease losses as a result of a weakening economy and reduced business activities ; tightening underwriting standards ; reallocated personnel to increase resources for customer service and portfolio management ; and limiting business travel . for our borrowers who are one or less payments past due on april 1 , 2020 , based on our application under the guidelines set forth in the cares act , we delayed payments for an agreed upon timeframe , depending on each individual borrower 's characteristics . as of june 30 , 2020 we granted forbearance on $ 95.8 million of loans , primarily single family residential secured loans . additionally , we provided deferrals for $ 28.2 million and $ 2.7 million of auto and unsecured consumer loans during the year . lastly , we provided one commercial and industrial loan a period of three months of interest only payments . no other deferrals of payment obligations have been provided . there have been no loan modifications as a result of the covid-19 pandemic as of june 30 , 2020. these covid-19 payment deferrals are not categorized as a tdr as the cares act allows the bank to suspend the tdr requirements for certain short-term loan modifications . the extent to which these measures will impact our bank is uncertain , and any progression of loans receiving covid-19 payment deferrals into non-performing assets , during future periods is uncertain and will depend on future developments that can not be predicted . our future performance will depend on many factors in addition to the covid-19 pandemic : changes in interest rates , competition for deposits and quality loans , the credit performance of our assets , regulatory actions , strategic transactions , and our ability to improve operating efficiencies . see “ item 1a . risk factors . ” mergers and acquisitions from time to time we undertake acquisitions or similar transactions consistent with our company 's operating and growth strategies . we completed no business acquisitions or asset acquisitions during the fiscal year ended june 30 , 2020 and two business acquisitions and two asset acquisitions during the fiscal year ended june 30 , 2019 . mwabank deposit acquisition . on march 15 , 2019 , the bank closed the deposit assumption agreement with mwabank and acquired approximately $ 173 million of deposits , including approximately $ 151 million of checking , savings and money market accounts and $ 22 million of time deposits , from mwabank . axos did not acquire any assets , employees or branches in this transaction . the bank received cash equal to the book value of the deposit liabilities . wisebanyan . on february 26 , 2019 the company 's subsidiary , axos securities , llc , had completed the acquisition of wisebanyan holding , inc. and its subsidiaries ( collectively “ wisebanyan ” ) . headquartered in las vegas , nevada , wisebanyan is a provider of personal financial and investment management services through a proprietary technology platform . when acquired , wisebanyan served approximately 24,000 clients with approximately $ 150 million of assets under management . the company paid $ 3.2 million in cash to acquire the assets of wisebanyan and recorded $ 2.7 million in intangible assets.the company purchased the whole wisebanyan business and has the entire voting interest . goodwill is not expected to be deducted for tax purposes . cor securities holdings . on january 28 , 2019 ( “ acquisition date ” ) , axos clearing , llc and axos clarity mergeco . story_separator_special_tag tangible book value per common share , a non-gaap financial measure , is calculated by dividing tangible book value by the common shares outstanding at the end of the period . we believe tangible book value per common share is useful in evaluating the company 's capital strength , financial condition , and ability to manage potential losses . below is a reconciliation of total stockholders ' equity , the nearest compatible gaap measure , to tangible book value ( non-gaap ) as of the dates indicated : replace_table_token_17_th 52 average balances , net interest income , yields earned and rates paid the following tables set forth , for the periods indicated , information regarding ( i ) average balances ; ( ii ) the total amount of interest income from interest-earning assets and the weighted average yields on such assets ; ( iii ) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities ; ( iv ) net interest income ; ( v ) interest rate spread ; and ( vi ) net interest margin : replace_table_token_18_th 1 average balances are obtained from daily data . 2 loans and leases include loans held for sale , loan and lease premiums , discounts and unearned fees . 3 interest income includes reductions for amortization of loan and lease and investment securities premiums and earnings from accretion of discounts and loan and lease fees . loan and lease fee income is not significant . also includes $ 28.0 million as of june 30 , 2020 , $ 28.7 million as of june 30 , 2019 and $ 29.3 million as of june 30 , 2018 of loans that qualify for community reinvestment act credit which are taxed at a reduced rate . 4 interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities . 5 net interest margin represents net interest income as a percentage of average interest-earning assets . 53 results of operations our results of operations depend on our net interest income , which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities . our net interest income has increased as a result of the growth in our interest earning assets and is subject to competitive factors in online banking and other markets . our net interest income is reduced by our estimate of loss provisions for our loan and lease portfolio . we also earn non-interest income primarily from mortgage banking activities , banking products and service activity , our securities business , prepaid card fee income , prepayment fee income from multifamily borrowers who repay their loans before maturity and from gains on sales of other loans and investment securities . losses on investment securities reduce non-interest income . the largest component of non-interest expense is salary and benefits , which is a function of the number of personnel , which increased to 1099 full-time equivalent employees at june 30 , 2020 , from 1007 full time employees at june 30 , 2019 . we are subject to federal and state income taxes , and our effective tax rates were 30.15 % , 27.10 % and 36.42 % for the fiscal years ended june 30 , 2020 , 2019 , and 2018 , respectively . other factors that affect our results of operations include expenses relating to data processing , advertising , depreciation , occupancy , professional services , and other miscellaneous expenses . comparison of the fiscal years ended june 30 , 2020 and june 30 , 2019 net interest income . net interest income totaled $ 477.6 million for the fiscal year ended june 30 , 2020 compared to $ 408.6 million for the fiscal year ended june 30 , 2019 . the following table sets forth the effects of changing rates and volumes on our net interest income . information is provided with respect to ( i ) effects on interest income and interest expense attributable to changes in volume ( changes in volume multiplied by prior rate ) ; and ( ii ) effects on interest income and interest expense attributable to changes in rate ( changes in rate multiplied by prior volume ) . the change in interest due to both volume and rate has been allocated proportionally to both , based on their relative absolute values . replace_table_token_19_th interest income . interest income for the fiscal year ended june 30 , 2020 totaled $ 622.8 million , an increase of $ 58.0 million , or 10.3 % , compared to $ 564.9 million in interest income for the fiscal year ended june 30 , 2019 primarily due to growth in volume of interest-earning assets from loan originations , primarily from commercial & industrial lending and a full year of securities borrowed and margin lending from our new securities segment . average interest-earning assets for the fiscal year ended june 30 , 2020 increased by $ 1,560.8 million compared to the fiscal year ended june 30 , 2019 primarily due to loan and lease originations for investment which totaled $ 6,798.0 million during the year ended june 30 , 2020 . yields on loans and leases decreased by 11 basis points to 5.74 % for the fiscal year ended june 30 , 2020 , primarily due to declines in market interest rates . for the fiscal year ended june 30 , 2020 , the growth in average balances contributed additional interest income of $ 79.4 million , which was partially offset by a $ 21.4 million decrease in interest income due to declines in market interest rates . the average yield earned on our interest-earning assets decreased to 5.37 % for the fiscal year ended june 30 , 2020 , compared to 5.63 % in 2019 primarily due to the decrease in rate from loans and leases . as a result of the federal

liquidity and capital resources liquidity . for axos bank , our sources of liquidity include deposits , borrowings , payments and maturities of outstanding loans , sales of loans , maturities or gains on sales of investment securities and other short-term investments . while scheduled loan payments and maturing investment securities and short-term investments are relatively predictable sources of funds , deposit flows and loan prepayments are greatly influenced by general interest rates , economic conditions and competition . we generally invest excess funds in overnight deposits and other short-term interest-earning assets . we use cash generated through retail deposits , our largest funding source , to offset the cash utilized in lending and investing activities . our short-term interest-earning investment securities are also used to provide liquidity for lending and other operational requirements . as an additional source of funds , we have two credit agreements . axos bank can borrow up to 40 % of its total assets from the fhlb . borrowings are collateralized by pledging certain mortgage loans and investment securities to the fhlb . based on loans and securities pledged at june 30 , 2020 , we had a total borrowing availability of another $ 2.7 billion available immediately and an additional $ 1.9 billion available with additional collateral , for advances from the fhlb for terms up to ten years . the bank can also borrow from the discount window at the frbsf . frbsf borrowings are collateralized by commercial loans , consumer loans and mortgage-backed securities pledged to the frbsf . based on loans and securities pledged at june 30 , 2020 , we had a total borrowing capacity of approximately $ 1.8 billion , all of which was available for use .

we believe players are more likely to purchase virtual goods when they are connected to and playing with their friends , whether those friends play for free or also purchase virtual goods . players may also elect to pay a one-time download fee to obtain certain mobile games free of third-party advertisements . 2014 was the first year in which our business generated a higher percentage of bookings through mobile platforms than through the facebook platform . for the twelve months ended december 31 , 2014 and 2013 we estimate that we generated 51 % and 27 % of our bookings , respectively , from mobile platforms while 43 % and 69 % of our bookings , respectively , were generated from the facebook platform . facebook is still the largest single distribution , marketing , promotion and payment platform for our games and we generate a significant portion of our revenue through the facebook platform . for the twelve months ended december 31 , 2014 and 2013 , we estimate that 51 % and 75 % of our revenue , respectively , was generated through the facebook platform , while 44 % and 24 % of our revenue , respectively , was generated through mobile platforms . we have had to estimate this information because certain payment methods we accept and certain advertising networks do not allow us to determine the platform used . for all payment transactions in our games under facebook 's local currency-based payments model , facebook remits to us an amount equal to 70 % of the price we requested to be charged to our players . on platforms other than facebook , players purchase our virtual goods through various widely accepted payment methods offered in the games , including paypal , apple itunes accounts , google wallet , credit cards and direct wires . advertising and other . advertising revenue primarily includes branded virtual goods and sponsorships , engagement ads and offers , mobile ads and display ads and other . we generally report our advertising revenue net of amounts due to advertising agencies and brokers . other revenue includes software licensing and maintenance related to technology acquired in our acquisition of naturalmotion as well as licensing of our brands . key metrics we regularly review a number of metrics , including the following key financial and operating metrics , to evaluate our business , measure our performance , identify trends in our business , prepare financial projections and make strategic decisions . key financial metrics bookings . bookings ( as defined in the section titled “—non-gaap financial measures” included in “item 6. selected consolidated financial and other data” of this annual report on form 10-k ) is the fundamental top-line metric we use to manage our business , as we believe it is a useful indicator of the sales activity in a given period . over the long term , the factors impacting our bookings and revenue are the same . however , in the short term , there are factors that may cause revenue to exceed or be less than bookings in any period . we use bookings to evaluate the results of our operations , generate future operating plans and assess the performance of our company . while we believe that this non-gaap financial measure is useful in evaluating our business , this information should be considered as supplemental in nature and is not meant as a substitute for revenue recognized in accordance with u.s. gaap . in addition , other companies , including companies in our industry , may calculate bookings differently or not at all , which reduces its usefulness as a comparative measure . 51 adjusted ebitda . adjusted ebitda is a non-gaap financial measure that we calculate as net income ( loss ) , adjusted for provision for / ( benefit from ) income taxes ; other income ( expense ) , net ; interest income ; gain ( loss ) from significant legal settlements ; restructuring expense ; depreciation and amortization ; impairment of intangible assets ; stock-based expense ; contingent consideration fair value adjustments ; acquisition-related transaction expenses , and change in deferred revenue . we believe that adjusted ebitda provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors . for a reconciliation of net income ( loss ) to adjusted ebitda , see the section titled “—non-gaap financial measures” included in “item 6. selected consolidated financial and other data” of this annual report on form 10-k. key operating metrics we manage our business by tracking several operating metrics : “daus , ” which measure daily active users of our games , “maus , ” which measure monthly active users of our games , “muus , ” which measure monthly unique users of our games , “mups , ” which measure monthly unique payers in our games , and “abpu , ” which measures our average daily bookings per average dau , each of which is recorded by our internal analytics systems . the numbers for these operating metrics are calculated using internal company data based on tracking the activity of user accounts . we believe that the numbers are reasonable estimates of our user base for the applicable period of measurement ; however , factors relating to user activity and systems may impact these numbers . daus . we define daus as the number of individuals who played one of our games during a particular day . under this metric , an individual who plays two different games on the same day is counted as two daus . similarly , an individual who plays the same game on two different platforms or social networks ( e.g . , facebook.com , ipad , android phone , iphone , etc . ) on the same day would be counted as two daus . story_separator_special_tag the decrease in online game revenue was partially offset by an increase in online game revenue of $ 47.1 million from hit it rich ! slots . all other games accounted for the remaining net decrease of $ 34.8 million . international revenue as a percentage of total revenue was 38 % and 40 % in 2014 and 2013 , respectively . in 2014 , farmville 2 and zynga poker were our top two revenue-generating games and comprised 28 % and 23 % , respectively , of our online game revenue for the period . no other game generated more than 10 % of online game revenue during the year . consumable virtual goods accounted for 38 % and 29 % of online game revenue 2014 and 2013 , respectively . durable virtual goods accounted for 62 % and 71 % of online game revenue in 2014 and 2013 , respectively . the estimated weighted-average life of durable virtual goods was 12 months in 2014 and 2013. changes in our estimated average life of durable virtual goods during the twelve months ended december 31 , 2014 for various games resulted in a decrease in revenue , income from continuing operations and net income of $ 1.2 million , which is the result of adjusting the remaining recognition period of deferred revenue generated in prior periods at the time of a change in estimate . these changes in estimates did not impact our reported earnings per share for the twelve months ended december 31 , 2014. for 2013 , changes in our estimated average life of durable virtual goods resulted in an increase in revenue , income from continuing operations and net income of $ 12.3 million . these changes in estimates resulted in a $ 0.01 increase in our reported earnings per share for the year ended december 31 , 2013. advertising and other revenue increased $ 39.1 million from 2013 to 2014 , due to a $ 39.3 million increase in in-game display ads as a result of better optimization on mobile platforms and a $ 7.6 million increase in licensing revenue driven by the final licensing payment from a strategic partner , offset by a $ 5.6 million decrease in in-game sponsorships and a $ 2.2 million decrease in in-game offers , engagement ads , and other advertising revenue . 57 2013 compared to 2012. total revenue decreased $ 408.0 million in 2013 as a result of a decline in both online game and advertising revenue . bookings decreased by $ 431.5 million from 2012 to 2013 due to declines in existing games and the lack of successful new launches to offset these declines . abpu increased from $ 0.050 in 2012 to $ 0.053 in 2013 , while daus decreased from 63 million in 2012 to 37 million in 2013 and mups decreased from 3.4 million in 2012 to 1.8 million in 2013. online game revenue decreased $ 384.7 million in 2013 as compared to the same period of the prior year . this decrease is primarily attributable to decreases in revenue from farmville , cityville , frontierville , castleville and zynga poker in the amounts of $ 152.1 million , $ 112.6 million , $ 60.4 million , $ 59.4 million and $ 54.7 million , respectively . the decreases in online game revenue from farmville , cityville , frontierville , zynga poker and castleville were due to overall decay rate in bookings and audience metrics in these games . the decreases in online game revenue were partially offset by increases in online game revenue of $ 118.0 million and $ 32.9 million from farmville 2 and chefville , respectively , which were the result of the launch of these games in september 2012 and august 2012 , respectively . all other games accounted for the remaining net decrease of $ 96.4 million . international revenue as a percentage of total revenue was 40 % and 41 % in 2013 and 2012 , respectively . in 2013 , zynga poker , farmville 2 and farmville were our top three revenue-generating games and comprised 21 % , 17 % , and 16 % , respectively , of our online game revenue for the period . no other game generated more than 10 % of online game revenue during the year . consumable virtual goods accounted for 29 % and 30 % of online game revenue 2013 and 2012 , respectively . durable virtual goods accounted for 71 % and 70 % of online game revenue in 2013 and 2012 , respectively . the estimated weighted-average life of durable virtual goods was 12 months in 2013 and 2012. changes in our estimated average life of durable virtual goods during the twelve months ended december 31 , 2013 for various games resulted in an increase in revenue , income from continuing operations and net income of $ 12.3 million , which is the result of adjusting the remaining recognition period of deferred revenue generated in prior periods at the time of a change in estimate . these changes in estimates resulted in a $ 0.01 increase in our reported earnings per share for the year ended december 31 , 2013. for 2012 , changes in our estimated average life of durable virtual goods resulted in an increase in revenue , income from continuing operations and net income of $ 14.1 million . these changes in estimates resulted in a $ 0.01 increase in our reported earnings per share for the year ended december 31 , 2012. advertising revenue decreased $ 23.3 million from 2012 to 2013 , due to a $ 14.1 million decrease in in-game sponsorships , a $ 6.0 million decrease in in-game offers , engagement ads and other advertising revenue and a $ 3.4 million decrease in licensing revenue , offset by an increase of $ 0.2 million from in-game display ads . these declines may be attributed to declines in our daus in 2013. cost

liquidity and capital resources liquidity . for axos bank , our sources of liquidity include deposits , borrowings , payments and maturities of outstanding loans , sales of loans , maturities or gains on sales of investment securities and other short-term investments . while scheduled loan payments and maturing investment securities and short-term investments are relatively predictable sources of funds , deposit flows and loan prepayments are greatly influenced by general interest rates , economic conditions and competition . we generally invest excess funds in overnight deposits and other short-term interest-earning assets . we use cash generated through retail deposits , our largest funding source , to offset the cash utilized in lending and investing activities . our short-term interest-earning investment securities are also used to provide liquidity for lending and other operational requirements . as an additional source of funds , we have two credit agreements . axos bank can borrow up to 40 % of its total assets from the fhlb . borrowings are collateralized by pledging certain mortgage loans and investment securities to the fhlb . based on loans and securities pledged at june 30 , 2020 , we had a total borrowing availability of another $ 2.7 billion available immediately and an additional $ 1.9 billion available with additional collateral , for advances from the fhlb for terms up to ten years . the bank can also borrow from the discount window at the frbsf . frbsf borrowings are collateralized by commercial loans , consumer loans and mortgage-backed securities pledged to the frbsf . based on loans and securities pledged at june 30 , 2020 , we had a total borrowing capacity of approximately $ 1.8 billion , all of which was available for use .

we believe players are more likely to purchase virtual goods when they are connected to and playing with their friends , whether those friends play for free or also purchase virtual goods . players may also elect to pay a one-time download fee to obtain certain mobile games free of third-party advertisements . 2014 was the first year in which our business generated a higher percentage of bookings through mobile platforms than through the facebook platform . for the twelve months ended december 31 , 2014 and 2013 we estimate that we generated 51 % and 27 % of our bookings , respectively , from mobile platforms while 43 % and 69 % of our bookings , respectively , were generated from the facebook platform . facebook is still the largest single distribution , marketing , promotion and payment platform for our games and we generate a significant portion of our revenue through the facebook platform . for the twelve months ended december 31 , 2014 and 2013 , we estimate that 51 % and 75 % of our revenue , respectively , was generated through the facebook platform , while 44 % and 24 % of our revenue , respectively , was generated through mobile platforms . we have had to estimate this information because certain payment methods we accept and certain advertising networks do not allow us to determine the platform used . for all payment transactions in our games under facebook 's local currency-based payments model , facebook remits to us an amount equal to 70 % of the price we requested to be charged to our players . on platforms other than facebook , players purchase our virtual goods through various widely accepted payment methods offered in the games , including paypal , apple itunes accounts , google wallet , credit cards and direct wires . advertising and other . advertising revenue primarily includes branded virtual goods and sponsorships , engagement ads and offers , mobile ads and display ads and other . we generally report our advertising revenue net of amounts due to advertising agencies and brokers . other revenue includes software licensing and maintenance related to technology acquired in our acquisition of naturalmotion as well as licensing of our brands . key metrics we regularly review a number of metrics , including the following key financial and operating metrics , to evaluate our business , measure our performance , identify trends in our business , prepare financial projections and make strategic decisions . key financial metrics bookings . bookings ( as defined in the section titled “—non-gaap financial measures” included in “item 6. selected consolidated financial and other data” of this annual report on form 10-k ) is the fundamental top-line metric we use to manage our business , as we believe it is a useful indicator of the sales activity in a given period . over the long term , the factors impacting our bookings and revenue are the same . however , in the short term , there are factors that may cause revenue to exceed or be less than bookings in any period . we use bookings to evaluate the results of our operations , generate future operating plans and assess the performance of our company . while we believe that this non-gaap financial measure is useful in evaluating our business , this information should be considered as supplemental in nature and is not meant as a substitute for revenue recognized in accordance with u.s. gaap . in addition , other companies , including companies in our industry , may calculate bookings differently or not at all , which reduces its usefulness as a comparative measure . 51 adjusted ebitda . adjusted ebitda is a non-gaap financial measure that we calculate as net income ( loss ) , adjusted for provision for / ( benefit from ) income taxes ; other income ( expense ) , net ; interest income ; gain ( loss ) from significant legal settlements ; restructuring expense ; depreciation and amortization ; impairment of intangible assets ; stock-based expense ; contingent consideration fair value adjustments ; acquisition-related transaction expenses , and change in deferred revenue . we believe that adjusted ebitda provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors . for a reconciliation of net income ( loss ) to adjusted ebitda , see the section titled “—non-gaap financial measures” included in “item 6. selected consolidated financial and other data” of this annual report on form 10-k. key operating metrics we manage our business by tracking several operating metrics : “daus , ” which measure daily active users of our games , “maus , ” which measure monthly active users of our games , “muus , ” which measure monthly unique users of our games , “mups , ” which measure monthly unique payers in our games , and “abpu , ” which measures our average daily bookings per average dau , each of which is recorded by our internal analytics systems . the numbers for these operating metrics are calculated using internal company data based on tracking the activity of user accounts . we believe that the numbers are reasonable estimates of our user base for the applicable period of measurement ; however , factors relating to user activity and systems may impact these numbers . daus . we define daus as the number of individuals who played one of our games during a particular day . under this metric , an individual who plays two different games on the same day is counted as two daus . similarly , an individual who plays the same game on two different platforms or social networks ( e.g . , facebook.com , ipad , android phone , iphone , etc . ) on the same day would be counted as two daus . story_separator_special_tag the decrease in online game revenue was partially offset by an increase in online game revenue of $ 47.1 million from hit it rich ! slots . all other games accounted for the remaining net decrease of $ 34.8 million . international revenue as a percentage of total revenue was 38 % and 40 % in 2014 and 2013 , respectively . in 2014 , farmville 2 and zynga poker were our top two revenue-generating games and comprised 28 % and 23 % , respectively , of our online game revenue for the period . no other game generated more than 10 % of online game revenue during the year . consumable virtual goods accounted for 38 % and 29 % of online game revenue 2014 and 2013 , respectively . durable virtual goods accounted for 62 % and 71 % of online game revenue in 2014 and 2013 , respectively . the estimated weighted-average life of durable virtual goods was 12 months in 2014 and 2013. changes in our estimated average life of durable virtual goods during the twelve months ended december 31 , 2014 for various games resulted in a decrease in revenue , income from continuing operations and net income of $ 1.2 million , which is the result of adjusting the remaining recognition period of deferred revenue generated in prior periods at the time of a change in estimate . these changes in estimates did not impact our reported earnings per share for the twelve months ended december 31 , 2014. for 2013 , changes in our estimated average life of durable virtual goods resulted in an increase in revenue , income from continuing operations and net income of $ 12.3 million . these changes in estimates resulted in a $ 0.01 increase in our reported earnings per share for the year ended december 31 , 2013. advertising and other revenue increased $ 39.1 million from 2013 to 2014 , due to a $ 39.3 million increase in in-game display ads as a result of better optimization on mobile platforms and a $ 7.6 million increase in licensing revenue driven by the final licensing payment from a strategic partner , offset by a $ 5.6 million decrease in in-game sponsorships and a $ 2.2 million decrease in in-game offers , engagement ads , and other advertising revenue . 57 2013 compared to 2012. total revenue decreased $ 408.0 million in 2013 as a result of a decline in both online game and advertising revenue . bookings decreased by $ 431.5 million from 2012 to 2013 due to declines in existing games and the lack of successful new launches to offset these declines . abpu increased from $ 0.050 in 2012 to $ 0.053 in 2013 , while daus decreased from 63 million in 2012 to 37 million in 2013 and mups decreased from 3.4 million in 2012 to 1.8 million in 2013. online game revenue decreased $ 384.7 million in 2013 as compared to the same period of the prior year . this decrease is primarily attributable to decreases in revenue from farmville , cityville , frontierville , castleville and zynga poker in the amounts of $ 152.1 million , $ 112.6 million , $ 60.4 million , $ 59.4 million and $ 54.7 million , respectively . the decreases in online game revenue from farmville , cityville , frontierville , zynga poker and castleville were due to overall decay rate in bookings and audience metrics in these games . the decreases in online game revenue were partially offset by increases in online game revenue of $ 118.0 million and $ 32.9 million from farmville 2 and chefville , respectively , which were the result of the launch of these games in september 2012 and august 2012 , respectively . all other games accounted for the remaining net decrease of $ 96.4 million . international revenue as a percentage of total revenue was 40 % and 41 % in 2013 and 2012 , respectively . in 2013 , zynga poker , farmville 2 and farmville were our top three revenue-generating games and comprised 21 % , 17 % , and 16 % , respectively , of our online game revenue for the period . no other game generated more than 10 % of online game revenue during the year . consumable virtual goods accounted for 29 % and 30 % of online game revenue 2013 and 2012 , respectively . durable virtual goods accounted for 71 % and 70 % of online game revenue in 2013 and 2012 , respectively . the estimated weighted-average life of durable virtual goods was 12 months in 2013 and 2012. changes in our estimated average life of durable virtual goods during the twelve months ended december 31 , 2013 for various games resulted in an increase in revenue , income from continuing operations and net income of $ 12.3 million , which is the result of adjusting the remaining recognition period of deferred revenue generated in prior periods at the time of a change in estimate . these changes in estimates resulted in a $ 0.01 increase in our reported earnings per share for the year ended december 31 , 2013. for 2012 , changes in our estimated average life of durable virtual goods resulted in an increase in revenue , income from continuing operations and net income of $ 14.1 million . these changes in estimates resulted in a $ 0.01 increase in our reported earnings per share for the year ended december 31 , 2012. advertising revenue decreased $ 23.3 million from 2012 to 2013 , due to a $ 14.1 million decrease in in-game sponsorships , a $ 6.0 million decrease in in-game offers , engagement ads and other advertising revenue and a $ 3.4 million decrease in licensing revenue , offset by an increase of $ 0.2 million from in-game display ads . these declines may be attributed to declines in our daus in 2013. cost

liquidity and capital resources replace_table_token_22_th 63 as of december 31 , 2014 , we had cash , cash equivalents and marketable securities of approximately $ 1.15 billion , which consisted of cash , money market funds , u.s. government and government agency debt securities and corporate debt securities . for the full year ended december 31 , 2014 , we made capital expenditures of $ 9.2 million , which included hardware and software to support business operations . in october 2012 , our board of directors authorized a $ 200 million stock repurchase program . we initiated purchases under this program in december 2012. in 2012 and 2013 we repurchased an aggregate of 5.0 million shares and 3.4 million shares of our class a common stock under this repurchase program at a weighted average price of $ 2.36 per share and $ 2.74 per share for a total of $ 11.8 million and $ 9.3 million , respectively . we did not repurchase any shares in 2014. the total amount repurchased under the plan was $ 21.1 million . the program expired on october 31 , 2014. operating activities after our net loss of $ 225.9 million is adjusted to exclude non-cash items , operating activities used $ 4.5 million of cash during the twelve months ended december 31 , 2014. significant non-cash items included stock-based expense of $ 129.2 million and depreciation and amortization of $ 82.9 million . depreciation and amortization decreased by $ 46.2 million as compared to the twelve months ended december 31 , 2013 as a result of fixed assets that were fully depreciated and disposed of and intangible assets that were fully amortized in 2014. stock-based expense increased by $ 44.8 million in the twelve months ended december 31 , 2014 as compared to the same period of the prior year primarily due to grants related to the naturalmotion acquisition .

we have not received any of the amounts indicated by the district court in its final judgment . the injunctive relief included : ( 1 ) enjoining bd 's use of “world 's sharpest needle” or any similar assertion of superior sharpness ; ( 2 ) requiring notification to all customers who purchased bd syringe products from july 2 , 2004 to date that bd wrongfully claimed that its syringe needles were sharper and that its statement that it had “data on file” was false and misleading ; ( 3 ) requiring notification to employees , customers , distributors , gpos , and government agencies that the deadspace of the vanishpoint ® has been within iso standards since 2004 and that bd overstated the deadspace of the vanishpoint ® to represent that it was higher than some of bd 's syringes when it was actually less , and that bd 's statement that it had “data on file” was false and misleading , and , in addition , posting this notice on its website for a period of three years ; ( 4 ) enjoining bd from advertising that its syringe products save medication as compared to vanishpoint ® products for a period of three years ; ( 5 ) requiring notification to all employees , customers , distributors , gpos , and government agencies that bd 's website , cost calculator , printed materials , and oral representations alleging bd 's syringes save medication as compared to the vanishpoint ® were based on false and inaccurate measurement of the vanishpoint ® , and , in addition , posting this notice on its website for a period of three years ; and ( 6 ) requiring the implementation of a comprehensive training program for bd employees and distributors that specifically instructs them not to use old marketing materials and not to make false representations regarding vanishpoint ® syringes . bd has appealed to the united states court of appeals for the fifth circuit . oral argument was heard on february 29 , 2016 and no order has issued . on september 30 , 2013 , we received payment of $ 7,724,826 ( the “judgment amount” ) from bd pursuant to a stipulation in the patent infringement case retractable technologies , inc. and thomas shaw v. becton dickinson and company , civil action no . 2:07-cv-250 , in the u.s. district court for the eastern district of texas , 16 marshall division . the judgment amount was included as income in the second quarter of 2015 due to the conclusion of the case and related appeals . prior to the second quarter of 2015 , the judgment amount had been shown as a liability on the balance sheet since we were paid the judgment amount and the litigation did not come to a final conclusion until the second quarter of 2015. in 2014 , we took steps to decrease our non-litigation legal costs by approximately $ 1.1 million . additionally , effective may 9 , 2014 , we reduced our workforce by 13.7 % in an effort to cut costs . in 2015 , we further reduced our workforce , including our acceptance of the resignation of steven r. wisner , a former executive officer , on may 29 , 2015. mr. wisner was granted a one-time payment in connection with his resignation . the net effect of the lower non-litigation costs and the reduced workforce , offset by the payment to mr. wisner , was approximately $ 450,000 in 2015. in the future , if such cost cutting measures prove insufficient , we may reduce the number of units being produced , further reduce the workforce , further reduce the salaries of officers as well as other employees , and or defer royalty payments . section 4191 of the internal revenue code , enacted by the health care and education reconciliation act of 2010 in conjunction with the patient protection and affordable care act provides for an excise tax of 2.3 % on medical devices . the excise tax was applicable to domestic sales of our products , except those which are sold to exempt organizations . the majority of our sales are domestic and not in the retail market . the tax was imposed on sales , not profits . we have not passed this tax along to our customers . the impact of this tax was $ 360,000 in 2015 , $ 856,000 in 2014 , and $ 758,000 in 2013 , and is net of expected refunds attributable to rebate credits . the consolidated appropriations act , 2016 ( pub . l. 114-113 ) , signed into law on december 18 , 2015 , includes a two year moratorium on the medical device excise tax imposed by internal revenue code section 4191. thus , the medical device excise tax does not apply to the sale of a taxable medical device by the manufacturer , producer , or importer of the device during the period beginning on january 1 , 2016 and ending on december 31 , 2017. we exchanged 728,000 shares of common stock for 200,000 shares of our series iv class b convertible preferred stock as of november 30 , 2015 pursuant to an agreement with a shareholder . such shareholder agreed to waive all unpaid dividends in arrears associated with the tendered preferred stock , equaling $ 3,094,795. future dividend requirements of $ 200,000 per year are avoided as a result of this transaction . product purchases from our primary chinese manufacturer have enabled us to increase manufacturing capacity with little capital outlay and have provided a competitive manufacturing cost . in 2015 , our chinese manufacturer produced approximately 77.7 % of our vanishpoint ® finished products . story_separator_special_tag in the event that we become unable to purchase products from our primary chinese manufacturer , we would need to find an alternate manufacturer for the 0.5ml insulin syringe , the 0.5ml autodisable syringe , and the 2ml , 5ml , and 10ml syringes and we would increase domestic production for the 1ml and 3ml syringes . in 1995 , we entered into a license agreement with thomas j. shaw for the exclusive right to manufacture , market , and distribute products utilizing automated retraction technology . this technology is the subject of various patents and patent applications owned by mr. shaw . the license agreement generally provides for quarterly payments of a 5 % royalty fee on gross sales . with increased volumes , our manufacturing unit costs have generally tended to decline . factors that could affect our unit costs include increases in costs by third party manufacturers , changing production volumes , costs of petroleum products , and transportation costs . increases in such costs may not be recoverable through price increases of our products . results of operations the following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties . our actual future results could differ materially from our historical results of operations and those discussed in the forward-looking statements . all period references are to our fiscal years ended december 2015 , 2014 , or 2013. dollar amounts have been rounded for ease of reading . 17 comparison of year ended december 31 , 2015 and year ended december 31 , 2014 domestic sales accounted for 77.9 % and 80.1 % of the revenues in 2015 and 2014 , respectively . domestic revenues decreased 16.7 % principally due to reduced flu demand . domestic unit sales decreased 17.6 % . domestic unit sales were 67.0 % of total unit sales for 2015. international revenues decreased from $ 6.9 million in 2014 to $ 6.5 million in 2015 , primarily due to more restrictive qualification requirements by the company . overall unit sales decreased 11.9 % . our international orders may be subject to significant fluctuation over time . such orders may fluctuate due to health initiatives at various times as well as economic conditions . cost of sales decreased $ 3.3 million principally due to lower volumes . royalty expense decreased $ 251 thousand due to decreased gross sales . gross profit margins increased from 34.8 % in 2014 to 35.8 % in 2015. operating expenses decreased 2.9 % from the prior year due to decreased medical device excise taxes attributable to refunds , lower compensation costs , and lower travel and entertainment costs . a non-recurring recognition of $ 7,724,826 received from bd in the second quarter of 2015 pursuant to a patent infringement case had a significant impact on 2015 income . recognizing this payment also significantly decreased 2015 current liabilities on the balance sheets . the loss from operations was $ 3.2 million in 2015 compared to an operating loss of $ 2.2 million in 2014. earnings per share were positively affected by our acquisition of 200,000 shares of series iv class b convertible preferred stock . under the guidelines of asc 260-10-s99-2 , effect on the calculation of earnings per share for the redemption or induced conversion of preferred stock , we reflected the gain on extinguishment of this preferred stock in net income per common stockholder used to calculate earnings per share . cash flow from operations was a negative $ 3.3 million for 2015 due primarily to the loss from operations and changes in working capital , namely increased inventories and other current assets , mitigated by a decrease in accounts receivable and an increase in accounts payable . comparison of year ended december 31 , 2014 and year ended december 31 , 2013 domestic sales accounted for 80.1 % and 80.7 % of the revenues in 2014 and 2013 , respectively . domestic revenues increased 11.3 % principally due to increased unit sales . domestic unit sales increased 11.8 % . domestic unit sales were 71.6 % of total unit sales for 2014. international revenues increased from $ 5.9 million in 2013 to $ 6.9 million in 2014 , primarily due to increased unit sales and an increase in average price . overall unit sales increased 12.0 % . our international orders may be subject to significant fluctuation over time . such orders may fluctuate due to health initiatives at various times as well as economic conditions . cost of sales increased $ 2.0 million due to an increase in units sold mitigated by a slightly lower unit cost of manufacture . royalty expense increased $ 254 thousand due to increased gross sales . gross profit margins increased from 33.5 % in 2013 to 34.8 % in 2014. operating expenses decreased 12.7 % from the prior year due to decreased cost of non-litigation legal expense , lower compensation cost , and decreased office expenses which is the result of cost-cutting measures implemented in 2014. the loss from operations was $ 2.2 million in 2014 compared to an operating loss of $ 5.9 million in 2013 , a 63.6 % decrease . cash flow from operations was a negative $ 3.9 million for 2014 due primarily to our increase in accounts receivable , decrease in current liabilities , and our loss from operations , mitigated by a decrease in inventory and depreciation . liquidity and capital resources at the present time , management does not intend to raise equity capital . due to the funds received from prior litigation , we have sufficient cash reserves and intend to rely on operations , cash reserves , and debt financing , when available , as the primary ongoing sources of cash . our ability to obtain additional funds through loans is 18 uncertain . our financial statements do not reflect a 2015 judgment in our favor for $ 352 million plus post-judgment interest .

liquidity and capital resources replace_table_token_22_th 63 as of december 31 , 2014 , we had cash , cash equivalents and marketable securities of approximately $ 1.15 billion , which consisted of cash , money market funds , u.s. government and government agency debt securities and corporate debt securities . for the full year ended december 31 , 2014 , we made capital expenditures of $ 9.2 million , which included hardware and software to support business operations . in october 2012 , our board of directors authorized a $ 200 million stock repurchase program . we initiated purchases under this program in december 2012. in 2012 and 2013 we repurchased an aggregate of 5.0 million shares and 3.4 million shares of our class a common stock under this repurchase program at a weighted average price of $ 2.36 per share and $ 2.74 per share for a total of $ 11.8 million and $ 9.3 million , respectively . we did not repurchase any shares in 2014. the total amount repurchased under the plan was $ 21.1 million . the program expired on october 31 , 2014. operating activities after our net loss of $ 225.9 million is adjusted to exclude non-cash items , operating activities used $ 4.5 million of cash during the twelve months ended december 31 , 2014. significant non-cash items included stock-based expense of $ 129.2 million and depreciation and amortization of $ 82.9 million . depreciation and amortization decreased by $ 46.2 million as compared to the twelve months ended december 31 , 2013 as a result of fixed assets that were fully depreciated and disposed of and intangible assets that were fully amortized in 2014. stock-based expense increased by $ 44.8 million in the twelve months ended december 31 , 2014 as compared to the same period of the prior year primarily due to grants related to the naturalmotion acquisition .

we have not received any of the amounts indicated by the district court in its final judgment . the injunctive relief included : ( 1 ) enjoining bd 's use of “world 's sharpest needle” or any similar assertion of superior sharpness ; ( 2 ) requiring notification to all customers who purchased bd syringe products from july 2 , 2004 to date that bd wrongfully claimed that its syringe needles were sharper and that its statement that it had “data on file” was false and misleading ; ( 3 ) requiring notification to employees , customers , distributors , gpos , and government agencies that the deadspace of the vanishpoint ® has been within iso standards since 2004 and that bd overstated the deadspace of the vanishpoint ® to represent that it was higher than some of bd 's syringes when it was actually less , and that bd 's statement that it had “data on file” was false and misleading , and , in addition , posting this notice on its website for a period of three years ; ( 4 ) enjoining bd from advertising that its syringe products save medication as compared to vanishpoint ® products for a period of three years ; ( 5 ) requiring notification to all employees , customers , distributors , gpos , and government agencies that bd 's website , cost calculator , printed materials , and oral representations alleging bd 's syringes save medication as compared to the vanishpoint ® were based on false and inaccurate measurement of the vanishpoint ® , and , in addition , posting this notice on its website for a period of three years ; and ( 6 ) requiring the implementation of a comprehensive training program for bd employees and distributors that specifically instructs them not to use old marketing materials and not to make false representations regarding vanishpoint ® syringes . bd has appealed to the united states court of appeals for the fifth circuit . oral argument was heard on february 29 , 2016 and no order has issued . on september 30 , 2013 , we received payment of $ 7,724,826 ( the “judgment amount” ) from bd pursuant to a stipulation in the patent infringement case retractable technologies , inc. and thomas shaw v. becton dickinson and company , civil action no . 2:07-cv-250 , in the u.s. district court for the eastern district of texas , 16 marshall division . the judgment amount was included as income in the second quarter of 2015 due to the conclusion of the case and related appeals . prior to the second quarter of 2015 , the judgment amount had been shown as a liability on the balance sheet since we were paid the judgment amount and the litigation did not come to a final conclusion until the second quarter of 2015. in 2014 , we took steps to decrease our non-litigation legal costs by approximately $ 1.1 million . additionally , effective may 9 , 2014 , we reduced our workforce by 13.7 % in an effort to cut costs . in 2015 , we further reduced our workforce , including our acceptance of the resignation of steven r. wisner , a former executive officer , on may 29 , 2015. mr. wisner was granted a one-time payment in connection with his resignation . the net effect of the lower non-litigation costs and the reduced workforce , offset by the payment to mr. wisner , was approximately $ 450,000 in 2015. in the future , if such cost cutting measures prove insufficient , we may reduce the number of units being produced , further reduce the workforce , further reduce the salaries of officers as well as other employees , and or defer royalty payments . section 4191 of the internal revenue code , enacted by the health care and education reconciliation act of 2010 in conjunction with the patient protection and affordable care act provides for an excise tax of 2.3 % on medical devices . the excise tax was applicable to domestic sales of our products , except those which are sold to exempt organizations . the majority of our sales are domestic and not in the retail market . the tax was imposed on sales , not profits . we have not passed this tax along to our customers . the impact of this tax was $ 360,000 in 2015 , $ 856,000 in 2014 , and $ 758,000 in 2013 , and is net of expected refunds attributable to rebate credits . the consolidated appropriations act , 2016 ( pub . l. 114-113 ) , signed into law on december 18 , 2015 , includes a two year moratorium on the medical device excise tax imposed by internal revenue code section 4191. thus , the medical device excise tax does not apply to the sale of a taxable medical device by the manufacturer , producer , or importer of the device during the period beginning on january 1 , 2016 and ending on december 31 , 2017. we exchanged 728,000 shares of common stock for 200,000 shares of our series iv class b convertible preferred stock as of november 30 , 2015 pursuant to an agreement with a shareholder . such shareholder agreed to waive all unpaid dividends in arrears associated with the tendered preferred stock , equaling $ 3,094,795. future dividend requirements of $ 200,000 per year are avoided as a result of this transaction . product purchases from our primary chinese manufacturer have enabled us to increase manufacturing capacity with little capital outlay and have provided a competitive manufacturing cost . in 2015 , our chinese manufacturer produced approximately 77.7 % of our vanishpoint ® finished products . story_separator_special_tag in the event that we become unable to purchase products from our primary chinese manufacturer , we would need to find an alternate manufacturer for the 0.5ml insulin syringe , the 0.5ml autodisable syringe , and the 2ml , 5ml , and 10ml syringes and we would increase domestic production for the 1ml and 3ml syringes . in 1995 , we entered into a license agreement with thomas j. shaw for the exclusive right to manufacture , market , and distribute products utilizing automated retraction technology . this technology is the subject of various patents and patent applications owned by mr. shaw . the license agreement generally provides for quarterly payments of a 5 % royalty fee on gross sales . with increased volumes , our manufacturing unit costs have generally tended to decline . factors that could affect our unit costs include increases in costs by third party manufacturers , changing production volumes , costs of petroleum products , and transportation costs . increases in such costs may not be recoverable through price increases of our products . results of operations the following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties . our actual future results could differ materially from our historical results of operations and those discussed in the forward-looking statements . all period references are to our fiscal years ended december 2015 , 2014 , or 2013. dollar amounts have been rounded for ease of reading . 17 comparison of year ended december 31 , 2015 and year ended december 31 , 2014 domestic sales accounted for 77.9 % and 80.1 % of the revenues in 2015 and 2014 , respectively . domestic revenues decreased 16.7 % principally due to reduced flu demand . domestic unit sales decreased 17.6 % . domestic unit sales were 67.0 % of total unit sales for 2015. international revenues decreased from $ 6.9 million in 2014 to $ 6.5 million in 2015 , primarily due to more restrictive qualification requirements by the company . overall unit sales decreased 11.9 % . our international orders may be subject to significant fluctuation over time . such orders may fluctuate due to health initiatives at various times as well as economic conditions . cost of sales decreased $ 3.3 million principally due to lower volumes . royalty expense decreased $ 251 thousand due to decreased gross sales . gross profit margins increased from 34.8 % in 2014 to 35.8 % in 2015. operating expenses decreased 2.9 % from the prior year due to decreased medical device excise taxes attributable to refunds , lower compensation costs , and lower travel and entertainment costs . a non-recurring recognition of $ 7,724,826 received from bd in the second quarter of 2015 pursuant to a patent infringement case had a significant impact on 2015 income . recognizing this payment also significantly decreased 2015 current liabilities on the balance sheets . the loss from operations was $ 3.2 million in 2015 compared to an operating loss of $ 2.2 million in 2014. earnings per share were positively affected by our acquisition of 200,000 shares of series iv class b convertible preferred stock . under the guidelines of asc 260-10-s99-2 , effect on the calculation of earnings per share for the redemption or induced conversion of preferred stock , we reflected the gain on extinguishment of this preferred stock in net income per common stockholder used to calculate earnings per share . cash flow from operations was a negative $ 3.3 million for 2015 due primarily to the loss from operations and changes in working capital , namely increased inventories and other current assets , mitigated by a decrease in accounts receivable and an increase in accounts payable . comparison of year ended december 31 , 2014 and year ended december 31 , 2013 domestic sales accounted for 80.1 % and 80.7 % of the revenues in 2014 and 2013 , respectively . domestic revenues increased 11.3 % principally due to increased unit sales . domestic unit sales increased 11.8 % . domestic unit sales were 71.6 % of total unit sales for 2014. international revenues increased from $ 5.9 million in 2013 to $ 6.9 million in 2014 , primarily due to increased unit sales and an increase in average price . overall unit sales increased 12.0 % . our international orders may be subject to significant fluctuation over time . such orders may fluctuate due to health initiatives at various times as well as economic conditions . cost of sales increased $ 2.0 million due to an increase in units sold mitigated by a slightly lower unit cost of manufacture . royalty expense increased $ 254 thousand due to increased gross sales . gross profit margins increased from 33.5 % in 2013 to 34.8 % in 2014. operating expenses decreased 12.7 % from the prior year due to decreased cost of non-litigation legal expense , lower compensation cost , and decreased office expenses which is the result of cost-cutting measures implemented in 2014. the loss from operations was $ 2.2 million in 2014 compared to an operating loss of $ 5.9 million in 2013 , a 63.6 % decrease . cash flow from operations was a negative $ 3.9 million for 2014 due primarily to our increase in accounts receivable , decrease in current liabilities , and our loss from operations , mitigated by a decrease in inventory and depreciation . liquidity and capital resources at the present time , management does not intend to raise equity capital . due to the funds received from prior litigation , we have sufficient cash reserves and intend to rely on operations , cash reserves , and debt financing , when available , as the primary ongoing sources of cash . our ability to obtain additional funds through loans is 18 uncertain . our financial statements do not reflect a 2015 judgment in our favor for $ 352 million plus post-judgment interest .

cash requirements due to funds received from prior litigation , we have sufficient cash reserves and intend to rely on operations , cash reserves , and debt financing , when available , as the primary ongoing sources of cash . we have taken steps to decrease our non-litigation legal costs and we continue to evaluate these costs . additionally , since the beginning of 2014 , we have reduced our workforce . in the future , if such cost cutting measures prove insufficient , we may reduce the number of units being produced , further reduce the workforce , further reduce the salaries of officers and other employees , and or defer royalty payments . external sources of liquidity we have obtained several loans from our inception , which have , together with the proceeds from the sales of equities and litigation efforts , enabled us to pursue development and production of our products . our ability to obtain additional funds through loans is uncertain . due to the current market price of our common stock , it is unlikely we would choose to raise funds by the sale of equity . 19 on september 30 , 2013 , we received payment of $ 7,724,826 ( the “judgment amount” ) from bd pursuant to a stipulation in the patent infringement case retractable technologies , inc. and thomas shaw v. becton dickinson and company , civil action no .

based on data from cox automotive , there were an estimated 37.2 million used vehicle transactions in 2020 , compared to approximately 40 million transactions in 2019. the u.s. used automotive market is also highly fragmented , with over 42,000 dealers and millions of peer-to-peer transactions across the country . it also is ripe for disruption as an industry that is notorious for consumer dissatisfaction and has one of the lowest levels of ecommerce penetration . industry reports estimate that ecommerce penetration will grow to as much as half of all used vehicle sales by 2030. our platform , coupled with our national presence and brand , provides a significant competitive advantage versus local dealerships and regional players that lack nationwide reach and scalable technology , operations and logistics . the traditional auto dealers and peer-to-peer market do not and can not offer consumers what we offer . 56 our model we generate revenue through the sale of used vehicles and value-added products . we sell vehicles directly to consumers primarily through our ecommerce segment . as the largest segment in our business , ecommerce revenue grew 55.7 % from 2019 to 2020 , and we expect ecommerce to continue to outgrow our other segments as it is the core focus of our growth strategy . we also sell vehicles through wholesale channels , which provide a revenue source for vehicles that do not meet our vroom retail sales criteria . additionally , we generate revenue through the retail sale of used vehicles and value-added products at houston-based texas direct auto , or tda . for the year ended december 31 , 2020 , our ecommerce , wholesale and tda segments represented 67.4 % , 18.1 % and 14.5 % of our total revenue , respectively . our retail gross profit consists of two components : vehicle gross profit and product gross profit . vehicle gross profit is calculated as the aggregate retail sales price for all vehicles sold to customers along with delivery fee revenue and document fees received from customers , less the aggregate cost to acquire such vehicles , the aggregate cost of inbound transportation for such vehicles to our vehicle reconditioning centers , which we refer to as vrcs , and the aggregate cost of reconditioning such vehicles for sale . product gross profit consists of fees earned on any finance and protection products sold as part of a vehicle sale . because we are paid fees on the value-added products we sell , our gross profit on such products is equal to the revenue we generate . see “ —key operating and financial metrics . ” below is an explanation of how we calculate vehicle gross profit per unit and product gross profit per unit : our profitability depends primarily on increasing unit sales and operating leverage , as well as improving unit economics . we deploy an asset-light strategy that optimizes a combination of ownership and operation of assets by us with strategic third-party partnerships . our hybrid approach also applies to the third-party value-added products we sell to customers , which enables us to generate additional revenue streams without taking on the risk associated with underwriting vehicle financing or protection products . as we scale , we expect to benefit from efficiencies and operating leverage across our business , including our marketing and technology investments , and our inventory procurement , logistics , reconditioning and sales processes . inventory sourcing we source our vehicle inventory from a variety of channels , including auctions , consumers , rental car companies , oems and dealers . because the quality of vehicles and associated gross margin profile vary across each channel , the mix of inventory sources has an impact on our profitability . we continually evaluate the optimal mix of sourcing channels to generate the highest sales margins and shortest inventory turns , both of which contribute to increased gross profit per unit . we generate a vast set of data derived from market demand , pricing dynamics , vehicle acquisitions and subsequent sales , and we leverage that data to optimize future vehicle acquisitions . as we scale , we expect to continue to leverage the data at our disposal to optimize and enhance the volume and selection of vehicles in our inventory and , in turn , drive revenue growth and profitability . we are also exploring third party inventory strategies , which offers the possibility of expanding our sourcing channels through third party sellers while offering us attractive revenue models in an asset light , debt free structure . see “ —key factors and trends affecting our operating results—ability to drive growth by cost effectively increasing the volume and selection of vehicles in our inventory . ” 57 vehicle reconditioning before a vehicle is listed for retail sale on our platform , it undergoes a thorough reconditioning process in order to meet our vroom retail sales criteria . the efficiency of this reconditioning process is a key element in our ability to profitably grow . to recondition vehicles , we rely on a combination of our vroom vrc along with a network of vrcs owned and operated by third parties , and we intend to continue to expand our network of third-party vrcs . utilizing this hybrid approach , we have increased our total reconditioning capacity to approximately 2,000 units per week as of december 31 , 2020 , with approximately two-thirds from our eighteen third-party vrcs . as we increase the number of vehicles in our inventory and expand our reconditioning capacity , we expect that reconditioning costs and inbound shipping costs per unit will decrease as we benefit from economies of scale and operating leverage in reconditioning costs . see “ —key factors and trends affecting our operating results—ability to expand and optimize our reconditioning capacity to satisfy increasing demand . story_separator_special_tag pursuant to the acquisition agreement , the aggregate purchase price was approximately $ 120.0 million , comprised of cash and shares of our common stock . on the closing date , we paid $ 77.5 million in cash and issued 1,072,117 shares of our common stock . the purchase price is subject to adjustment for certain working capital adjustments and post-closing indemnities . update on the impact of the covid-19 pandemic the results of our operations and overall financial performance were impacted due to the covid-19 pandemic during the year ended december 31 , 2020. after the initial disruption in our ecommerce operations , consumer demand for used vehicles now exceeds pre-covid-19 levels . lower foot traffic in the initial phase of the covid-19 pandemic as well as reduced inventory at the tda location as the ecommerce business scales , continues to negatively affect our tda business . additionally , we experienced disruption across our logistics network , with a reduced number of third-party providers available to deliver our vehicles , which has resulted in a slowdown of inventory being picked up and delivered to our vrcs and in sold units being delivered to customers . our transportation costs have also increased as the remaining carriers have increased prices . 63 we expect our operations will continue to be adversely impacted continuing into in 2021 , however , the magnitude and duration of the ultimate impact is impossible to predict with certainty due to : uncertainties regarding the duration of the covid-19 pandemic and the length of time over which the disruptions caused by covid-19 will continue , including any potential future waves , the spread of new variants and the success of vaccination programs ; the impact of governmental orders and regulations that have been , and may in the future be , imposed in response to the pandemic ; the impact of covid-19 on vrcs , wholesale auctions , state dmv titling and registration services , third party vehicle carriers and other third parties on which we rely ; uncertainty as to the impact future increases in transmission could have on our ability to fully staff portions of our business ; the deterioration of economic conditions in the united states , as well as high unemployment levels , which could have an adverse impact on discretionary consumer spending ; and uncertainty as to whether and to what degree governmental stimulus packages or other economic relief will be provided to soften the negative economic effects of the covid-19 crisis and the impact of any such relief . see “ risk factors—risk related to the covid-19 pandemic—the covid-19 pandemic has had and is expected to continue to have an adverse effect on our business , financial condition and results of operations . ” severe weather conditions in february 2021 , the state of texas was hit with record breaking winter weather which resulted in dangerous road conditions , widespread power outages , water outages and contamination of the water supply , which caused significant disruptions to our houston area operations , including the closure of our offices and vroom vrc for several days . we immediately focused on the health and wellbeing of our employees , while also working to minimize the impact on our customers . we have resumed full operations and are currently working to address the backlog in certain areas of our business , including our vrc , sales support , and administrative functions . “ risk factors—general risk factors—our business is subject to the risk of natural disasters , adverse weather events and other catastrophic events , and to interruption by manmade problems such as terrorism . other key factors and trends affecting our operating results our financial condition and results of operations have been , and will continue to be , affected by a number of factors and trends , including the following : ability to utilize data science to drive revenue growth by cost effectively increasing the volume and selection of vehicles in our inventory our growth is primarily driven by vehicle sales . vehicle sales growth , in turn , is largely driven by the volume of inventory and the selection of vehicles listed on our platform . accordingly , we believe that having the appropriate volume and mix of vehicle inventory is critical to our ability to drive growth . the continued growth of our vehicle inventory requires a number of important capabilities , including the ability to finance the acquisition of inventory at competitive rates , source high quality vehicles across various acquisition channels nationwide , secure adequate reconditioning capacity and execute effective marketing strategies to increase consumer sourcing . in addition , our ability to accurately forecast pricing and consumer demand for specific types of vehicles is critical to sourcing high quality , high-demand vehicles . this ability is enabled by our data science capabilities that leverage the growing amount of data at our disposal and fine-tune our supply and sourcing models . our investment in carstory further enhances our predictive market data capabilities . as we continue to invest in our operational efficiency and data analytics , we expect that we will continue to cost effectively increase the volume and optimize the selection of our ecommerce inventory . ability to capitalize on the continued migration of vehicle purchasers to ecommerce platforms through data-driven marketing efforts while the overall ecommerce penetration rate in used vehicle sales remains low , over the last several years , ecommerce used vehicle sales have experienced significant growth . there has been a shift in consumer buying patterns 64 towards more convenient , personalized , and on-demand purchases , as well as a demand for ecommerce across more diverse categories , including the used vehicle market . we expect that the ecommerce model for buying and selling used vehicles will continue to grow and such growth may be accelerated by the covid-19 pandemic . our ability to continue to benefit from this trend will be

cash requirements due to funds received from prior litigation , we have sufficient cash reserves and intend to rely on operations , cash reserves , and debt financing , when available , as the primary ongoing sources of cash . we have taken steps to decrease our non-litigation legal costs and we continue to evaluate these costs . additionally , since the beginning of 2014 , we have reduced our workforce . in the future , if such cost cutting measures prove insufficient , we may reduce the number of units being produced , further reduce the workforce , further reduce the salaries of officers and other employees , and or defer royalty payments . external sources of liquidity we have obtained several loans from our inception , which have , together with the proceeds from the sales of equities and litigation efforts , enabled us to pursue development and production of our products . our ability to obtain additional funds through loans is uncertain . due to the current market price of our common stock , it is unlikely we would choose to raise funds by the sale of equity . 19 on september 30 , 2013 , we received payment of $ 7,724,826 ( the “judgment amount” ) from bd pursuant to a stipulation in the patent infringement case retractable technologies , inc. and thomas shaw v. becton dickinson and company , civil action no .

based on data from cox automotive , there were an estimated 37.2 million used vehicle transactions in 2020 , compared to approximately 40 million transactions in 2019. the u.s. used automotive market is also highly fragmented , with over 42,000 dealers and millions of peer-to-peer transactions across the country . it also is ripe for disruption as an industry that is notorious for consumer dissatisfaction and has one of the lowest levels of ecommerce penetration . industry reports estimate that ecommerce penetration will grow to as much as half of all used vehicle sales by 2030. our platform , coupled with our national presence and brand , provides a significant competitive advantage versus local dealerships and regional players that lack nationwide reach and scalable technology , operations and logistics . the traditional auto dealers and peer-to-peer market do not and can not offer consumers what we offer . 56 our model we generate revenue through the sale of used vehicles and value-added products . we sell vehicles directly to consumers primarily through our ecommerce segment . as the largest segment in our business , ecommerce revenue grew 55.7 % from 2019 to 2020 , and we expect ecommerce to continue to outgrow our other segments as it is the core focus of our growth strategy . we also sell vehicles through wholesale channels , which provide a revenue source for vehicles that do not meet our vroom retail sales criteria . additionally , we generate revenue through the retail sale of used vehicles and value-added products at houston-based texas direct auto , or tda . for the year ended december 31 , 2020 , our ecommerce , wholesale and tda segments represented 67.4 % , 18.1 % and 14.5 % of our total revenue , respectively . our retail gross profit consists of two components : vehicle gross profit and product gross profit . vehicle gross profit is calculated as the aggregate retail sales price for all vehicles sold to customers along with delivery fee revenue and document fees received from customers , less the aggregate cost to acquire such vehicles , the aggregate cost of inbound transportation for such vehicles to our vehicle reconditioning centers , which we refer to as vrcs , and the aggregate cost of reconditioning such vehicles for sale . product gross profit consists of fees earned on any finance and protection products sold as part of a vehicle sale . because we are paid fees on the value-added products we sell , our gross profit on such products is equal to the revenue we generate . see “ —key operating and financial metrics . ” below is an explanation of how we calculate vehicle gross profit per unit and product gross profit per unit : our profitability depends primarily on increasing unit sales and operating leverage , as well as improving unit economics . we deploy an asset-light strategy that optimizes a combination of ownership and operation of assets by us with strategic third-party partnerships . our hybrid approach also applies to the third-party value-added products we sell to customers , which enables us to generate additional revenue streams without taking on the risk associated with underwriting vehicle financing or protection products . as we scale , we expect to benefit from efficiencies and operating leverage across our business , including our marketing and technology investments , and our inventory procurement , logistics , reconditioning and sales processes . inventory sourcing we source our vehicle inventory from a variety of channels , including auctions , consumers , rental car companies , oems and dealers . because the quality of vehicles and associated gross margin profile vary across each channel , the mix of inventory sources has an impact on our profitability . we continually evaluate the optimal mix of sourcing channels to generate the highest sales margins and shortest inventory turns , both of which contribute to increased gross profit per unit . we generate a vast set of data derived from market demand , pricing dynamics , vehicle acquisitions and subsequent sales , and we leverage that data to optimize future vehicle acquisitions . as we scale , we expect to continue to leverage the data at our disposal to optimize and enhance the volume and selection of vehicles in our inventory and , in turn , drive revenue growth and profitability . we are also exploring third party inventory strategies , which offers the possibility of expanding our sourcing channels through third party sellers while offering us attractive revenue models in an asset light , debt free structure . see “ —key factors and trends affecting our operating results—ability to drive growth by cost effectively increasing the volume and selection of vehicles in our inventory . ” 57 vehicle reconditioning before a vehicle is listed for retail sale on our platform , it undergoes a thorough reconditioning process in order to meet our vroom retail sales criteria . the efficiency of this reconditioning process is a key element in our ability to profitably grow . to recondition vehicles , we rely on a combination of our vroom vrc along with a network of vrcs owned and operated by third parties , and we intend to continue to expand our network of third-party vrcs . utilizing this hybrid approach , we have increased our total reconditioning capacity to approximately 2,000 units per week as of december 31 , 2020 , with approximately two-thirds from our eighteen third-party vrcs . as we increase the number of vehicles in our inventory and expand our reconditioning capacity , we expect that reconditioning costs and inbound shipping costs per unit will decrease as we benefit from economies of scale and operating leverage in reconditioning costs . see “ —key factors and trends affecting our operating results—ability to expand and optimize our reconditioning capacity to satisfy increasing demand . story_separator_special_tag pursuant to the acquisition agreement , the aggregate purchase price was approximately $ 120.0 million , comprised of cash and shares of our common stock . on the closing date , we paid $ 77.5 million in cash and issued 1,072,117 shares of our common stock . the purchase price is subject to adjustment for certain working capital adjustments and post-closing indemnities . update on the impact of the covid-19 pandemic the results of our operations and overall financial performance were impacted due to the covid-19 pandemic during the year ended december 31 , 2020. after the initial disruption in our ecommerce operations , consumer demand for used vehicles now exceeds pre-covid-19 levels . lower foot traffic in the initial phase of the covid-19 pandemic as well as reduced inventory at the tda location as the ecommerce business scales , continues to negatively affect our tda business . additionally , we experienced disruption across our logistics network , with a reduced number of third-party providers available to deliver our vehicles , which has resulted in a slowdown of inventory being picked up and delivered to our vrcs and in sold units being delivered to customers . our transportation costs have also increased as the remaining carriers have increased prices . 63 we expect our operations will continue to be adversely impacted continuing into in 2021 , however , the magnitude and duration of the ultimate impact is impossible to predict with certainty due to : uncertainties regarding the duration of the covid-19 pandemic and the length of time over which the disruptions caused by covid-19 will continue , including any potential future waves , the spread of new variants and the success of vaccination programs ; the impact of governmental orders and regulations that have been , and may in the future be , imposed in response to the pandemic ; the impact of covid-19 on vrcs , wholesale auctions , state dmv titling and registration services , third party vehicle carriers and other third parties on which we rely ; uncertainty as to the impact future increases in transmission could have on our ability to fully staff portions of our business ; the deterioration of economic conditions in the united states , as well as high unemployment levels , which could have an adverse impact on discretionary consumer spending ; and uncertainty as to whether and to what degree governmental stimulus packages or other economic relief will be provided to soften the negative economic effects of the covid-19 crisis and the impact of any such relief . see “ risk factors—risk related to the covid-19 pandemic—the covid-19 pandemic has had and is expected to continue to have an adverse effect on our business , financial condition and results of operations . ” severe weather conditions in february 2021 , the state of texas was hit with record breaking winter weather which resulted in dangerous road conditions , widespread power outages , water outages and contamination of the water supply , which caused significant disruptions to our houston area operations , including the closure of our offices and vroom vrc for several days . we immediately focused on the health and wellbeing of our employees , while also working to minimize the impact on our customers . we have resumed full operations and are currently working to address the backlog in certain areas of our business , including our vrc , sales support , and administrative functions . “ risk factors—general risk factors—our business is subject to the risk of natural disasters , adverse weather events and other catastrophic events , and to interruption by manmade problems such as terrorism . other key factors and trends affecting our operating results our financial condition and results of operations have been , and will continue to be , affected by a number of factors and trends , including the following : ability to utilize data science to drive revenue growth by cost effectively increasing the volume and selection of vehicles in our inventory our growth is primarily driven by vehicle sales . vehicle sales growth , in turn , is largely driven by the volume of inventory and the selection of vehicles listed on our platform . accordingly , we believe that having the appropriate volume and mix of vehicle inventory is critical to our ability to drive growth . the continued growth of our vehicle inventory requires a number of important capabilities , including the ability to finance the acquisition of inventory at competitive rates , source high quality vehicles across various acquisition channels nationwide , secure adequate reconditioning capacity and execute effective marketing strategies to increase consumer sourcing . in addition , our ability to accurately forecast pricing and consumer demand for specific types of vehicles is critical to sourcing high quality , high-demand vehicles . this ability is enabled by our data science capabilities that leverage the growing amount of data at our disposal and fine-tune our supply and sourcing models . our investment in carstory further enhances our predictive market data capabilities . as we continue to invest in our operational efficiency and data analytics , we expect that we will continue to cost effectively increase the volume and optimize the selection of our ecommerce inventory . ability to capitalize on the continued migration of vehicle purchasers to ecommerce platforms through data-driven marketing efforts while the overall ecommerce penetration rate in used vehicle sales remains low , over the last several years , ecommerce used vehicle sales have experienced significant growth . there has been a shift in consumer buying patterns 64 towards more convenient , personalized , and on-demand purchases , as well as a demand for ecommerce across more diverse categories , including the used vehicle market . we expect that the ecommerce model for buying and selling used vehicles will continue to grow and such growth may be accelerated by the covid-19 pandemic . our ability to continue to benefit from this trend will be

liquidity and capital resources our operations historically have been financed primarily from the sale of redeemable convertible preferred stock and borrowings under our vehicle floorplan facility . on june 11 , 2020 , we completed our ipo in which we sold 24,437,500 shares of our common stock , which included 3,187,500 shares sold pursuant to the exercise by the underwriters of an over-allotment option to purchase additional shares , for proceeds of $ 504.0 million , net of the underwriting discount and before deducting offering expenses of $ 7.5 million . on september 15 , 2020 , we completed our follow-on public offering in which we sold 10,800,000 shares of common stock for proceeds of $ 569.5 million , net of the underwriting discount and before deducting offering expenses of $ 1.5 million . as of december 31 , 2020 , we had cash and cash equivalents of $ 1,056.2 million . we anticipate that our existing cash and cash equivalents and the 2020 vehicle floorplan facility will be sufficient to support our working capital and capital expenditure requirements for at least the next twelve months from the date of this annual report on form 10-k. for the year ended december 31 , 2020 , we had negative cash flow from operations and generated a net loss . we have not been profitable since our inception in 2012. we expect to incur additional losses in the future . we historically have funded vehicle inventory purchases primarily through our floorplan financing arrangements . our cash flows from operations may differ substantially from our net loss due to non-cash charges or due to changes in balance sheet accounts . the timing of our cash flows from operating activities can also vary among periods due to the timing of payments made or received .

our concentrix customer contracts typically consisted of a master services agreement or statement of work , which contained the terms and conditions of each program or service we offered . our agreements could range from less than one year to over five years and were subject to early termination by our customers or us for any reason , typically with 30 to 90 days ' notice . in fiscal years 2020 and 2019 , approximately 34 % of our consolidated revenue and approximately 24 % of our technology solutions revenue , was generated from our international operations . as a result , our revenue growth has been impacted by fluctuations in foreign currency exchange rates . the market for it products and services is generally characterized by declining unit prices and short product life cycles . our overall business is also highly competitive on the basis of price . we set our sales price based on the market supply and demand characteristics for each particular product or bundle of products we distribute and solutions we provide . from time to time , we also participate in the incentive and rebate programs of our oem suppliers . these programs are important determinants of the final sales price we charge to our reseller customers . to mitigate the risk of declining prices and obsolescence of our distribution inventory , our oem suppliers generally offer us limited price protection and return rights for products that are marked down or discontinued by them . we carefully manage our inventory to maximize the benefit to us of these supplier provided protections . a significant portion of our technology solutions cost of revenue is the purchase price we pay our oem suppliers for the products we sell , net of any incentives , rebates , price protection and purchase discounts received from our oem suppliers . cost of products revenue also consists of provisions for inventory losses and write-downs , freight expenses associated with the receipt in and shipment out of our inventory , and royalties due to oem vendors . in addition , cost of revenue includes the cost of material , labor and overhead for our systems design and integration solutions . in our concentrix segment , cost of revenue consists primarily of personnel costs related to contract services delivery . 26 table of content revenue and cost of revenue in our technology solutions segment relate to products , and revenue and cost of revenue in our concentrix segment relate to services . margins the technology solutions industry in which we operate is characterized by low gross profit as a percentage of revenue , or gross margin , and low income from operations as a percentage of revenue , or operating margin . our technology solutions gross margin has fluctuated annually due to changes in the mix of products we offer , customers we sell to , incentives and rebates received from our oem suppliers , competition , seasonality , replacement of lower margin business , inventory obsolescence , and lower costs associated with increased efficiencies . generally , when our revenue becomes more concentrated on limited products or customers , our technology solutions gross margin tends to decrease due to increased pricing pressure from oem suppliers or reseller customers . concentrix gross margins , which are higher than those in our technology solutions segment , can be impacted by the mix of customer contracts , additional lead time for programs to be fully scalable and transition and initial set-up costs . our operating margin has also fluctuated in the past , based primarily on our ability to achieve economies of scale , the management of our operating expenses , changes in the relative mix of our technology solutions and concentrix revenue , and the timing of our acquisitions and investments . economic and industry trends our technology solutions revenue is highly dependent on the end-market demand for it and ce products . this end-market demand is influenced by many factors including the introduction of new it and ce products and software by oems , replacement cycles for existing it and ce products , seasonality and overall economic growth and general business activity . a difficult and challenging economic environment may also lead to consolidation or decline in the it and ce distribution industry and increased price-based competition . business in our system design and solutions is highly dependent on the demand for cloud infrastructure , and the number of key customers and suppliers in the market . our technology solutions business includes operations in the united states , canada , japan and latin america , so we are affected by demand for our products in those regions and the strengthening or weakening of local currencies relative to the u.s. dollar . the customer experience services industry in which our concentrix segment operated is competitive . customers ' performance measures were based on competitive pricing terms and quality of services . our concentrix business was largely concentrated in the united states , the united kingdom , the philippines , india , canada , china and japan . accordingly , we were impacted by economic strength or weakness in these geographies and by the strengthening or weakening of local currencies relative to the u.s. dollar . in december 2019 , there was an outbreak of a new strain of coronavirus ( “ covid-19 ” ) . in march 2020 , the world health organization characterized covid-19 as a pandemic . the covid-19 pandemic has negatively impacted the global economy , disrupted global supply chains and workforce participation , including our own , and created significant volatility and disruption of financial markets . the disruptions due to covid-19 have impacted our business including logistics operations in our technology solutions segment and limited the productive ability of many of our associates who were in our concentrix segment , particularly during the second quarter of fiscal year 2020 . story_separator_special_tag revenue in our technology solutions segment increased in fiscal year 2020 compared to fiscal year 2019 primarily due to a demand for technology equipment as covid-19 related government mandated shelter-in-place restrictions during the second , third and fourth quarters of fiscal year 2020 led to increased needs for remote work , learn and consume related solutions . on a constant currency basis , revenue in our technology solutions segment increased by 5.2 % during fiscal year 2020 , compared to fiscal year 2019. concentrix segment revenue increased slightly in fiscal year 2020 , compared to fiscal year 2019 , due to growth with technology , retail and ecommerce clients partially offset by lower demand from media , communications , travel , tourism and automotive clients . during fiscal year 2020 , concentrix revenue was impacted by the covid-19 related government mandated shelter-in-place restrictions in several countries in the world . these restrictions adversely impacted our revenue due to the inability of a significant 32 table of content number of our associates to work despite client demand . this impact was most acute in the second quarter of 2020. our revenue was also unfavorably impacted by the translation effect of foreign currencies . gross profit replace_table_token_10_th our technology solutions gross margin is affected by a variety of factors , including competition , selling prices , mix of products and services , product costs along with rebate and discount programs from our suppliers , reserves or settlement adjustments , freight costs , inventory losses , acquisition of business units and fluctuations in revenue . concentrix margins , which are higher than those in our technology solutions segment , can be impacted by resource location , client mix and pricing , additional lead time for programs to be fully scalable , and transition and initial set-up costs . technology solutions gross profit increased in fiscal year 2020 , as compared to the prior fiscal year , primarily driven by strong demand for technology products as covid-19 related government mandated shelter-in-place restrictions during the second , third and fourth quarters of fiscal year 2020 led to a greater need for remote work , learn and consume related solutions . this increase was partially offset by lower margins due to product mix from our projects and integration-based server solutions and incremental covid-19 related costs of approximately $ 10.4 million . our concentrix segment 's gross profit and margin decreased during fiscal year 2020 as compared to the prior fiscal year , due to the incremental impact of $ 76.0 million in covid-19 related non-productive workforce and other costs , which was most acute during the second and third quarters of fiscal year 2020 , as we transitioned our workforce to work remotely . selling , general and administrative expenses replace_table_token_11_th our selling , general and administrative expenses consist primarily of personnel costs such as salaries , commissions , bonuses , share-based compensation and temporary personnel costs . selling , general and administrative expenses also include cost of warehouses , delivery centers and other non-integration facilities , utility expenses , legal and professional fees , depreciation on certain of our capital equipment , bad debt expense , amortization of our non-technology related intangible assets , and marketing expenses , offset in part by reimbursements from our oem suppliers . selling , general and administrative expenses in our technology solutions segment increased in fiscal year 2020 , compared to fiscal year 2019 , primarily due to an increase in allowance for doubtful accounts and higher salaries and employee related expenses due to covid-19 . incremental costs related to covid-19 were approximately $ 33 million for fiscal year 2020. in addition , we incurred $ 7.4 million in transaction costs related to the separation of concentrix . these increases were partially offset by a $ 3.7 million decrease in amortization of intangible assets . technology solutions selling , general and administrative expenses as a percentage of revenue in fiscal year 2020 , was consistent with the prior fiscal year . concentrix selling , general and administrative expenses decreased , in both absolute dollars and as a percentage of revenue , in fiscal year 2020 , compared to the prior fiscal year , primarily due to lower facility and employee costs as a result of integration and 33 table of content facility rationalization undertaken in fiscal year 2019 in connection with the acquisition of convergys corporation as well as the impact of reduction in variable operating expenses and discretionary spend due to covid-19 related remote work . the decrease in the current fiscal year was also caused by an $ 18.9 million reduction in the amortization of intangible assets and a decrease in transaction-related and integration expenses by $ 33.0 million as compared to the prior year . these decreases were partially offset by incremental technology and health and safety c osts of approximately $ 10.0 million due to covid-19 related remote work . operating income replace_table_token_12_th operating income in our technology solutions segment increased during fiscal year 2020 , compared to the prior year , primarily due to broad based growth , decreases in the amortization of intangible assets and transaction-related expenses . these increases were partially offset by the impact of covid-19 related incremental costs associated with allowances for doubtful accounts and higher salary and employee related costs . operating margin in our technology solutions segment decreased due to product mix . operating income and margin in our concentrix segment increased during fiscal year 2020 , compared to the prior year , primarily due to lower transaction-related and integration expenses and lower amortization of intangible assets partially offset by the impact of covid-19 related incremental costs . interest expense and finance charges , net replace_table_token_13_th amounts recorded in interest expense and finance charges , net , consist primarily of interest expense paid on our lines of credit and term loans , fees associated with third party accounts receivable flooring arrangements and the sale or pledge of accounts

liquidity and capital resources our operations historically have been financed primarily from the sale of redeemable convertible preferred stock and borrowings under our vehicle floorplan facility . on june 11 , 2020 , we completed our ipo in which we sold 24,437,500 shares of our common stock , which included 3,187,500 shares sold pursuant to the exercise by the underwriters of an over-allotment option to purchase additional shares , for proceeds of $ 504.0 million , net of the underwriting discount and before deducting offering expenses of $ 7.5 million . on september 15 , 2020 , we completed our follow-on public offering in which we sold 10,800,000 shares of common stock for proceeds of $ 569.5 million , net of the underwriting discount and before deducting offering expenses of $ 1.5 million . as of december 31 , 2020 , we had cash and cash equivalents of $ 1,056.2 million . we anticipate that our existing cash and cash equivalents and the 2020 vehicle floorplan facility will be sufficient to support our working capital and capital expenditure requirements for at least the next twelve months from the date of this annual report on form 10-k. for the year ended december 31 , 2020 , we had negative cash flow from operations and generated a net loss . we have not been profitable since our inception in 2012. we expect to incur additional losses in the future . we historically have funded vehicle inventory purchases primarily through our floorplan financing arrangements . our cash flows from operations may differ substantially from our net loss due to non-cash charges or due to changes in balance sheet accounts . the timing of our cash flows from operating activities can also vary among periods due to the timing of payments made or received .

our concentrix customer contracts typically consisted of a master services agreement or statement of work , which contained the terms and conditions of each program or service we offered . our agreements could range from less than one year to over five years and were subject to early termination by our customers or us for any reason , typically with 30 to 90 days ' notice . in fiscal years 2020 and 2019 , approximately 34 % of our consolidated revenue and approximately 24 % of our technology solutions revenue , was generated from our international operations . as a result , our revenue growth has been impacted by fluctuations in foreign currency exchange rates . the market for it products and services is generally characterized by declining unit prices and short product life cycles . our overall business is also highly competitive on the basis of price . we set our sales price based on the market supply and demand characteristics for each particular product or bundle of products we distribute and solutions we provide . from time to time , we also participate in the incentive and rebate programs of our oem suppliers . these programs are important determinants of the final sales price we charge to our reseller customers . to mitigate the risk of declining prices and obsolescence of our distribution inventory , our oem suppliers generally offer us limited price protection and return rights for products that are marked down or discontinued by them . we carefully manage our inventory to maximize the benefit to us of these supplier provided protections . a significant portion of our technology solutions cost of revenue is the purchase price we pay our oem suppliers for the products we sell , net of any incentives , rebates , price protection and purchase discounts received from our oem suppliers . cost of products revenue also consists of provisions for inventory losses and write-downs , freight expenses associated with the receipt in and shipment out of our inventory , and royalties due to oem vendors . in addition , cost of revenue includes the cost of material , labor and overhead for our systems design and integration solutions . in our concentrix segment , cost of revenue consists primarily of personnel costs related to contract services delivery . 26 table of content revenue and cost of revenue in our technology solutions segment relate to products , and revenue and cost of revenue in our concentrix segment relate to services . margins the technology solutions industry in which we operate is characterized by low gross profit as a percentage of revenue , or gross margin , and low income from operations as a percentage of revenue , or operating margin . our technology solutions gross margin has fluctuated annually due to changes in the mix of products we offer , customers we sell to , incentives and rebates received from our oem suppliers , competition , seasonality , replacement of lower margin business , inventory obsolescence , and lower costs associated with increased efficiencies . generally , when our revenue becomes more concentrated on limited products or customers , our technology solutions gross margin tends to decrease due to increased pricing pressure from oem suppliers or reseller customers . concentrix gross margins , which are higher than those in our technology solutions segment , can be impacted by the mix of customer contracts , additional lead time for programs to be fully scalable and transition and initial set-up costs . our operating margin has also fluctuated in the past , based primarily on our ability to achieve economies of scale , the management of our operating expenses , changes in the relative mix of our technology solutions and concentrix revenue , and the timing of our acquisitions and investments . economic and industry trends our technology solutions revenue is highly dependent on the end-market demand for it and ce products . this end-market demand is influenced by many factors including the introduction of new it and ce products and software by oems , replacement cycles for existing it and ce products , seasonality and overall economic growth and general business activity . a difficult and challenging economic environment may also lead to consolidation or decline in the it and ce distribution industry and increased price-based competition . business in our system design and solutions is highly dependent on the demand for cloud infrastructure , and the number of key customers and suppliers in the market . our technology solutions business includes operations in the united states , canada , japan and latin america , so we are affected by demand for our products in those regions and the strengthening or weakening of local currencies relative to the u.s. dollar . the customer experience services industry in which our concentrix segment operated is competitive . customers ' performance measures were based on competitive pricing terms and quality of services . our concentrix business was largely concentrated in the united states , the united kingdom , the philippines , india , canada , china and japan . accordingly , we were impacted by economic strength or weakness in these geographies and by the strengthening or weakening of local currencies relative to the u.s. dollar . in december 2019 , there was an outbreak of a new strain of coronavirus ( “ covid-19 ” ) . in march 2020 , the world health organization characterized covid-19 as a pandemic . the covid-19 pandemic has negatively impacted the global economy , disrupted global supply chains and workforce participation , including our own , and created significant volatility and disruption of financial markets . the disruptions due to covid-19 have impacted our business including logistics operations in our technology solutions segment and limited the productive ability of many of our associates who were in our concentrix segment , particularly during the second quarter of fiscal year 2020 . story_separator_special_tag revenue in our technology solutions segment increased in fiscal year 2020 compared to fiscal year 2019 primarily due to a demand for technology equipment as covid-19 related government mandated shelter-in-place restrictions during the second , third and fourth quarters of fiscal year 2020 led to increased needs for remote work , learn and consume related solutions . on a constant currency basis , revenue in our technology solutions segment increased by 5.2 % during fiscal year 2020 , compared to fiscal year 2019. concentrix segment revenue increased slightly in fiscal year 2020 , compared to fiscal year 2019 , due to growth with technology , retail and ecommerce clients partially offset by lower demand from media , communications , travel , tourism and automotive clients . during fiscal year 2020 , concentrix revenue was impacted by the covid-19 related government mandated shelter-in-place restrictions in several countries in the world . these restrictions adversely impacted our revenue due to the inability of a significant 32 table of content number of our associates to work despite client demand . this impact was most acute in the second quarter of 2020. our revenue was also unfavorably impacted by the translation effect of foreign currencies . gross profit replace_table_token_10_th our technology solutions gross margin is affected by a variety of factors , including competition , selling prices , mix of products and services , product costs along with rebate and discount programs from our suppliers , reserves or settlement adjustments , freight costs , inventory losses , acquisition of business units and fluctuations in revenue . concentrix margins , which are higher than those in our technology solutions segment , can be impacted by resource location , client mix and pricing , additional lead time for programs to be fully scalable , and transition and initial set-up costs . technology solutions gross profit increased in fiscal year 2020 , as compared to the prior fiscal year , primarily driven by strong demand for technology products as covid-19 related government mandated shelter-in-place restrictions during the second , third and fourth quarters of fiscal year 2020 led to a greater need for remote work , learn and consume related solutions . this increase was partially offset by lower margins due to product mix from our projects and integration-based server solutions and incremental covid-19 related costs of approximately $ 10.4 million . our concentrix segment 's gross profit and margin decreased during fiscal year 2020 as compared to the prior fiscal year , due to the incremental impact of $ 76.0 million in covid-19 related non-productive workforce and other costs , which was most acute during the second and third quarters of fiscal year 2020 , as we transitioned our workforce to work remotely . selling , general and administrative expenses replace_table_token_11_th our selling , general and administrative expenses consist primarily of personnel costs such as salaries , commissions , bonuses , share-based compensation and temporary personnel costs . selling , general and administrative expenses also include cost of warehouses , delivery centers and other non-integration facilities , utility expenses , legal and professional fees , depreciation on certain of our capital equipment , bad debt expense , amortization of our non-technology related intangible assets , and marketing expenses , offset in part by reimbursements from our oem suppliers . selling , general and administrative expenses in our technology solutions segment increased in fiscal year 2020 , compared to fiscal year 2019 , primarily due to an increase in allowance for doubtful accounts and higher salaries and employee related expenses due to covid-19 . incremental costs related to covid-19 were approximately $ 33 million for fiscal year 2020. in addition , we incurred $ 7.4 million in transaction costs related to the separation of concentrix . these increases were partially offset by a $ 3.7 million decrease in amortization of intangible assets . technology solutions selling , general and administrative expenses as a percentage of revenue in fiscal year 2020 , was consistent with the prior fiscal year . concentrix selling , general and administrative expenses decreased , in both absolute dollars and as a percentage of revenue , in fiscal year 2020 , compared to the prior fiscal year , primarily due to lower facility and employee costs as a result of integration and 33 table of content facility rationalization undertaken in fiscal year 2019 in connection with the acquisition of convergys corporation as well as the impact of reduction in variable operating expenses and discretionary spend due to covid-19 related remote work . the decrease in the current fiscal year was also caused by an $ 18.9 million reduction in the amortization of intangible assets and a decrease in transaction-related and integration expenses by $ 33.0 million as compared to the prior year . these decreases were partially offset by incremental technology and health and safety c osts of approximately $ 10.0 million due to covid-19 related remote work . operating income replace_table_token_12_th operating income in our technology solutions segment increased during fiscal year 2020 , compared to the prior year , primarily due to broad based growth , decreases in the amortization of intangible assets and transaction-related expenses . these increases were partially offset by the impact of covid-19 related incremental costs associated with allowances for doubtful accounts and higher salary and employee related costs . operating margin in our technology solutions segment decreased due to product mix . operating income and margin in our concentrix segment increased during fiscal year 2020 , compared to the prior year , primarily due to lower transaction-related and integration expenses and lower amortization of intangible assets partially offset by the impact of covid-19 related incremental costs . interest expense and finance charges , net replace_table_token_13_th amounts recorded in interest expense and finance charges , net , consist primarily of interest expense paid on our lines of credit and term loans , fees associated with third party accounts receivable flooring arrangements and the sale or pledge of accounts

cash flows our technology solutions business is working capital intensive . our working capital needs are primarily to finance accounts receivable and inventory . we rely heavily on term loans , accounts receivable arrangements , our securitization programs and our revolver programs for our working capital needs . we have financed our growth and cash needs to date primarily through cash 36 table of content generated from operations and financing activities . as a general rule , when sales volumes are increasing , our net investment in working capital dollars typically increases , which generally results in decreased cash flow generated from operating activities . conversely , when sales volume decreases , our net investment in working capital dollars typically decreases , which generally results in increases in cash flows generated from operating activities . we calculate ccc as days of the last fiscal quarter 's sales outstanding in accounts receivable plus days of supply on hand in inventory , less days of the last fiscal quarter 's direct cost outstanding in accounts payable . our ccc was 31 days and 4 4 days at the end of fiscal years 20 20 and 201 9 , respectively . ccc of our technology solutions segment was 25 days compared to 41 days at the end of fiscal years 2020 and 2019 , respectively . the de crease in fiscal year 20 20 , compared to fiscal year 20 19 , was primarily due to efficient collections of accounts receivable and faster turnover of our inventor ies in our technology solutions segment . in addition , o ur dpo was favorably impacted by the timing of payments of accounts payable in both our technology solutions and concentrix reportable segments . to increase our market share and better serve our customers , we may further expand our operations through investments or acquisitions . we expect that such expansion would require an initial investment in working capital , personnel , facilities and operations . these investments or acquisitions would likely be funded primarily by our existing cash and cash equivalents , additional borrowings , or the issuance of securities .

( 2 ) g & a ratio represents general and administrative expenses as a percentage of total revenue . after-tax margin represents net income as a percentage of total revenue . molina healthcare , inc. 2019 form 10-k | 34 consolidated results net income and operating income net income amounted to $ 737 million , or $ 11.47 per diluted share in 2019 , compared with net income of $ 707 million , or $ 10.61 per diluted share in 2018 . the year over year comparison for net income is impacted by significantly higher costs in 2018 relating to restructuring activities , interest expense , debt repayment and the loss on sales of subsidiaries , as well as the non-deductible hif incurred in 2018 and the moratorium of the hif in 2019. operating income was lower in 2019 compared with 2018 , mainly due to the impact of a year-over-year decline in premium revenue . premium revenue premium revenue decreased $ 1,404 million , or 8 % , in 2019 , when compared with 2018. member months declined 18 % , partially offset by a per-member per-month ( “ pmpm ” ) revenue increase of 10 % . the premium revenue decline was primarily in the medicaid and marketplace programs . the decline in medicaid premium revenue was driven primarily by membership losses resulting from the loss of our new mexico medicaid contract , along with the resizing of the florida medicaid contract , as reported throughout 2018. this was partially offset by medicaid premium rate increases , and the impact of the $ 81 million reduction in premium revenue relating to retroactive california medicaid expansion risk corridor adjustments that were recognized in 2018. the decline in marketplace premium revenue was primarily due to lower membership , and a relatively smaller benefit from prior year marketplace risk adjustment in 2019 compared with 2018 , partially offset by premium rate increases . medical care ratio the consolidated mcr decreased slightly to 85.8 % in 2019 , from 85.9 % in 2018. the improvement was due to a decrease in the medicaid mcr , partially offset by increases in the medicare and marketplace mcrs . the consolidated mcr in the year ended december 31 , 2018 , would have been 86.3 % , excluding the retroactive california medicaid expansion risk corridor adjustment noted above , and the combined $ 137 million impact of the favorable marketplace risk adjustment and cost sharing reimbursement ( “ csr ” ) settlements related to 2017 dates of service . premium tax revenue and expenses the premium tax ratio ( premium tax expense as a percentage of premium revenue plus premium tax revenue ) increased to 2.9 % in 2019 from 2.3 % in 2018. the increase is mainly attributed to the state of michigan 's implementation of an insurance provider assessment in 2019 , and the state of illinois ' implementation of a managed care organization provider assessment in the third quarter of 2019. investment income and other revenue investment income and other revenue increased to $ 132 million in 2019 , compared with $ 125 million in 2018 , mainly due to gains realized on the sale of certain investments and improved annualized portfolio yields in 2019. general and administrative ( “ g & a ” ) expenses the g & a expense ratio increased to 7.7 % in 2019 compared with 7.1 % in 2018 , due mainly to the year-over-year decline in total revenues . health insurer fees ( “ hif ” ) there are no health insurer fees ( “ hif ” ) expensed or reimbursed in 2019 due to the moratorium under public law no . 115-120. in 2018 , the hif amounted to $ 348 million , and hif reimbursements amounted to $ 329 million . restructuring costs in 2019 , we incurred restructuring costs of $ 6 million , mainly due to increases in estimated costs related to lease terminations recorded in connection with the implementation of our restructuring and profit improvement plan in 2017 ( the “ 2017 restructuring plan ” ) . molina healthcare , inc. 2019 form 10-k | 35 in 2018 , we incurred restructuring costs of $ 46 million , including $ 37 million of additional costs related to the 2017 restructuring plan , and $ 9 million related to the it restructuring plan that commenced in 2018. loss on sales of subsidiaries , net of gain in 2018 , we recognized a $ 15 million loss in connection with the sales of our medicaid management information systems ( “ mmis ” ) subsidiary , which produced a pretax gain of $ 37 million , and our behavioral health subsidiary , which produced a pretax loss of $ 52 million . interest expense interest expense declined to $ 87 million in 2019 , compared with $ 115 million in 2018. as further described below in “ liquidity , ” we reduced the principal amount outstanding of our convertible senior notes by $ 240 million in 2019 , and reduced total debt by $ 759 million in 2018. the decrease in interest expense in 2019 was partially offset by interest expense attributable to $ 220 million borrowed under our term loan facility in 2019. interest expense includes non-cash interest expense relating to the amortization of the discount on our long-term debt obligations , which amounted to $ 5 million and $ 22 million in 2019 and 2018 , respectively . the decline in 2019 is due to repayment of our convertible senior notes throughout 2018 and 2019. see further discussion in notes to consolidated financial statements , note 11 , “ debt . ” other ( income ) expenses , net in 2019 , we recognized a gain on debt repayment of $ 15 million , and in 2018 , we recognized losses on debt repayment of $ 22 million , in connection with convertible senior notes repayment transactions . story_separator_special_tag see discussion below , and refer to the notes to consolidated financial statements , notes 2 , “ significant accounting policies , ” and 10 , “ medical claims and benefits payable ” for more information . contractual provisions that may adjust or limit revenue or profit . for a comprehensive discussion of this topic , including amounts recorded in our consolidated financial statements , refer to the notes to consolidated financial statements , note 2 , “ significant accounting policies . ” quality incentives . for a comprehensive discussion of this topic , including amounts recorded in our consolidated financial statements , refer to the notes to consolidated financial statements , note 2 , “ significant accounting policies . ” goodwill and intangible assets , net . at december 31 , 2019 , goodwill and intangible assets , net , represented approximately 3 % of total assets and 9 % of total stockholders ' equity , compared with 3 % and molina healthcare , inc. 2019 form 10-k | 42 12 % , respectively , at december 31 , 2018 . for a comprehensive discussion of this topic , including amounts recorded in our consolidated financial statements , refer to the notes to consolidated financial statements , note 2 , “ significant accounting policies , ” and note 9 , “ goodwill and intangible assets , net . ” medical care costs , medical claims and benefits payable medical care costs are recognized in the period in which services are provided and include fee-for-service claims , pharmacy benefits , capitation payments to providers , and various other medically-related costs . under fee-for-service claims arrangements with providers , we retain the financial responsibility for medical care provided and incur costs based on actual utilization of hospital and physician services . such medical care costs include amounts paid by us as well as estimated medical claims and benefits payable for costs that were incurred but not paid as of the reporting date ( “ ibnp ” ) . pharmacy benefits represent payments for members ' prescription drug costs , net of rebates from drug manufacturers . we estimate pharmacy rebates based on historical and current utilization of prescription drugs and contractual provisions . capitation payments represent monthly contractual fees paid to providers , who are responsible for providing medical care to members , which could include medical or ancillary costs like dental , vision and other supplemental health benefits . such capitation costs are fixed in advance of the periods covered and are not subject to significant accounting estimates . other medical care costs include all medically-related administrative costs , amounts due to providers pursuant to risk-sharing or other incentive arrangements , provider claims , and other healthcare expenses . examples of medically-related administrative costs include expenses relating to health education , quality assurance , case management , care coordination , disease management , and 24-hour on-call nurses . additionally , we include an estimate for the cost of settling claims incurred through the reporting date in our medical claims and benefits payable liability . medical claims and benefits payable consist mainly of fee-for-service ibnp , unpaid pharmacy claims , capitation costs , other medical costs , including amounts payable to providers pursuant to risk-sharing or other incentive arrangements and amounts payable to providers on behalf of certain state agencies for certain state assessments in which we assume no financial risk . ibnp includes the costs of claims incurred as of the balance sheet date which have been reported to us , and our best estimate of the cost of claims incurred but not yet reported to us . we also include an additional reserve to ensure that our overall ibnp liability is sufficient under moderately adverse conditions . we reflect changes in these estimates in the consolidated results of operations in the period in which they are determined . the estimation of the ibnp liability requires a significant degree of judgment in applying actuarial methods , determining the appropriate assumptions and considering numerous factors . of those factors , we consider estimated completion factors ( measures the cumulative percentage of claims expense that will ultimately be paid for a given month of service based on historical payment patterns ) and the assumed healthcare cost trend ( the year-over-year change in per-member per-month medical care costs ) to be the most critical assumptions . other relevant factors also include , but are not limited to , healthcare service utilization trends , claim inventory levels , changes in membership , product mix , seasonality , benefit changes or changes in medicaid fee schedules , provider contract changes , prior authorizations and the incidence of catastrophic or pandemic cases . for claims incurred more than three months before the financial statement date , we mainly use estimated completion factors to estimate the ultimate cost of those claims . completion factors measure the cumulative percentage of claims expense that will ultimately be paid for a given month of service based on historical claims payment patterns . we analyze historical claims payment patterns by comparing claim incurred dates to claim payment dates to estimate completion factors . the estimated completion factors are then applied to claims paid through the financial statement date to estimate the ultimate claims cost for a given month 's incurred claim activity . the difference between the estimated ultimate claims cost and the claims paid through the financial statement date represents our estimate of claims remaining to be paid as of the financial statement date and is included in our ibnp liability . for claims incurred within three months before the financial statement date , actual claims paid are a less reliable measure of our ultimate cost since a large portion of medical claims are not submitted to us until several months after services have been submitted . accordingly , we estimate our ibnp liability for claims incurred during these months based on a blend of estimated completion factors and assumed

cash flows our technology solutions business is working capital intensive . our working capital needs are primarily to finance accounts receivable and inventory . we rely heavily on term loans , accounts receivable arrangements , our securitization programs and our revolver programs for our working capital needs . we have financed our growth and cash needs to date primarily through cash 36 table of content generated from operations and financing activities . as a general rule , when sales volumes are increasing , our net investment in working capital dollars typically increases , which generally results in decreased cash flow generated from operating activities . conversely , when sales volume decreases , our net investment in working capital dollars typically decreases , which generally results in increases in cash flows generated from operating activities . we calculate ccc as days of the last fiscal quarter 's sales outstanding in accounts receivable plus days of supply on hand in inventory , less days of the last fiscal quarter 's direct cost outstanding in accounts payable . our ccc was 31 days and 4 4 days at the end of fiscal years 20 20 and 201 9 , respectively . ccc of our technology solutions segment was 25 days compared to 41 days at the end of fiscal years 2020 and 2019 , respectively . the de crease in fiscal year 20 20 , compared to fiscal year 20 19 , was primarily due to efficient collections of accounts receivable and faster turnover of our inventor ies in our technology solutions segment . in addition , o ur dpo was favorably impacted by the timing of payments of accounts payable in both our technology solutions and concentrix reportable segments . to increase our market share and better serve our customers , we may further expand our operations through investments or acquisitions . we expect that such expansion would require an initial investment in working capital , personnel , facilities and operations . these investments or acquisitions would likely be funded primarily by our existing cash and cash equivalents , additional borrowings , or the issuance of securities .

( 2 ) g & a ratio represents general and administrative expenses as a percentage of total revenue . after-tax margin represents net income as a percentage of total revenue . molina healthcare , inc. 2019 form 10-k | 34 consolidated results net income and operating income net income amounted to $ 737 million , or $ 11.47 per diluted share in 2019 , compared with net income of $ 707 million , or $ 10.61 per diluted share in 2018 . the year over year comparison for net income is impacted by significantly higher costs in 2018 relating to restructuring activities , interest expense , debt repayment and the loss on sales of subsidiaries , as well as the non-deductible hif incurred in 2018 and the moratorium of the hif in 2019. operating income was lower in 2019 compared with 2018 , mainly due to the impact of a year-over-year decline in premium revenue . premium revenue premium revenue decreased $ 1,404 million , or 8 % , in 2019 , when compared with 2018. member months declined 18 % , partially offset by a per-member per-month ( “ pmpm ” ) revenue increase of 10 % . the premium revenue decline was primarily in the medicaid and marketplace programs . the decline in medicaid premium revenue was driven primarily by membership losses resulting from the loss of our new mexico medicaid contract , along with the resizing of the florida medicaid contract , as reported throughout 2018. this was partially offset by medicaid premium rate increases , and the impact of the $ 81 million reduction in premium revenue relating to retroactive california medicaid expansion risk corridor adjustments that were recognized in 2018. the decline in marketplace premium revenue was primarily due to lower membership , and a relatively smaller benefit from prior year marketplace risk adjustment in 2019 compared with 2018 , partially offset by premium rate increases . medical care ratio the consolidated mcr decreased slightly to 85.8 % in 2019 , from 85.9 % in 2018. the improvement was due to a decrease in the medicaid mcr , partially offset by increases in the medicare and marketplace mcrs . the consolidated mcr in the year ended december 31 , 2018 , would have been 86.3 % , excluding the retroactive california medicaid expansion risk corridor adjustment noted above , and the combined $ 137 million impact of the favorable marketplace risk adjustment and cost sharing reimbursement ( “ csr ” ) settlements related to 2017 dates of service . premium tax revenue and expenses the premium tax ratio ( premium tax expense as a percentage of premium revenue plus premium tax revenue ) increased to 2.9 % in 2019 from 2.3 % in 2018. the increase is mainly attributed to the state of michigan 's implementation of an insurance provider assessment in 2019 , and the state of illinois ' implementation of a managed care organization provider assessment in the third quarter of 2019. investment income and other revenue investment income and other revenue increased to $ 132 million in 2019 , compared with $ 125 million in 2018 , mainly due to gains realized on the sale of certain investments and improved annualized portfolio yields in 2019. general and administrative ( “ g & a ” ) expenses the g & a expense ratio increased to 7.7 % in 2019 compared with 7.1 % in 2018 , due mainly to the year-over-year decline in total revenues . health insurer fees ( “ hif ” ) there are no health insurer fees ( “ hif ” ) expensed or reimbursed in 2019 due to the moratorium under public law no . 115-120. in 2018 , the hif amounted to $ 348 million , and hif reimbursements amounted to $ 329 million . restructuring costs in 2019 , we incurred restructuring costs of $ 6 million , mainly due to increases in estimated costs related to lease terminations recorded in connection with the implementation of our restructuring and profit improvement plan in 2017 ( the “ 2017 restructuring plan ” ) . molina healthcare , inc. 2019 form 10-k | 35 in 2018 , we incurred restructuring costs of $ 46 million , including $ 37 million of additional costs related to the 2017 restructuring plan , and $ 9 million related to the it restructuring plan that commenced in 2018. loss on sales of subsidiaries , net of gain in 2018 , we recognized a $ 15 million loss in connection with the sales of our medicaid management information systems ( “ mmis ” ) subsidiary , which produced a pretax gain of $ 37 million , and our behavioral health subsidiary , which produced a pretax loss of $ 52 million . interest expense interest expense declined to $ 87 million in 2019 , compared with $ 115 million in 2018. as further described below in “ liquidity , ” we reduced the principal amount outstanding of our convertible senior notes by $ 240 million in 2019 , and reduced total debt by $ 759 million in 2018. the decrease in interest expense in 2019 was partially offset by interest expense attributable to $ 220 million borrowed under our term loan facility in 2019. interest expense includes non-cash interest expense relating to the amortization of the discount on our long-term debt obligations , which amounted to $ 5 million and $ 22 million in 2019 and 2018 , respectively . the decline in 2019 is due to repayment of our convertible senior notes throughout 2018 and 2019. see further discussion in notes to consolidated financial statements , note 11 , “ debt . ” other ( income ) expenses , net in 2019 , we recognized a gain on debt repayment of $ 15 million , and in 2018 , we recognized losses on debt repayment of $ 22 million , in connection with convertible senior notes repayment transactions . story_separator_special_tag see discussion below , and refer to the notes to consolidated financial statements , notes 2 , “ significant accounting policies , ” and 10 , “ medical claims and benefits payable ” for more information . contractual provisions that may adjust or limit revenue or profit . for a comprehensive discussion of this topic , including amounts recorded in our consolidated financial statements , refer to the notes to consolidated financial statements , note 2 , “ significant accounting policies . ” quality incentives . for a comprehensive discussion of this topic , including amounts recorded in our consolidated financial statements , refer to the notes to consolidated financial statements , note 2 , “ significant accounting policies . ” goodwill and intangible assets , net . at december 31 , 2019 , goodwill and intangible assets , net , represented approximately 3 % of total assets and 9 % of total stockholders ' equity , compared with 3 % and molina healthcare , inc. 2019 form 10-k | 42 12 % , respectively , at december 31 , 2018 . for a comprehensive discussion of this topic , including amounts recorded in our consolidated financial statements , refer to the notes to consolidated financial statements , note 2 , “ significant accounting policies , ” and note 9 , “ goodwill and intangible assets , net . ” medical care costs , medical claims and benefits payable medical care costs are recognized in the period in which services are provided and include fee-for-service claims , pharmacy benefits , capitation payments to providers , and various other medically-related costs . under fee-for-service claims arrangements with providers , we retain the financial responsibility for medical care provided and incur costs based on actual utilization of hospital and physician services . such medical care costs include amounts paid by us as well as estimated medical claims and benefits payable for costs that were incurred but not paid as of the reporting date ( “ ibnp ” ) . pharmacy benefits represent payments for members ' prescription drug costs , net of rebates from drug manufacturers . we estimate pharmacy rebates based on historical and current utilization of prescription drugs and contractual provisions . capitation payments represent monthly contractual fees paid to providers , who are responsible for providing medical care to members , which could include medical or ancillary costs like dental , vision and other supplemental health benefits . such capitation costs are fixed in advance of the periods covered and are not subject to significant accounting estimates . other medical care costs include all medically-related administrative costs , amounts due to providers pursuant to risk-sharing or other incentive arrangements , provider claims , and other healthcare expenses . examples of medically-related administrative costs include expenses relating to health education , quality assurance , case management , care coordination , disease management , and 24-hour on-call nurses . additionally , we include an estimate for the cost of settling claims incurred through the reporting date in our medical claims and benefits payable liability . medical claims and benefits payable consist mainly of fee-for-service ibnp , unpaid pharmacy claims , capitation costs , other medical costs , including amounts payable to providers pursuant to risk-sharing or other incentive arrangements and amounts payable to providers on behalf of certain state agencies for certain state assessments in which we assume no financial risk . ibnp includes the costs of claims incurred as of the balance sheet date which have been reported to us , and our best estimate of the cost of claims incurred but not yet reported to us . we also include an additional reserve to ensure that our overall ibnp liability is sufficient under moderately adverse conditions . we reflect changes in these estimates in the consolidated results of operations in the period in which they are determined . the estimation of the ibnp liability requires a significant degree of judgment in applying actuarial methods , determining the appropriate assumptions and considering numerous factors . of those factors , we consider estimated completion factors ( measures the cumulative percentage of claims expense that will ultimately be paid for a given month of service based on historical payment patterns ) and the assumed healthcare cost trend ( the year-over-year change in per-member per-month medical care costs ) to be the most critical assumptions . other relevant factors also include , but are not limited to , healthcare service utilization trends , claim inventory levels , changes in membership , product mix , seasonality , benefit changes or changes in medicaid fee schedules , provider contract changes , prior authorizations and the incidence of catastrophic or pandemic cases . for claims incurred more than three months before the financial statement date , we mainly use estimated completion factors to estimate the ultimate cost of those claims . completion factors measure the cumulative percentage of claims expense that will ultimately be paid for a given month of service based on historical claims payment patterns . we analyze historical claims payment patterns by comparing claim incurred dates to claim payment dates to estimate completion factors . the estimated completion factors are then applied to claims paid through the financial statement date to estimate the ultimate claims cost for a given month 's incurred claim activity . the difference between the estimated ultimate claims cost and the claims paid through the financial statement date represents our estimate of claims remaining to be paid as of the financial statement date and is included in our ibnp liability . for claims incurred within three months before the financial statement date , actual claims paid are a less reliable measure of our ultimate cost since a large portion of medical claims are not submitted to us until several months after services have been submitted . accordingly , we estimate our ibnp liability for claims incurred during these months based on a blend of estimated completion factors and assumed

net cash used in financing activities was $ 552 million in 2019 , compared with $ 1,193 million in 2018. in 2019 , net cash paid for the aggregate 1.125 % convertible notes-related transactions amounted to $ 730 million , and we paid $ 47 million for common stock purchases , partially offset by proceeds of $ 220 million borrowed under the term loan facility . in 2018 , net cash used in financing activities included net cash paid for the aggregate 1.125 % convertible notes-related transactions of $ 837 million , a $ 300 million repayment of the credit facility , and $ 64 million repayment of the 1.625 % convertible notes . financial condition we believe that our cash resources , borrowing capacity available under our credit agreement as discussed further below in “ future sources and uses of liquidity—future sources , ” and internally generated funds will be sufficient to support our operations , regulatory requirements , debt repayment obligations and capital expenditures for at least the next 12 months . on a consolidated basis , as of december 31 , 2019 , our working capital was $ 2,698 million compared with $ 2,216 million as of december 31 , 2018 . at december 31 , 2019 , our cash and investments amounted to $ 4,477 million , compared with $ 4,629 million of cash and investments at december 31 , 2018 . because of the statutory restrictions that inhibit the ability of our health plans to transfer net assets to us , the amount of retained earnings readily available to pay dividends to our stockholders is generally limited to cash , cash equivalents and investments held by our unregulated parent . for more information , see the “ liquidity ” discussion presented earlier in this section of the md & a . regulatory capital and dividend restrictions each of our regulated hmo subsidiaries must maintain a minimum amount of statutory capital determined by statute or regulations . such statutes , regulations and capital requirements also restrict the timing , payment and amount of dividends and other distributions , loans or advances that may be paid to us as the sole stockholder .

over the last three years , abbott 's operating margin was impacted by several factors . in 2017 , abbott 's operating margin decreased by approximately 900 basis points primarily due to costs associated with the acquisitions , including higher intangible amortization expense , inventory step-up amortization and integration costs , partially offset by operating margin improvement across various businesses . in 2016 and 2015 , abbott expanded its operating margin by approximately 120 basis points per year primarily due to margin improvement in the nutritional and diagnostics businesses . in abbott 's worldwide nutritional products business , sales over the last three years were positively impacted by demographics such as an aging population and an increasing rate of chronic disease in developed markets and the rise of a middle class in many emerging markets , as well as by numerous new product introductions that leveraged abbott 's strong brands . these positive factors were offset by challenging conditions in various markets over the last three years . in 2017 , the nutritionals business experienced growth in the u.s. due to above-market performance in abbott 's infant and toddler brands , including pediasure® , pedialyte® and similac® . increased 2017 sales in china and india were partially offset by challenging market conditions in the infant formula market in various emerging markets . with respect to the profitability of the nutritional products business , manufacturing and distribution process changes , as well as other cost reductions drove margin improvements across the business over the last three years although such improvements were offset by increased commodity costs in 2017. the decrease in operating margins for this business from 25.0 percent of sales in 2015 to 22.9 percent in 2017 was almost entirely due to the negative impact of foreign exchange . in abbott 's worldwide diagnostics business , sales growth over the last three years reflected the acquisition of alere in october of 2017 , as well as continued market penetration by the core laboratory business in the u.s. and china , and growth in other emerging markets . in addition , the point of care diagnostics business experienced sales growth led by the continued adoption of abbott 's i-stat® handheld system . worldwide diagnostic sales increased 16.7 percent in 2017 and 5.5 percent in 2016 , excluding the impact of foreign exchange . excluding the impact of the alere acquisition , as well as the impact of foreign exchange , sales in the diagnostics products segment increased 5.5 percent in 2017. in 2017 , abbott continued the international roll-out of its recently launched alinity systems for the core laboratory , including `` alinity c `` for clinical chemistry , `` alinity i `` for immunoassay diagnostics and `` alinity s `` for blood and plasma screening . in the fourth quarter of 2017 , abbott received fda approval in the u.s. for the `` alinity c `` and `` alinity i `` instruments for clinical chemistry and immunoassay diagnostics . alinity is an integrated family of next-generation diagnostic systems and solutions which are designed to increase efficiency by running more tests in less space , generating test results faster and minimizing human errors while continuing to provide quality results . margin improvement continued to be a key focus for the diagnostics business in 2017 although such improvements were partially offset by the negative impact of foreign exchange . operating margins increased from 25.2 percent of sales in 2015 to 26.1 percent in 2017 as the business continued to execute on efficiency initiatives in the manufacturing and supply chain functions . the established pharmaceutical products segment focuses on the sale of its products in emerging markets after the sale of its developed markets business to mylan on february 27 , 2015. excluding the impact of foreign exchange , established pharmaceutical sales from continuing operations increased 9.5 percent in 2017 and 10.5 percent in 2016. the sales increase in 2017 was driven by double-digit growth in china and various countries in latin america . operating margins increased from 17.7 percent of sales in 2015 to 19.8 percent in 2017. since the beginning of the first quarter of 2017 , the results of abbott 's cardiovascular and neuromodulation products segment includes abbott 's historical vascular products segment and 23 st. jude medical from the date of acquisition . excluding the impact of foreign exchange , sales in the cardiovascular and neuromodulation products segment increased 207.4 percent in 2017 and 4.5 percent in 2016. the sales increase in 2017 was driven by the acquisition of st. jude medical . excluding the impact of the acquisition , as well as the impact of foreign exchange , sales in the cardiovascular and neuromodulation products segment were essentially unchanged in 2017 versus the prior year . in 2017 , higher structural heart and endovascular sales were offset by lower coronary stent sales and the comparison impact from the favorable 2016 resolution of a third-party royalty agreement . in 2016 , sales growth was driven by double-digit growth in abbott 's sales of its mitraclip structural heart device for the treatment of mitral regurgitation , as well as endovascular franchise sales growth . these increases were partially offset by pricing pressures primarily related to drug-eluting stents ( des ) and lower market share for abbott 's xience des franchise in certain geographies . in 2017 , operating earnings for this segment increased over 160 percent ; the operating margin profile declined from 38.0 percent of sales in 2015 to 30.5 percent in 2017 primarily due to the mix of business resulting from the acquisition of st. jude medical and ongoing pricing pressures in the coronary business . in 2017 , abbott obtained regulatory approval for various products in addition to the approvals described above in the diagnostics business . story_separator_special_tag accordingly , abbott is often initially unable to develop a best estimate of loss , and therefore the minimum amount , which could be zero , is recorded . as information becomes known , either the minimum loss amount is increased , resulting in additional loss provisions , or a best estimate can be made , also resulting in additional loss provisions . occasionally , a best estimate amount is changed to a lower amount when events result in an expectation of a more favorable outcome than previously expected . abbott estimates the range of possible loss to be from approximately $ 115 million to $ 160 million for its legal proceedings and environmental exposures . accruals of approximately $ 135 million have been recorded at december 31 , 2017 for these proceedings and exposures . these accruals represent management 's best estimate of probable loss , as defined by fasb asc no . 450 , `` contingencies . `` 27 results of operations sales the following table details the components of sales growth by reportable segment for the last two years : replace_table_token_3_th the increase in total net sales in 2017 reflects the acquisitions of st. jude medical and alere , as well as organic growth in the established pharmaceuticals and diagnostics businesses . the increase in 2016 reflects unit growth , partially offset by the impact of unfavorable foreign exchange . the price declines related to the cardiovascular and neuromodulation products segment in 2017 and 2016 primarily reflect pricing pressure on drug eluting stents ( des ) as a result of market competition in the u.s. and other major markets . 28 a comparison of significant product and product group sales is as follows . percent changes are versus the prior year and are based on unrounded numbers . replace_table_token_4_th n/m = percent change is not meaningful . replace_table_token_5_th note : in order to compute results excluding the impact of exchange rates , current year u.s. dollar sales are multiplied or divided , as appropriate , by the current year average foreign exchange rates and then those amounts are multiplied or divided , as appropriate , by the prior year average foreign exchange rates . 29 total established pharmaceutical products sales increased 9.5 percent in 2017 and 10.5 percent in 2016 , excluding the impact of foreign exchange . the established pharmaceutical products segment is focused on several key emerging markets including india , russia , china and brazil . excluding the impact of foreign exchange , total sales in these key emerging markets increased 11.9 percent in 2017 and 13.3 percent in 2016. excluding the impact of foreign exchange , 2017 sales in several geographies including china and various countries in latin america experienced double-digit growth . excluding the impact of foreign exchange , sales in established pharmaceuticals ' other emerging markets increased 2.2 percent in 2017 and increased 2.0 percent in 2016. the 2017 sales growth for established pharmaceuticals ' other emerging markets includes the unfavorable impact of venezuelan operations . excluding venezuela and the effect of foreign exchange , sales in other emerging markets increased 7.5 percent . total nutritional products sales increased 0.6 percent in 2017 and 1.2 percent in 2016 , excluding the unfavorable impact of foreign exchange . in abbott 's international pediatric nutritional business , the 2017 decrease in sales was driven by challenging market conditions in the infant formula market in various emerging markets , partially offset by growth in china and india . the 2017 growth in china reflects a partial recovery from the 2016 sales decline in china . the 2016 decrease in sales was driven by challenging market conditions in china , including the impact of new food safety regulations , which contributed to an oversupply of product in the market . the 2016 sales decrease in china was partially offset by strong performance in several markets across latin america and southeast asia . the increases in u.s. pediatric nutritional 2017 and 2016 sales primarily reflect continued above-market performance in abbott 's infant and toddler brands , including pediasure® , pedialyte® and similac® . excluding the unfavorable impact of foreign exchange , the 2017 and 2016 increases in international adult nutritional sales are due primarily to growth in ensure® , abbott 's market-leading complete and balanced nutrition brand , as well as volume growth in emerging markets and continued expansion of the adult nutrition category internationally . u.s. adult nutritional revenues decreased in 2017 due to competitive and market dynamics , while sales increased in 2016 driven by the growth of ensure® sales . total diagnostic products sales increased 16.7 percent in 2017 and 5.5 percent in 2016 , excluding the impact of foreign exchange . the sales increase in 2017 included the acquisition of alere , which was completed on october 3 , 2017. excluding the impact of the acquisition , as well as the impact of foreign exchange , sales in the diagnostics products segment increased 5.5 percent primarily driven by share gains in the core laboratory markets globally , as well as strong performance in point of care led by the continued adoption of abbott 's i-stat® handheld system . the 2016 sales increase was primarily driven by share gains in the core laboratory and point of care markets in the u.s. and internationally . excluding the effect of foreign exchange , total cardiovascular and neuromodulation products sales grew 207.4 percent in 2017 and 4.5 percent in 2016. the sales increase in 2017 was primarily driven by the acquisition of st. jude medical which was completed on january 4 , 2017. excluding the impact of the acquisition , as well as the impact of foreign exchange , sales in the vascular business were essentially flat in 2017 versus the prior year as lower coronary stent sales and the comparison impact from the favorable 2016 resolution of a third-party royalty agreement were offset by higher structural heart and endovascular sales . in 2016 , double-digit

net cash used in financing activities was $ 552 million in 2019 , compared with $ 1,193 million in 2018. in 2019 , net cash paid for the aggregate 1.125 % convertible notes-related transactions amounted to $ 730 million , and we paid $ 47 million for common stock purchases , partially offset by proceeds of $ 220 million borrowed under the term loan facility . in 2018 , net cash used in financing activities included net cash paid for the aggregate 1.125 % convertible notes-related transactions of $ 837 million , a $ 300 million repayment of the credit facility , and $ 64 million repayment of the 1.625 % convertible notes . financial condition we believe that our cash resources , borrowing capacity available under our credit agreement as discussed further below in “ future sources and uses of liquidity—future sources , ” and internally generated funds will be sufficient to support our operations , regulatory requirements , debt repayment obligations and capital expenditures for at least the next 12 months . on a consolidated basis , as of december 31 , 2019 , our working capital was $ 2,698 million compared with $ 2,216 million as of december 31 , 2018 . at december 31 , 2019 , our cash and investments amounted to $ 4,477 million , compared with $ 4,629 million of cash and investments at december 31 , 2018 . because of the statutory restrictions that inhibit the ability of our health plans to transfer net assets to us , the amount of retained earnings readily available to pay dividends to our stockholders is generally limited to cash , cash equivalents and investments held by our unregulated parent . for more information , see the “ liquidity ” discussion presented earlier in this section of the md & a . regulatory capital and dividend restrictions each of our regulated hmo subsidiaries must maintain a minimum amount of statutory capital determined by statute or regulations . such statutes , regulations and capital requirements also restrict the timing , payment and amount of dividends and other distributions , loans or advances that may be paid to us as the sole stockholder .

over the last three years , abbott 's operating margin was impacted by several factors . in 2017 , abbott 's operating margin decreased by approximately 900 basis points primarily due to costs associated with the acquisitions , including higher intangible amortization expense , inventory step-up amortization and integration costs , partially offset by operating margin improvement across various businesses . in 2016 and 2015 , abbott expanded its operating margin by approximately 120 basis points per year primarily due to margin improvement in the nutritional and diagnostics businesses . in abbott 's worldwide nutritional products business , sales over the last three years were positively impacted by demographics such as an aging population and an increasing rate of chronic disease in developed markets and the rise of a middle class in many emerging markets , as well as by numerous new product introductions that leveraged abbott 's strong brands . these positive factors were offset by challenging conditions in various markets over the last three years . in 2017 , the nutritionals business experienced growth in the u.s. due to above-market performance in abbott 's infant and toddler brands , including pediasure® , pedialyte® and similac® . increased 2017 sales in china and india were partially offset by challenging market conditions in the infant formula market in various emerging markets . with respect to the profitability of the nutritional products business , manufacturing and distribution process changes , as well as other cost reductions drove margin improvements across the business over the last three years although such improvements were offset by increased commodity costs in 2017. the decrease in operating margins for this business from 25.0 percent of sales in 2015 to 22.9 percent in 2017 was almost entirely due to the negative impact of foreign exchange . in abbott 's worldwide diagnostics business , sales growth over the last three years reflected the acquisition of alere in october of 2017 , as well as continued market penetration by the core laboratory business in the u.s. and china , and growth in other emerging markets . in addition , the point of care diagnostics business experienced sales growth led by the continued adoption of abbott 's i-stat® handheld system . worldwide diagnostic sales increased 16.7 percent in 2017 and 5.5 percent in 2016 , excluding the impact of foreign exchange . excluding the impact of the alere acquisition , as well as the impact of foreign exchange , sales in the diagnostics products segment increased 5.5 percent in 2017. in 2017 , abbott continued the international roll-out of its recently launched alinity systems for the core laboratory , including `` alinity c `` for clinical chemistry , `` alinity i `` for immunoassay diagnostics and `` alinity s `` for blood and plasma screening . in the fourth quarter of 2017 , abbott received fda approval in the u.s. for the `` alinity c `` and `` alinity i `` instruments for clinical chemistry and immunoassay diagnostics . alinity is an integrated family of next-generation diagnostic systems and solutions which are designed to increase efficiency by running more tests in less space , generating test results faster and minimizing human errors while continuing to provide quality results . margin improvement continued to be a key focus for the diagnostics business in 2017 although such improvements were partially offset by the negative impact of foreign exchange . operating margins increased from 25.2 percent of sales in 2015 to 26.1 percent in 2017 as the business continued to execute on efficiency initiatives in the manufacturing and supply chain functions . the established pharmaceutical products segment focuses on the sale of its products in emerging markets after the sale of its developed markets business to mylan on february 27 , 2015. excluding the impact of foreign exchange , established pharmaceutical sales from continuing operations increased 9.5 percent in 2017 and 10.5 percent in 2016. the sales increase in 2017 was driven by double-digit growth in china and various countries in latin america . operating margins increased from 17.7 percent of sales in 2015 to 19.8 percent in 2017. since the beginning of the first quarter of 2017 , the results of abbott 's cardiovascular and neuromodulation products segment includes abbott 's historical vascular products segment and 23 st. jude medical from the date of acquisition . excluding the impact of foreign exchange , sales in the cardiovascular and neuromodulation products segment increased 207.4 percent in 2017 and 4.5 percent in 2016. the sales increase in 2017 was driven by the acquisition of st. jude medical . excluding the impact of the acquisition , as well as the impact of foreign exchange , sales in the cardiovascular and neuromodulation products segment were essentially unchanged in 2017 versus the prior year . in 2017 , higher structural heart and endovascular sales were offset by lower coronary stent sales and the comparison impact from the favorable 2016 resolution of a third-party royalty agreement . in 2016 , sales growth was driven by double-digit growth in abbott 's sales of its mitraclip structural heart device for the treatment of mitral regurgitation , as well as endovascular franchise sales growth . these increases were partially offset by pricing pressures primarily related to drug-eluting stents ( des ) and lower market share for abbott 's xience des franchise in certain geographies . in 2017 , operating earnings for this segment increased over 160 percent ; the operating margin profile declined from 38.0 percent of sales in 2015 to 30.5 percent in 2017 primarily due to the mix of business resulting from the acquisition of st. jude medical and ongoing pricing pressures in the coronary business . in 2017 , abbott obtained regulatory approval for various products in addition to the approvals described above in the diagnostics business . story_separator_special_tag accordingly , abbott is often initially unable to develop a best estimate of loss , and therefore the minimum amount , which could be zero , is recorded . as information becomes known , either the minimum loss amount is increased , resulting in additional loss provisions , or a best estimate can be made , also resulting in additional loss provisions . occasionally , a best estimate amount is changed to a lower amount when events result in an expectation of a more favorable outcome than previously expected . abbott estimates the range of possible loss to be from approximately $ 115 million to $ 160 million for its legal proceedings and environmental exposures . accruals of approximately $ 135 million have been recorded at december 31 , 2017 for these proceedings and exposures . these accruals represent management 's best estimate of probable loss , as defined by fasb asc no . 450 , `` contingencies . `` 27 results of operations sales the following table details the components of sales growth by reportable segment for the last two years : replace_table_token_3_th the increase in total net sales in 2017 reflects the acquisitions of st. jude medical and alere , as well as organic growth in the established pharmaceuticals and diagnostics businesses . the increase in 2016 reflects unit growth , partially offset by the impact of unfavorable foreign exchange . the price declines related to the cardiovascular and neuromodulation products segment in 2017 and 2016 primarily reflect pricing pressure on drug eluting stents ( des ) as a result of market competition in the u.s. and other major markets . 28 a comparison of significant product and product group sales is as follows . percent changes are versus the prior year and are based on unrounded numbers . replace_table_token_4_th n/m = percent change is not meaningful . replace_table_token_5_th note : in order to compute results excluding the impact of exchange rates , current year u.s. dollar sales are multiplied or divided , as appropriate , by the current year average foreign exchange rates and then those amounts are multiplied or divided , as appropriate , by the prior year average foreign exchange rates . 29 total established pharmaceutical products sales increased 9.5 percent in 2017 and 10.5 percent in 2016 , excluding the impact of foreign exchange . the established pharmaceutical products segment is focused on several key emerging markets including india , russia , china and brazil . excluding the impact of foreign exchange , total sales in these key emerging markets increased 11.9 percent in 2017 and 13.3 percent in 2016. excluding the impact of foreign exchange , 2017 sales in several geographies including china and various countries in latin america experienced double-digit growth . excluding the impact of foreign exchange , sales in established pharmaceuticals ' other emerging markets increased 2.2 percent in 2017 and increased 2.0 percent in 2016. the 2017 sales growth for established pharmaceuticals ' other emerging markets includes the unfavorable impact of venezuelan operations . excluding venezuela and the effect of foreign exchange , sales in other emerging markets increased 7.5 percent . total nutritional products sales increased 0.6 percent in 2017 and 1.2 percent in 2016 , excluding the unfavorable impact of foreign exchange . in abbott 's international pediatric nutritional business , the 2017 decrease in sales was driven by challenging market conditions in the infant formula market in various emerging markets , partially offset by growth in china and india . the 2017 growth in china reflects a partial recovery from the 2016 sales decline in china . the 2016 decrease in sales was driven by challenging market conditions in china , including the impact of new food safety regulations , which contributed to an oversupply of product in the market . the 2016 sales decrease in china was partially offset by strong performance in several markets across latin america and southeast asia . the increases in u.s. pediatric nutritional 2017 and 2016 sales primarily reflect continued above-market performance in abbott 's infant and toddler brands , including pediasure® , pedialyte® and similac® . excluding the unfavorable impact of foreign exchange , the 2017 and 2016 increases in international adult nutritional sales are due primarily to growth in ensure® , abbott 's market-leading complete and balanced nutrition brand , as well as volume growth in emerging markets and continued expansion of the adult nutrition category internationally . u.s. adult nutritional revenues decreased in 2017 due to competitive and market dynamics , while sales increased in 2016 driven by the growth of ensure® sales . total diagnostic products sales increased 16.7 percent in 2017 and 5.5 percent in 2016 , excluding the impact of foreign exchange . the sales increase in 2017 included the acquisition of alere , which was completed on october 3 , 2017. excluding the impact of the acquisition , as well as the impact of foreign exchange , sales in the diagnostics products segment increased 5.5 percent primarily driven by share gains in the core laboratory markets globally , as well as strong performance in point of care led by the continued adoption of abbott 's i-stat® handheld system . the 2016 sales increase was primarily driven by share gains in the core laboratory and point of care markets in the u.s. and internationally . excluding the effect of foreign exchange , total cardiovascular and neuromodulation products sales grew 207.4 percent in 2017 and 4.5 percent in 2016. the sales increase in 2017 was primarily driven by the acquisition of st. jude medical which was completed on january 4 , 2017. excluding the impact of the acquisition , as well as the impact of foreign exchange , sales in the vascular business were essentially flat in 2017 versus the prior year as lower coronary stent sales and the comparison impact from the favorable 2016 resolution of a third-party royalty agreement were offset by higher structural heart and endovascular sales . in 2016 , double-digit

debt and capital at december 31 , 2017 , abbott 's long-term debt rating was bbb by standard & poor 's corporation and baa3 by moody 's investors service ( moody 's ) . in february 2018 , moody 's raised abbott 's rating to baa2 with a positive outlook . abbott expects to maintain an investment grade rating . abbott is committed to reducing its debt levels following the recent acquisitions of st. jude medical and alere . on february 16 , 2018 , the board of directors authorized the redemption of up to $ 5 billion of currently outstanding long-term notes in addition to the $ 3.95 billion repaid in january 2018 discussed below . abbott has readily available financial resources , including lines of credit of $ 5.0 billion which expire in 2019. these lines of credit are part of a 2014 revolving credit agreement that provides abbott with the ability to borrow up to $ 5 billion on an unsecured basis . prior to october 3 , 2017 , no amounts were previously drawn under the revolving credit agreement . on october 3 , 2017 , in connection with the alere acquisition , abbott borrowed $ 1.7 billion under these lines of credit . these borrowings were due to be repaid in july 2019 and bore interest based on a eurodollar rate , plus an applicable margin based on abbott 's credit ratings . in the fourth quarter of 2017 , abbott paid off $ 550 million of these borrowings . on january 5 , 2018 , abbott paid off the remaining balance under these lines of credit ahead of the 2019 due date . on july 31 , 2017 , abbott entered into a 5-year term loan agreement that allowed abbott to borrow up to $ 2.8 billion on an unsecured basis for the acquisition of alere . on october 3 , 2017 , abbott borrowed $ 2.8 billion under this term loan agreement to finance the acquisition of alere , to repay certain indebtedness of abbott and alere , and to pay fees and expenses in connection with the acquisition .

our professional services are generally priced on a fixed-fee basis and the costs incurred to complete these services , which consist mainly of personnel-related costs , have been greater than the amount charged to the customer . we also do not have standalone value for our implementation services for accounting purposes . accordingly , we recognize implementation services revenue in the same manner as the associated subscription revenue . prior to launching an individual customer , we incur significant costs associated with implementation activities , which we record as cost of revenue . since we do not recognize significant revenues from an individual customer until it launches , we generate a negative gross margin at the customer level during the implementation period . seasonality . we have historically observed seasonality related to employee benefits cycles as a significantly higher proportion of our customers enter into new subscription agreements with us in the third and fourth quarters of the year , compared to the first and second quarters . as we continue to leverage our channel relationships and expand our business , there is no assurance this seasonality will continue . the impact from any seasonality in our new customer agreements is not immediately apparent in our revenue because we do not begin recognizing revenue from new customer agreements until we have implemented our offering , based on the implementation timelines discussed above . revenue recognized in any quarter is primarily from customer agreements entered into in prior quarters . in addition , the mix of customers paying monthly , quarterly , or annually varies from quarter to quarter and impacts our deferred revenue balance . as a result of variability in our billing and implementation timelines , the deferred revenue balance does not represent the total value of our customer contracts , nor do changes in deferred revenue serve as a reliable indicator of our future subscription revenue . key business metrics we review a number of operating metrics , including the following key metrics , to evaluate our business , measure our performance , identify trends affecting our business , and make strategic decisions . signed annual recurring revenue 38 as of december 31 , 2016 december 31 , 2015 ( in millions ) signed annual recurring revenue ( arr ) $ 121.6 $ 110.0 revenue recognized in any quarter is largely derived from customer agreements signed in prior quarters . accordingly , management measures sales performance and forecasts future subscription revenue based on signed annual recurring revenue ( “ arr ” ) . arr is a forward-looking metric based on contractual terms in existence as of the applicable arr measurement date and is subject to change resulting from a number of factors including , but not limited to , addition of new customers , changes in user counts , terminations or non-renewals , renewal terms as well as upsells and cross-sells . as discussed above , we begin recognizing revenue from new customer agreements when we have implemented our offering , which can take from approximately 3 to 12 months after entering into an agreement with a customer . arr represents the annualized value of subscription revenue under contract with customers at the end of a quarter , which we refer to for this purpose as a measurement date . to calculate arr , we first calculate the annualized subscription value for each signed customer ( whether implemented or not ) , as of the applicable measurement date , by multiplying the monthly contract value of the subscription services under contract by 12. we exclude from this calculation any customers that have provided us with formal notice of termination or non-renewal as of the measurement date . arr does not take into account the ( i ) potential for customers to terminate , or decline to renew , their agreements with us , ( ii ) achievement of non-recurring or yet-to-be-earned performance guarantees , ( iii ) one-time engagement bonuses included within our customer contracts or ( iv ) revenues related to professional services , such as implementation and communications services . arr is not determined in reference to gaap . our arr at december 31 , 2016 was $ 121.6 million , compared to $ 110.0 million at december 31 , 2015 , representing an increase of approximately 11 % . we expect arr to increase as we sign additional customers and cross-sell to existing customers . annual net dollar retention rate replace_table_token_5_th we assess our performance on customer retention by measuring our annual net dollar retention rate ( “ ndr ” ) . we believe that our ability to retain our customers and expand their subscription revenue growth over time will be an indicator of the stability of our revenue base and the long-term value of our customer relationships . our ndr provides a measurement of our ability to increase revenue across our existing customer base through expansion of our additional products to existing customers , increases in user count for existing customers and customer renewals , as offset by terminations or pricing changes . we observed an annual net dollar retention rate of 94 % and 116 % for our signed customer base , for the years ended december 31 , 2016 and 2015 , respectively . the year over year decrease in ndr was as a result of lower cross sales and churn , in particular weaker pricing related to certain customer renewals . we calculate ndr for a given period as the aggregate annualized subscription contract value as of the last day of that year from those customers that were also customers as of the last day of the prior year , divided by the aggregate annualized subscription contract value from all customers as of the last day of the prior year . in calculating ndr , we exclude one-time fees . ndr does not include subscriptions by new customers contracted since the end of the most recently completed year . story_separator_special_tag we expect that the amount of our backlog relative to the total value of our contracts will change from period to period for several reasons , including the amount of cash collected early in the contract term , the specific timing and duration of large customer subscription agreements , varying invoicing cycles of subscription agreements , potential customer upsells dependent on our customer agreements , the specific timing of customer renewals and changes in customer financial circumstances . accordingly , we believe that fluctuations in our backlog may not be a reliable indicator of our future revenue . contractual obligations and commitments our principal commitments primarily consist of obligations under leases for office space and co-location facilities for data center capacity . as of december 31 , 2016 , the future noncancelable minimum payments under these commitments were as follows ( in thousands ) : replace_table_token_13_th ( 1 ) operating leases for facilities space represents our principal commitments , which consists of obligations under leases for office space . minimum payments have not been reduced by sublease rentals of $ 1.3 million due in the future under a noncancelable sublease . ( 2 ) data center costs represent costs associated with service agreements for our data centers in colorado and arizona . our existing lease agreements provide us with the option to renew and generally provide for rental payments on a graduated basis . our future operating lease obligations would change if we entered into additional operating lease agreements as we expand our operations and if we exercised these options . contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude purchase orders for goods and services . purchase orders are not included in the table above . our purchase orders represent authorizations to purchase rather than binding agreements . the contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding and that specify all significant terms , including fixed or minimum services to be used , fixed , minimum or variable price provisions and the approximate timing of the transaction . obligations under contracts that we can cancel without a significant penalty are not included in the table above . off-balance sheet arrangements during the periods presented , we did not have , nor do we currently have , any relationships with unconsolidated entities or financial partnerships , such as entities often referred to as structured finance or special purpose entities , which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes . we are therefore not exposed to the financing , liquidity , market or credit risk that could arise if we had engaged in those types of relationships . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , costs and expenses and related disclosures . on an ongoing basis , we 46 evaluate our estimates and assumptions . our actual results may differ from these estimates under different assumptions or conditions . we believe that of our significant accounting policies , which are described in note 2 to our consolidated financial statements , involve a greater degree of judgment and complexity . accordingly , these are the policies that we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations . revenue recognition we derive our revenue from sales of cloud-based subscription service and professional services contracts . we sell subscriptions to our cloud-based subscription service through contracts that are generally three years in length . our cloud-based subscription service contracts do not provide customers with the right to take possession of the software supporting the cloud-based service and , as a result , are accounted for as service contracts . we commence revenue recognition for our cloud-based subscription service and professional services when all of the following criteria are met : there is persuasive evidence of an arrangement ; the service has been provided to the customer ; collection of the fees is reasonably assured ; and the amount of fees to be paid by the customer is fixed or determinable . our subscription and professional service arrangements do not contain refund provisions for fees earned related to services performed . we do , however , have commitments under service-level agreements , as discussed under `` warranties and indemnification `` in the notes to consolidated financial statements . subscription revenue . subscription revenue recognition commences on the date that our cloud-based service is made available to the customer , which is considered the launch date , provided all of the other criteria described above are met . revenue is recognized based on usage or on a straight-line bases if fees are fixed . some of our cloud-based subscription arrangements include performance incentives that are generally based upon employee engagement . fees for performance incentives are considered contingent revenue , and are recognized over the remaining term of the related subscription arrangement commencing at the time they are earned . professional services revenue . professional services revenue is comprised of implementation services and communication services related to our cloud-based subscription service . nearly all of our professional services are sold on a fixed-fee basis . we do not have standalone value for our implementation services . accordingly , we recognize implementation services revenue in the same manner as the associated cloud-based subscription service , beginning on the launch date , provided all other criteria described above have been met . communication services revenue is recognized over the contractual term , generally one year , commencing when the revenue recognition criteria have been met . multiple deliverable arrangements . to date , we have generated substantially

debt and capital at december 31 , 2017 , abbott 's long-term debt rating was bbb by standard & poor 's corporation and baa3 by moody 's investors service ( moody 's ) . in february 2018 , moody 's raised abbott 's rating to baa2 with a positive outlook . abbott expects to maintain an investment grade rating . abbott is committed to reducing its debt levels following the recent acquisitions of st. jude medical and alere . on february 16 , 2018 , the board of directors authorized the redemption of up to $ 5 billion of currently outstanding long-term notes in addition to the $ 3.95 billion repaid in january 2018 discussed below . abbott has readily available financial resources , including lines of credit of $ 5.0 billion which expire in 2019. these lines of credit are part of a 2014 revolving credit agreement that provides abbott with the ability to borrow up to $ 5 billion on an unsecured basis . prior to october 3 , 2017 , no amounts were previously drawn under the revolving credit agreement . on october 3 , 2017 , in connection with the alere acquisition , abbott borrowed $ 1.7 billion under these lines of credit . these borrowings were due to be repaid in july 2019 and bore interest based on a eurodollar rate , plus an applicable margin based on abbott 's credit ratings . in the fourth quarter of 2017 , abbott paid off $ 550 million of these borrowings . on january 5 , 2018 , abbott paid off the remaining balance under these lines of credit ahead of the 2019 due date . on july 31 , 2017 , abbott entered into a 5-year term loan agreement that allowed abbott to borrow up to $ 2.8 billion on an unsecured basis for the acquisition of alere . on october 3 , 2017 , abbott borrowed $ 2.8 billion under this term loan agreement to finance the acquisition of alere , to repay certain indebtedness of abbott and alere , and to pay fees and expenses in connection with the acquisition .

our professional services are generally priced on a fixed-fee basis and the costs incurred to complete these services , which consist mainly of personnel-related costs , have been greater than the amount charged to the customer . we also do not have standalone value for our implementation services for accounting purposes . accordingly , we recognize implementation services revenue in the same manner as the associated subscription revenue . prior to launching an individual customer , we incur significant costs associated with implementation activities , which we record as cost of revenue . since we do not recognize significant revenues from an individual customer until it launches , we generate a negative gross margin at the customer level during the implementation period . seasonality . we have historically observed seasonality related to employee benefits cycles as a significantly higher proportion of our customers enter into new subscription agreements with us in the third and fourth quarters of the year , compared to the first and second quarters . as we continue to leverage our channel relationships and expand our business , there is no assurance this seasonality will continue . the impact from any seasonality in our new customer agreements is not immediately apparent in our revenue because we do not begin recognizing revenue from new customer agreements until we have implemented our offering , based on the implementation timelines discussed above . revenue recognized in any quarter is primarily from customer agreements entered into in prior quarters . in addition , the mix of customers paying monthly , quarterly , or annually varies from quarter to quarter and impacts our deferred revenue balance . as a result of variability in our billing and implementation timelines , the deferred revenue balance does not represent the total value of our customer contracts , nor do changes in deferred revenue serve as a reliable indicator of our future subscription revenue . key business metrics we review a number of operating metrics , including the following key metrics , to evaluate our business , measure our performance , identify trends affecting our business , and make strategic decisions . signed annual recurring revenue 38 as of december 31 , 2016 december 31 , 2015 ( in millions ) signed annual recurring revenue ( arr ) $ 121.6 $ 110.0 revenue recognized in any quarter is largely derived from customer agreements signed in prior quarters . accordingly , management measures sales performance and forecasts future subscription revenue based on signed annual recurring revenue ( “ arr ” ) . arr is a forward-looking metric based on contractual terms in existence as of the applicable arr measurement date and is subject to change resulting from a number of factors including , but not limited to , addition of new customers , changes in user counts , terminations or non-renewals , renewal terms as well as upsells and cross-sells . as discussed above , we begin recognizing revenue from new customer agreements when we have implemented our offering , which can take from approximately 3 to 12 months after entering into an agreement with a customer . arr represents the annualized value of subscription revenue under contract with customers at the end of a quarter , which we refer to for this purpose as a measurement date . to calculate arr , we first calculate the annualized subscription value for each signed customer ( whether implemented or not ) , as of the applicable measurement date , by multiplying the monthly contract value of the subscription services under contract by 12. we exclude from this calculation any customers that have provided us with formal notice of termination or non-renewal as of the measurement date . arr does not take into account the ( i ) potential for customers to terminate , or decline to renew , their agreements with us , ( ii ) achievement of non-recurring or yet-to-be-earned performance guarantees , ( iii ) one-time engagement bonuses included within our customer contracts or ( iv ) revenues related to professional services , such as implementation and communications services . arr is not determined in reference to gaap . our arr at december 31 , 2016 was $ 121.6 million , compared to $ 110.0 million at december 31 , 2015 , representing an increase of approximately 11 % . we expect arr to increase as we sign additional customers and cross-sell to existing customers . annual net dollar retention rate replace_table_token_5_th we assess our performance on customer retention by measuring our annual net dollar retention rate ( “ ndr ” ) . we believe that our ability to retain our customers and expand their subscription revenue growth over time will be an indicator of the stability of our revenue base and the long-term value of our customer relationships . our ndr provides a measurement of our ability to increase revenue across our existing customer base through expansion of our additional products to existing customers , increases in user count for existing customers and customer renewals , as offset by terminations or pricing changes . we observed an annual net dollar retention rate of 94 % and 116 % for our signed customer base , for the years ended december 31 , 2016 and 2015 , respectively . the year over year decrease in ndr was as a result of lower cross sales and churn , in particular weaker pricing related to certain customer renewals . we calculate ndr for a given period as the aggregate annualized subscription contract value as of the last day of that year from those customers that were also customers as of the last day of the prior year , divided by the aggregate annualized subscription contract value from all customers as of the last day of the prior year . in calculating ndr , we exclude one-time fees . ndr does not include subscriptions by new customers contracted since the end of the most recently completed year . story_separator_special_tag we expect that the amount of our backlog relative to the total value of our contracts will change from period to period for several reasons , including the amount of cash collected early in the contract term , the specific timing and duration of large customer subscription agreements , varying invoicing cycles of subscription agreements , potential customer upsells dependent on our customer agreements , the specific timing of customer renewals and changes in customer financial circumstances . accordingly , we believe that fluctuations in our backlog may not be a reliable indicator of our future revenue . contractual obligations and commitments our principal commitments primarily consist of obligations under leases for office space and co-location facilities for data center capacity . as of december 31 , 2016 , the future noncancelable minimum payments under these commitments were as follows ( in thousands ) : replace_table_token_13_th ( 1 ) operating leases for facilities space represents our principal commitments , which consists of obligations under leases for office space . minimum payments have not been reduced by sublease rentals of $ 1.3 million due in the future under a noncancelable sublease . ( 2 ) data center costs represent costs associated with service agreements for our data centers in colorado and arizona . our existing lease agreements provide us with the option to renew and generally provide for rental payments on a graduated basis . our future operating lease obligations would change if we entered into additional operating lease agreements as we expand our operations and if we exercised these options . contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude purchase orders for goods and services . purchase orders are not included in the table above . our purchase orders represent authorizations to purchase rather than binding agreements . the contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding and that specify all significant terms , including fixed or minimum services to be used , fixed , minimum or variable price provisions and the approximate timing of the transaction . obligations under contracts that we can cancel without a significant penalty are not included in the table above . off-balance sheet arrangements during the periods presented , we did not have , nor do we currently have , any relationships with unconsolidated entities or financial partnerships , such as entities often referred to as structured finance or special purpose entities , which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes . we are therefore not exposed to the financing , liquidity , market or credit risk that could arise if we had engaged in those types of relationships . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , costs and expenses and related disclosures . on an ongoing basis , we 46 evaluate our estimates and assumptions . our actual results may differ from these estimates under different assumptions or conditions . we believe that of our significant accounting policies , which are described in note 2 to our consolidated financial statements , involve a greater degree of judgment and complexity . accordingly , these are the policies that we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations . revenue recognition we derive our revenue from sales of cloud-based subscription service and professional services contracts . we sell subscriptions to our cloud-based subscription service through contracts that are generally three years in length . our cloud-based subscription service contracts do not provide customers with the right to take possession of the software supporting the cloud-based service and , as a result , are accounted for as service contracts . we commence revenue recognition for our cloud-based subscription service and professional services when all of the following criteria are met : there is persuasive evidence of an arrangement ; the service has been provided to the customer ; collection of the fees is reasonably assured ; and the amount of fees to be paid by the customer is fixed or determinable . our subscription and professional service arrangements do not contain refund provisions for fees earned related to services performed . we do , however , have commitments under service-level agreements , as discussed under `` warranties and indemnification `` in the notes to consolidated financial statements . subscription revenue . subscription revenue recognition commences on the date that our cloud-based service is made available to the customer , which is considered the launch date , provided all of the other criteria described above are met . revenue is recognized based on usage or on a straight-line bases if fees are fixed . some of our cloud-based subscription arrangements include performance incentives that are generally based upon employee engagement . fees for performance incentives are considered contingent revenue , and are recognized over the remaining term of the related subscription arrangement commencing at the time they are earned . professional services revenue . professional services revenue is comprised of implementation services and communication services related to our cloud-based subscription service . nearly all of our professional services are sold on a fixed-fee basis . we do not have standalone value for our implementation services . accordingly , we recognize implementation services revenue in the same manner as the associated cloud-based subscription service , beginning on the launch date , provided all other criteria described above have been met . communication services revenue is recognized over the contractual term , generally one year , commencing when the revenue recognition criteria have been met . multiple deliverable arrangements . to date , we have generated substantially

liquidity and capital resources replace_table_token_12_th as of december 31 , 2016 , our principal sources of liquidity were cash , cash equivalents and marketable securities totaling $ 114.6 million , which were held for working capital purposes . our cash , cash equivalents and marketable securities are comprised primarily of u.s. agency obligations , u.s. treasury securities and money market funds . since our inception , we have financed our operations primarily through sales of equity securities and , to a lesser extent , payments from our customers . we believe that our existing cash , cash equivalents and marketable securities will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months . our future capital requirements will depend on many factors including our growth rate , subscription renewal activity , the timing and extent of spending to support development efforts , our expansion of sales and marketing activities , the introduction of new and enhanced services offerings and the continuing market acceptance of our cloud-based products . other than our agreement to acquire jiff inc. , we currently are not a party to any agreement and do not have any understanding with any third parties with respect to potential investments in , or acquisitions of , businesses or technologies . however , we may in the future enter into these types of arrangements . we may be required to seek additional equity or debt financing . in the event that additional financing is required from outside sources , we may not be able to raise it on terms acceptable to us , or at all .

in addition , the technology is used to record basic transaction information about each visit including : start and end times to a scheduled shift , mileage reimbursement , text messages to the homecare aide and communication of basic payroll information . our plans for this technology include development of a web portal to provide the ability to communicate this basic information about individual clients to the managed care organizations . we are growing through selective acquisitions , based on an overall strategy to expand our presence in current markets and to expand our footprint in markets where the home and community business is moving to managed care organizations . we completed two acquisitions in december 2013 and june 2014 that expanded our presence in two existing markets and provided us with a base of operations in two new targeted managed care states . effective january 1 , 2015 , we acquired priority home health care , inc. , a company headquartered in cleveland , ohio and operating six offices in the cleveland , akron and columbus areas . we anticipate these transactions to be accretive to earnings in 2015. effective march 1 , 2013 , we sold substantially all of the assets used in our home health business ( the “home health business” ) in arkansas , nevada and south carolina , and 90 % of the home health business in california and illinois , to subsidiaries of lhc group , inc. ( the “purchasers” ) for a cash purchase price of approximately $ 20,000,000. we retained a 10 % ownership interest in the home health business in california and illinois . the assets sold included 19 home health agencies and two hospice agencies in five states . effective december 30 , 2013 , we sold one home health agency in pennsylvania for approximately $ 200,000. the results of the home health business sold and one additional agency in idaho which was closed in november 2012 , are reflected as discontinued operations for all periods presented herein . continuing operations include the results of operations previously included in our home & community segment and three agencies previously included in our home health segment . following the sale of the home health business , we manage and internally report our business in one segment . because regulatory requirements in delaware and indiana require home and community based services to be provided by a licensed home health agency , we will continue to provide limited home health services reimbursable by medicare in these agencies in order to maintain these licenses . in addition , priority home health care maintains enrollment in but does not derive significant revenues from medicare . we believe the sale of the home health business substantially positioned us for future growth . the sale allowed us to focus both management and financial resources on changes in the home and community based services industry and to address and the needs of managed care organizations as they become more responsible for state sponsored programs . we have improved our financial performance by concentrating our efforts on our home and community business that is growing and profitable . we have improved our overall financial position by eliminating our debt and adding to our cash reserves . 42 business the results of the home health business sold are reflected as discontinued operations for all periods presented herein . continuing operations include the results of operations previously included in our home and community segment and three agencies previously included in our home health segment . following the sale of the home health business , we manage and internally report our business in one segment . as of december 31 , 2014 , we provided our home and community based services through 129 locations across 22 states including 5 adult day centers in illinois . our payor clients are principally federal , state and local governmental agencies and , increasingly , managed care organizations . the federal , state and local programs under which the agencies operate are subject to legislative , budgetary and other risks that can influence reimbursement rates . we are beginning to experience and anticipate a further transition of business from government payors to managed care organizations with which we are seeking to grow our business given our emphasis on coordinated care and the prevention of acute care . managed care organizations are commercial insurance carriers who are under contract with various federal and state governmental agencies to manage the provision of home and community based services . their objective is to lower total health care costs by integrating the provision of home and community based services with those benefit programs responsible for the provision of acute care services to their consumers . we are also seeking to grow our private duty business . our commercial insurance carrier payor clients are typically for-profit companies and are continuously seeking opportunities to control costs . for the year ended december 31 , 2014 , 2013 and 2012 , our payor revenue mix for continuing operations was : replace_table_token_11_th we derive a significant amount of our net service revenues from our continuing operations in illinois , which represented 60.6 % , 65.5 % and 63.7 % and of our total net service revenues from continuing operations for the years ended december 31 , 2014 , 2013 and 2012 , respectively . a significant amount of our net service revenues from continuing operations are derived from one payor client , the illinois department on aging , which accounted for 53.2 % , 58.8 % and 57.3 % of our total net service revenues from continuing operations for the years ended december 31 , 2014 , 2013 and 2012 , respectively . we also measure the performance of our business using a number of different metrics . we consider billable hours , billable hours per business day , revenues per billable hour and the number of consumers , or census . story_separator_special_tag interest on the revolving line of credit may be payable at ( i ) a floating rate equal to the one-month libor , plus a margin of 3.5 % , ( ii ) the libor rate for term periods of one , two or three months , plus a margin of 3.5 % or ( iii ) the base rate , plus a margin of 1.6 % , where the base rate is equal to the greatest of ( a ) the rate of interest last quoted by the wall street journal as the “prime rate” , ( b ) the sum of the federal funds rate , plus a margin of 0.5 % and ( c ) the sum of the adjusted libor that would be applicable to a loan with a one month interest period advanced on such day , plus a margin of 3.0 % . we pay a fee equal to 0.5 % per annum of the unused portion of the revolving portion of the credit facility . issued stand-by letters of credit are charged at a rate of 2.0 % per annum payable monthly . we did not have any amounts outstanding on the credit facility as of december 31 , 2014 , and the total availability under the revolving credit loan facility was $ 39,536,000 and $ 42,279,000 , as of december 31 , 2014 and 2013 , respectively . the credit facility contains customary affirmative covenants regarding , among other things , the maintenance of records , compliance with laws , maintenance of permits , maintenance of insurance and property and payment of taxes . the credit facility also contains certain customary financial covenants and negative covenants that , among other things , include a requirement to maintain a minimum fixed charge coverage ratio , a requirement to stay below a maximum senior leverage ratio and a requirement to stay below a maximum permitted amount of capital expenditures , as well as restrictions on guarantees , indebtedness , liens , dividends , distributions , investments and loans , subject to customary carve outs , restrictions on our ability to enter into transactions other than in the ordinary course of business , a restriction on the ability to consummate more than three acquisitions in any calendar year , or for the purchase price of any one acquisition to exceed $ 2,000,000 , in each case without the consent of the lenders , restrictions on mergers , transfers of assets , acquisitions , equipment , subsidiaries and affiliate transactions , subject to customary carve outs , and restrictions on fundamental changes and lines of business . while our growth plan is not entirely dependent on the completion of acquisitions , if we do not have sufficient cash resources or availability under our credit facility , or we are otherwise prohibited from making acquisitions , our growth could be limited unless we obtain additional equity or debt financing or unless we obtain the necessary consents from our lenders . we believe the available borrowings under our credit facility which , when taken together with cash from operations , will be sufficient to cover our working capital needs for at least the next 12 months . story_separator_special_tag the dso for our largest payor may increase . the change in the reserve as percentage of gross accounts receivable to 5.4 % in 2014 from 6.3 % in 2013 is attributable to the improvement in dsos outstanding 54 at the end of the respective years . the change to 6.3 % in 2013 from 5.9 % in 2012 is attributable to the medicare receivables in the 2012 balances which have a historically higher collection rate and accordingly a lower reserve rate . dividend notes prior to the completion of our ipo , we had 37,750 shares of series a preferred stock issued and outstanding , all of which were converted into shares of our common stock on november 2 , 2009. shares of our series a preferred stock accumulated dividends each quarter at a rate of 10 % , compounded annually . we accrued these undeclared dividends because the holders had the option to convert their shares of series a preferred stock into common stock at any time with the accumulated dividends payable in cash or a note payable . our series a preferred stock was converted into 4,077,000 shares of common stock in connection with the completion of our ipo on november 2 , 2009. we paid $ 173,000 of the $ 13,109,000 outstanding accumulated dividends as of november 2 , 2009 with the remaining $ 12,936,000 being converted into 10 % junior subordinated promissory notes , which we refer to as the dividend notes . the dividends notes were subordinated and junior to all obligations under our credit facility . our dividend notes were repaid in full during the fourth quarter of 2012. off-balance sheet arrangements as of december 31 , 2014 , we did not have any off-balance sheet guarantees or arrangements with unconsolidated entities . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements prepared in accordance with accounting principles generally accepted in the united states . the preparation of the financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , revenues and expense and related disclosures . we base our estimates and judgments on historical experience and other sources and factors that we believe to be reasonable under the circumstances ; however , actual results may differ from these estimates . we consider the items discussed below to be critical because of their impact on operations and their application requires our judgment and estimates . revenue recognition the majority of our revenues for 2014 , 2013 and 2012 from continuing operations are derived from medicaid and medicaid waiver programs under agreements with various state and local authorities . these agreements

liquidity and capital resources replace_table_token_12_th as of december 31 , 2016 , our principal sources of liquidity were cash , cash equivalents and marketable securities totaling $ 114.6 million , which were held for working capital purposes . our cash , cash equivalents and marketable securities are comprised primarily of u.s. agency obligations , u.s. treasury securities and money market funds . since our inception , we have financed our operations primarily through sales of equity securities and , to a lesser extent , payments from our customers . we believe that our existing cash , cash equivalents and marketable securities will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months . our future capital requirements will depend on many factors including our growth rate , subscription renewal activity , the timing and extent of spending to support development efforts , our expansion of sales and marketing activities , the introduction of new and enhanced services offerings and the continuing market acceptance of our cloud-based products . other than our agreement to acquire jiff inc. , we currently are not a party to any agreement and do not have any understanding with any third parties with respect to potential investments in , or acquisitions of , businesses or technologies . however , we may in the future enter into these types of arrangements . we may be required to seek additional equity or debt financing . in the event that additional financing is required from outside sources , we may not be able to raise it on terms acceptable to us , or at all .

in addition , the technology is used to record basic transaction information about each visit including : start and end times to a scheduled shift , mileage reimbursement , text messages to the homecare aide and communication of basic payroll information . our plans for this technology include development of a web portal to provide the ability to communicate this basic information about individual clients to the managed care organizations . we are growing through selective acquisitions , based on an overall strategy to expand our presence in current markets and to expand our footprint in markets where the home and community business is moving to managed care organizations . we completed two acquisitions in december 2013 and june 2014 that expanded our presence in two existing markets and provided us with a base of operations in two new targeted managed care states . effective january 1 , 2015 , we acquired priority home health care , inc. , a company headquartered in cleveland , ohio and operating six offices in the cleveland , akron and columbus areas . we anticipate these transactions to be accretive to earnings in 2015. effective march 1 , 2013 , we sold substantially all of the assets used in our home health business ( the “home health business” ) in arkansas , nevada and south carolina , and 90 % of the home health business in california and illinois , to subsidiaries of lhc group , inc. ( the “purchasers” ) for a cash purchase price of approximately $ 20,000,000. we retained a 10 % ownership interest in the home health business in california and illinois . the assets sold included 19 home health agencies and two hospice agencies in five states . effective december 30 , 2013 , we sold one home health agency in pennsylvania for approximately $ 200,000. the results of the home health business sold and one additional agency in idaho which was closed in november 2012 , are reflected as discontinued operations for all periods presented herein . continuing operations include the results of operations previously included in our home & community segment and three agencies previously included in our home health segment . following the sale of the home health business , we manage and internally report our business in one segment . because regulatory requirements in delaware and indiana require home and community based services to be provided by a licensed home health agency , we will continue to provide limited home health services reimbursable by medicare in these agencies in order to maintain these licenses . in addition , priority home health care maintains enrollment in but does not derive significant revenues from medicare . we believe the sale of the home health business substantially positioned us for future growth . the sale allowed us to focus both management and financial resources on changes in the home and community based services industry and to address and the needs of managed care organizations as they become more responsible for state sponsored programs . we have improved our financial performance by concentrating our efforts on our home and community business that is growing and profitable . we have improved our overall financial position by eliminating our debt and adding to our cash reserves . 42 business the results of the home health business sold are reflected as discontinued operations for all periods presented herein . continuing operations include the results of operations previously included in our home and community segment and three agencies previously included in our home health segment . following the sale of the home health business , we manage and internally report our business in one segment . as of december 31 , 2014 , we provided our home and community based services through 129 locations across 22 states including 5 adult day centers in illinois . our payor clients are principally federal , state and local governmental agencies and , increasingly , managed care organizations . the federal , state and local programs under which the agencies operate are subject to legislative , budgetary and other risks that can influence reimbursement rates . we are beginning to experience and anticipate a further transition of business from government payors to managed care organizations with which we are seeking to grow our business given our emphasis on coordinated care and the prevention of acute care . managed care organizations are commercial insurance carriers who are under contract with various federal and state governmental agencies to manage the provision of home and community based services . their objective is to lower total health care costs by integrating the provision of home and community based services with those benefit programs responsible for the provision of acute care services to their consumers . we are also seeking to grow our private duty business . our commercial insurance carrier payor clients are typically for-profit companies and are continuously seeking opportunities to control costs . for the year ended december 31 , 2014 , 2013 and 2012 , our payor revenue mix for continuing operations was : replace_table_token_11_th we derive a significant amount of our net service revenues from our continuing operations in illinois , which represented 60.6 % , 65.5 % and 63.7 % and of our total net service revenues from continuing operations for the years ended december 31 , 2014 , 2013 and 2012 , respectively . a significant amount of our net service revenues from continuing operations are derived from one payor client , the illinois department on aging , which accounted for 53.2 % , 58.8 % and 57.3 % of our total net service revenues from continuing operations for the years ended december 31 , 2014 , 2013 and 2012 , respectively . we also measure the performance of our business using a number of different metrics . we consider billable hours , billable hours per business day , revenues per billable hour and the number of consumers , or census . story_separator_special_tag interest on the revolving line of credit may be payable at ( i ) a floating rate equal to the one-month libor , plus a margin of 3.5 % , ( ii ) the libor rate for term periods of one , two or three months , plus a margin of 3.5 % or ( iii ) the base rate , plus a margin of 1.6 % , where the base rate is equal to the greatest of ( a ) the rate of interest last quoted by the wall street journal as the “prime rate” , ( b ) the sum of the federal funds rate , plus a margin of 0.5 % and ( c ) the sum of the adjusted libor that would be applicable to a loan with a one month interest period advanced on such day , plus a margin of 3.0 % . we pay a fee equal to 0.5 % per annum of the unused portion of the revolving portion of the credit facility . issued stand-by letters of credit are charged at a rate of 2.0 % per annum payable monthly . we did not have any amounts outstanding on the credit facility as of december 31 , 2014 , and the total availability under the revolving credit loan facility was $ 39,536,000 and $ 42,279,000 , as of december 31 , 2014 and 2013 , respectively . the credit facility contains customary affirmative covenants regarding , among other things , the maintenance of records , compliance with laws , maintenance of permits , maintenance of insurance and property and payment of taxes . the credit facility also contains certain customary financial covenants and negative covenants that , among other things , include a requirement to maintain a minimum fixed charge coverage ratio , a requirement to stay below a maximum senior leverage ratio and a requirement to stay below a maximum permitted amount of capital expenditures , as well as restrictions on guarantees , indebtedness , liens , dividends , distributions , investments and loans , subject to customary carve outs , restrictions on our ability to enter into transactions other than in the ordinary course of business , a restriction on the ability to consummate more than three acquisitions in any calendar year , or for the purchase price of any one acquisition to exceed $ 2,000,000 , in each case without the consent of the lenders , restrictions on mergers , transfers of assets , acquisitions , equipment , subsidiaries and affiliate transactions , subject to customary carve outs , and restrictions on fundamental changes and lines of business . while our growth plan is not entirely dependent on the completion of acquisitions , if we do not have sufficient cash resources or availability under our credit facility , or we are otherwise prohibited from making acquisitions , our growth could be limited unless we obtain additional equity or debt financing or unless we obtain the necessary consents from our lenders . we believe the available borrowings under our credit facility which , when taken together with cash from operations , will be sufficient to cover our working capital needs for at least the next 12 months . story_separator_special_tag the dso for our largest payor may increase . the change in the reserve as percentage of gross accounts receivable to 5.4 % in 2014 from 6.3 % in 2013 is attributable to the improvement in dsos outstanding 54 at the end of the respective years . the change to 6.3 % in 2013 from 5.9 % in 2012 is attributable to the medicare receivables in the 2012 balances which have a historically higher collection rate and accordingly a lower reserve rate . dividend notes prior to the completion of our ipo , we had 37,750 shares of series a preferred stock issued and outstanding , all of which were converted into shares of our common stock on november 2 , 2009. shares of our series a preferred stock accumulated dividends each quarter at a rate of 10 % , compounded annually . we accrued these undeclared dividends because the holders had the option to convert their shares of series a preferred stock into common stock at any time with the accumulated dividends payable in cash or a note payable . our series a preferred stock was converted into 4,077,000 shares of common stock in connection with the completion of our ipo on november 2 , 2009. we paid $ 173,000 of the $ 13,109,000 outstanding accumulated dividends as of november 2 , 2009 with the remaining $ 12,936,000 being converted into 10 % junior subordinated promissory notes , which we refer to as the dividend notes . the dividends notes were subordinated and junior to all obligations under our credit facility . our dividend notes were repaid in full during the fourth quarter of 2012. off-balance sheet arrangements as of december 31 , 2014 , we did not have any off-balance sheet guarantees or arrangements with unconsolidated entities . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements prepared in accordance with accounting principles generally accepted in the united states . the preparation of the financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , revenues and expense and related disclosures . we base our estimates and judgments on historical experience and other sources and factors that we believe to be reasonable under the circumstances ; however , actual results may differ from these estimates . we consider the items discussed below to be critical because of their impact on operations and their application requires our judgment and estimates . revenue recognition the majority of our revenues for 2014 , 2013 and 2012 from continuing operations are derived from medicaid and medicaid waiver programs under agreements with various state and local authorities . these agreements

cash flows the following table summarizes historical changes in our cash flows for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_16_th 51 year ended december 31 , 2014 compared to year ended december 31 , 2013 net cash provided by operating activities was $ 7,028,000 for the year ended december 31 , 2014 , compared to $ 27,393,000 for the same period in 2013. this decrease in cash provided by operations was primarily due to a decrease in collections on our accounts receivable . net cash used in investing activities was $ 13,633,000 for the year ended december 31 , 2014 , compared to cash provided by investing activities of $ 2,893,000 for the year ended december 31 , 2013. our investing activities for the year ended december 31 , 2014 included purchases of property and equipment related to our corporate headquarters in downers grove , il , the purchase of a new payroll system and the acquisition of aid & assist as described in note 4 to the consolidated financial statements . our investing activities for the year ended december 31 , 2013 were $ 16,105,000 in net proceeds received from the sale of the home health business less $ 12,325,000 related to acquisitions made during the year and the purchase of $ 887,000 of property and equipment . net cash provided by financing activities was $ 4,403,000 for the year ended december 31 , 2014 as compared to net cash used by financing activities of $ 16,458,000 for the year ended december 31 , 2013. our financing activities for the year ended december 31 , 2014 were primarily related to capital lease obligations entered into during the year to finance purchases of property and equipment related to our corporate headquarters in downers grove , il . our financing activities for the year ended december 31 , 2013 were primarily driven by net payments of $ 16,250,000 on the revolving credit portion of our credit facility , and $ 208,000 in payments on our term loan .

the purposes of the 2016 equity incentive plan are to attract and retain qualified persons upon whom , in large measure , our sustained progress , growth and profitability depend , to motivate the participants to achieve long-term company goals and to more closely align the participants ' interests with those of our other stockholders by providing them with a proprietary interest in our growth and performance . a n aggregate of 414,504 long term incentive plan ( “ ltip ” ) units were granted during the year ended december 31 , 2016 pursuant to the 2016 equity incentive plan . in addition , an aggregate of 817,893 additional shares are available for future issuance under our 2016 equity incentive plan . as disclosed in note 12 – “ subsequent events , ” on february 28 , 2017 , the company 's board approved the recommendations of the compensation committee of the board with respect to the granting of 2017 annual performance-based ltip awards and long-term performance-based incentive ltip awards to the executive officers of the company and other employees of the advisor who perform services for the company . critical accounting policies the preparation of financial statements in conformity with gaap requires our management to use judgment in the application of accounting policies , including making estimates and assumptions . we base estimates on the best information available to us at the time , our experience and on various other assumptions believed to be reasonable under the circumstances . these estimates 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 revenue and expenses during the reporting periods . if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different , it is possible that different accounting would have been applied , resulting in a different presentation of our financial statements . from time to time , we re-evaluate our estimates and assumptions . in the event estimates or assumptions prove to be different from actual results , adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain . for a more detailed discussion of our significant accounting policies , see note 2 – “ summary of significant accounting policies ” in the footnotes to the accompanying financial statements . below is a discussion of accounting policies that we consider critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain . 17 use of estimates the preparation of the financial statements in conformity with gaap requires us to make estimates and assumptions that affect the amounts reported in the company 's financial statements and accompanying notes . actual results could differ from those estimates . purchase of real estate transactions in which real estate assets are purchased that are not subject to an existing lease are treated as asset acquisitions and are recorded at their purchase price , including capitalized acquisition costs , which is allocated to land and building based upon their relative fair values at the date of acquisition . transactions in which real estate assets are acquired either subject to an existing lease or as part of a portfolio level transaction with significant leasing activity are treated as a business combination under accounting standards codification ( “ asc ” ) topic 805 , business combinations , and the assets acquired and liabilities assumed , including identified intangible assets and liabilities , are recorded at their fair value . fair value is determined based upon the guidance of asc topic 820 , fair value measurements and disclosures and generally are determined using level 2 inputs , such as rent comparables , sales comparables , and broker indications . although level 3 inputs are utilized , they are minor in comparison to the level 2 data used for the primary assumptions . the determination of fair value involves the use of significant judgment and estimates . we make estimates to determine the fair value of the tangible and intangible assets acquired and liabilities assumed using information obtained from multiple sources , including pre-acquisition due diligence , and we routinely utilize the assistance of a third party appraiser . initial valuations are subject to change until the information is finalized , no later than 12 months from the acquisition date . we expense transaction costs associated with acquisitions accounted for as business combinations in the period incurred . details regarding the valuation of tangible assets : the fair value of land is determined using the sales comparison approach whereby recent comparable land sales and listings are gathered and summarized . the available market data is analyzed and compared to the land being valued and adjustments are made for dissimilar characteristics such as market conditions , size , and location . we estimate the fair value of buildings acquired on an as-if-vacant basis and depreciate the building value over its estimated remaining life . we determine the fair value of site improvements ( non-building improvements that include paving and other ) using the cost approach , with a deduction for depreciation , and depreciate the site improvements over their estimated remaining useful lives . tenant improvements represent fixed improvements to tenant spaces , the fair value of which is estimated using prevailing market tenant improvement allowances that would be given to attract a new tenant , estimated based on the assumption that it is a necessary cost of leasing up a vacant building . tenant improvements are amortized over the remaining term of the lease . as of december 31 , 2016 , the company 's recorded site improvements of $ 1,465,273 and tenant improvement of $ 1,186,014 , resulting from the acquisitions of the healthsouth facilities and the ellijay facilities , respectively . story_separator_special_tag net cash used in investing activities for the year ended december 31 , 2016 was $ 150,357,587 , compared with $ 32,338,990 used in investing activities for the year ended december 31 , 2015. the increase during the current year was primarily derived from the completed acquisitions of ten facilities during 2016. cash flows used in investing activities are heavily dependent upon the investment in properties and real estate assets . we anticipate cash flows used in investing activities to increase as we acquire additional properties in the future . net cash provided by financing activities for the year ended december 31 , 2016 was $ 163,567,614 compared with $ 41,643,255 provided by financing activities for the year ended december 31 , 2015. the increase during the current year was primarily derived from the net proceeds received from the initial public offering of $ 137,288,016 , proceeds received from the revolving credit facility that was entered into and december 2016 , and proceeds of $ 32,097,400 received from the cantor loan . these financing cash inflows were partially offset by the full repayment of the omaha and asheville third party debt , a partial payment of the remaining convertible debenture balance , and payments of dividends , deferred debt issuance costs , and deferred public offering costs . dividends pursuant to a previously declared dividend approved by the board and in compliance with applicable provisions of the maryland general corporation law , the company has paid a monthly dividend of $ 0.0852 per share each month during the four-month period from january 2016 through april 2016 in the total amount of $ 285,703. additionally , on september 14 , 2016 , the company announced the declaration of a cash dividend of $ 0.20 per share of common stock to stockholders of record as of september 27 , 2016 and to the holders of the ltip units that were granted on july 1 , 2016. this dividend , in the amount of $ 3,592,786 , was paid on october 11 , 2016. on december 14 , 2016 , the company announced the declaration of a cash dividend of $ 0.20 per share of common stock to stockholders of record as of december 27 , 2016 and to the holders of the ltip units that were granted on july 1 , 2016 and december 21 , 2016. this dividend , in the amount of $ 3,604,037 , was accrued as of december 31 , 2016 and subsequently paid on january 10 , 2017. total dividends paid to holders of the company 's common stock was $ 3,878,489 during the year ended december 31 , 2016. the amount of the dividends paid to our stockholders is determined by our board and is dependent on a number of factors , including funds available for payment of dividends , our financial condition , capital expenditure requirements and annual dividend amount of offering proceeds that may be used to fund dividends , except that , in accordance with our organizational documents and maryland law , we may not make dividend distributions that would : ( i ) cause us to be unable to pay our debts as they become due in the usual course of business ; ( ii ) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences ; or ( iii ) jeopardize our ability to maintain our qualification as a reit . 24 non-gaap financial measures funds from operations ( “ ffo ” ) and adjusted funds from operations ( “ affo ” ) are non-gaap financial measures within the meaning of the rules of the u.s. securities and exchange commission . the company considers ffo and affo to be important supplemental measures of its operating performance and believes ffo is frequently used by securities analysts , investors , and other interested parties in the evaluation of reits , many of which present ffo when reporting their results . in accordance with the national association of real estate investment trusts ' ( “ nareit ” ) definition , ffo means net income or loss [ computed in accordance with generally accepted accounting principles ( ” gaap ” ) ] before non-controlling interests of holders of operating partnership units , excluding gains ( or losses ) from sales of property and extraordinary items , plus real estate related depreciation and amortization ( excluding amortization of deferred financing costs ) , and after adjustments for unconsolidated partnerships and joint ventures . the company did not incur any gains or losses from the sales of property or record any adjustments for unconsolidated partnerships and joint ventures during the years ended december 31 , 2016 and december 31 , 2015. because ffo excludes real estate related depreciation and amortization ( other than amortization of deferred financing costs ) , the company believes that ffo provides a performance measure that , when compared period-over-period , reflects the impact to operations from trends in occupancy rates , rental rates , operating costs , development activities and interest costs , providing perspective not immediately apparent from the closest gaap measurement , net income or loss . management calculates affo , which is also a non-gaap financial measure , by modifying the nareit computation of ffo by adjusting it for certain non-cash and non-recurring items . for the company these items include acquisition and disposition costs , loss on the extinguishment of debt , straight line deferred rental revenue , stock-based compensation expense , amortization of deferred financing costs , recurring capital expenditures , recurring lease commissions , recurring tenant improvements and other non-cash and non-recurring items . management believes that reporting affo in addition to ffo is a useful supplemental measure for the investment community to use when evaluating the operating performance of the company on a comparative basis . the company 's ffo and affo computations may not be comparable to ffo and affo reported by other reits that do

cash flows the following table summarizes historical changes in our cash flows for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_16_th 51 year ended december 31 , 2014 compared to year ended december 31 , 2013 net cash provided by operating activities was $ 7,028,000 for the year ended december 31 , 2014 , compared to $ 27,393,000 for the same period in 2013. this decrease in cash provided by operations was primarily due to a decrease in collections on our accounts receivable . net cash used in investing activities was $ 13,633,000 for the year ended december 31 , 2014 , compared to cash provided by investing activities of $ 2,893,000 for the year ended december 31 , 2013. our investing activities for the year ended december 31 , 2014 included purchases of property and equipment related to our corporate headquarters in downers grove , il , the purchase of a new payroll system and the acquisition of aid & assist as described in note 4 to the consolidated financial statements . our investing activities for the year ended december 31 , 2013 were $ 16,105,000 in net proceeds received from the sale of the home health business less $ 12,325,000 related to acquisitions made during the year and the purchase of $ 887,000 of property and equipment . net cash provided by financing activities was $ 4,403,000 for the year ended december 31 , 2014 as compared to net cash used by financing activities of $ 16,458,000 for the year ended december 31 , 2013. our financing activities for the year ended december 31 , 2014 were primarily related to capital lease obligations entered into during the year to finance purchases of property and equipment related to our corporate headquarters in downers grove , il . our financing activities for the year ended december 31 , 2013 were primarily driven by net payments of $ 16,250,000 on the revolving credit portion of our credit facility , and $ 208,000 in payments on our term loan .

the purposes of the 2016 equity incentive plan are to attract and retain qualified persons upon whom , in large measure , our sustained progress , growth and profitability depend , to motivate the participants to achieve long-term company goals and to more closely align the participants ' interests with those of our other stockholders by providing them with a proprietary interest in our growth and performance . a n aggregate of 414,504 long term incentive plan ( “ ltip ” ) units were granted during the year ended december 31 , 2016 pursuant to the 2016 equity incentive plan . in addition , an aggregate of 817,893 additional shares are available for future issuance under our 2016 equity incentive plan . as disclosed in note 12 – “ subsequent events , ” on february 28 , 2017 , the company 's board approved the recommendations of the compensation committee of the board with respect to the granting of 2017 annual performance-based ltip awards and long-term performance-based incentive ltip awards to the executive officers of the company and other employees of the advisor who perform services for the company . critical accounting policies the preparation of financial statements in conformity with gaap requires our management to use judgment in the application of accounting policies , including making estimates and assumptions . we base estimates on the best information available to us at the time , our experience and on various other assumptions believed to be reasonable under the circumstances . these estimates 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 revenue and expenses during the reporting periods . if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different , it is possible that different accounting would have been applied , resulting in a different presentation of our financial statements . from time to time , we re-evaluate our estimates and assumptions . in the event estimates or assumptions prove to be different from actual results , adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain . for a more detailed discussion of our significant accounting policies , see note 2 – “ summary of significant accounting policies ” in the footnotes to the accompanying financial statements . below is a discussion of accounting policies that we consider critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain . 17 use of estimates the preparation of the financial statements in conformity with gaap requires us to make estimates and assumptions that affect the amounts reported in the company 's financial statements and accompanying notes . actual results could differ from those estimates . purchase of real estate transactions in which real estate assets are purchased that are not subject to an existing lease are treated as asset acquisitions and are recorded at their purchase price , including capitalized acquisition costs , which is allocated to land and building based upon their relative fair values at the date of acquisition . transactions in which real estate assets are acquired either subject to an existing lease or as part of a portfolio level transaction with significant leasing activity are treated as a business combination under accounting standards codification ( “ asc ” ) topic 805 , business combinations , and the assets acquired and liabilities assumed , including identified intangible assets and liabilities , are recorded at their fair value . fair value is determined based upon the guidance of asc topic 820 , fair value measurements and disclosures and generally are determined using level 2 inputs , such as rent comparables , sales comparables , and broker indications . although level 3 inputs are utilized , they are minor in comparison to the level 2 data used for the primary assumptions . the determination of fair value involves the use of significant judgment and estimates . we make estimates to determine the fair value of the tangible and intangible assets acquired and liabilities assumed using information obtained from multiple sources , including pre-acquisition due diligence , and we routinely utilize the assistance of a third party appraiser . initial valuations are subject to change until the information is finalized , no later than 12 months from the acquisition date . we expense transaction costs associated with acquisitions accounted for as business combinations in the period incurred . details regarding the valuation of tangible assets : the fair value of land is determined using the sales comparison approach whereby recent comparable land sales and listings are gathered and summarized . the available market data is analyzed and compared to the land being valued and adjustments are made for dissimilar characteristics such as market conditions , size , and location . we estimate the fair value of buildings acquired on an as-if-vacant basis and depreciate the building value over its estimated remaining life . we determine the fair value of site improvements ( non-building improvements that include paving and other ) using the cost approach , with a deduction for depreciation , and depreciate the site improvements over their estimated remaining useful lives . tenant improvements represent fixed improvements to tenant spaces , the fair value of which is estimated using prevailing market tenant improvement allowances that would be given to attract a new tenant , estimated based on the assumption that it is a necessary cost of leasing up a vacant building . tenant improvements are amortized over the remaining term of the lease . as of december 31 , 2016 , the company 's recorded site improvements of $ 1,465,273 and tenant improvement of $ 1,186,014 , resulting from the acquisitions of the healthsouth facilities and the ellijay facilities , respectively . story_separator_special_tag net cash used in investing activities for the year ended december 31 , 2016 was $ 150,357,587 , compared with $ 32,338,990 used in investing activities for the year ended december 31 , 2015. the increase during the current year was primarily derived from the completed acquisitions of ten facilities during 2016. cash flows used in investing activities are heavily dependent upon the investment in properties and real estate assets . we anticipate cash flows used in investing activities to increase as we acquire additional properties in the future . net cash provided by financing activities for the year ended december 31 , 2016 was $ 163,567,614 compared with $ 41,643,255 provided by financing activities for the year ended december 31 , 2015. the increase during the current year was primarily derived from the net proceeds received from the initial public offering of $ 137,288,016 , proceeds received from the revolving credit facility that was entered into and december 2016 , and proceeds of $ 32,097,400 received from the cantor loan . these financing cash inflows were partially offset by the full repayment of the omaha and asheville third party debt , a partial payment of the remaining convertible debenture balance , and payments of dividends , deferred debt issuance costs , and deferred public offering costs . dividends pursuant to a previously declared dividend approved by the board and in compliance with applicable provisions of the maryland general corporation law , the company has paid a monthly dividend of $ 0.0852 per share each month during the four-month period from january 2016 through april 2016 in the total amount of $ 285,703. additionally , on september 14 , 2016 , the company announced the declaration of a cash dividend of $ 0.20 per share of common stock to stockholders of record as of september 27 , 2016 and to the holders of the ltip units that were granted on july 1 , 2016. this dividend , in the amount of $ 3,592,786 , was paid on october 11 , 2016. on december 14 , 2016 , the company announced the declaration of a cash dividend of $ 0.20 per share of common stock to stockholders of record as of december 27 , 2016 and to the holders of the ltip units that were granted on july 1 , 2016 and december 21 , 2016. this dividend , in the amount of $ 3,604,037 , was accrued as of december 31 , 2016 and subsequently paid on january 10 , 2017. total dividends paid to holders of the company 's common stock was $ 3,878,489 during the year ended december 31 , 2016. the amount of the dividends paid to our stockholders is determined by our board and is dependent on a number of factors , including funds available for payment of dividends , our financial condition , capital expenditure requirements and annual dividend amount of offering proceeds that may be used to fund dividends , except that , in accordance with our organizational documents and maryland law , we may not make dividend distributions that would : ( i ) cause us to be unable to pay our debts as they become due in the usual course of business ; ( ii ) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences ; or ( iii ) jeopardize our ability to maintain our qualification as a reit . 24 non-gaap financial measures funds from operations ( “ ffo ” ) and adjusted funds from operations ( “ affo ” ) are non-gaap financial measures within the meaning of the rules of the u.s. securities and exchange commission . the company considers ffo and affo to be important supplemental measures of its operating performance and believes ffo is frequently used by securities analysts , investors , and other interested parties in the evaluation of reits , many of which present ffo when reporting their results . in accordance with the national association of real estate investment trusts ' ( “ nareit ” ) definition , ffo means net income or loss [ computed in accordance with generally accepted accounting principles ( ” gaap ” ) ] before non-controlling interests of holders of operating partnership units , excluding gains ( or losses ) from sales of property and extraordinary items , plus real estate related depreciation and amortization ( excluding amortization of deferred financing costs ) , and after adjustments for unconsolidated partnerships and joint ventures . the company did not incur any gains or losses from the sales of property or record any adjustments for unconsolidated partnerships and joint ventures during the years ended december 31 , 2016 and december 31 , 2015. because ffo excludes real estate related depreciation and amortization ( other than amortization of deferred financing costs ) , the company believes that ffo provides a performance measure that , when compared period-over-period , reflects the impact to operations from trends in occupancy rates , rental rates , operating costs , development activities and interest costs , providing perspective not immediately apparent from the closest gaap measurement , net income or loss . management calculates affo , which is also a non-gaap financial measure , by modifying the nareit computation of ffo by adjusting it for certain non-cash and non-recurring items . for the company these items include acquisition and disposition costs , loss on the extinguishment of debt , straight line deferred rental revenue , stock-based compensation expense , amortization of deferred financing costs , recurring capital expenditures , recurring lease commissions , recurring tenant improvements and other non-cash and non-recurring items . management believes that reporting affo in addition to ffo is a useful supplemental measure for the investment community to use when evaluating the operating performance of the company on a comparative basis . the company 's ffo and affo computations may not be comparable to ffo and affo reported by other reits that do

cash flows from investing activities cash flows from investing activities primarily represent activities related to us acquiring healthcare facilities , plants , and equipment and making and collecting loans from other entities . cash flows from financing activities cash flows from financing activities primarily represent activities related to us borrowing and subsequently repaying funds from other entities as well as providing stockholders with a return on investment primarily in the form of a dividend payment . 21 consolidated results of operations the major factor that resulted in variances in our results of operations for each revenue and expense category for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 is due to the fact that as of december 31 , 2016 our portfolio consisted of facilities from a total of 14 acquisitions , whereas as of december 31 , 2015 only four of the 14 acquisitions had occurred . as of december 31 , 2016 the company had facilities in its portfolio from the following acquisitions : · healthsouth facilities ( acquired december 20 , 2016 ) · ellijay facilities ( acquired december 16 , 2016 ) · carson city facilities ( acquired october 31 , 2016 ) · sandusky facilities ( acquired october 7 , 2016 ) · watertown ( acquired september 30 , 2016 ) · east orange ( acquired september 29 , 2016 ) · reading ( acquired july 20 , 2016 ) · melbourne ( acquired march 31 , 2016 ) · westland ( acquired march 31 , 2016 ) · plano ( acquired january 28 , 2016 ) · tennessee facilities ( acquired december 31 , 2015 ) · west mifflin ( acquired september 25 , 2015 ) · asheville ( acquired september 19 , 2014 ) · omaha ( acquired june 5 , 2014 ) as of december 31 , 2015 the company had facilities in its portfolio from the following acquisitions : · tennessee facilities ( acquired december 31 , 2015 ) · west mifflin ( acquired september 25 , 2015 ) · asheville ( acquired september 19 , 2014 ) · omaha ( acquired june 5 , 2014 ) revenues total revenue for the year ended december 31 , 2016 was $ 8,210,330 ,

as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report on form 10-k , our actual results could differ materially from the results described in , or implied by , these forward-looking statements . overview we are a genome editing company focused on developing medicines to durably treat rare diseases in patients with significant unmet medical need using generide , our proprietary technology platform . our generide technology enables the site-specific integration of a therapeutic transgene without nucleases or exogenous promoters by harnessing the native process of homologous recombination . we are developing lb-001 , a wholly owned genome editing program leveraging generide for the treatment of methylmalonic acidemia , or mma . in addition , we have a research collaboration with takeda pharmaceutical company limited , of takeda , to develop lb-301 , an investigational therapy leveraging generide for the treatment of the rare pediatric disease crigler-najjar syndrome , or cn . we are also developing saavy , a next generation capsid platform for use in gene editing and gene therapy . at the american society of gene and cell therapy , or asgct , conference in may 2020 , data was presented showing that the capsids delivered highly efficient functional transduction of human hepatocytes in a humanized mouse model . the data also showed the capsids exhibited improved manufacturability with low levels of pre-existing neutralizing antibodies in human samples . based on these data , we believe the top-tier capsid candidates from this effort demonstrated the potential to achieve significant improvements over benchmark adeno-associated viruses , or aavs , that are currently in clinical development . we are developing these highly potent vectors for use in our internal development candidates and potentially for business development collaborations . we plan to announce data generated from translational animal models using these capsids in the first half of 2021. in january 2021 , we announced the extension of our collaboration with children 's medical research institute , or cmri , to continue to develop next-generation capsids for gene therapy and gene editing applications in the liver as well as two additional tissues . based on our generide technology , we are developing lb-001 to treat mma . in january 2020 , we announced the submission of an investigational new drug application , or ind , to support the initiation of a phase 1/2 clinical trial in pediatric patients with mma , which was cleared by the u.s. food and drug administration , or the fda , in august 2020. the sunrise trial is a multi-center , open-label , phase 1/2 clinical trial designed to assess the safety and tolerability of a single intravenous infusion of lb-001 in pediatric patients with mma characterized by methylmalonyl-coa mutase gene ( mmut ) mutations . we expect seven leading centers in the united states to participate in the sunrise trial . t he sunrise phase 1/2 clinical trial is expected to enroll eight pediatric patients with ages ranging from 6 months to 12 years , initially starting with 3 to 12 year old patients and then adding patients aged 6 months to 2 years . the sunrise trial will evaluate two dose cohorts of lb-001 ( cohort 1 = 5 x 10 13 vg/kg and cohort 2 = 1 x 10 14 vg/kg ) . after initially starting with the lower dose in the 3 to 12 year old patient group ( cohort 1 , older age group , n=2 ) , age de-escalation ( cohort 1 , younger age group , n=2 ) and dose escalation ( cohort 2 , older age group , n=2 ) are planned to occur in parallel . the decision to escalate the dose will be determined based solely on safety , whereas the decision to age de-escalate will be based on both safety and the detection of the pharmacodynamic biomarker , albumin-2a . afterwards , based on a review of safety and or the detection of albumin-2a , as applicable , from these two patient groups , the trial would progress to dosing additional patients in the younger age group at the higher dose ( cohort 2 , younger age group , n=2 ) . the sunrise trial includes a six-week staggering interval between the dosing of each patient . patients will participate in a pre-dosing observational period and will be administered a prophylactic steroid regimen . the primary endpoint of the sunrise trial is to assess the safety and tolerability of lb-001 at 52 weeks after a single infusion . additional endpoints include changes in disease-related biomarkers , including serum methylmalonic acid , clinical outcomes such as growth and healthcare utilization , and the pharmacodynamic marker albumin-2a . we expect to enroll the first patient in early 2021 and provide an operational update regarding the dose escalation and age de-escalation in mid-2021 . based on the parallel age de-escalation and dose escalation plan and current projections for enrollment , we expect to announce interim data from both age groups and both dose cohorts in the sunrise trial by the end of 2021 . 102 in addition to the phase 1/2 sunrise trial , we have completed a retrospective natural history study designed to evaluate disease progression in pediatric patients with mma . we expect this study will provide us with insights into , among other matters , the course of disease progression , the impact of a liver transplant on the outcomes of mma patients and potential endpoints such as the relevance of methylmalonic acid levels on clinical outcomes , with the goal of informing our future clinical development in mma and our discussions withregulatory agencies as we look toward advancing our mma program . story_separator_special_tag contractual obligations and commitments : we are a smaller reporting company , as defined in rule 12b-2 under the securities exchange act of 1934 , as amended , for this reporting period and are not required to provide the information required under this item . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states . the preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , costs and expenses and the disclosure of contingent assets and liabilities in our financial statements . we base our estimates on historical experience , known trends and events and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in greater detail in note 2 to our consolidated financial statements appearing at the end of this annual report on form 10-k , we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition to date , our only revenue has consisted of service revenue , all of which is attributable to our research cost reimbursement under our january 2020 research agreement with takeda for the development of product candidate lb-301 to treat cn ( the “ takeda agreement ” ) . we have not generated any revenue from product sales and do not expect to generate any revenue from product sales for the foreseeable future . we recognize revenue in accordance with accounting standards codification ( “ asc ” ) topic 606 , revenue from contracts with customers ( “ asc 606 ” ) . asc 606 applies to all contracts with customers , except for contracts that are within the scope of other standards , such as leases , insurance , collaboration arrangements and financial instruments . under asc 606 , we recognize revenue when its customer obtains control of promised goods or services , in an amount that reflects the consideration we expect to receive in exchange for those goods or services . to determine revenue recognition for arrangements that an entity determines are within the scope of asc 606 , we perform the following five steps : ( i ) identification of the promised goods or services in the contract ; 109 ( ii ) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract ; ( iii ) measurement of the transaction price , including the constraint on variable consideration ; ( iv ) allocation of the transaction price to the performance obligations ; and ( v ) recognition of revenue when ( or as ) each performance obligation is satisfied . if a contract is determined to be within the scope of asc 606 at inception , we assess the goods or services promised within such contract , determine which of those goods and services are performance obligations , and assess whether each promised good or service is distinct . we may provide options to additional items in such arrangements , which are accounted for as separate contracts when the customer elects to exercise such options , unless the option provides a material right to the customer . we determine transaction price based on the amount of consideration we expect to receive for transferring the promised goods or services in the contract . consideration may be fixed , variable , or a combination of both . we then allocate the transaction price to each performance obligation based on the relative standalone selling price and recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when ( or as ) control is transferred to the customer and the performance obligation is satisfied . amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in our consolidated balance sheets . if the related performance obligation is expected to be satisfied within the next twelve months , deferred revenue will be classified in current liabilities . amounts recognized as revenue prior to receipt are recorded as contract assets in our consolidated balance sheets . if we expect to have an unconditional right to receive the consideration in the next twelve months , this will be classified in current assets . a net contract asset or liability is presented for each contract with a customer . accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued research and development expenses . we make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from the estimate , we adjust the accrual or the amount of prepaid expenses accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the

cash flows from investing activities cash flows from investing activities primarily represent activities related to us acquiring healthcare facilities , plants , and equipment and making and collecting loans from other entities . cash flows from financing activities cash flows from financing activities primarily represent activities related to us borrowing and subsequently repaying funds from other entities as well as providing stockholders with a return on investment primarily in the form of a dividend payment . 21 consolidated results of operations the major factor that resulted in variances in our results of operations for each revenue and expense category for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 is due to the fact that as of december 31 , 2016 our portfolio consisted of facilities from a total of 14 acquisitions , whereas as of december 31 , 2015 only four of the 14 acquisitions had occurred . as of december 31 , 2016 the company had facilities in its portfolio from the following acquisitions : · healthsouth facilities ( acquired december 20 , 2016 ) · ellijay facilities ( acquired december 16 , 2016 ) · carson city facilities ( acquired october 31 , 2016 ) · sandusky facilities ( acquired october 7 , 2016 ) · watertown ( acquired september 30 , 2016 ) · east orange ( acquired september 29 , 2016 ) · reading ( acquired july 20 , 2016 ) · melbourne ( acquired march 31 , 2016 ) · westland ( acquired march 31 , 2016 ) · plano ( acquired january 28 , 2016 ) · tennessee facilities ( acquired december 31 , 2015 ) · west mifflin ( acquired september 25 , 2015 ) · asheville ( acquired september 19 , 2014 ) · omaha ( acquired june 5 , 2014 ) as of december 31 , 2015 the company had facilities in its portfolio from the following acquisitions : · tennessee facilities ( acquired december 31 , 2015 ) · west mifflin ( acquired september 25 , 2015 ) · asheville ( acquired september 19 , 2014 ) · omaha ( acquired june 5 , 2014 ) revenues total revenue for the year ended december 31 , 2016 was $ 8,210,330 ,

as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report on form 10-k , our actual results could differ materially from the results described in , or implied by , these forward-looking statements . overview we are a genome editing company focused on developing medicines to durably treat rare diseases in patients with significant unmet medical need using generide , our proprietary technology platform . our generide technology enables the site-specific integration of a therapeutic transgene without nucleases or exogenous promoters by harnessing the native process of homologous recombination . we are developing lb-001 , a wholly owned genome editing program leveraging generide for the treatment of methylmalonic acidemia , or mma . in addition , we have a research collaboration with takeda pharmaceutical company limited , of takeda , to develop lb-301 , an investigational therapy leveraging generide for the treatment of the rare pediatric disease crigler-najjar syndrome , or cn . we are also developing saavy , a next generation capsid platform for use in gene editing and gene therapy . at the american society of gene and cell therapy , or asgct , conference in may 2020 , data was presented showing that the capsids delivered highly efficient functional transduction of human hepatocytes in a humanized mouse model . the data also showed the capsids exhibited improved manufacturability with low levels of pre-existing neutralizing antibodies in human samples . based on these data , we believe the top-tier capsid candidates from this effort demonstrated the potential to achieve significant improvements over benchmark adeno-associated viruses , or aavs , that are currently in clinical development . we are developing these highly potent vectors for use in our internal development candidates and potentially for business development collaborations . we plan to announce data generated from translational animal models using these capsids in the first half of 2021. in january 2021 , we announced the extension of our collaboration with children 's medical research institute , or cmri , to continue to develop next-generation capsids for gene therapy and gene editing applications in the liver as well as two additional tissues . based on our generide technology , we are developing lb-001 to treat mma . in january 2020 , we announced the submission of an investigational new drug application , or ind , to support the initiation of a phase 1/2 clinical trial in pediatric patients with mma , which was cleared by the u.s. food and drug administration , or the fda , in august 2020. the sunrise trial is a multi-center , open-label , phase 1/2 clinical trial designed to assess the safety and tolerability of a single intravenous infusion of lb-001 in pediatric patients with mma characterized by methylmalonyl-coa mutase gene ( mmut ) mutations . we expect seven leading centers in the united states to participate in the sunrise trial . t he sunrise phase 1/2 clinical trial is expected to enroll eight pediatric patients with ages ranging from 6 months to 12 years , initially starting with 3 to 12 year old patients and then adding patients aged 6 months to 2 years . the sunrise trial will evaluate two dose cohorts of lb-001 ( cohort 1 = 5 x 10 13 vg/kg and cohort 2 = 1 x 10 14 vg/kg ) . after initially starting with the lower dose in the 3 to 12 year old patient group ( cohort 1 , older age group , n=2 ) , age de-escalation ( cohort 1 , younger age group , n=2 ) and dose escalation ( cohort 2 , older age group , n=2 ) are planned to occur in parallel . the decision to escalate the dose will be determined based solely on safety , whereas the decision to age de-escalate will be based on both safety and the detection of the pharmacodynamic biomarker , albumin-2a . afterwards , based on a review of safety and or the detection of albumin-2a , as applicable , from these two patient groups , the trial would progress to dosing additional patients in the younger age group at the higher dose ( cohort 2 , younger age group , n=2 ) . the sunrise trial includes a six-week staggering interval between the dosing of each patient . patients will participate in a pre-dosing observational period and will be administered a prophylactic steroid regimen . the primary endpoint of the sunrise trial is to assess the safety and tolerability of lb-001 at 52 weeks after a single infusion . additional endpoints include changes in disease-related biomarkers , including serum methylmalonic acid , clinical outcomes such as growth and healthcare utilization , and the pharmacodynamic marker albumin-2a . we expect to enroll the first patient in early 2021 and provide an operational update regarding the dose escalation and age de-escalation in mid-2021 . based on the parallel age de-escalation and dose escalation plan and current projections for enrollment , we expect to announce interim data from both age groups and both dose cohorts in the sunrise trial by the end of 2021 . 102 in addition to the phase 1/2 sunrise trial , we have completed a retrospective natural history study designed to evaluate disease progression in pediatric patients with mma . we expect this study will provide us with insights into , among other matters , the course of disease progression , the impact of a liver transplant on the outcomes of mma patients and potential endpoints such as the relevance of methylmalonic acid levels on clinical outcomes , with the goal of informing our future clinical development in mma and our discussions withregulatory agencies as we look toward advancing our mma program . story_separator_special_tag contractual obligations and commitments : we are a smaller reporting company , as defined in rule 12b-2 under the securities exchange act of 1934 , as amended , for this reporting period and are not required to provide the information required under this item . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states . the preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , costs and expenses and the disclosure of contingent assets and liabilities in our financial statements . we base our estimates on historical experience , known trends and events and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in greater detail in note 2 to our consolidated financial statements appearing at the end of this annual report on form 10-k , we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition to date , our only revenue has consisted of service revenue , all of which is attributable to our research cost reimbursement under our january 2020 research agreement with takeda for the development of product candidate lb-301 to treat cn ( the “ takeda agreement ” ) . we have not generated any revenue from product sales and do not expect to generate any revenue from product sales for the foreseeable future . we recognize revenue in accordance with accounting standards codification ( “ asc ” ) topic 606 , revenue from contracts with customers ( “ asc 606 ” ) . asc 606 applies to all contracts with customers , except for contracts that are within the scope of other standards , such as leases , insurance , collaboration arrangements and financial instruments . under asc 606 , we recognize revenue when its customer obtains control of promised goods or services , in an amount that reflects the consideration we expect to receive in exchange for those goods or services . to determine revenue recognition for arrangements that an entity determines are within the scope of asc 606 , we perform the following five steps : ( i ) identification of the promised goods or services in the contract ; 109 ( ii ) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract ; ( iii ) measurement of the transaction price , including the constraint on variable consideration ; ( iv ) allocation of the transaction price to the performance obligations ; and ( v ) recognition of revenue when ( or as ) each performance obligation is satisfied . if a contract is determined to be within the scope of asc 606 at inception , we assess the goods or services promised within such contract , determine which of those goods and services are performance obligations , and assess whether each promised good or service is distinct . we may provide options to additional items in such arrangements , which are accounted for as separate contracts when the customer elects to exercise such options , unless the option provides a material right to the customer . we determine transaction price based on the amount of consideration we expect to receive for transferring the promised goods or services in the contract . consideration may be fixed , variable , or a combination of both . we then allocate the transaction price to each performance obligation based on the relative standalone selling price and recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when ( or as ) control is transferred to the customer and the performance obligation is satisfied . amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in our consolidated balance sheets . if the related performance obligation is expected to be satisfied within the next twelve months , deferred revenue will be classified in current liabilities . amounts recognized as revenue prior to receipt are recorded as contract assets in our consolidated balance sheets . if we expect to have an unconditional right to receive the consideration in the next twelve months , this will be classified in current assets . a net contract asset or liability is presented for each contract with a customer . accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued research and development expenses . we make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from the estimate , we adjust the accrual or the amount of prepaid expenses accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the

liquidity and capital resources overview since our inception and through december 31 , 2020 , we have not generated any product revenue and have incurred significant losses and negative cash flows from our operations . as of december 31 , 2020 , we had cash and cash equivalents of $ 70.1 million . cash flows the following table summarized our cash flows for each of the years ended december 31 , 2020 and 2019 : replace_table_token_3_th operating activities during the year ended december 31 , 2020 , net cash used in operating activities was approximately $ 28.9 million , primarily related to our net loss adjusted for non-cash charges and changes in the components of working capital . the $ 9.8 million decrease in cash used in operating activities during the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , was primarily driven by a decrease in our net loss and increases in both non-cash stock-based compensation and non-cash lease expenses . investing activities during the year ended december 31 , 2020 , net cash provided by investing activities was approximately $ 17.0 million , as the proceeds from our short-term investments that matured during the period were not reinvested and were instead held as cash and cash equivalents . during the year ended december 31 , 2019 , net cash used in investing activities was $ 18.5 million , primarily related to net short-term investments activity of $ 17.1 million and purchases of property and equipment of $ 1.4 million . financing activities during the year ended december 31 , 2020 , net cash provided by financing activities was $ 48.7 million , primarily related to net proceeds of $ 45.2 million from our october 2020 follow-on offering as well as approximately $ 3.4 million in net proceeds from sales of our common stock under the open market sales agreement with jefferies llc .

19 accent acquisition on june 1 , 2015 , we acquired 100 % of the membership interests of accent pursuant to a membership interest purchase agreement with mdc corporate ( us ) inc. and mdc acquisition inc. accent is a business process outsourcing company providing contact center services and customer engagement solutions with locations in the u.s. and jamaica . accent 's data-driven approach helps brands maximize their engagement with consumers and enables brands to influence behavior , all while generating a better return on investment across all customer touch points , including phone , online and social media channels . accent 's customer engagement agency model and platform complements our ideal dialogue practice , significantly enhancing our solution set and commitment to results-driven analytics and customer insights for our clients . accordingly , we paid a premium for accent , resulting in the recognition of goodwill . 20 results of operations — years ended december 31 , 2015 and 2014 the following table summarizes our revenues and gross profit for the periods indicated , by reporting segment : replace_table_token_5_th revenue revenue increased by $ 32.0 million , or 12.8 % , from $ 250.1 million in 2014 to $ 282.1 million in 2015. this includes accent revenue of $ 40.4 million . the domestic segment increase of $ 39.4 million was due to $ 34.3 million from the acquisition of accent and $ 42.3 million of new business and growth from existing clients , partially offset by $ 31.1 million of volume reductions , $ 5.0 million of lost programs , and $ 1.1 million due to site closures . offshore revenues declined by $ 12.9 million due to $ 16.1 million of volume reductions and $ 6.3 million of lost programs , partially offset by $ 9.5 million of growth from existing and new clients . the increase in the nearshore segment of $ 5.6 million was due to $ 6.3 million of growth from existing and new clients in our honduras facilities and $ 6.5 million of revenue from our jamaica facility , partially offset by $ 3.8 million of volume reductions and $ 3.4 million of lost revenue due to the closure of the costa rica site in 2014. cost of services and gross profit the gross profit as a percentage of revenue decrease of 3.6 % was primarily due to the dilutive effects of both the accent acquisition and new capacity added in late 2014 , coupled with lower than expected call volumes . domestic gross profit as a percentage of revenue decreased to 6.8 % in 2015 from 9.9 % in 2014 primarily due to the dilutive effects of the accent acquisition and the aforementioned lower call volumes . the offshore decline of 8.5 % was primarily due to under-utilized capacity added during late 2014 as well as a decrease in call volumes . nearshore gross profit increased by $ 3.7 million , or 8.4 % as a percentage of revenue , due to the closure of costa rica , continuing increased capacity utilization in honduras and the benefit of our new jamaica facility . selling , general and administrative expenses selling , general and administrative expenses remained comparable at 12.2 % and 12.6 % for the years ended december 31 , 2015 and 2014 , respectively . 21 impairment losses and restructuring charges , net during 2015 , we recognized $ 0.3 million in impairment losses in our nearshore segment associated with certain assets after an impairment analysis indicated estimated future cash flows were insufficient to support the carrying values . no impairment losses were incurred during 2014. restructuring charges totaled $ 3.6 million for the year ended december 31 , 2015 , which primarily consisted of the following : $ 1.7 million in the domestic segment primarily due to the acquisition of accent and closure of three sites ; $ 0.4 million in the offshore and nearshore segments related to various corporate cost cutting measures ; and $ 1.5 million related to the it transformation project which concluded in third quarter 2015. interest and other income ( expense ) , net interest and other income ( expense ) , net for 2015 was $ 1.1 million of expense , which consists primarily of $ 1.6 million of interest expense on our revolving line of credit and other debt , partially offset by $ 0.5 million gain on sale of assets . income tax expense income tax expense for 2015 was $ 0.5 million , compared to $ 0.5 million in 2014 . similar to 2014 , the 2015 income tax expense is primarily related to the income tax provision for canadian operations . our u.s. operations have a valuation allowance recorded on u.s. deferred tax assets and we have tax holidays in costa rica , honduras , and jamaica , and for certain facilities in the philippines . net loss as a result of the factors described above , net loss was $ 15.6 million for the year ended december 31 , 2015 , compared to $ 5.5 million for the year ended december 31 , 2014 . 22 results of operations — years ended december 31 , 2014 and 2013 replace_table_token_6_th revenue revenue increased by $ 18.8 million , or 8.1 % , to $ 250.1 million in 2014 from $ 231.3 million in 2013. the domestic segment increase of $ 9.6 million was due to $ 20.6 million of new business and growth from existing programs , partially offset by $ 7.3 million of volume reductions , $ 1.9 million of pricing reductions , and $ 1.8 million of site closures . offshore revenues grew $ 4.7 million due to $ 14.0 million of growth from existing and new clients , partially offset by $ 1.6 million of lost revenues and $ 7.7 million of volume reductions . story_separator_special_tag these unobservable inputs reflect our own estimates of assumptions that market participants would use in pricing the asset or liability . when determining the fair value measurements for assets and liabilities required or permitted to be recorded at and or marked to fair value , we consider the principal or most advantageous market in which it would transact and consider assumptions that market participants would use when pricing the asset or liability . when possible , we look to active and observable markets to price identical assets or liabilities . when identical assets and liabilities are not traded in active markets , we look to market observable data for similar assets and liabilities . nevertheless , if certain assets and liabilities are not actively traded in observable markets , we must use alternative valuation techniques to derive a fair value measurement . for more information , refer to note 8 , “ fair value measurements , ” to our consolidated financial statements , included in item 8 , “ financial statements and supplementary financial data . ” 28 impairment of long-lived assets we periodically , on at least an annual basis , evaluate potential impairments of our long-lived assets . in our annual evaluation or when we determine that the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more indicators of impairment , we evaluate the projected undiscounted cash flows related to the assets . if these cash flows are less than the carrying values of the assets , we measure the impairment based on the excess of the carrying value of the long-lived asset over its fair value . where appropriate we use a probability-weighted approach to determine our future cash flows , based upon our estimate of the likelihood of certain scenarios , primarily whether we expect to sell new business within a current location . these estimates are consistent with our internal projections , external communications and public disclosures . our projections contain assumptions pertaining to anticipated levels of utilization and revenue that may or may not be under contract but are based on our experience and or projections received from our customers . if our estimate of the probability of different scenarios changed by 10 % , the impact to our financial statements would not be material . for more information , refer to note 4 , “ impairment losses and restructuring charges , ” to our consolidated financial statements , included in item 8 , “ financial statements and supplementary financial data . ” impairment of goodwill and intangible assets we evaluate goodwill for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable . goodwill is evaluated for impairment by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary . if it is determined , based on qualitative factors , the fair value of the reporting unit is `` more likely than not `` less than the carrying amount or if significant changes related to the reporting unit have occurred that could materially impact fair value , a quantitative goodwill impairment test would be required . we can elect to forgo the qualitative assessment and perform the quantitative test . the quantitative goodwill impairment test is performed using a two-step process . the first step is to identify if a potential impairment exists by comparing the fair value of a reporting unit with its carrying amount , including goodwill . if the carrying amount of a reporting unit exceeds its fair value , the second step is performed to determine if goodwill is impaired and to measure the amount of impairment loss to recognize , if any . the second step compares the implied fair value of goodwill with the carrying amount of goodwill . if the carrying amount of goodwill exceeds the implied fair value , an impairment loss is recognized in an amount equal to that excess . for intangible assets , a qualitative assessment can also be performed to determine whether the existence of events and circumstances indicates it is more likely than not an intangible asset is impaired . similar to goodwill , we can also elect to forgo the qualitative test for indefinite life intangible assets and perform the quantitative test . upon performing the quantitative test , if the carrying value of the intangible asset exceeds its fair value , an impairment loss is recognized in an amount equal to that excess . we estimate the fair value of our reporting units using a discounted cash flow analysis , which uses significant unobservable inputs , or level 3 inputs , as defined by the fair value hierarchy . a discounted cash flow analysis requires us to make various judgmental assumptions about revenue , gross profit , growth rates and discount rates . while we believe we have made reasonable estimates and assumptions to calculate the fair value of the reporting units and intangible assets , it is possible a material change could occur . if our actual results are not consistent with our estimates and assumptions used to calculate fair value , we may be required to perform the second step , which could result in material impairments of our goodwill . during 2015 , all of our material reporting units that underwent a quantitative test passed the first step of the goodwill impairment analysis and therefore , the second step was not necessary . our 2015 intangible asset impairment analysis did not result in an impairment charge . for more information , refer to note 3 , “ goodwill and intangible assets , ” to our consolidated financial statements , included in item 8 , “ financial statements and supplementary financial data . ” 29 restructuring charges on an ongoing basis , management assesses the profitability and utilization of our facilities and in some cases management has chosen to close facilities

liquidity and capital resources overview since our inception and through december 31 , 2020 , we have not generated any product revenue and have incurred significant losses and negative cash flows from our operations . as of december 31 , 2020 , we had cash and cash equivalents of $ 70.1 million . cash flows the following table summarized our cash flows for each of the years ended december 31 , 2020 and 2019 : replace_table_token_3_th operating activities during the year ended december 31 , 2020 , net cash used in operating activities was approximately $ 28.9 million , primarily related to our net loss adjusted for non-cash charges and changes in the components of working capital . the $ 9.8 million decrease in cash used in operating activities during the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , was primarily driven by a decrease in our net loss and increases in both non-cash stock-based compensation and non-cash lease expenses . investing activities during the year ended december 31 , 2020 , net cash provided by investing activities was approximately $ 17.0 million , as the proceeds from our short-term investments that matured during the period were not reinvested and were instead held as cash and cash equivalents . during the year ended december 31 , 2019 , net cash used in investing activities was $ 18.5 million , primarily related to net short-term investments activity of $ 17.1 million and purchases of property and equipment of $ 1.4 million . financing activities during the year ended december 31 , 2020 , net cash provided by financing activities was $ 48.7 million , primarily related to net proceeds of $ 45.2 million from our october 2020 follow-on offering as well as approximately $ 3.4 million in net proceeds from sales of our common stock under the open market sales agreement with jefferies llc .

19 accent acquisition on june 1 , 2015 , we acquired 100 % of the membership interests of accent pursuant to a membership interest purchase agreement with mdc corporate ( us ) inc. and mdc acquisition inc. accent is a business process outsourcing company providing contact center services and customer engagement solutions with locations in the u.s. and jamaica . accent 's data-driven approach helps brands maximize their engagement with consumers and enables brands to influence behavior , all while generating a better return on investment across all customer touch points , including phone , online and social media channels . accent 's customer engagement agency model and platform complements our ideal dialogue practice , significantly enhancing our solution set and commitment to results-driven analytics and customer insights for our clients . accordingly , we paid a premium for accent , resulting in the recognition of goodwill . 20 results of operations — years ended december 31 , 2015 and 2014 the following table summarizes our revenues and gross profit for the periods indicated , by reporting segment : replace_table_token_5_th revenue revenue increased by $ 32.0 million , or 12.8 % , from $ 250.1 million in 2014 to $ 282.1 million in 2015. this includes accent revenue of $ 40.4 million . the domestic segment increase of $ 39.4 million was due to $ 34.3 million from the acquisition of accent and $ 42.3 million of new business and growth from existing clients , partially offset by $ 31.1 million of volume reductions , $ 5.0 million of lost programs , and $ 1.1 million due to site closures . offshore revenues declined by $ 12.9 million due to $ 16.1 million of volume reductions and $ 6.3 million of lost programs , partially offset by $ 9.5 million of growth from existing and new clients . the increase in the nearshore segment of $ 5.6 million was due to $ 6.3 million of growth from existing and new clients in our honduras facilities and $ 6.5 million of revenue from our jamaica facility , partially offset by $ 3.8 million of volume reductions and $ 3.4 million of lost revenue due to the closure of the costa rica site in 2014. cost of services and gross profit the gross profit as a percentage of revenue decrease of 3.6 % was primarily due to the dilutive effects of both the accent acquisition and new capacity added in late 2014 , coupled with lower than expected call volumes . domestic gross profit as a percentage of revenue decreased to 6.8 % in 2015 from 9.9 % in 2014 primarily due to the dilutive effects of the accent acquisition and the aforementioned lower call volumes . the offshore decline of 8.5 % was primarily due to under-utilized capacity added during late 2014 as well as a decrease in call volumes . nearshore gross profit increased by $ 3.7 million , or 8.4 % as a percentage of revenue , due to the closure of costa rica , continuing increased capacity utilization in honduras and the benefit of our new jamaica facility . selling , general and administrative expenses selling , general and administrative expenses remained comparable at 12.2 % and 12.6 % for the years ended december 31 , 2015 and 2014 , respectively . 21 impairment losses and restructuring charges , net during 2015 , we recognized $ 0.3 million in impairment losses in our nearshore segment associated with certain assets after an impairment analysis indicated estimated future cash flows were insufficient to support the carrying values . no impairment losses were incurred during 2014. restructuring charges totaled $ 3.6 million for the year ended december 31 , 2015 , which primarily consisted of the following : $ 1.7 million in the domestic segment primarily due to the acquisition of accent and closure of three sites ; $ 0.4 million in the offshore and nearshore segments related to various corporate cost cutting measures ; and $ 1.5 million related to the it transformation project which concluded in third quarter 2015. interest and other income ( expense ) , net interest and other income ( expense ) , net for 2015 was $ 1.1 million of expense , which consists primarily of $ 1.6 million of interest expense on our revolving line of credit and other debt , partially offset by $ 0.5 million gain on sale of assets . income tax expense income tax expense for 2015 was $ 0.5 million , compared to $ 0.5 million in 2014 . similar to 2014 , the 2015 income tax expense is primarily related to the income tax provision for canadian operations . our u.s. operations have a valuation allowance recorded on u.s. deferred tax assets and we have tax holidays in costa rica , honduras , and jamaica , and for certain facilities in the philippines . net loss as a result of the factors described above , net loss was $ 15.6 million for the year ended december 31 , 2015 , compared to $ 5.5 million for the year ended december 31 , 2014 . 22 results of operations — years ended december 31 , 2014 and 2013 replace_table_token_6_th revenue revenue increased by $ 18.8 million , or 8.1 % , to $ 250.1 million in 2014 from $ 231.3 million in 2013. the domestic segment increase of $ 9.6 million was due to $ 20.6 million of new business and growth from existing programs , partially offset by $ 7.3 million of volume reductions , $ 1.9 million of pricing reductions , and $ 1.8 million of site closures . offshore revenues grew $ 4.7 million due to $ 14.0 million of growth from existing and new clients , partially offset by $ 1.6 million of lost revenues and $ 7.7 million of volume reductions . story_separator_special_tag these unobservable inputs reflect our own estimates of assumptions that market participants would use in pricing the asset or liability . when determining the fair value measurements for assets and liabilities required or permitted to be recorded at and or marked to fair value , we consider the principal or most advantageous market in which it would transact and consider assumptions that market participants would use when pricing the asset or liability . when possible , we look to active and observable markets to price identical assets or liabilities . when identical assets and liabilities are not traded in active markets , we look to market observable data for similar assets and liabilities . nevertheless , if certain assets and liabilities are not actively traded in observable markets , we must use alternative valuation techniques to derive a fair value measurement . for more information , refer to note 8 , “ fair value measurements , ” to our consolidated financial statements , included in item 8 , “ financial statements and supplementary financial data . ” 28 impairment of long-lived assets we periodically , on at least an annual basis , evaluate potential impairments of our long-lived assets . in our annual evaluation or when we determine that the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more indicators of impairment , we evaluate the projected undiscounted cash flows related to the assets . if these cash flows are less than the carrying values of the assets , we measure the impairment based on the excess of the carrying value of the long-lived asset over its fair value . where appropriate we use a probability-weighted approach to determine our future cash flows , based upon our estimate of the likelihood of certain scenarios , primarily whether we expect to sell new business within a current location . these estimates are consistent with our internal projections , external communications and public disclosures . our projections contain assumptions pertaining to anticipated levels of utilization and revenue that may or may not be under contract but are based on our experience and or projections received from our customers . if our estimate of the probability of different scenarios changed by 10 % , the impact to our financial statements would not be material . for more information , refer to note 4 , “ impairment losses and restructuring charges , ” to our consolidated financial statements , included in item 8 , “ financial statements and supplementary financial data . ” impairment of goodwill and intangible assets we evaluate goodwill for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable . goodwill is evaluated for impairment by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary . if it is determined , based on qualitative factors , the fair value of the reporting unit is `` more likely than not `` less than the carrying amount or if significant changes related to the reporting unit have occurred that could materially impact fair value , a quantitative goodwill impairment test would be required . we can elect to forgo the qualitative assessment and perform the quantitative test . the quantitative goodwill impairment test is performed using a two-step process . the first step is to identify if a potential impairment exists by comparing the fair value of a reporting unit with its carrying amount , including goodwill . if the carrying amount of a reporting unit exceeds its fair value , the second step is performed to determine if goodwill is impaired and to measure the amount of impairment loss to recognize , if any . the second step compares the implied fair value of goodwill with the carrying amount of goodwill . if the carrying amount of goodwill exceeds the implied fair value , an impairment loss is recognized in an amount equal to that excess . for intangible assets , a qualitative assessment can also be performed to determine whether the existence of events and circumstances indicates it is more likely than not an intangible asset is impaired . similar to goodwill , we can also elect to forgo the qualitative test for indefinite life intangible assets and perform the quantitative test . upon performing the quantitative test , if the carrying value of the intangible asset exceeds its fair value , an impairment loss is recognized in an amount equal to that excess . we estimate the fair value of our reporting units using a discounted cash flow analysis , which uses significant unobservable inputs , or level 3 inputs , as defined by the fair value hierarchy . a discounted cash flow analysis requires us to make various judgmental assumptions about revenue , gross profit , growth rates and discount rates . while we believe we have made reasonable estimates and assumptions to calculate the fair value of the reporting units and intangible assets , it is possible a material change could occur . if our actual results are not consistent with our estimates and assumptions used to calculate fair value , we may be required to perform the second step , which could result in material impairments of our goodwill . during 2015 , all of our material reporting units that underwent a quantitative test passed the first step of the goodwill impairment analysis and therefore , the second step was not necessary . our 2015 intangible asset impairment analysis did not result in an impairment charge . for more information , refer to note 3 , “ goodwill and intangible assets , ” to our consolidated financial statements , included in item 8 , “ financial statements and supplementary financial data . ” 29 restructuring charges on an ongoing basis , management assesses the profitability and utilization of our facilities and in some cases management has chosen to close facilities

debt instruments and related covenants on april 29 , 2015 , we entered into a secured revolving credit facility ( `` credit agreement '' ) with bmo harris bank n.a . ( `` lender '' ) and terminated our $ 20.0 million secured revolving credit facility with wells fargo bank . all amounts owed under the wells fargo bank credit facility were repaid with borrowings under the credit agreement in the amount of approximately $ 9.3 million , which included an early termination fee in the amount of $ 0.1 million . the credit agreement is effective through april 2020 and the amount we may borrow under the agreement is the lesser of the borrowing base calculation and $ 50.0 million , and so long as no default has occurred and with the lender 's consent , we may increase the maximum availability to $ 70.0 million in $ 5.0 million increments . we may request letters of credit under the credit agreement in an aggregate amount equal to the lesser of the borrowing base calculation ( minus outstanding advances ) and $ 5.0 million . the borrowing base is generally defined as 85 % of our eligible accounts receivable less certain reserves as defined in the credit agreement . after consideration of outstanding borrowings of $ 32.2 million , our remaining borrowing capacity was $ 12.8 million as of december 31 , 2015. initially , borrowings under the credit agreement bore interest at one , two , three or six-month libor , as selected by us , plus 1.75 % to 2.50 % , depending on current availability under the credit agreement and until january 1 , 2016 , the interest rate was the selected libor plus 1.75 % .

( 2 ) year-end rig count as reported by baker hughes incorporated - worldwide rig count . ( 3 ) average daily and year-end west texas intermediate crude spot price as reported by the u.s. energy information administration . ( 4 ) average daily and year-end europe brent crude spot price as reported by the u.s. energy information administration . ( 5 ) average daily and year-end henry hub natural gas spot price as reported by the u.s. energy information administration . 19 the prices for both wti and brent crude oil began to weaken after the opec meeting held in november 2014. average prices for the majority of the 2014 calendar year were in excess of $ 99 per barrel for wti and in excess of $ 105 per barrel for brent ; however , both were down to approximately $ 55 per barrel by the end of 2014 and less than $ 40 per barrel by the end of 2015. the volatility and significant reduction in the average price of crude oil during 2015 and 2016 resulted in a significant decrease in the activities associated with both the exploration and production of oil during 2015 and throughout most of 2016. however , crude oil prices , although still volatile , began to improve during the second half of 2016 and continued to strengthen during 2017 , especially during the second half of 2017. on average , pricing for crude oil improved over 16 % for 2017 over 2016 , which resulted in much improved levels of land-based activity associated with the exploration and production of oil in the united states . in north america , the land-based rig count decreased 62 % during 2015 and another 53 % during the first half of 2016 , which greatly impacted both services and product sales to this market over this time period . although the north america rig count improved at the end of 2016 it still remained almost 20 % below 2015 levels and continued to strengthen throughout most of 2017. we saw resilient levels of activities on development projects and producing fields in the u.s. unconventional reservoirs during the second half of 2016 which continued and expanded during 2017 as we began the recovery phase of this business cycle . outside of north america , activities associated with the exploration for and production of oil have also decreased from 2014 levels , although not as significantly as the land-based activities in north america . our clients ' activities in the international and deepwater markets declined during 2015 and 2016 and remained at these lower levels in 2017 ; however , we believe these markets have shown signs of recovery as our clients have announced several new major capital projects . results of operations operating results for the year ended december 31 , 2017 compared to the years ended december 31 , 2016 and 2015 we evaluate our operating results by analyzing revenue , operating income and net income margin ( defined as net income divided by total revenue ) . since we have a relatively fixed cost structure , increases in revenue generally translate into higher operating income results as well as net income margin percentages . results for the years ended december 31 , 2017 , 2016 and 2015 are summarized in the following chart : 20 results of operations as a percentage of applicable revenue are as follows ( dollars in thousands ) : replace_table_token_4_th services revenue services revenue increased to $ 481.5 million in 2017 from $ 470.3 million in 2016 ; however , services revenue for 2016 decreased from $ 612.0 million in 2015 . the upward trend in the average price of crude oil during 2017 resulted in continued strengthening of activities associated with the exploration and production of oil during the second half of 2017. however , the most significant increase was realized in onshore activities within the united states while the decrease in international activities continued during most of 2017. average prices for wti crude oil increased 17 % in 2017 compared to an 11 % decrease in 2016 and average prices for brent crude oil increased by 24 % in 2017 compared to a 17 % decrease in 2016. as a result , the average global rig count climbed 27 % in 2017 compared to a decline of 32 % in 2016 , primarily driven by increases in the north american rig count . over this same time period , our service revenue increased slightly by 2.4 % in 2017 compared to 2016 and decreased only 23 % in 2016 compared to 2015 , as demand for our analytical , diagnostic , and completion services was less impacted by the significant decrease in drilling activities . wells must be drilled and or completed , stimulated , cored and have reservoir fluid samples collected , before we see the benefits of the increased commodity prices . the improvements in global crude oil prices during 2017 are positive indicators of a balancing market and support for future investments , as we continued our focus on worldwide crude oil related projects , including those related to the development of fields offshore south america and in the middle east . product sales revenue product sales revenue , which is tied more to completions in north america , increased 43 % to $ 178.3 million in 2017 from $ 124.5 million in 2016 ; however , product sales revenue for 2016 decreased from $ 185.6 million in 2015 .the average rig count for the u.s. and canada increased 38 % during 2017 compared to a 45 % decrease in 2016. the 43 % increase in product sales revenue outpaced the rig count increase due to our differentiated well completion product sales surpassing the industry activity levels in north america . story_separator_special_tag based on recent developments , and modest strengthening in the price of crude oil and natural gas , we believe that the level of activities and workflows experienced in 2017 will continue into 2018 and will strengthen for north america . additionally , we believe the trend in recent public announcements of major offshore and international projects by our clients will continue , and these announcements are signs that a recovery of the offshore deepwater and international markets are also improving . an increase in the activities in these markets could positively impact our revenues , operating income and operating margins as well . we expect to meet ongoing working capital needs , capital expenditure requirements and funding of our dividend and share repurchase programs from a combination of cash on hand , cash flow from operating activities and available borrowings under our credit facility . critical accounting estimates the preparation of financial statements in accordance with u.s. gaap requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . we evaluate our estimates on an ongoing basis and determine the adequacy of our estimates based on our historical experience and various other assumptions that we believe are reasonable under the circumstances . by nature , these judgments are subject to an inherent degree of uncertainty . we consider an accounting estimate to be critical if it is highly subjective and if changes in the estimate 28 under different assumptions would result in a material impact on our financial condition and results of operations . the following transaction types require significant judgment and , therefore , are considered critical accounting policies as of december 31 , 2017 . allowance for doubtful accounts we evaluate whether client receivables are collectible . we perform ongoing credit evaluations of our clients and monitor collections and payments in order to maintain a provision for estimated uncollectible accounts based on our historical collection experience and our current aging of client receivables outstanding in addition to clients ' representations and our understanding of the economic environment in which our clients operate . based on our review , we establish or adjust allowances for specific clients and the accounts receivable as a whole . our allowance for doubtful accounts decreased to $ 2.6 million as of december 31 , 2017 , compared to $ 3.1 million as of december 31 , 2016 . income taxes our income tax expense includes income taxes of the netherlands , the u.s. and other foreign countries as well as local , state and provincial income taxes . we recognize deferred tax assets or liabilities for the differences between the financial statement carrying amount and tax basis of assets and liabilities using enacted tax rates in effect for the years in which the asset is recovered or the liability is settled . we estimate the likelihood of the recoverability of our deferred tax assets ( particularly , net operating loss carry-forwards ) . any valuation allowance recorded is based on estimates and assumptions of taxable income into the future and a determination is made of the magnitude of deferred tax assets which are more likely than not to be realized . valuation allowances of our net deferred tax assets aggregated to $ 8.2 million and $ 10.0 million at december 31 , 2017 and 2016 , respectively . if these estimates and related assumptions change in the future , we may be required to record additional valuation allowances against our deferred tax assets and our effective tax rate may increase which could result in a material adverse effect on our financial position , results of operations and cash flows . we have not provided for deferred taxes on the unremitted earnings of certain subsidiaries that we consider to be indefinitely reinvested . should we make a distribution of the unremitted earnings of these subsidiaries , we may be required to record additional taxes . we record a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in our tax return . we also recognize interest and penalties , if any , related to unrecognized tax benefits in income tax expense . long-lived assets , intangibles and goodwill property , plant and equipment are carried at cost less accumulated depreciation . major renewals and improvements are capitalized while maintenance and repair costs are charged to expense as incurred . they are depreciated using the straight-line method based on their individual estimated useful lives , except for leasehold improvements , which are depreciated over the remaining lease term , if shorter . we estimate the useful lives and salvage values of our assets based on historical data of similar assets . when long-lived assets are sold or retired , the remaining costs and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income . these capitalized long-lived assets could become impaired if our operating plans or business environment changes . intangible assets , including patents , trademarks , and trade names , are carried at cost less accumulated amortization . intangibles with determinable lives are amortized using the straight-line method based on the estimated useful life of the intangible . intangibles with indeterminable lives , which consist primarily of corporate trade names , are not amortized , but are tested for impairment annually or whenever events or changes in circumstances indicate that impairment is possible . we review our long-lived assets , including definite-lived intangible assets , for impairment when events or changes in circumstances indicate that their net book value may not be recovered over their remaining service lives . indicators of possible impairment may include significant declines in activity levels in regions where specific assets or groups of assets are located , extended periods of

debt instruments and related covenants on april 29 , 2015 , we entered into a secured revolving credit facility ( `` credit agreement '' ) with bmo harris bank n.a . ( `` lender '' ) and terminated our $ 20.0 million secured revolving credit facility with wells fargo bank . all amounts owed under the wells fargo bank credit facility were repaid with borrowings under the credit agreement in the amount of approximately $ 9.3 million , which included an early termination fee in the amount of $ 0.1 million . the credit agreement is effective through april 2020 and the amount we may borrow under the agreement is the lesser of the borrowing base calculation and $ 50.0 million , and so long as no default has occurred and with the lender 's consent , we may increase the maximum availability to $ 70.0 million in $ 5.0 million increments . we may request letters of credit under the credit agreement in an aggregate amount equal to the lesser of the borrowing base calculation ( minus outstanding advances ) and $ 5.0 million . the borrowing base is generally defined as 85 % of our eligible accounts receivable less certain reserves as defined in the credit agreement . after consideration of outstanding borrowings of $ 32.2 million , our remaining borrowing capacity was $ 12.8 million as of december 31 , 2015. initially , borrowings under the credit agreement bore interest at one , two , three or six-month libor , as selected by us , plus 1.75 % to 2.50 % , depending on current availability under the credit agreement and until january 1 , 2016 , the interest rate was the selected libor plus 1.75 % .

( 2 ) year-end rig count as reported by baker hughes incorporated - worldwide rig count . ( 3 ) average daily and year-end west texas intermediate crude spot price as reported by the u.s. energy information administration . ( 4 ) average daily and year-end europe brent crude spot price as reported by the u.s. energy information administration . ( 5 ) average daily and year-end henry hub natural gas spot price as reported by the u.s. energy information administration . 19 the prices for both wti and brent crude oil began to weaken after the opec meeting held in november 2014. average prices for the majority of the 2014 calendar year were in excess of $ 99 per barrel for wti and in excess of $ 105 per barrel for brent ; however , both were down to approximately $ 55 per barrel by the end of 2014 and less than $ 40 per barrel by the end of 2015. the volatility and significant reduction in the average price of crude oil during 2015 and 2016 resulted in a significant decrease in the activities associated with both the exploration and production of oil during 2015 and throughout most of 2016. however , crude oil prices , although still volatile , began to improve during the second half of 2016 and continued to strengthen during 2017 , especially during the second half of 2017. on average , pricing for crude oil improved over 16 % for 2017 over 2016 , which resulted in much improved levels of land-based activity associated with the exploration and production of oil in the united states . in north america , the land-based rig count decreased 62 % during 2015 and another 53 % during the first half of 2016 , which greatly impacted both services and product sales to this market over this time period . although the north america rig count improved at the end of 2016 it still remained almost 20 % below 2015 levels and continued to strengthen throughout most of 2017. we saw resilient levels of activities on development projects and producing fields in the u.s. unconventional reservoirs during the second half of 2016 which continued and expanded during 2017 as we began the recovery phase of this business cycle . outside of north america , activities associated with the exploration for and production of oil have also decreased from 2014 levels , although not as significantly as the land-based activities in north america . our clients ' activities in the international and deepwater markets declined during 2015 and 2016 and remained at these lower levels in 2017 ; however , we believe these markets have shown signs of recovery as our clients have announced several new major capital projects . results of operations operating results for the year ended december 31 , 2017 compared to the years ended december 31 , 2016 and 2015 we evaluate our operating results by analyzing revenue , operating income and net income margin ( defined as net income divided by total revenue ) . since we have a relatively fixed cost structure , increases in revenue generally translate into higher operating income results as well as net income margin percentages . results for the years ended december 31 , 2017 , 2016 and 2015 are summarized in the following chart : 20 results of operations as a percentage of applicable revenue are as follows ( dollars in thousands ) : replace_table_token_4_th services revenue services revenue increased to $ 481.5 million in 2017 from $ 470.3 million in 2016 ; however , services revenue for 2016 decreased from $ 612.0 million in 2015 . the upward trend in the average price of crude oil during 2017 resulted in continued strengthening of activities associated with the exploration and production of oil during the second half of 2017. however , the most significant increase was realized in onshore activities within the united states while the decrease in international activities continued during most of 2017. average prices for wti crude oil increased 17 % in 2017 compared to an 11 % decrease in 2016 and average prices for brent crude oil increased by 24 % in 2017 compared to a 17 % decrease in 2016. as a result , the average global rig count climbed 27 % in 2017 compared to a decline of 32 % in 2016 , primarily driven by increases in the north american rig count . over this same time period , our service revenue increased slightly by 2.4 % in 2017 compared to 2016 and decreased only 23 % in 2016 compared to 2015 , as demand for our analytical , diagnostic , and completion services was less impacted by the significant decrease in drilling activities . wells must be drilled and or completed , stimulated , cored and have reservoir fluid samples collected , before we see the benefits of the increased commodity prices . the improvements in global crude oil prices during 2017 are positive indicators of a balancing market and support for future investments , as we continued our focus on worldwide crude oil related projects , including those related to the development of fields offshore south america and in the middle east . product sales revenue product sales revenue , which is tied more to completions in north america , increased 43 % to $ 178.3 million in 2017 from $ 124.5 million in 2016 ; however , product sales revenue for 2016 decreased from $ 185.6 million in 2015 .the average rig count for the u.s. and canada increased 38 % during 2017 compared to a 45 % decrease in 2016. the 43 % increase in product sales revenue outpaced the rig count increase due to our differentiated well completion product sales surpassing the industry activity levels in north america . story_separator_special_tag based on recent developments , and modest strengthening in the price of crude oil and natural gas , we believe that the level of activities and workflows experienced in 2017 will continue into 2018 and will strengthen for north america . additionally , we believe the trend in recent public announcements of major offshore and international projects by our clients will continue , and these announcements are signs that a recovery of the offshore deepwater and international markets are also improving . an increase in the activities in these markets could positively impact our revenues , operating income and operating margins as well . we expect to meet ongoing working capital needs , capital expenditure requirements and funding of our dividend and share repurchase programs from a combination of cash on hand , cash flow from operating activities and available borrowings under our credit facility . critical accounting estimates the preparation of financial statements in accordance with u.s. gaap requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . we evaluate our estimates on an ongoing basis and determine the adequacy of our estimates based on our historical experience and various other assumptions that we believe are reasonable under the circumstances . by nature , these judgments are subject to an inherent degree of uncertainty . we consider an accounting estimate to be critical if it is highly subjective and if changes in the estimate 28 under different assumptions would result in a material impact on our financial condition and results of operations . the following transaction types require significant judgment and , therefore , are considered critical accounting policies as of december 31 , 2017 . allowance for doubtful accounts we evaluate whether client receivables are collectible . we perform ongoing credit evaluations of our clients and monitor collections and payments in order to maintain a provision for estimated uncollectible accounts based on our historical collection experience and our current aging of client receivables outstanding in addition to clients ' representations and our understanding of the economic environment in which our clients operate . based on our review , we establish or adjust allowances for specific clients and the accounts receivable as a whole . our allowance for doubtful accounts decreased to $ 2.6 million as of december 31 , 2017 , compared to $ 3.1 million as of december 31 , 2016 . income taxes our income tax expense includes income taxes of the netherlands , the u.s. and other foreign countries as well as local , state and provincial income taxes . we recognize deferred tax assets or liabilities for the differences between the financial statement carrying amount and tax basis of assets and liabilities using enacted tax rates in effect for the years in which the asset is recovered or the liability is settled . we estimate the likelihood of the recoverability of our deferred tax assets ( particularly , net operating loss carry-forwards ) . any valuation allowance recorded is based on estimates and assumptions of taxable income into the future and a determination is made of the magnitude of deferred tax assets which are more likely than not to be realized . valuation allowances of our net deferred tax assets aggregated to $ 8.2 million and $ 10.0 million at december 31 , 2017 and 2016 , respectively . if these estimates and related assumptions change in the future , we may be required to record additional valuation allowances against our deferred tax assets and our effective tax rate may increase which could result in a material adverse effect on our financial position , results of operations and cash flows . we have not provided for deferred taxes on the unremitted earnings of certain subsidiaries that we consider to be indefinitely reinvested . should we make a distribution of the unremitted earnings of these subsidiaries , we may be required to record additional taxes . we record a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in our tax return . we also recognize interest and penalties , if any , related to unrecognized tax benefits in income tax expense . long-lived assets , intangibles and goodwill property , plant and equipment are carried at cost less accumulated depreciation . major renewals and improvements are capitalized while maintenance and repair costs are charged to expense as incurred . they are depreciated using the straight-line method based on their individual estimated useful lives , except for leasehold improvements , which are depreciated over the remaining lease term , if shorter . we estimate the useful lives and salvage values of our assets based on historical data of similar assets . when long-lived assets are sold or retired , the remaining costs and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income . these capitalized long-lived assets could become impaired if our operating plans or business environment changes . intangible assets , including patents , trademarks , and trade names , are carried at cost less accumulated amortization . intangibles with determinable lives are amortized using the straight-line method based on the estimated useful life of the intangible . intangibles with indeterminable lives , which consist primarily of corporate trade names , are not amortized , but are tested for impairment annually or whenever events or changes in circumstances indicate that impairment is possible . we review our long-lived assets , including definite-lived intangible assets , for impairment when events or changes in circumstances indicate that their net book value may not be recovered over their remaining service lives . indicators of possible impairment may include significant declines in activity levels in regions where specific assets or groups of assets are located , extended periods of

cash flows the following table summarizes cash flows for the years ended december 31 , 2017 , 2016 and 2015 ( in thousands ) : replace_table_token_9_th the decrease in cash provided by operating activities in 2017 compared to 2016 was primarily due to increases in working capital , offset by an increase in net income while the decrease in cash provided by operations in 2016 compared to 2015 was primarily attributable to the industry downturn resulting in a year-over-year decrease in net income , partially offset by reductions in working capital . cash flow used in investing activities in 2017 increased $ 5.8 million compared to 2016 primarily as a result of increased capital expenditures . cash flow used in investing activities in 2016 decreased $ 24.9 million compared to 2015 primarily as a result of a $ 13.8 million acquisition in 2015 and lower capital expenditures in 2016. cash flow used in financing activities in 2017 decreased $ 20.8 million compared to 2016 . cash flow used in financing activities in 2016 decreased $ 55.4 million compared to 2015 . during 2017 , we used $ 16.9 million to repurchase our common shares , $ 97.1 million to pay dividends , and increased our debt balance by $ 10 million . during 2016 , we used $ 7.2 million to repurchase our common shares , $ 95.1 million to pay dividends , and decreased our debt balance by $ 215 million through the issuance of new shares . during 2015 , we used $ 159.7 million to repurchase our common shares and $ 94.2 million to pay dividends , offset by an increase in our debt balance of $ 77 million . during the year ended december 31 , 2017 , we repurchased 158,569 shares of our common stock for an aggregate amount of $ 16.9 million , or an average price of $ 106.63 per share . the repurchase of shares in the open market is at the discretion of management pursuant to shareholder authorization .

in addition , we own shares of petromanas energy inc. , which is involved in oil and gas activities in albania france and australia . we have no operating income yet and , as a result , depend upon funding from various sources to continue operations and to implement our growth strategy . results of operations net income/net loss net loss for the year ended december 31 , 2013 , was usd 10,961,113 compared to a net loss of usd 11,778,750 for the same period in 2012. this decrease of usd 817,637 was mainly due to a reduction in exploration costs and the partially offset by changes in and loss from the sale of investment in associate . operating expenses operating expenses for the year ended december 31 , 2013 , decreased to usd 6,542,669 from usd 11,968,239 reported for the same period in 2012. this is a decrease of 45 % in our total operating expenses , mainly due to lower exploration activity in the ventures in tajikistan and mongolia . personnel costs for the year ended december 31 , 2013 , personnel costs decreased to usd 2,301,938 from usd 2,653,844 for the same period in 2012. this decrease of 13 % is mainly attributable to lower expenses related to equity awards under the stock compensation and stock option plans as well as a wind down of activity in mongolia . exploration costs for the year ended december 31 , 2013 , we incurred exploration costs of usd 1,146,948 as compared to usd 5,784,277 for the same period in 2012. this is a decrease of 80 % primarily related to decreased exploration activity at our project in mongolia because of the moratorium entered into in april 2013 with the government agency pam . consulting fees for the year ended december 31 , 2013 , we incurred consulting fees of usd 1,838,909 as compared to consulting fees of usd 1,812,230 for the same period in 2012. this is an increase of 1 % is due to higher expenses in investor relations . - 28 - for the year ended december 31 , 2013 , we incurred expenses of usd 30,540 related to equity-based awards to non-employees , as compared to usd 36,814 in the same period in 2012. for the year ended period ended december 31 , 2013 , we incurred expenses of usd 415,804 related to public and investor relations , as compared to usd 278,868 in the same period in 2012 , representing an increase of 49 % . for the year ended period ended december 31 , 2013 , we incurred expenses of usd 1,170,918 related to consulting costs , as compared to usd 1,174,864 in the same period in 2012. these costs are primarily related to both projects in tajikistan . administrative costs for the year ended period ended december 31 , 2013 , we recorded administrative costs of usd 1,201,888 compared to usd 1,665,045 for the same period in 2012. this decrease of 28 % is attributable to a decrease of travel activity , a decrease in accounting fees and it costs . non-operating income/expense for the year ended period ended december 31 , 2013 , we recorded a non-operating loss of usd 4,283,426 compared to a non-operating gain of usd 189,092 for the same period in 2012. this decrease of usd 4,472,518 is mainly attributable to a change in the value of our investment in petromanas . for the year ended period ended december 31 , 2013 , we recorded a decrease in fair value of investment in associate ( petromanas ) of usd 4,247,067 compared to an increase in fair value of investment in associate of usd 3,719,716 and a loss from sale of investment in associate of usd 3,507,397 for the same period in 2012. income tax penalties accrual for the year ended december 31 , 2013 the company recorded an accrual for the potential tax penalties relating to the years ended 2007 , 2008 and 2009. the tax penalties in the amount of usd 134,785 ( tax penalties usd 126,000 and accrued interest usd 8,785 ) were recorded in income tax expense . story_separator_special_tag deposited into escrow and subject to a fixed escrow release schedule , the company deemed them to have a level 2 input for the calculation of the fair value in accordance with asc 820 ( fair value measurements and disclosures ) . the company had applied an annual discount rate of 12 % on the quoted market price based on the time before the shares become freely tradable . the discount rate was an estimate of the cost of capital , based on previous long-term debt the company has issued . for period ended december 31 , 2013 we have reclassified our investment in associates from level 2 to level 1and account for in accordance with asc 320 investments - debt and equity securities . we have classified the investment in associates as trading securities and report it at fair value , with unrealized gains and losses included in earnings . stock-based compensation we account for all of our stock-based payments and awards applying the fair value method . stock-based payments to non-employees are measured at the fair value of the consideration received , or the fair value of the equity instruments issued , or liabilities incurred , whichever is more reliably measurable . the fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete , and any change therein is recognized over the vesting period of the award and in the same manner as if we had paid cash instead of paying with or using equity based instruments . the costs of the stock-based payments to non-employees that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date , unless there is a contractual term for services in which case such compensation would be amortized over the contractual term . for restricted share story_separator_special_tag in addition , we own shares of petromanas energy inc. , which is involved in oil and gas activities in albania france and australia . we have no operating income yet and , as a result , depend upon funding from various sources to continue operations and to implement our growth strategy . results of operations net income/net loss net loss for the year ended december 31 , 2013 , was usd 10,961,113 compared to a net loss of usd 11,778,750 for the same period in 2012. this decrease of usd 817,637 was mainly due to a reduction in exploration costs and the partially offset by changes in and loss from the sale of investment in associate . operating expenses operating expenses for the year ended december 31 , 2013 , decreased to usd 6,542,669 from usd 11,968,239 reported for the same period in 2012. this is a decrease of 45 % in our total operating expenses , mainly due to lower exploration activity in the ventures in tajikistan and mongolia . personnel costs for the year ended december 31 , 2013 , personnel costs decreased to usd 2,301,938 from usd 2,653,844 for the same period in 2012. this decrease of 13 % is mainly attributable to lower expenses related to equity awards under the stock compensation and stock option plans as well as a wind down of activity in mongolia . exploration costs for the year ended december 31 , 2013 , we incurred exploration costs of usd 1,146,948 as compared to usd 5,784,277 for the same period in 2012. this is a decrease of 80 % primarily related to decreased exploration activity at our project in mongolia because of the moratorium entered into in april 2013 with the government agency pam . consulting fees for the year ended december 31 , 2013 , we incurred consulting fees of usd 1,838,909 as compared to consulting fees of usd 1,812,230 for the same period in 2012. this is an increase of 1 % is due to higher expenses in investor relations . - 28 - for the year ended december 31 , 2013 , we incurred expenses of usd 30,540 related to equity-based awards to non-employees , as compared to usd 36,814 in the same period in 2012. for the year ended period ended december 31 , 2013 , we incurred expenses of usd 415,804 related to public and investor relations , as compared to usd 278,868 in the same period in 2012 , representing an increase of 49 % . for the year ended period ended december 31 , 2013 , we incurred expenses of usd 1,170,918 related to consulting costs , as compared to usd 1,174,864 in the same period in 2012. these costs are primarily related to both projects in tajikistan . administrative costs for the year ended period ended december 31 , 2013 , we recorded administrative costs of usd 1,201,888 compared to usd 1,665,045 for the same period in 2012. this decrease of 28 % is attributable to a decrease of travel activity , a decrease in accounting fees and it costs . non-operating income/expense for the year ended period ended december 31 , 2013 , we recorded a non-operating loss of usd 4,283,426 compared to a non-operating gain of usd 189,092 for the same period in 2012. this decrease of usd 4,472,518 is mainly attributable to a change in the value of our investment in petromanas . for the year ended period ended december 31 , 2013 , we recorded a decrease in fair value of investment in associate ( petromanas ) of usd 4,247,067 compared to an increase in fair value of investment in associate of usd 3,719,716 and a loss from sale of investment in associate of usd 3,507,397 for the same period in 2012. income tax penalties accrual for the year ended december 31 , 2013 the company recorded an accrual for the potential tax penalties relating to the years ended 2007 , 2008 and 2009. the tax penalties in the amount of usd 134,785 ( tax penalties usd 126,000 and accrued interest usd 8,785 ) were recorded in income tax expense . story_separator_special_tag deposited into escrow and subject to a fixed escrow release schedule , the company deemed them to have a level 2 input for the calculation of the fair value in accordance with asc 820 ( fair value measurements and disclosures ) . the company had applied an annual discount rate of 12 % on the quoted market price based on the time before the shares become freely tradable . the discount rate was an estimate of the cost of capital , based on previous long-term debt the company has issued . for period ended december 31 , 2013 we have reclassified our investment in associates from level 2 to level 1and account for in accordance with asc 320 investments - debt and equity securities . we have classified the investment in associates as trading securities and report it at fair value , with unrealized gains and losses included in earnings . stock-based compensation we account for all of our stock-based payments and awards applying the fair value method . stock-based payments to non-employees are measured at the fair value of the consideration received , or the fair value of the equity instruments issued , or liabilities incurred , whichever is more reliably measurable . the fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete , and any change therein is recognized over the vesting period of the award and in the same manner as if we had paid cash instead of paying with or using equity based instruments . the costs of the stock-based payments to non-employees that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date , unless there is a contractual term for services in which case such compensation would be amortized over the contractual term . for restricted share

cash flows the following table summarizes cash flows for the years ended december 31 , 2017 , 2016 and 2015 ( in thousands ) : replace_table_token_9_th the decrease in cash provided by operating activities in 2017 compared to 2016 was primarily due to increases in working capital , offset by an increase in net income while the decrease in cash provided by operations in 2016 compared to 2015 was primarily attributable to the industry downturn resulting in a year-over-year decrease in net income , partially offset by reductions in working capital . cash flow used in investing activities in 2017 increased $ 5.8 million compared to 2016 primarily as a result of increased capital expenditures . cash flow used in investing activities in 2016 decreased $ 24.9 million compared to 2015 primarily as a result of a $ 13.8 million acquisition in 2015 and lower capital expenditures in 2016. cash flow used in financing activities in 2017 decreased $ 20.8 million compared to 2016 . cash flow used in financing activities in 2016 decreased $ 55.4 million compared to 2015 . during 2017 , we used $ 16.9 million to repurchase our common shares , $ 97.1 million to pay dividends , and increased our debt balance by $ 10 million . during 2016 , we used $ 7.2 million to repurchase our common shares , $ 95.1 million to pay dividends , and decreased our debt balance by $ 215 million through the issuance of new shares . during 2015 , we used $ 159.7 million to repurchase our common shares and $ 94.2 million to pay dividends , offset by an increase in our debt balance of $ 77 million . during the year ended december 31 , 2017 , we repurchased 158,569 shares of our common stock for an aggregate amount of $ 16.9 million , or an average price of $ 106.63 per share . the repurchase of shares in the open market is at the discretion of management pursuant to shareholder authorization .

in addition , we own shares of petromanas energy inc. , which is involved in oil and gas activities in albania france and australia . we have no operating income yet and , as a result , depend upon funding from various sources to continue operations and to implement our growth strategy . results of operations net income/net loss net loss for the year ended december 31 , 2013 , was usd 10,961,113 compared to a net loss of usd 11,778,750 for the same period in 2012. this decrease of usd 817,637 was mainly due to a reduction in exploration costs and the partially offset by changes in and loss from the sale of investment in associate . operating expenses operating expenses for the year ended december 31 , 2013 , decreased to usd 6,542,669 from usd 11,968,239 reported for the same period in 2012. this is a decrease of 45 % in our total operating expenses , mainly due to lower exploration activity in the ventures in tajikistan and mongolia . personnel costs for the year ended december 31 , 2013 , personnel costs decreased to usd 2,301,938 from usd 2,653,844 for the same period in 2012. this decrease of 13 % is mainly attributable to lower expenses related to equity awards under the stock compensation and stock option plans as well as a wind down of activity in mongolia . exploration costs for the year ended december 31 , 2013 , we incurred exploration costs of usd 1,146,948 as compared to usd 5,784,277 for the same period in 2012. this is a decrease of 80 % primarily related to decreased exploration activity at our project in mongolia because of the moratorium entered into in april 2013 with the government agency pam . consulting fees for the year ended december 31 , 2013 , we incurred consulting fees of usd 1,838,909 as compared to consulting fees of usd 1,812,230 for the same period in 2012. this is an increase of 1 % is due to higher expenses in investor relations . - 28 - for the year ended december 31 , 2013 , we incurred expenses of usd 30,540 related to equity-based awards to non-employees , as compared to usd 36,814 in the same period in 2012. for the year ended period ended december 31 , 2013 , we incurred expenses of usd 415,804 related to public and investor relations , as compared to usd 278,868 in the same period in 2012 , representing an increase of 49 % . for the year ended period ended december 31 , 2013 , we incurred expenses of usd 1,170,918 related to consulting costs , as compared to usd 1,174,864 in the same period in 2012. these costs are primarily related to both projects in tajikistan . administrative costs for the year ended period ended december 31 , 2013 , we recorded administrative costs of usd 1,201,888 compared to usd 1,665,045 for the same period in 2012. this decrease of 28 % is attributable to a decrease of travel activity , a decrease in accounting fees and it costs . non-operating income/expense for the year ended period ended december 31 , 2013 , we recorded a non-operating loss of usd 4,283,426 compared to a non-operating gain of usd 189,092 for the same period in 2012. this decrease of usd 4,472,518 is mainly attributable to a change in the value of our investment in petromanas . for the year ended period ended december 31 , 2013 , we recorded a decrease in fair value of investment in associate ( petromanas ) of usd 4,247,067 compared to an increase in fair value of investment in associate of usd 3,719,716 and a loss from sale of investment in associate of usd 3,507,397 for the same period in 2012. income tax penalties accrual for the year ended december 31 , 2013 the company recorded an accrual for the potential tax penalties relating to the years ended 2007 , 2008 and 2009. the tax penalties in the amount of usd 134,785 ( tax penalties usd 126,000 and accrued interest usd 8,785 ) were recorded in income tax expense . story_separator_special_tag deposited into escrow and subject to a fixed escrow release schedule , the company deemed them to have a level 2 input for the calculation of the fair value in accordance with asc 820 ( fair value measurements and disclosures ) . the company had applied an annual discount rate of 12 % on the quoted market price based on the time before the shares become freely tradable . the discount rate was an estimate of the cost of capital , based on previous long-term debt the company has issued . for period ended december 31 , 2013 we have reclassified our investment in associates from level 2 to level 1and account for in accordance with asc 320 investments - debt and equity securities . we have classified the investment in associates as trading securities and report it at fair value , with unrealized gains and losses included in earnings . stock-based compensation we account for all of our stock-based payments and awards applying the fair value method . stock-based payments to non-employees are measured at the fair value of the consideration received , or the fair value of the equity instruments issued , or liabilities incurred , whichever is more reliably measurable . the fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete , and any change therein is recognized over the vesting period of the award and in the same manner as if we had paid cash instead of paying with or using equity based instruments . the costs of the stock-based payments to non-employees that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date , unless there is a contractual term for services in which case such compensation would be amortized over the contractual term . for restricted share story_separator_special_tag in addition , we own shares of petromanas energy inc. , which is involved in oil and gas activities in albania france and australia . we have no operating income yet and , as a result , depend upon funding from various sources to continue operations and to implement our growth strategy . results of operations net income/net loss net loss for the year ended december 31 , 2013 , was usd 10,961,113 compared to a net loss of usd 11,778,750 for the same period in 2012. this decrease of usd 817,637 was mainly due to a reduction in exploration costs and the partially offset by changes in and loss from the sale of investment in associate . operating expenses operating expenses for the year ended december 31 , 2013 , decreased to usd 6,542,669 from usd 11,968,239 reported for the same period in 2012. this is a decrease of 45 % in our total operating expenses , mainly due to lower exploration activity in the ventures in tajikistan and mongolia . personnel costs for the year ended december 31 , 2013 , personnel costs decreased to usd 2,301,938 from usd 2,653,844 for the same period in 2012. this decrease of 13 % is mainly attributable to lower expenses related to equity awards under the stock compensation and stock option plans as well as a wind down of activity in mongolia . exploration costs for the year ended december 31 , 2013 , we incurred exploration costs of usd 1,146,948 as compared to usd 5,784,277 for the same period in 2012. this is a decrease of 80 % primarily related to decreased exploration activity at our project in mongolia because of the moratorium entered into in april 2013 with the government agency pam . consulting fees for the year ended december 31 , 2013 , we incurred consulting fees of usd 1,838,909 as compared to consulting fees of usd 1,812,230 for the same period in 2012. this is an increase of 1 % is due to higher expenses in investor relations . - 28 - for the year ended december 31 , 2013 , we incurred expenses of usd 30,540 related to equity-based awards to non-employees , as compared to usd 36,814 in the same period in 2012. for the year ended period ended december 31 , 2013 , we incurred expenses of usd 415,804 related to public and investor relations , as compared to usd 278,868 in the same period in 2012 , representing an increase of 49 % . for the year ended period ended december 31 , 2013 , we incurred expenses of usd 1,170,918 related to consulting costs , as compared to usd 1,174,864 in the same period in 2012. these costs are primarily related to both projects in tajikistan . administrative costs for the year ended period ended december 31 , 2013 , we recorded administrative costs of usd 1,201,888 compared to usd 1,665,045 for the same period in 2012. this decrease of 28 % is attributable to a decrease of travel activity , a decrease in accounting fees and it costs . non-operating income/expense for the year ended period ended december 31 , 2013 , we recorded a non-operating loss of usd 4,283,426 compared to a non-operating gain of usd 189,092 for the same period in 2012. this decrease of usd 4,472,518 is mainly attributable to a change in the value of our investment in petromanas . for the year ended period ended december 31 , 2013 , we recorded a decrease in fair value of investment in associate ( petromanas ) of usd 4,247,067 compared to an increase in fair value of investment in associate of usd 3,719,716 and a loss from sale of investment in associate of usd 3,507,397 for the same period in 2012. income tax penalties accrual for the year ended december 31 , 2013 the company recorded an accrual for the potential tax penalties relating to the years ended 2007 , 2008 and 2009. the tax penalties in the amount of usd 134,785 ( tax penalties usd 126,000 and accrued interest usd 8,785 ) were recorded in income tax expense . story_separator_special_tag deposited into escrow and subject to a fixed escrow release schedule , the company deemed them to have a level 2 input for the calculation of the fair value in accordance with asc 820 ( fair value measurements and disclosures ) . the company had applied an annual discount rate of 12 % on the quoted market price based on the time before the shares become freely tradable . the discount rate was an estimate of the cost of capital , based on previous long-term debt the company has issued . for period ended december 31 , 2013 we have reclassified our investment in associates from level 2 to level 1and account for in accordance with asc 320 investments - debt and equity securities . we have classified the investment in associates as trading securities and report it at fair value , with unrealized gains and losses included in earnings . stock-based compensation we account for all of our stock-based payments and awards applying the fair value method . stock-based payments to non-employees are measured at the fair value of the consideration received , or the fair value of the equity instruments issued , or liabilities incurred , whichever is more reliably measurable . the fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete , and any change therein is recognized over the vesting period of the award and in the same manner as if we had paid cash instead of paying with or using equity based instruments . the costs of the stock-based payments to non-employees that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date , unless there is a contractual term for services in which case such compensation would be amortized over the contractual term . for restricted share

liquidity and capital resources our cash balance as of december 31 , 2013 was usd 3,063,947. shareholders ' equity as of december 31 , 2013 was usd 20,706,748. as of december 31 , 2013 , total current assets were usd 10,924,705 and total current liabilities were usd 1,092,571 , resulting in net working capital of usd 9,832,134. of our cash balance as of december 31 , 2013 , usd 3,063,947 was on bank accounts of mnp petroleum corp. and its subsidiaries . since our company considers foreign subsidiaries to be permanently invested , taxes will be due in the event of repatriation . during the period of october 18 , 2013 to october 29 , 2013 , dwm petroleum sold 1,000,000 shares at a price of cad 0.12 per common share for gross proceeds of cad 120,000 ( usd 114,900 ) on the open market . on october 25 , 2013 , dwm petroleum sold an additional 3,000,000 shares at a price of cad 0.10 per common shares for gross proceeds of cad 300,000 ( usd 288,510 ) on the open market . on november 8 , 2013 , dwm petroleum sold an additional 46,000,000 shares at a volume weighted price of cad 0.12 per common shares for gross proceeds of cad 5,595,710 ( usd 5,366,286 ) on the open market .

% of our issued and outstanding common stock immediately prior to the closing date , at a per share value of $ 2.5183 , or $ 2,214,175 in the aggregate . we issued the remaining $ 7,785,825 of the approximately $ 10 million agreed upon consideration to fcop in the form of 123,668 shares of newly designated non-voting series a convertible preferred stock . each share of the series a convertible preferred stock was originally convertible into 25 shares of common stock , subject to the satisfaction of certain conditions , including stockholder approval of such conversion , which was obtained on october 12 , 2017. these shares were subsequently converted into common stock . the contribution agreement contemplated that additional contributions would be made prior to december 31 , 2017 if fcop completed its purchase of additional properties ; however , fcop failed to acquire those additional properties before the december 31 , 2017 deadline and , therefore , only the closing described above was completed . we elected to early adopt asu 2017-01 , business combinations ( topic 805 ) clarifying the definition of a business . accordingly , the determination of whether the transaction represents a business combination was evaluated by applying asu 2017-01 guidance . we have determined that the group of assets assumed do not include ( and also , none of them on a stand-alone basis ) include , an input and a substantive process that together significantly contribute to the ability to create output and thus it was determined that the contribution represents an acquisition of assets rather than a business combination . accordingly , the total sum of the fair value of consideration given ( i.e . the fair value of the equity interests issued ) together with the transaction costs , was allocated to the individual assets acquired and liabilities assumed based on their relative fair values at the date of acquisition . such allocation did not give rise to goodwill . see item 1 “ business—contribution transaction ” for more information . recent developments gadsden transaction on march 13 , 2019 , we entered into the gadsden purchase agreement . see item 1 “ business—gadsden transaction ” for details regarding this transaction and related termination of the merger agreement . purchase of roseville series a preferred units on january 14 , 2019 , we purchased 1,000 series a preferred units of gadsden roseville , llc , a delaware limited liability company , or gadsden roseville , for a purchase price of $ 350,000 , in accordance with an amended and restated limited liability company agreement of roseville , or the llc agreement , entered into among gadsden roseville , gadsden realty investments i , llc , a wholly owned subsidiary of gadsden , or gadsden investments , and our company , on january 14 , 2019. gadsden investments , the other member of gadsden roseville , owns 1,000 common units . gadsden roseville is the sole owner . see the roseville property described under item 1 “ business ” . the series a preferred units entitle us to priority distribution rights . in accordance with the llc agreement , net cash flow ( as defined in the llc agreement ) is distributed among the members as follows : ( i ) first , to our company , an amount equal to the series a preferred return then accrued and payable ; ( ii ) second , to our company , an amount equal to its unreturned capital ; and ( iii ) then , to gadsden investments . “ series a preferred return ” means an amount equal to a return that accrued on the capital contributions of our company at 15 % per annum compounded annually ; provided , however , that if we have not received an amount equal to our unreturned capital on or prior to may 14 , 2019 , then from and after such date , the series a preferred return shall accrue on our capital contributions at 25 % per annum compounded annually . “ unreturned capital ” means an amount equal to our aggregate capital contributions less the aggregate distributions made to us . roseville is managed by two managers - one designated by us and one designated by gadsden investments . the current managers are michael r. stewart , our chief executive officer , and john hartman , gadsden 's chief executive officer . except as otherwise provided in the llc agreement , actions by gadsden roseville require the unanimous consent of the two managers . 26 going concern the accompanying financial statements have been prepared assuming we will continue as a going concern , which contemplates the realization of assets and satisfaction of liabilities in the normal course of business . as of december 31 , 2018 , we had an accumulated deficit of approximately $ 139.7 million and incurred an operating loss for the year ended december 31 , 2018 of approximately $ 5.6 million . subsequent to the sale of our last significant business unit , we have dedicated most of our financial resources to general and administrative expenses associated with its ongoing business of real estate development and asset management . cash and cash equivalents as of december 31 , 2018 were approximately $ 1.8 million . we have historically financed our activities with cash from operations , the private placement of equity and debt securities , borrowings under lines of credit and , in the most recent periods , with the sale of certain assets and business units . we will be required to obtain additional liquidity resources in order to support our ongoing operations . story_separator_special_tag we accounted for the aforesaid option according to the provisions of asc 480 , “ distinguishing liabilities from equity ” since the option is considered freestanding , we believe it is legally detachable and separately exercisable . in addition , the option was exercisable for convertible preferred stock which was subject to possible redemption at the option of the holder . we classified the option as non-current liability , remeasured at fair value each reporting period until the option will be exercised or expired , with changes in the fair values being recognized in our statement of comprehensive loss as financial income or expense . the fair value of the option was estimated at the initial date and december 31 , 2017 by using hybrid method that includes scenario of conversion and scenario liquidation and the black-scholes option pricing model . in the first scenario , the redeemable convertible preferred stock price applied in the model was assumed based on the as-converted price on the date of estimation . expected volatility was estimated by using a group of peers in the real estate development , homebuilding and income-producing properties sectors , and applying a 75 % percentile ranking based on our total capitalization . in the second scenario , the option was estimated based on the value of the option in a proposed liquidation scenario . a probability weighting was applied to determine the expected value of the option . during the year ended december 31 , 2018 , we recorded income from revaluation of the option to purchase redeemable convertible b preferred stock in total amount of approximately $ 3.29 million . income taxes . as part of the process of preparing our consolidated financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process requires us to estimate our actual current tax exposure and make an assessment of temporary differences resulting from differing treatment of items , for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included within our consolidated balance sheet . we must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and , to the extent we believe that recovery is more likely than not , we establish a valuation allowance . our assessment for the year ended december 31 , 2018 , is that a 100 % valuation allowance is still required . to the extent we establish a valuation allowance or increase this allowance in a period , we must include an expense within the tax provision in the consolidated statement of operations . significant management judgment is required in determining our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets . in the event that we generate taxable income in the jurisdictions in which we operate and in which we have net operating loss carry-forwards that we can utilize to offset all or part of this taxable income , we may be required to adjust our valuation allowance . on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act , or the tax act . the tax act makes broad and complex changes to the u.s. tax code , including , but not limited to , reducing the u.s. federal corporate tax rate from 35 % to 21 % ; eliminating the corporate alternative minimum tax , or amt , and changing how existing amt credits can be realized ; creating a new limitation on deductible interest expense ; changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after december 31 , 2017 ; and changing limitations on the deductibility of certain executive compensation . in december 2017 , the sec issued staff accounting bulletin no . 118 , or sab 118 , which addresses situations where the accounting is incomplete for the income tax effects of the act . sab 118 directs taxpayers to consider the impact of the tax act as “ provisional ” when a company does not have the necessary information available , prepared or analyzed ( including computations ) to finalize the accounting for the change in tax law . companies were provided a measurement period of up to one year to obtain , prepare , and analyze information necessary to finalize the accounting for provisional amounts or amounts that can not be estimated as of december 31 , 2017. with regards to the tax act impact on the tax provision as it relates to our company for period year-ending december 31 , 2017 , we have recognized the provisional impact of tax reform related to the revaluation of deferred tax assets and liabilities from 35 % to 21 % of $ 17.2 million tax expense , which was offset by a reduction in the valuation allowance . in the years ended december 31 , 2018 and 2017 , we reported financial results for both operations and discontinued operations . asc 740-20-45 sets down the general rule for allocating income tax expense or benefit between operations and discontinued operations . the general rule requires the computation of tax expense or benefit by entity taking into consideration all items of income , expense , and tax credits . next , a computation is made taking into consideration only those items related to continuing operations . any difference is allocated to items other than continuing operations e.g . discontinued operations . under these general rules , no tax expense or benefit would be allocated to discontinued operations . 33 an exception to these rules applies under asc 740-20-45-7 where an entity has ( 1 ) a loss from continuing operations and income related to other items such as discontinued operations and ( 2 ) would not otherwise recognize a benefit for the loss

liquidity and capital resources our cash balance as of december 31 , 2013 was usd 3,063,947. shareholders ' equity as of december 31 , 2013 was usd 20,706,748. as of december 31 , 2013 , total current assets were usd 10,924,705 and total current liabilities were usd 1,092,571 , resulting in net working capital of usd 9,832,134. of our cash balance as of december 31 , 2013 , usd 3,063,947 was on bank accounts of mnp petroleum corp. and its subsidiaries . since our company considers foreign subsidiaries to be permanently invested , taxes will be due in the event of repatriation . during the period of october 18 , 2013 to october 29 , 2013 , dwm petroleum sold 1,000,000 shares at a price of cad 0.12 per common share for gross proceeds of cad 120,000 ( usd 114,900 ) on the open market . on october 25 , 2013 , dwm petroleum sold an additional 3,000,000 shares at a price of cad 0.10 per common shares for gross proceeds of cad 300,000 ( usd 288,510 ) on the open market . on november 8 , 2013 , dwm petroleum sold an additional 46,000,000 shares at a volume weighted price of cad 0.12 per common shares for gross proceeds of cad 5,595,710 ( usd 5,366,286 ) on the open market .

% of our issued and outstanding common stock immediately prior to the closing date , at a per share value of $ 2.5183 , or $ 2,214,175 in the aggregate . we issued the remaining $ 7,785,825 of the approximately $ 10 million agreed upon consideration to fcop in the form of 123,668 shares of newly designated non-voting series a convertible preferred stock . each share of the series a convertible preferred stock was originally convertible into 25 shares of common stock , subject to the satisfaction of certain conditions , including stockholder approval of such conversion , which was obtained on october 12 , 2017. these shares were subsequently converted into common stock . the contribution agreement contemplated that additional contributions would be made prior to december 31 , 2017 if fcop completed its purchase of additional properties ; however , fcop failed to acquire those additional properties before the december 31 , 2017 deadline and , therefore , only the closing described above was completed . we elected to early adopt asu 2017-01 , business combinations ( topic 805 ) clarifying the definition of a business . accordingly , the determination of whether the transaction represents a business combination was evaluated by applying asu 2017-01 guidance . we have determined that the group of assets assumed do not include ( and also , none of them on a stand-alone basis ) include , an input and a substantive process that together significantly contribute to the ability to create output and thus it was determined that the contribution represents an acquisition of assets rather than a business combination . accordingly , the total sum of the fair value of consideration given ( i.e . the fair value of the equity interests issued ) together with the transaction costs , was allocated to the individual assets acquired and liabilities assumed based on their relative fair values at the date of acquisition . such allocation did not give rise to goodwill . see item 1 “ business—contribution transaction ” for more information . recent developments gadsden transaction on march 13 , 2019 , we entered into the gadsden purchase agreement . see item 1 “ business—gadsden transaction ” for details regarding this transaction and related termination of the merger agreement . purchase of roseville series a preferred units on january 14 , 2019 , we purchased 1,000 series a preferred units of gadsden roseville , llc , a delaware limited liability company , or gadsden roseville , for a purchase price of $ 350,000 , in accordance with an amended and restated limited liability company agreement of roseville , or the llc agreement , entered into among gadsden roseville , gadsden realty investments i , llc , a wholly owned subsidiary of gadsden , or gadsden investments , and our company , on january 14 , 2019. gadsden investments , the other member of gadsden roseville , owns 1,000 common units . gadsden roseville is the sole owner . see the roseville property described under item 1 “ business ” . the series a preferred units entitle us to priority distribution rights . in accordance with the llc agreement , net cash flow ( as defined in the llc agreement ) is distributed among the members as follows : ( i ) first , to our company , an amount equal to the series a preferred return then accrued and payable ; ( ii ) second , to our company , an amount equal to its unreturned capital ; and ( iii ) then , to gadsden investments . “ series a preferred return ” means an amount equal to a return that accrued on the capital contributions of our company at 15 % per annum compounded annually ; provided , however , that if we have not received an amount equal to our unreturned capital on or prior to may 14 , 2019 , then from and after such date , the series a preferred return shall accrue on our capital contributions at 25 % per annum compounded annually . “ unreturned capital ” means an amount equal to our aggregate capital contributions less the aggregate distributions made to us . roseville is managed by two managers - one designated by us and one designated by gadsden investments . the current managers are michael r. stewart , our chief executive officer , and john hartman , gadsden 's chief executive officer . except as otherwise provided in the llc agreement , actions by gadsden roseville require the unanimous consent of the two managers . 26 going concern the accompanying financial statements have been prepared assuming we will continue as a going concern , which contemplates the realization of assets and satisfaction of liabilities in the normal course of business . as of december 31 , 2018 , we had an accumulated deficit of approximately $ 139.7 million and incurred an operating loss for the year ended december 31 , 2018 of approximately $ 5.6 million . subsequent to the sale of our last significant business unit , we have dedicated most of our financial resources to general and administrative expenses associated with its ongoing business of real estate development and asset management . cash and cash equivalents as of december 31 , 2018 were approximately $ 1.8 million . we have historically financed our activities with cash from operations , the private placement of equity and debt securities , borrowings under lines of credit and , in the most recent periods , with the sale of certain assets and business units . we will be required to obtain additional liquidity resources in order to support our ongoing operations . story_separator_special_tag we accounted for the aforesaid option according to the provisions of asc 480 , “ distinguishing liabilities from equity ” since the option is considered freestanding , we believe it is legally detachable and separately exercisable . in addition , the option was exercisable for convertible preferred stock which was subject to possible redemption at the option of the holder . we classified the option as non-current liability , remeasured at fair value each reporting period until the option will be exercised or expired , with changes in the fair values being recognized in our statement of comprehensive loss as financial income or expense . the fair value of the option was estimated at the initial date and december 31 , 2017 by using hybrid method that includes scenario of conversion and scenario liquidation and the black-scholes option pricing model . in the first scenario , the redeemable convertible preferred stock price applied in the model was assumed based on the as-converted price on the date of estimation . expected volatility was estimated by using a group of peers in the real estate development , homebuilding and income-producing properties sectors , and applying a 75 % percentile ranking based on our total capitalization . in the second scenario , the option was estimated based on the value of the option in a proposed liquidation scenario . a probability weighting was applied to determine the expected value of the option . during the year ended december 31 , 2018 , we recorded income from revaluation of the option to purchase redeemable convertible b preferred stock in total amount of approximately $ 3.29 million . income taxes . as part of the process of preparing our consolidated financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process requires us to estimate our actual current tax exposure and make an assessment of temporary differences resulting from differing treatment of items , for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included within our consolidated balance sheet . we must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and , to the extent we believe that recovery is more likely than not , we establish a valuation allowance . our assessment for the year ended december 31 , 2018 , is that a 100 % valuation allowance is still required . to the extent we establish a valuation allowance or increase this allowance in a period , we must include an expense within the tax provision in the consolidated statement of operations . significant management judgment is required in determining our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets . in the event that we generate taxable income in the jurisdictions in which we operate and in which we have net operating loss carry-forwards that we can utilize to offset all or part of this taxable income , we may be required to adjust our valuation allowance . on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act , or the tax act . the tax act makes broad and complex changes to the u.s. tax code , including , but not limited to , reducing the u.s. federal corporate tax rate from 35 % to 21 % ; eliminating the corporate alternative minimum tax , or amt , and changing how existing amt credits can be realized ; creating a new limitation on deductible interest expense ; changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after december 31 , 2017 ; and changing limitations on the deductibility of certain executive compensation . in december 2017 , the sec issued staff accounting bulletin no . 118 , or sab 118 , which addresses situations where the accounting is incomplete for the income tax effects of the act . sab 118 directs taxpayers to consider the impact of the tax act as “ provisional ” when a company does not have the necessary information available , prepared or analyzed ( including computations ) to finalize the accounting for the change in tax law . companies were provided a measurement period of up to one year to obtain , prepare , and analyze information necessary to finalize the accounting for provisional amounts or amounts that can not be estimated as of december 31 , 2017. with regards to the tax act impact on the tax provision as it relates to our company for period year-ending december 31 , 2017 , we have recognized the provisional impact of tax reform related to the revaluation of deferred tax assets and liabilities from 35 % to 21 % of $ 17.2 million tax expense , which was offset by a reduction in the valuation allowance . in the years ended december 31 , 2018 and 2017 , we reported financial results for both operations and discontinued operations . asc 740-20-45 sets down the general rule for allocating income tax expense or benefit between operations and discontinued operations . the general rule requires the computation of tax expense or benefit by entity taking into consideration all items of income , expense , and tax credits . next , a computation is made taking into consideration only those items related to continuing operations . any difference is allocated to items other than continuing operations e.g . discontinued operations . under these general rules , no tax expense or benefit would be allocated to discontinued operations . 33 an exception to these rules applies under asc 740-20-45-7 where an entity has ( 1 ) a loss from continuing operations and income related to other items such as discontinued operations and ( 2 ) would not otherwise recognize a benefit for the loss

liquidity and capital resources as of december 31 , 2018 , we had a deficit approximately $ 139.7 million and cash and cash equivalents of approximately $ 1.8 million . to date , and subsequent to the recent sale of our last significant business unit , we have dedicated most of our financial resources to general and administrative expenses . we have historically financed our activities with cash from operations , the private placement of equity and debt securities , borrowings under lines of credit and , in the most recent periods , with sale of certain assets and business units . we will be required to obtain additional liquidity resources in order to support our operations . at this time , there is no guarantee that we will be able to obtain an adequate level of financial resources required for the short and long-term support of our operations or that we will be able to obtain additional financing as needed , or meet the conditions of such financing , or that the costs of such financing may not be prohibitive . summary of cash flows the following table provides detailed information about our net cash flow for all financial statement periods presented in this report : cash flow ( in thousands ) replace_table_token_3_th net cash used in operating activities was approximately $ 2.9 million for the year ended december 31 , 2018 compared to approximately $ 9.3 million for the year ended december 31 , 2017. the primary reason for the change is the continual wind-down of the former business operations ahead of the acquisition of income-producing real estate properties . net cash used in investing activities was approximately $ 0.3 million for the year ended december 31 , 2018 compared to net cash provided by investing activities of approximately $ 6.8 million for the year ended december 31 , 2017. the primary reason for the change was the cash received from the sale of the consumer division to ictv for the year ended december 31 , 2017. net cash provided by financing activities was approximately $ 4.1 million for the year ended december 31 , 2018 compared to approximately $ 0.9 million for the year ended december 31 , 2017.

overview activity for our accommodations and offshore products segments is primarily tied to the long-term outlook for commodity prices . in contrast , activity for our well site services and tubular services segments responds to shorter-term movements in oil and natural gas prices and , specifically , changes in north american drilling and completion activity . other factors that can affect our business and financial results include the general global economic environment and regulatory changes in the united states and internationally . generally , our oil sands and mining accommodations customers are making multi-billion dollar investments to develop their prospects , which have estimated reserve lives of 10 to in excess of 30 years and , consequently , these investments are dependent on those customers ' longer-term view of commodity demand and prices . oil sands development activity has increased in the past year and has had a positive impact on our accommodations segment . recent announcements of new and expanded oil sands projects will create the opportunity for extensions of existing accommodations contracts and incremental accommodations contracts for us in canada . in addition , several major oil companies and national oil companies have announced joint ventures to develop oil sands leases that should bode well for future oil sands investment and , as a result , demand for oil sands accommodations . our australian accommodations business is significantly influenced by increased metallurgical coal demand , especially from japan , china and india . metallurgical coal prices in china have strengthened recently and chinese metallurgical coal demand is expected to increase in 2012 compared to 2011 and could result in another annual metallurgical coal import record . we are expanding our australian accommodations capacity to meet this increasing demand . accommodations deployed to support onshore u.s. drilling activity in several of the active shale play regions have also favorably contributed to our results . our offshore products segment provides highly engineered products for offshore oil and natural gas drilling and production systems and facilities . sales of our offshore products and services depend primarily upon development of infrastructure for offshore production systems and subsea pipelines , repairs and upgrades of existing offshore drilling rigs and construction of new offshore drilling rigs and vessels . in this segment , we are particularly influenced by global deepwater drilling and production spending , which are driven largely by our customers ' longer-term outlook for oil and natural gas prices . in our well site services business segment , we predominantly provide rental tools and services and , to a lesser extent , land drilling services . our rental tools and services business provides equipment and service personnel utilized in the completion and initial production of new and recompleted wells . activity for the rental tools and services business is dependent primarily upon the level and complexity of drilling , completion and workover activity throughout north america . well complexity has increased as the number of productive zones completed in connection with horizontal drilling has increased . demand for our drilling services is driven by land drilling activity in our primary drilling markets in west texas , where we primarily drill oil wells , and in the rocky mountains area in the u.s. where we drill both oil and natural gas wells . through our tubular services segment , we distribute a broad range of casing and tubing used in the drilling and completion of oil and natural gas wells primarily in north america . accordingly , sales and gross margins in our tubular services segment depend upon the overall level of drilling activity , the types of wells being drilled , movements in global steel input prices and the overall industry level of octg inventory and pricing . historically , tubular services ' gross margin generally expands during periods of rising octg prices and contracts during periods of decreasing octg prices . 41 index to financial statements we have a diversified product and service offering , which has exposure to activities conducted throughout the oil and gas cycle . demand for our tubular services , land drilling and rental tools and services businesses is highly correlated to changes in the drilling rig count in the united states and , to a much lesser extent , canada . the table below sets forth a summary of north american rig activity , as measured by baker hughes incorporated , for the periods indicated . replace_table_token_8_th the rig count fell precipitously in the first half of 2009 in response to the impact of the global economic downturn which negatively impacted energy prices but has substantially recovered from its june 2009 low . the average north american rig count for the year ended december 31 , 2011 increased by 406 rigs , or 21 % , compared to the average for the year ended december 31 , 2010. a factor that influences the financial results for our accommodations segment is the exchange rate between the u.s. dollar and the canadian dollar and , to a lesser extent , the exchange rate between the u.s. dollar and the australian dollar . our accommodations segment has derived a majority of its revenues and operating income in canada and , more recently , australia . these revenues and profits are translated into u.s. dollars for u.s. gaap financial reporting purposes . for the year 2011 , the canadian dollar was valued at an average exchange rate of u.s. $ 1.01 compared to u.s. $ 0.97 for 2010 , an increase of 4 % . this strengthening of the canadian dollar had a positive impact on the translation of earnings generated from our canadian subsidiaries and , therefore , the financial results of our accommodations segment . for the year 2011 , the australian dollar was valued at average exchange rate of u.s. $ 1.03 compared to u.s. $ .92 for 2010 , an increase of 12 % . story_separator_special_tag consolidated revenues increased $ 303.7 million , or 14 % , in 2010 compared to 2009. our well site services segment revenues increased $ 170.9 million , or 56 % , in 2010 compared to 2009. this increase was primarily due to increased rental tools and services revenues and significantly increased rig utilization in our drilling services operations . our rental tools and services revenues increased $ 108.9 million , or 47 % , primarily due to increased demand for completion services with the increase in the u.s. rig count , a more favorable mix of higher value equipment , increased equipment utilization and improved pricing . our drilling services revenues increased $ 62.0 million , or 87 % , in 2010 compared to 2009 primarily as a result of increased utilization of our rigs . utilization of our drilling rigs increased from an average of approximately 37 % in 2009 to an average of approximately 71 % in 2010 . 46 index to financial statements our accommodations segment reported revenues in 2010 that were $ 56.3 million , or 12 % , above 2009. the increase in accommodations revenue resulted from increased activity at our large accommodation facilities supporting oil sands development activities in northern alberta , canada , the expansion of two of these facilities and the strengthening of the canadian dollar versus the u.s. dollar , partially offset by a $ 62.7 million decrease in third-party accommodations manufacturing revenues . our offshore products segment revenues decreased $ 80.5 million , or 16 % , in 2010 compared to 2009. this decrease was primarily due to lower starting backlog levels , a decrease in subsea pipeline revenues and rig and vessel equipment revenues driven principally by reductions in our customers ' spending caused by deferrals and delays of deepwater development projects and capital upgrades . tubular services segment revenues increased $ 157.0 million , or 19 % , in 2010 compared to 2009. this increase was a result of an increase in tons shipped from 330,800 in 2009 to 502,800 in 2010 driven by increased drilling activity , an increase of 172,000 tons , or 52 % , partially offset by a 22 % decrease in realized revenues per ton shipped in 2010. cost of sales and service . our consolidated cost of sales increased $ 234.1 million , or 14 % , in 2010 compared to 2009. this increase was primarily a result of increased cost of sales at our tubular services segment of $ 161.2 million , or 21 % , an increase at our well site services segment of $ 97.8 million , or 43 % , and an increase at our accommodations segment of $ 35.7 million , or 13 % , partially offset by a decrease in cost of sales at our offshore products segment of $ 60.6 million , or 16 % . our consolidated gross margin as a percentage of revenues was 22 % in both 2010 and 2009. our well site services segment cost of sales increased $ 97.8 million , or 43 % , in 2010 compared to 2009 as a result of a $ 50.5 million , or 30 % , increase in rental tools and services cost of sales and a $ 47.3 million , or 81 % , increase in drilling services cost of sales . our well site services segment gross margin as a percentage of revenues increased from 25 % in 2009 to 32 % in 2010. our rental tools and services gross margin as a percentage of revenues increased from 28 % in 2009 to 36 % in 2010 primarily due to a more favorable mix of higher value rentals and improved pricing along with improved fixed cost absorption as a result of increased rental tool utilization . our drilling services gross margin as a percentage of revenues increased from 18 % in 2009 to 21 % in 2010 primarily due to the increase in drilling activity levels . our accommodations segment cost of sales increased $ 35.7 million , or 13 % , in 2010 compared to 2009 primarily as a result of increased activity at our large accommodation facilities supporting oil sands development activities in northern alberta , canada , the expansion of two of these facilities and the strengthening of the canadian dollar versus the u.s. dollar , partially offset by a decrease in third-party accommodations manufacturing and installation costs . our accommodations segment gross margin as a percentage of revenues was 42 % in 2009 and 2010. our offshore products segment cost of sales decreased $ 60.6 million , or 16 % , in 2010 compared to 2009 primarily due to a decrease in subsea pipeline and rig and vessel equipment costs . our offshore products segment gross margin as a percentage of revenues was 26 % in both 2009 and 2010. tubular services segment cost of sales increased $ 161.2 million , or 21 % , in 2010 compared to 2009 primarily as a result of an increase in tons shipped driven by increased drilling activity , partially offset by lower priced octg inventory being sold . our tubular services segment gross margin as a percentage of revenues decreased from 7 % in 2009 to 5 % in 2010 primarily due to a larger portion of service related costs expensed on certain program work . selling , general and administrative expenses . sg & a expense increased $ 11.6 million , or 8 % , in 2010 compared to 2009 due primarily to an increased accrual for incentive bonuses , increased salaries , wages and benefits and an increase in our accommodations sg & a expenses as a result of the strengthening of the canadian dollar versus the u.s. dollar . sg & a was 6.3 % of revenues in 2010 compared to 6.6 % of revenues in 2009. depreciation and amortization . depreciation and amortization expense increased $ 6.1 million , or 5 % , in 2010

liquidity and capital resources as of december 31 , 2018 , we had a deficit approximately $ 139.7 million and cash and cash equivalents of approximately $ 1.8 million . to date , and subsequent to the recent sale of our last significant business unit , we have dedicated most of our financial resources to general and administrative expenses . we have historically financed our activities with cash from operations , the private placement of equity and debt securities , borrowings under lines of credit and , in the most recent periods , with sale of certain assets and business units . we will be required to obtain additional liquidity resources in order to support our operations . at this time , there is no guarantee that we will be able to obtain an adequate level of financial resources required for the short and long-term support of our operations or that we will be able to obtain additional financing as needed , or meet the conditions of such financing , or that the costs of such financing may not be prohibitive . summary of cash flows the following table provides detailed information about our net cash flow for all financial statement periods presented in this report : cash flow ( in thousands ) replace_table_token_3_th net cash used in operating activities was approximately $ 2.9 million for the year ended december 31 , 2018 compared to approximately $ 9.3 million for the year ended december 31 , 2017. the primary reason for the change is the continual wind-down of the former business operations ahead of the acquisition of income-producing real estate properties . net cash used in investing activities was approximately $ 0.3 million for the year ended december 31 , 2018 compared to net cash provided by investing activities of approximately $ 6.8 million for the year ended december 31 , 2017. the primary reason for the change was the cash received from the sale of the consumer division to ictv for the year ended december 31 , 2017. net cash provided by financing activities was approximately $ 4.1 million for the year ended december 31 , 2018 compared to approximately $ 0.9 million for the year ended december 31 , 2017.

overview activity for our accommodations and offshore products segments is primarily tied to the long-term outlook for commodity prices . in contrast , activity for our well site services and tubular services segments responds to shorter-term movements in oil and natural gas prices and , specifically , changes in north american drilling and completion activity . other factors that can affect our business and financial results include the general global economic environment and regulatory changes in the united states and internationally . generally , our oil sands and mining accommodations customers are making multi-billion dollar investments to develop their prospects , which have estimated reserve lives of 10 to in excess of 30 years and , consequently , these investments are dependent on those customers ' longer-term view of commodity demand and prices . oil sands development activity has increased in the past year and has had a positive impact on our accommodations segment . recent announcements of new and expanded oil sands projects will create the opportunity for extensions of existing accommodations contracts and incremental accommodations contracts for us in canada . in addition , several major oil companies and national oil companies have announced joint ventures to develop oil sands leases that should bode well for future oil sands investment and , as a result , demand for oil sands accommodations . our australian accommodations business is significantly influenced by increased metallurgical coal demand , especially from japan , china and india . metallurgical coal prices in china have strengthened recently and chinese metallurgical coal demand is expected to increase in 2012 compared to 2011 and could result in another annual metallurgical coal import record . we are expanding our australian accommodations capacity to meet this increasing demand . accommodations deployed to support onshore u.s. drilling activity in several of the active shale play regions have also favorably contributed to our results . our offshore products segment provides highly engineered products for offshore oil and natural gas drilling and production systems and facilities . sales of our offshore products and services depend primarily upon development of infrastructure for offshore production systems and subsea pipelines , repairs and upgrades of existing offshore drilling rigs and construction of new offshore drilling rigs and vessels . in this segment , we are particularly influenced by global deepwater drilling and production spending , which are driven largely by our customers ' longer-term outlook for oil and natural gas prices . in our well site services business segment , we predominantly provide rental tools and services and , to a lesser extent , land drilling services . our rental tools and services business provides equipment and service personnel utilized in the completion and initial production of new and recompleted wells . activity for the rental tools and services business is dependent primarily upon the level and complexity of drilling , completion and workover activity throughout north america . well complexity has increased as the number of productive zones completed in connection with horizontal drilling has increased . demand for our drilling services is driven by land drilling activity in our primary drilling markets in west texas , where we primarily drill oil wells , and in the rocky mountains area in the u.s. where we drill both oil and natural gas wells . through our tubular services segment , we distribute a broad range of casing and tubing used in the drilling and completion of oil and natural gas wells primarily in north america . accordingly , sales and gross margins in our tubular services segment depend upon the overall level of drilling activity , the types of wells being drilled , movements in global steel input prices and the overall industry level of octg inventory and pricing . historically , tubular services ' gross margin generally expands during periods of rising octg prices and contracts during periods of decreasing octg prices . 41 index to financial statements we have a diversified product and service offering , which has exposure to activities conducted throughout the oil and gas cycle . demand for our tubular services , land drilling and rental tools and services businesses is highly correlated to changes in the drilling rig count in the united states and , to a much lesser extent , canada . the table below sets forth a summary of north american rig activity , as measured by baker hughes incorporated , for the periods indicated . replace_table_token_8_th the rig count fell precipitously in the first half of 2009 in response to the impact of the global economic downturn which negatively impacted energy prices but has substantially recovered from its june 2009 low . the average north american rig count for the year ended december 31 , 2011 increased by 406 rigs , or 21 % , compared to the average for the year ended december 31 , 2010. a factor that influences the financial results for our accommodations segment is the exchange rate between the u.s. dollar and the canadian dollar and , to a lesser extent , the exchange rate between the u.s. dollar and the australian dollar . our accommodations segment has derived a majority of its revenues and operating income in canada and , more recently , australia . these revenues and profits are translated into u.s. dollars for u.s. gaap financial reporting purposes . for the year 2011 , the canadian dollar was valued at an average exchange rate of u.s. $ 1.01 compared to u.s. $ 0.97 for 2010 , an increase of 4 % . this strengthening of the canadian dollar had a positive impact on the translation of earnings generated from our canadian subsidiaries and , therefore , the financial results of our accommodations segment . for the year 2011 , the australian dollar was valued at average exchange rate of u.s. $ 1.03 compared to u.s. $ .92 for 2010 , an increase of 12 % . story_separator_special_tag consolidated revenues increased $ 303.7 million , or 14 % , in 2010 compared to 2009. our well site services segment revenues increased $ 170.9 million , or 56 % , in 2010 compared to 2009. this increase was primarily due to increased rental tools and services revenues and significantly increased rig utilization in our drilling services operations . our rental tools and services revenues increased $ 108.9 million , or 47 % , primarily due to increased demand for completion services with the increase in the u.s. rig count , a more favorable mix of higher value equipment , increased equipment utilization and improved pricing . our drilling services revenues increased $ 62.0 million , or 87 % , in 2010 compared to 2009 primarily as a result of increased utilization of our rigs . utilization of our drilling rigs increased from an average of approximately 37 % in 2009 to an average of approximately 71 % in 2010 . 46 index to financial statements our accommodations segment reported revenues in 2010 that were $ 56.3 million , or 12 % , above 2009. the increase in accommodations revenue resulted from increased activity at our large accommodation facilities supporting oil sands development activities in northern alberta , canada , the expansion of two of these facilities and the strengthening of the canadian dollar versus the u.s. dollar , partially offset by a $ 62.7 million decrease in third-party accommodations manufacturing revenues . our offshore products segment revenues decreased $ 80.5 million , or 16 % , in 2010 compared to 2009. this decrease was primarily due to lower starting backlog levels , a decrease in subsea pipeline revenues and rig and vessel equipment revenues driven principally by reductions in our customers ' spending caused by deferrals and delays of deepwater development projects and capital upgrades . tubular services segment revenues increased $ 157.0 million , or 19 % , in 2010 compared to 2009. this increase was a result of an increase in tons shipped from 330,800 in 2009 to 502,800 in 2010 driven by increased drilling activity , an increase of 172,000 tons , or 52 % , partially offset by a 22 % decrease in realized revenues per ton shipped in 2010. cost of sales and service . our consolidated cost of sales increased $ 234.1 million , or 14 % , in 2010 compared to 2009. this increase was primarily a result of increased cost of sales at our tubular services segment of $ 161.2 million , or 21 % , an increase at our well site services segment of $ 97.8 million , or 43 % , and an increase at our accommodations segment of $ 35.7 million , or 13 % , partially offset by a decrease in cost of sales at our offshore products segment of $ 60.6 million , or 16 % . our consolidated gross margin as a percentage of revenues was 22 % in both 2010 and 2009. our well site services segment cost of sales increased $ 97.8 million , or 43 % , in 2010 compared to 2009 as a result of a $ 50.5 million , or 30 % , increase in rental tools and services cost of sales and a $ 47.3 million , or 81 % , increase in drilling services cost of sales . our well site services segment gross margin as a percentage of revenues increased from 25 % in 2009 to 32 % in 2010. our rental tools and services gross margin as a percentage of revenues increased from 28 % in 2009 to 36 % in 2010 primarily due to a more favorable mix of higher value rentals and improved pricing along with improved fixed cost absorption as a result of increased rental tool utilization . our drilling services gross margin as a percentage of revenues increased from 18 % in 2009 to 21 % in 2010 primarily due to the increase in drilling activity levels . our accommodations segment cost of sales increased $ 35.7 million , or 13 % , in 2010 compared to 2009 primarily as a result of increased activity at our large accommodation facilities supporting oil sands development activities in northern alberta , canada , the expansion of two of these facilities and the strengthening of the canadian dollar versus the u.s. dollar , partially offset by a decrease in third-party accommodations manufacturing and installation costs . our accommodations segment gross margin as a percentage of revenues was 42 % in 2009 and 2010. our offshore products segment cost of sales decreased $ 60.6 million , or 16 % , in 2010 compared to 2009 primarily due to a decrease in subsea pipeline and rig and vessel equipment costs . our offshore products segment gross margin as a percentage of revenues was 26 % in both 2009 and 2010. tubular services segment cost of sales increased $ 161.2 million , or 21 % , in 2010 compared to 2009 primarily as a result of an increase in tons shipped driven by increased drilling activity , partially offset by lower priced octg inventory being sold . our tubular services segment gross margin as a percentage of revenues decreased from 7 % in 2009 to 5 % in 2010 primarily due to a larger portion of service related costs expensed on certain program work . selling , general and administrative expenses . sg & a expense increased $ 11.6 million , or 8 % , in 2010 compared to 2009 due primarily to an increased accrual for incentive bonuses , increased salaries , wages and benefits and an increase in our accommodations sg & a expenses as a result of the strengthening of the canadian dollar versus the u.s. dollar . sg & a was 6.3 % of revenues in 2010 compared to 6.6 % of revenues in 2009. depreciation and amortization . depreciation and amortization expense increased $ 6.1 million , or 5 % , in 2010

liquidity and capital resources our primary liquidity needs are to fund capital expenditures , which in the past have included expanding our accommodations facilities , expanding and upgrading our offshore products manufacturing facilities and equipment , replacing and increasing rental tool assets , adding and upgrading drilling rigs , funding new product development and general working capital needs . in addition , capital has been used to fund strategic business acquisitions . our primary sources of funds have been cash flow from operations and proceeds from borrowings . see note 8 to the consolidated financial statements included in this annual report on form 10-k. cash totaling $ 215.9 million was provided by operations during the year ended december 31 , 2011 compared to cash totaling $ 230.9 million provided by operations during the year ended december 31 , 2010. during 2011 , $ 340.3 million was used to fund working capital , primarily due to increased investments in receivables and inventory in our tubular services and offshore products segments due to higher activity levels . during 2010 , $ 100.0 million was used to fund working capital , primarily due to increased investments in working capital for our tubular services and rental tools and services businesses and lower taxes payable , partially offset by a reduction in accounts receivable at our offshore products segment . cash was used in investing activities during the years ended december 31 , 2011 and 2010 in the amount of $ 489.0 million and $ 889.7 million , respectively . capital expenditures totaled $ 487.5 million and $ 182.2 million during the years ended december 31 , 2011 and 2010 , respectively . capital expenditures in both years consisted principally of purchases and installation of assets for our accommodations and well site services segments , and in particular for accommodations investments made in support of canadian oil sands developments and , in 2011 , australian mining related accommodations facilities .

this discussion and analysis contains , in addition to historical information , forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain risks and uncertainties , including those set forth under the heading “risk factors” and elsewhere in this report . overview the company is organized into two reportable operating segments . the “lifeboat distribution” segment distributes technical software to corporate resellers , value added resellers ( vars ) , consultants and systems integrators worldwide . the “techxtend” segment is a value-added reseller of software , hardware and services for corporations , government organizations and academic institutions in the usa and canada . we offer an extensive line of products from leading publishers of software and tools for virtualization/cloud computing , security , networking , storage & infrastructure management , application lifecycle management and other technically sophisticated domains as well as computer hardware . we market these products through direct sales , the internet , our catalogs , direct mail programs , advertisements in trade magazines and e-mail promotions . forward-looking statements this report includes “forward-looking statements” within the meaning of section 21e of the exchange act . statements in this report regarding future events or conditions , including but not limited to statements regarding industry prospects and the company 's expected financial position , business and financing plans , are forward-looking statements . although the company believes that the expectations reflected in such forward-looking statements are reasonable , it can give no assurance that such expectations will prove to have been correct . we strongly urge current and prospective investors to carefully consider the cautionary statements and risks contained in this report , particularly the risks described under “item 1a . risk factors” above . such risks include , but are not limited to , the continued acceptance of the company 's distribution channel by vendors and customers , the timely availability and acceptance of new products , contribution of key vendor relationships and support programs , as well as factors that affect the software industry generally . the company operates in a rapidly changing business , and new risk factors emerge from time to time . management can not predict every risk factor , nor can it assess the impact , if any , of all such risk factors on the company 's business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those projected in any forward-looking statements . accordingly , forward-looking statements should not be relied upon as a prediction of actual results and readers are cautioned not to place undue reliance on these forward-looking statements , which speak only as of their dates . the company undertakes no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . the statements concerning future sales , future gross profit margin and future selling and administrative expenses are forward looking statements involving certain risks and uncertainties such as availability of products , product mix , pricing pressures , market conditions and other factors , which could result in a fluctuation of sales below recent experience . page 14 stock volatility . the technology sector of the united states stock markets has experienced substantial volatility in recent periods . numerous conditions which impact the technology sector or the stock market in general or the company in particular , whether or not such events relate to or reflect upon the company 's operating performance , could adversely affect the market price of the company 's common stock . furthermore , fluctuations in the company 's operating results , announcements regarding litigation , the loss of a significant vendor or customer , increased competition , reduced vendor incentives and trade credit , higher postage and operating expenses , and other developments , could have a significant impact on the market price of the company 's common stock . financial overview net sales totaled $ 300.4 million in 2013 as compared to $ 297.1 million in 2012 , representing a 1 % increase . gross profit increased by $ 0.5 million or 2 % in 2013 as compared to 2012. selling , general and administrative ( “sg & a” ) expenses increased by $ 0.1 million in 2013 as compared to 2012. income from operations amounted to $ 8.9 million in 2013 as compared to $ 8.5 million in 2012 , representing an increase of $ 0.4 million or 4 % as compared to 2012. this increase resulted from the increase in total sales and total gross margin ( lifeboat distribution segment increased offset by a decrease in techxtend segment ) offset by a slight increase in sg & a expenses . our income before provision for income taxes increased by $ 0.3 million to $ 9.4 million in 2013 compared to $ 9.1 million in 2012. we reported a net income of $ 6.4 million for 2013 compared to $ 5.5 million in 2012. the company 's sales , gross profit and results of operations have fluctuated and are expected to continue to fluctuate on a quarterly basis as a result of a number of factors , including but not limited to : the condition of the software industry in general , shifts in demand for software products , pricing , level of extended payment terms sales transactions , industry shipments of new software products or upgrades , the timing of new merchandise and catalog offerings , fluctuations in response rates , fluctuations in merchandise returns , adverse weather conditionsthat affect response , distribution or shipping , shifts in the timing of holidays and changes in the company 's product offerings . story_separator_special_tag as a result of the increase in net sales , sg & a expenses declined as a percentage of net sales to 5.2 % in 2012 , compared to 5.9 % in 2011. direct selling costs ( a component of sg & a ) for 2012 were $ 8.1 million compared to $ 7.8 million in 2011. total direct selling costs for our lifeboat distribution segment for 2012 were $ 4.5 million compared to $ 4.7 million in 2011 , mainly due to lower commission and bonus expense compared to the prior year . total direct selling costs for our techxtend segment for 2012 were $ 3.6 million compared to $ 3.1 million in 2011. the increase in the techxtend segment was due to higher commission , salaries and bonus expense resulting from growth in the segment . the company expects that its sg & a expenses , as a percentage of net sales , may vary depending on changes in sales volume , as well as the levels of continuing investments in key growth initiatives . income taxes for the year ended december 31 , 2012 , the company recorded a provision for income taxes of $ 3.6 million which consists of a provision of $ 2.8 million for u.s. federal income taxes , as well as a $ 0.5 million provision for state and local taxes , a $ 0.2 million provision for foreign taxes , and a deferred tax expense of $ 0.1 million . as of december 31 , 2012 , the company had a u.s. deferred tax asset of approximately $ 0.5 million . for the year ended december 31 , 2011 , the company recorded a provision for income taxes of $ 3.4 million which consists of a provision of $ 2.4 million for u.s. federal income taxes , as well as a $ 0.5 million provision for state and local taxes , a $ 0.3 million provision for foreign taxes , and a deferred tax expense of $ 0.3 million . as of december 31 , 2011 , the company had a u.s. deferred tax asset of approximately $ 0.6 million . page 18 recently adopted accounting pronouncements in february 2013 , the financial accounting standards board ( “fasb” ) issued accounting standards update ( “asu” ) 2013-02 “reporting of amounts reclassified out of accumulated other comprehensive income” . this update requires companies to present the effects on the line items of net income of significant reclassifications out of accumulated other comprehensive income if the amount being reclassified is required under u.s. generally accepted accounting principles ( “us gaap” ) to be reclassified in its entirety to net income in the same reporting period . asu 2013-02 is effective prospectively for the company for fiscal years , and interim periods within those years , beginning after december 15 , 2012. the adoption of the amended guidance did not have a significant impact on our consolidated financial statements . story_separator_special_tag ( see note 7 credit facility in the notes to our consolidated financial statements ) . foreign exchange the company 's canadian business is subject to changes in demand or pricing resulting from fluctuations in currency exchange rates or other factors . we are subject to fluctuations primarily in the canadian dollar-to-u.s. dollar exchange rate . page 20 off-balance sheet arrangements as of december 31 , 2013 , we did not have any off-balance sheet arrangements , as defined in item 303 ( a ) ( 4 ) ( ii ) of sec regulation s-k. critical accounting policies and estimates management 's discussion and analysis of the company 's financial condition and results of operations are based upon the company 's consolidated financial statements that have been prepared in accordance with us gaap . the preparation of these financial statements requires the company to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . the company recognizes revenue from the sale of software and hardware for microcomputers , servers and networks on a gross revenue recognition basis upon shipment or upon electronic delivery of the product . on an on-going basis , the company evaluates its estimates , including those related to product returns , bad debts , inventories , investments , intangible assets , income taxes , stock-based compensation , contingencies and litigation . the company 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 . actual results may differ from these estimates . the company believes the following critical accounting policies used in the preparation of its consolidated financial statements affect its more significant judgments and estimates . the company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments . if the financial condition of the company 's customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . the company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . if actual market conditions are less favorable than those projected by management , additional inventory write-offs may be required . the company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance related to deferred tax assets . in the event the company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future , an adjustment to the deferred tax assets would be charged to income in

liquidity and capital resources our primary liquidity needs are to fund capital expenditures , which in the past have included expanding our accommodations facilities , expanding and upgrading our offshore products manufacturing facilities and equipment , replacing and increasing rental tool assets , adding and upgrading drilling rigs , funding new product development and general working capital needs . in addition , capital has been used to fund strategic business acquisitions . our primary sources of funds have been cash flow from operations and proceeds from borrowings . see note 8 to the consolidated financial statements included in this annual report on form 10-k. cash totaling $ 215.9 million was provided by operations during the year ended december 31 , 2011 compared to cash totaling $ 230.9 million provided by operations during the year ended december 31 , 2010. during 2011 , $ 340.3 million was used to fund working capital , primarily due to increased investments in receivables and inventory in our tubular services and offshore products segments due to higher activity levels . during 2010 , $ 100.0 million was used to fund working capital , primarily due to increased investments in working capital for our tubular services and rental tools and services businesses and lower taxes payable , partially offset by a reduction in accounts receivable at our offshore products segment . cash was used in investing activities during the years ended december 31 , 2011 and 2010 in the amount of $ 489.0 million and $ 889.7 million , respectively . capital expenditures totaled $ 487.5 million and $ 182.2 million during the years ended december 31 , 2011 and 2010 , respectively . capital expenditures in both years consisted principally of purchases and installation of assets for our accommodations and well site services segments , and in particular for accommodations investments made in support of canadian oil sands developments and , in 2011 , australian mining related accommodations facilities .

this discussion and analysis contains , in addition to historical information , forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain risks and uncertainties , including those set forth under the heading “risk factors” and elsewhere in this report . overview the company is organized into two reportable operating segments . the “lifeboat distribution” segment distributes technical software to corporate resellers , value added resellers ( vars ) , consultants and systems integrators worldwide . the “techxtend” segment is a value-added reseller of software , hardware and services for corporations , government organizations and academic institutions in the usa and canada . we offer an extensive line of products from leading publishers of software and tools for virtualization/cloud computing , security , networking , storage & infrastructure management , application lifecycle management and other technically sophisticated domains as well as computer hardware . we market these products through direct sales , the internet , our catalogs , direct mail programs , advertisements in trade magazines and e-mail promotions . forward-looking statements this report includes “forward-looking statements” within the meaning of section 21e of the exchange act . statements in this report regarding future events or conditions , including but not limited to statements regarding industry prospects and the company 's expected financial position , business and financing plans , are forward-looking statements . although the company believes that the expectations reflected in such forward-looking statements are reasonable , it can give no assurance that such expectations will prove to have been correct . we strongly urge current and prospective investors to carefully consider the cautionary statements and risks contained in this report , particularly the risks described under “item 1a . risk factors” above . such risks include , but are not limited to , the continued acceptance of the company 's distribution channel by vendors and customers , the timely availability and acceptance of new products , contribution of key vendor relationships and support programs , as well as factors that affect the software industry generally . the company operates in a rapidly changing business , and new risk factors emerge from time to time . management can not predict every risk factor , nor can it assess the impact , if any , of all such risk factors on the company 's business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those projected in any forward-looking statements . accordingly , forward-looking statements should not be relied upon as a prediction of actual results and readers are cautioned not to place undue reliance on these forward-looking statements , which speak only as of their dates . the company undertakes no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . the statements concerning future sales , future gross profit margin and future selling and administrative expenses are forward looking statements involving certain risks and uncertainties such as availability of products , product mix , pricing pressures , market conditions and other factors , which could result in a fluctuation of sales below recent experience . page 14 stock volatility . the technology sector of the united states stock markets has experienced substantial volatility in recent periods . numerous conditions which impact the technology sector or the stock market in general or the company in particular , whether or not such events relate to or reflect upon the company 's operating performance , could adversely affect the market price of the company 's common stock . furthermore , fluctuations in the company 's operating results , announcements regarding litigation , the loss of a significant vendor or customer , increased competition , reduced vendor incentives and trade credit , higher postage and operating expenses , and other developments , could have a significant impact on the market price of the company 's common stock . financial overview net sales totaled $ 300.4 million in 2013 as compared to $ 297.1 million in 2012 , representing a 1 % increase . gross profit increased by $ 0.5 million or 2 % in 2013 as compared to 2012. selling , general and administrative ( “sg & a” ) expenses increased by $ 0.1 million in 2013 as compared to 2012. income from operations amounted to $ 8.9 million in 2013 as compared to $ 8.5 million in 2012 , representing an increase of $ 0.4 million or 4 % as compared to 2012. this increase resulted from the increase in total sales and total gross margin ( lifeboat distribution segment increased offset by a decrease in techxtend segment ) offset by a slight increase in sg & a expenses . our income before provision for income taxes increased by $ 0.3 million to $ 9.4 million in 2013 compared to $ 9.1 million in 2012. we reported a net income of $ 6.4 million for 2013 compared to $ 5.5 million in 2012. the company 's sales , gross profit and results of operations have fluctuated and are expected to continue to fluctuate on a quarterly basis as a result of a number of factors , including but not limited to : the condition of the software industry in general , shifts in demand for software products , pricing , level of extended payment terms sales transactions , industry shipments of new software products or upgrades , the timing of new merchandise and catalog offerings , fluctuations in response rates , fluctuations in merchandise returns , adverse weather conditionsthat affect response , distribution or shipping , shifts in the timing of holidays and changes in the company 's product offerings . story_separator_special_tag as a result of the increase in net sales , sg & a expenses declined as a percentage of net sales to 5.2 % in 2012 , compared to 5.9 % in 2011. direct selling costs ( a component of sg & a ) for 2012 were $ 8.1 million compared to $ 7.8 million in 2011. total direct selling costs for our lifeboat distribution segment for 2012 were $ 4.5 million compared to $ 4.7 million in 2011 , mainly due to lower commission and bonus expense compared to the prior year . total direct selling costs for our techxtend segment for 2012 were $ 3.6 million compared to $ 3.1 million in 2011. the increase in the techxtend segment was due to higher commission , salaries and bonus expense resulting from growth in the segment . the company expects that its sg & a expenses , as a percentage of net sales , may vary depending on changes in sales volume , as well as the levels of continuing investments in key growth initiatives . income taxes for the year ended december 31 , 2012 , the company recorded a provision for income taxes of $ 3.6 million which consists of a provision of $ 2.8 million for u.s. federal income taxes , as well as a $ 0.5 million provision for state and local taxes , a $ 0.2 million provision for foreign taxes , and a deferred tax expense of $ 0.1 million . as of december 31 , 2012 , the company had a u.s. deferred tax asset of approximately $ 0.5 million . for the year ended december 31 , 2011 , the company recorded a provision for income taxes of $ 3.4 million which consists of a provision of $ 2.4 million for u.s. federal income taxes , as well as a $ 0.5 million provision for state and local taxes , a $ 0.3 million provision for foreign taxes , and a deferred tax expense of $ 0.3 million . as of december 31 , 2011 , the company had a u.s. deferred tax asset of approximately $ 0.6 million . page 18 recently adopted accounting pronouncements in february 2013 , the financial accounting standards board ( “fasb” ) issued accounting standards update ( “asu” ) 2013-02 “reporting of amounts reclassified out of accumulated other comprehensive income” . this update requires companies to present the effects on the line items of net income of significant reclassifications out of accumulated other comprehensive income if the amount being reclassified is required under u.s. generally accepted accounting principles ( “us gaap” ) to be reclassified in its entirety to net income in the same reporting period . asu 2013-02 is effective prospectively for the company for fiscal years , and interim periods within those years , beginning after december 15 , 2012. the adoption of the amended guidance did not have a significant impact on our consolidated financial statements . story_separator_special_tag ( see note 7 credit facility in the notes to our consolidated financial statements ) . foreign exchange the company 's canadian business is subject to changes in demand or pricing resulting from fluctuations in currency exchange rates or other factors . we are subject to fluctuations primarily in the canadian dollar-to-u.s. dollar exchange rate . page 20 off-balance sheet arrangements as of december 31 , 2013 , we did not have any off-balance sheet arrangements , as defined in item 303 ( a ) ( 4 ) ( ii ) of sec regulation s-k. critical accounting policies and estimates management 's discussion and analysis of the company 's financial condition and results of operations are based upon the company 's consolidated financial statements that have been prepared in accordance with us gaap . the preparation of these financial statements requires the company to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . the company recognizes revenue from the sale of software and hardware for microcomputers , servers and networks on a gross revenue recognition basis upon shipment or upon electronic delivery of the product . on an on-going basis , the company evaluates its estimates , including those related to product returns , bad debts , inventories , investments , intangible assets , income taxes , stock-based compensation , contingencies and litigation . the company 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 . actual results may differ from these estimates . the company believes the following critical accounting policies used in the preparation of its consolidated financial statements affect its more significant judgments and estimates . the company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments . if the financial condition of the company 's customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . the company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . if actual market conditions are less favorable than those projected by management , additional inventory write-offs may be required . the company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance related to deferred tax assets . in the event the company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future , an adjustment to the deferred tax assets would be charged to income in

liquidity and capital resources our cash and cash equivalents increased by $ 9.8 million to $ 19.6 million at december 31 , 2013 from $ 9.8 million at december 31 , 2012. net cash provided by operating activities amounted to $ 10.3 million , net cash provided by investing activities amounted to $ 4.2 million , and net cash used in financing activities amounted to $ 4.8 million . net cash provided by operating activities in 2013 was $ 10.3 million . in 2013 , cash was mainly provided by $ 8.1 million from net income net of non-cash charges , a $ 2.0 million decrease in accounts receivable , a $ 0.4 million decrease in inventory , and a $ 0.8 million increase in accounts payable , offset in part by an increase in prepaid and other current assets of $ 0.8 million . in 2013 , cash provided by investing activities was $ 4.2 million . this resulted primarily from $ 4.4 million net redemptions of available-for-sale marketable securities . these securities are highly rated and highly liquid . these securities are classified as available-for-sale securities in accordance with asc topic 320 “investments in debt and equity securities” , and as a result , unrealized gains and losses are reported as part of accumulated other comprehensive income . this was partially offset by $ 0.2 million for the purchase of equipment and leasehold improvements . net cash used in financing activities in 2013 of $ 4.8 million consisted of $ 3.0 million of dividend payments on our common stock and $ 2.1 million for the purchases of treasury shares of our common stock offset by the tax benefit from share based compensation of $ 0.2 million and the exercise of stock options of $ 0.2 million . in 2008 , the board of directors authorized the purchase of 500,000 shares of our common stock .

our strategy is to continue to build on our position in the private mi market , expand our customer base and grow our insured portfolio of high-quality residential loans by focusing on long-term customer relationships , disciplined and proactive risk selection and pricing , fair and transparent claims payment practices , responsive customer service , financial strength and profitability . our common stock trades on the nasdaq under the symbol `` nmih . `` we discuss below our results of operations for the periods presented , as well as the conditions and trends that have impacted or are expected to impact our business and results , including customer development , new insurance writings , the composition of our insurance portfolio , reinsurance among other factors . 47 conditions and trends impacting our business customer development we have important relationships with customers across all categories and allocation profiles , including national accounts and regional accounts , and centralized and decentralized lenders . our sales and marketing efforts are broadly focused on expanding our presence with existing customers and activating new customer relationships . we consider an activation to be the point at which we have signed a master policy , established it connectivity and generated a first application or first niw from a customer . during the year ended december 31 , 2018 , we activated 121 lenders , compared to 127 and 173 for the years ended december 31 , 2017 and december 31 , 2016 , respectively . we also continued to expand our business with existing customers , deepening our existing relationships and capturing what we believe to be an increasing portion of their annual mi volume . at december 31 , 2018 , we had 1,374 master policies and 1,005 active customer relationships , compared to 1,267 and 841 , respectively , as of december 31 , 2017 and 1,131 and 715 , respectively , as of december 31 , 2016 . new insurance written , insurance-in-force and risk-in-force niw is the aggregate unpaid principal balance of mortgages underpinning new policies written during a given period . our niw is affected by the overall size of the mortgage origination market and the volume of high-ltv mortgage originations , which tend to be generated to a greater extent in purchase originations as compared to refinancings . our niw is also affected by the percentage of such high-ltv originations covered by private versus government mi or other alternative credit enhancement structures and our share of the private mi market . niw , together with persistency , drives our iif . iif is the aggregate unpaid principal balance of the mortgages we insure , as reported to us by servicers at a given date , and represents the sum total of niw from all prior periods less principal payments on insured mortgages and policy cancellations ( including for prepayment , nonpayment of premiums , coverage rescission and claim payments ) . rif is related to iif and represents the aggregate amount of coverage we provide on all outstanding policies at a given date . rif is calculated as the sum total of the coverage percentage of each individual policy in our portfolio applied to the unpaid principal balance of such insured mortgage . rif is affected by iif and the ltv profile of our insured mortgages , with lower ltv loans generally having a lower coverage percentage and higher ltv loans having a higher coverage percentage . gross rif represents rif before consideration of reinsurance . net rif is gross rif net of ceded reinsurance . net premiums written and net premiums earned we set our premium rates on individual policies based on the risk characteristics of the underlying mortgage loans and borrowers , and in accordance with our filed rates and applicable rating rules . on june 4 , 2018 , we introduced a proprietary risk-based pricing platform , which we refer to as rate gps sm . rate gps considers a broad range of individual variables , including property type , type of loan product , borrower credit characteristics , and lender and market factors , and provides us with the ability to set and charge premium rates commensurate with the underlying risk of each loan that we insure . we introduced rate gps in june 2018 to replace our previous rate card pricing system . while we expect most of our new business will be priced through rate gps , we also continue to offer a rate card pricing option to a limited number of lender customers who require a rate card for operational reasons . we believe the introduction and utilization of rate gps provides us with a more granular and analytical approach to evaluating and pricing risk , and that this approach enhances our ability to continue building a high-quality mortgage insurance portfolio and delivering attractive risk-adjusted returns . premiums are generally fixed for the duration of our coverage of the underlying loans . net premiums written are equal to gross premiums written minus ceded premiums written under our reinsurance arrangements , less premium refunds . as a result , net premiums written are generally influenced by : niw ; premium rates and the mix of premium payment type , which are either single , monthly or annual premiums , as described below ; cancellation rates of our insurance policies , which are impacted by payments or prepayments on mortgages , refinancings ( which are affected by prevailing mortgage interest rates as compared to interest rates on loans underpinning our in-force policies ) , levels of claims payments and home prices ; and cession of premiums under third-party reinsurance arrangements . premiums are paid either by the borrower ( bpmi ) or the lender ( lpmi ) in a single payment at origination ( single premium ) , on a monthly installment basis ( monthly premium ) or on an annual installment basis ( annual premium ) . story_separator_special_tag the claims expenses consist of the estimated cost of the claim administration process , including legal and other fees , as well as other general expenses of administering the claims settlement process 55 reserves are established by estimating the number of loans in default that will result in a claim payment , which is referred to as claim frequency , and the amount of the claim payment expected to be paid on each such loan in default , which is referred to as claim severity . claim frequency and severity estimates are established based on historical observed experience regarding certain loan factors , such as age of the default , cure rates , size of the loan and estimated change in property value . reserves are released the month in which a loan in default is brought current by the borrower , which is referred to as a cure . adjustments to reserve estimates are reflected in the period in which the adjustment is made . reserves are also ceded to reinsurers under the qsr transactions . we will not cede claims to reinsurers under the iln transactions unless losses exceed the respective retained coverage layers . reserves are not established for future claims on insured loans which are not currently in default . based on our experience and industry data , we believe that claims incidence for mortgage insurance is generally highest in the third through sixth years after loan origination . as of december 31 , 2018 , over 85 % of our primary iif related to business written since january 1 , 2016. although the claims experience on our iif to date has been modest , we expect incurred claims to increase as a greater amount of our existing insured portfolio reaches its anticipated period of highest claim frequency . additionally , our pool insurance agreement with fannie mae contains a claim deductible through which fannie mae absorbs specified losses before we are obligated to pay any claims . we have not established any pool reserves for claims or ibnr to date . the actual claims we incur as our portfolio matures are difficult to predict and depend on the specific characteristics of our current in-force book ( including the credit score and dti of the borrower , the ltv ratio of the mortgage and geographic concentrations , among others ) , as well as the risk profile of new business we write in the future . in addition , claims experience will be affected by future macroeconomic factors such as housing prices , interest rates , unemployment rates and other events , such as natural disasters . to date , our claims experience is developing at a slower pace than historical trends indicate , as a result of high quality underwriting , a strong macroeconomic environment and a favorable housing market . for additional discussion of our reserves , see item 8 , `` financial statements and supplementary data - notes to consolidated financial statements - note 7 , reserves for insurance claims and claim expenses . `` we insure mortgages for homes in areas that have been impacted by recent natural disasters . we do not provide coverage for property or casualty claims related to physical damage of a home underpinning an insured mortgage . we experienced an increase in nods on insured loans in areas impacted by such disasters in the fourth quarter of 2017 , the first quarter of 2018 and the fourth quarter of 2018. our ultimate claims exposure for loans in areas impacted by natural disasters will depend on the number of nods received , proximate cause of each default , cure rate of the nod population , and potential repair cost curtailment for appropriate claims on damaged properties as permitted under our master policy . cure rates on loan defaults following natural disasters are influenced by the adequacy of homeowners and other hazard insurance carried on a related property , gse-sponsored forbearance and other assistance programs , and a borrower 's access to aid from government entities and private organizations , in addition to other factors which generally impact cure rates in unaffected areas . in 2018 , we experienced higher cure rates on our nod population in disaster-affected areas as compared to our nod population in unaffected areas . 56 the following table provides a reconciliation of the beginning and ending reserve balances for primary insurance claims and claims expenses . replace_table_token_18_th ( 1 ) related to ceded losses recoverable on the qsr transactions , included in `` other assets `` on the consolidated balance sheets . see item 8 , `` financial statements and supplementary data - notes to consolidated financial statements - note 6 , reinsurance , `` for additional information . ( 2 ) related to insured loans with their most recent defaults occurring in the current year . for example , if a loan had defaulted in a prior year and subsequently cured and later re-defaulted in the current year , that default would be included in the current year . amounts are presented net of reinsurance . ( 3 ) related to insured loans with defaults occurring in prior years , which have been continuously in default since that time . amounts are presented net of reinsurance . the `` claims incurred `` section of the table above shows claims and claim expenses incurred on nods for current and prior years , including ibnr reserves and is presented net of reinsurance . the amount of claims incurred for current year nods represents the estimated amount to be ultimately paid on such loans in default . the decreases during the periods presented in reserves held for prior year defaults represent favorable development and are generally the result of nod cures and ongoing analysis of recent loss development trends . we may increase or decrease our original estimates as we gather additional information about individual defaults and claims , and continue to observe and analyze loss

liquidity and capital resources our cash and cash equivalents increased by $ 9.8 million to $ 19.6 million at december 31 , 2013 from $ 9.8 million at december 31 , 2012. net cash provided by operating activities amounted to $ 10.3 million , net cash provided by investing activities amounted to $ 4.2 million , and net cash used in financing activities amounted to $ 4.8 million . net cash provided by operating activities in 2013 was $ 10.3 million . in 2013 , cash was mainly provided by $ 8.1 million from net income net of non-cash charges , a $ 2.0 million decrease in accounts receivable , a $ 0.4 million decrease in inventory , and a $ 0.8 million increase in accounts payable , offset in part by an increase in prepaid and other current assets of $ 0.8 million . in 2013 , cash provided by investing activities was $ 4.2 million . this resulted primarily from $ 4.4 million net redemptions of available-for-sale marketable securities . these securities are highly rated and highly liquid . these securities are classified as available-for-sale securities in accordance with asc topic 320 “investments in debt and equity securities” , and as a result , unrealized gains and losses are reported as part of accumulated other comprehensive income . this was partially offset by $ 0.2 million for the purchase of equipment and leasehold improvements . net cash used in financing activities in 2013 of $ 4.8 million consisted of $ 3.0 million of dividend payments on our common stock and $ 2.1 million for the purchases of treasury shares of our common stock offset by the tax benefit from share based compensation of $ 0.2 million and the exercise of stock options of $ 0.2 million . in 2008 , the board of directors authorized the purchase of 500,000 shares of our common stock .

our strategy is to continue to build on our position in the private mi market , expand our customer base and grow our insured portfolio of high-quality residential loans by focusing on long-term customer relationships , disciplined and proactive risk selection and pricing , fair and transparent claims payment practices , responsive customer service , financial strength and profitability . our common stock trades on the nasdaq under the symbol `` nmih . `` we discuss below our results of operations for the periods presented , as well as the conditions and trends that have impacted or are expected to impact our business and results , including customer development , new insurance writings , the composition of our insurance portfolio , reinsurance among other factors . 47 conditions and trends impacting our business customer development we have important relationships with customers across all categories and allocation profiles , including national accounts and regional accounts , and centralized and decentralized lenders . our sales and marketing efforts are broadly focused on expanding our presence with existing customers and activating new customer relationships . we consider an activation to be the point at which we have signed a master policy , established it connectivity and generated a first application or first niw from a customer . during the year ended december 31 , 2018 , we activated 121 lenders , compared to 127 and 173 for the years ended december 31 , 2017 and december 31 , 2016 , respectively . we also continued to expand our business with existing customers , deepening our existing relationships and capturing what we believe to be an increasing portion of their annual mi volume . at december 31 , 2018 , we had 1,374 master policies and 1,005 active customer relationships , compared to 1,267 and 841 , respectively , as of december 31 , 2017 and 1,131 and 715 , respectively , as of december 31 , 2016 . new insurance written , insurance-in-force and risk-in-force niw is the aggregate unpaid principal balance of mortgages underpinning new policies written during a given period . our niw is affected by the overall size of the mortgage origination market and the volume of high-ltv mortgage originations , which tend to be generated to a greater extent in purchase originations as compared to refinancings . our niw is also affected by the percentage of such high-ltv originations covered by private versus government mi or other alternative credit enhancement structures and our share of the private mi market . niw , together with persistency , drives our iif . iif is the aggregate unpaid principal balance of the mortgages we insure , as reported to us by servicers at a given date , and represents the sum total of niw from all prior periods less principal payments on insured mortgages and policy cancellations ( including for prepayment , nonpayment of premiums , coverage rescission and claim payments ) . rif is related to iif and represents the aggregate amount of coverage we provide on all outstanding policies at a given date . rif is calculated as the sum total of the coverage percentage of each individual policy in our portfolio applied to the unpaid principal balance of such insured mortgage . rif is affected by iif and the ltv profile of our insured mortgages , with lower ltv loans generally having a lower coverage percentage and higher ltv loans having a higher coverage percentage . gross rif represents rif before consideration of reinsurance . net rif is gross rif net of ceded reinsurance . net premiums written and net premiums earned we set our premium rates on individual policies based on the risk characteristics of the underlying mortgage loans and borrowers , and in accordance with our filed rates and applicable rating rules . on june 4 , 2018 , we introduced a proprietary risk-based pricing platform , which we refer to as rate gps sm . rate gps considers a broad range of individual variables , including property type , type of loan product , borrower credit characteristics , and lender and market factors , and provides us with the ability to set and charge premium rates commensurate with the underlying risk of each loan that we insure . we introduced rate gps in june 2018 to replace our previous rate card pricing system . while we expect most of our new business will be priced through rate gps , we also continue to offer a rate card pricing option to a limited number of lender customers who require a rate card for operational reasons . we believe the introduction and utilization of rate gps provides us with a more granular and analytical approach to evaluating and pricing risk , and that this approach enhances our ability to continue building a high-quality mortgage insurance portfolio and delivering attractive risk-adjusted returns . premiums are generally fixed for the duration of our coverage of the underlying loans . net premiums written are equal to gross premiums written minus ceded premiums written under our reinsurance arrangements , less premium refunds . as a result , net premiums written are generally influenced by : niw ; premium rates and the mix of premium payment type , which are either single , monthly or annual premiums , as described below ; cancellation rates of our insurance policies , which are impacted by payments or prepayments on mortgages , refinancings ( which are affected by prevailing mortgage interest rates as compared to interest rates on loans underpinning our in-force policies ) , levels of claims payments and home prices ; and cession of premiums under third-party reinsurance arrangements . premiums are paid either by the borrower ( bpmi ) or the lender ( lpmi ) in a single payment at origination ( single premium ) , on a monthly installment basis ( monthly premium ) or on an annual installment basis ( annual premium ) . story_separator_special_tag the claims expenses consist of the estimated cost of the claim administration process , including legal and other fees , as well as other general expenses of administering the claims settlement process 55 reserves are established by estimating the number of loans in default that will result in a claim payment , which is referred to as claim frequency , and the amount of the claim payment expected to be paid on each such loan in default , which is referred to as claim severity . claim frequency and severity estimates are established based on historical observed experience regarding certain loan factors , such as age of the default , cure rates , size of the loan and estimated change in property value . reserves are released the month in which a loan in default is brought current by the borrower , which is referred to as a cure . adjustments to reserve estimates are reflected in the period in which the adjustment is made . reserves are also ceded to reinsurers under the qsr transactions . we will not cede claims to reinsurers under the iln transactions unless losses exceed the respective retained coverage layers . reserves are not established for future claims on insured loans which are not currently in default . based on our experience and industry data , we believe that claims incidence for mortgage insurance is generally highest in the third through sixth years after loan origination . as of december 31 , 2018 , over 85 % of our primary iif related to business written since january 1 , 2016. although the claims experience on our iif to date has been modest , we expect incurred claims to increase as a greater amount of our existing insured portfolio reaches its anticipated period of highest claim frequency . additionally , our pool insurance agreement with fannie mae contains a claim deductible through which fannie mae absorbs specified losses before we are obligated to pay any claims . we have not established any pool reserves for claims or ibnr to date . the actual claims we incur as our portfolio matures are difficult to predict and depend on the specific characteristics of our current in-force book ( including the credit score and dti of the borrower , the ltv ratio of the mortgage and geographic concentrations , among others ) , as well as the risk profile of new business we write in the future . in addition , claims experience will be affected by future macroeconomic factors such as housing prices , interest rates , unemployment rates and other events , such as natural disasters . to date , our claims experience is developing at a slower pace than historical trends indicate , as a result of high quality underwriting , a strong macroeconomic environment and a favorable housing market . for additional discussion of our reserves , see item 8 , `` financial statements and supplementary data - notes to consolidated financial statements - note 7 , reserves for insurance claims and claim expenses . `` we insure mortgages for homes in areas that have been impacted by recent natural disasters . we do not provide coverage for property or casualty claims related to physical damage of a home underpinning an insured mortgage . we experienced an increase in nods on insured loans in areas impacted by such disasters in the fourth quarter of 2017 , the first quarter of 2018 and the fourth quarter of 2018. our ultimate claims exposure for loans in areas impacted by natural disasters will depend on the number of nods received , proximate cause of each default , cure rate of the nod population , and potential repair cost curtailment for appropriate claims on damaged properties as permitted under our master policy . cure rates on loan defaults following natural disasters are influenced by the adequacy of homeowners and other hazard insurance carried on a related property , gse-sponsored forbearance and other assistance programs , and a borrower 's access to aid from government entities and private organizations , in addition to other factors which generally impact cure rates in unaffected areas . in 2018 , we experienced higher cure rates on our nod population in disaster-affected areas as compared to our nod population in unaffected areas . 56 the following table provides a reconciliation of the beginning and ending reserve balances for primary insurance claims and claims expenses . replace_table_token_18_th ( 1 ) related to ceded losses recoverable on the qsr transactions , included in `` other assets `` on the consolidated balance sheets . see item 8 , `` financial statements and supplementary data - notes to consolidated financial statements - note 6 , reinsurance , `` for additional information . ( 2 ) related to insured loans with their most recent defaults occurring in the current year . for example , if a loan had defaulted in a prior year and subsequently cured and later re-defaulted in the current year , that default would be included in the current year . amounts are presented net of reinsurance . ( 3 ) related to insured loans with defaults occurring in prior years , which have been continuously in default since that time . amounts are presented net of reinsurance . the `` claims incurred `` section of the table above shows claims and claim expenses incurred on nods for current and prior years , including ibnr reserves and is presented net of reinsurance . the amount of claims incurred for current year nods represents the estimated amount to be ultimately paid on such loans in default . the decreases during the periods presented in reserves held for prior year defaults represent favorable development and are generally the result of nod cures and ongoing analysis of recent loss development trends . we may increase or decrease our original estimates as we gather additional information about individual defaults and claims , and continue to observe and analyze loss

cash provided by financing activities was $ 80.9 million for the year ended december 31 , 2018 and relates to the $ 79.2 million of net cash proceeds raised in the common stock offering we completed in march 2018 , as well as additional cash received in connection with the exercise of vested stock options and warrants , partially offset by net cash paid in connection with the extinguishment of the 2015 term loan and establishment of the 2018 term loan and 2018 revolving credit facility . cash used in financing activities was $ 3.2 million and $ 1.7 million for the years ended december 31 , 2017 and 2016 , respectively , and primarily relates to taxes paid on the net share settlement of equity awards for certain employees . holding company liquidity and capital resources nmih serves as the holding company for our insurance subsidiaries and does not have any significant operations of its own . nmih 's principal liquidity demands include funds for : ( i ) payment of certain corporate expenses ; ( ii ) payment of certain reimbursable expenses of its insurance subsidiaries ; ( iii ) payment of principal and interest related to the 2018 term loan and 2018 revolving credit facility ; ( iv ) tax payments to the internal revenue service ; ( v ) capital support for its subsidiaries ; and ( vi ) payment of dividends , if any , on its common stock . nmih is not subject to any limitations on its ability to pay dividends except those generally applicable to corporations that are incorporated in delaware . delaware law provides that dividends are only payable out of a corporation 's surplus or recent net profits ( subject to certain limitations ) . 64 as of december 31 , 2018 , nmih had $ 64.3 million of cash and investments . nmih 's principal source of net cash is investment income . nmih also has access to $ 85 million of undrawn revolving credit capacity under the 2018 revolving credit facility and $ 2.7 million of ordinary course dividend capacity from re one .

in our zig-zag products segment , we principally market and distribute ( i ) rolling papers , tubes , and related products ; and ( ii ) finished cigars and make-your-own ( “ myo ” ) cigar wraps . in our stoker 's products segment , we ( i ) manufacture and market moist snuff tobacco ( “ mst ” ) and ( ii ) contract for and market loose leaf chewing tobacco products . in our newgen products segment , we ( i ) market and distribute cbd , liquid vapor products and certain other products without tobacco and or nicotine ; ( ii ) distribute a wide assortment of products to non-traditional retail via vaporbeast ; and ( iii ) market and distribute a wide assortment of products to individual consumers via the vaporfi b2c online platform . refer to the ‘ recent developments ' section below for details regarding the recreation marketing investment . 38 our portfolio of brands includes some of the most widely recognized names in the alternative smoking accessories and otp industries , such as zig-zag ® , stoker 's ® , vapor beast ® and vaporfi ® . the following table sets forth the market share and category rank of our core products and demonstrates their industry positions : replace_table_token_3_th ( 1 ) market share and category rank data for all products are derived from msai data 52 weeks endeding 12/26/20 . operations we subscribe to a sales tracking system from msai that records all otp product shipments ( ours as well as those of our competitors ) from approximately 900 wholesalers to over 250,000 traditional retail stores in the u.s. this system enables us to understand individual product share and volume trends across multiple categories down to the individual retail store level , allowing us to allocate field salesforce coverage to the highest opportunity stores . our sales and marketing group of approximately 180 professionals utilize the msai system to efficiently target markets and sales channels with the highest sales potential . our core zig-zag products and stoker 's products segments primarily generate revenues from the sale of our products to wholesale distributors who , in turn , resell the products to retail operations . our acquisition of vaporbeast in 2016 expanded our revenue streams as we began selling directly to non-traditional retail outlets . our acquisition of ivg in 2018 enhanced our b2c revenue stream with the addition of the vapor-fi online platform . the acquisition of solace provided us with a line of leading liquids and a powerful new product development platform . our net sales , which include federal excise taxes , consist of gross sales net of cash discounts , returns , and selling and marketing allowances . we rely on long-standing relationships with high-quality , established manufacturers to provide the majority of our produced products . more than 80 % of our production , as measured by net sales , is outsourced to suppliers . the remaining production consists primarily of our moist snuff tobacco operations located in dresden , tennessee , and louisville , kentucky . our principal operating expenses include the cost of raw materials used to manufacture the limited number of our products which we produce in-house ; the cost of finished products , which are generally purchased goods ; federal excise taxes ; legal expenses ; and compensation expenses , including benefits and costs of salaried personnel . our other principal expenses include interest expense and other expenses . key factors affecting our results of operations we consider the following to be the key factors affecting our results of operations : our ability to further penetrate markets with our existing products ; our ability to introduce new products and product lines that complement our core business ; decreasing interest in tobacco products among consumers ; price sensitivity in our end-markets ; marketing and promotional initiatives , which cause variability in our results ; general economic conditions , including consumer access to disposable income ; cost and increasing regulation of promotional and advertising activities ; cost of complying with regulation , including “ deeming regulation ” ; counterfeit and other illegal products in our end-markets ; currency fluctuations ; our ability to identify attractive acquisition opportunities ; and our ability to integrate acquisitions . 39 recent developments covid-19 impact as a result of the extraordinary situation caused by the covid-19 pandemic , our focus is on the safety and well-being of our colleagues and the communities and customers we serve . as an organization , we have implemented several changes to enhance safety and mitigate health risk in our work environment . for our warehouse and manufacturing operations , these include split shifts , temperature scans , additional contactless hand sanitizing stations , protective equipment , social distancing guidelines , and increased cleaning and sanitization . these changes resulted in higher operational costs related to maintaining a safer work environment and fulfilling orders . we canceled all unnecessary travel and facilitated telecommuting where possible . like many companies , we have changed the way we communicate through increased use of videoconferencing and have implemented tele-selling initiatives through our sales force . some of these changes that are proving to be efficient are likely to remain in-place even after the restrictions caused by the pandemic are lifted and will lead to on-going cost savings . we have also put a hold on new spending commitments as we cautiously manage through this environment . we hired additional employees in our louisville facility and implemented temporary wage increases for our hourly employees to meet increased demand . we shifted production capacity to manufacture hand sanitizers and have donated bottles to hospitals , nursing homes and first responders in our local communities . covid-19 may impact our results . our third-party cigar wrap manufacturer in the dominican republic was temporarily shut down . our supply chain has remained operational otherwise . story_separator_special_tag income taxes we account for income taxes under asc 740. we record the effects of income taxes under the liability method in which deferred income tax assets and liabilities are recognized based on the difference between the financial and tax basis of assets and liabilities using the enacted tax rates in effect for the years in which the differences are expected to reverse . we assess our ability to realize future benefits of deferred tax assets by determining if they meet the “ more likely than not ” criteria in asc 740 , income taxes . if we determine that future benefits do not meet the “ more likely than not ” criteria , a valuation allowance is recorded . stock-based compensation we measure stock compensation costs related to our stock options on the fair value-based method under the provisions of asc 718 , compensation – stock compensation , which requires compensation cost for stock options to be recognized based on the fair value of stock options granted . we determined the fair value of these awards using the black-scholes option pricing model . we grant performance-based restricted stock units ( “ prsu ” ) subject to both performance-based and service-based vesting conditions . the fair value of each prsu is our stock price on the date of grant . for purposes of recognizing compensation expense as services are rendered in accordance with asc 718 , we assume all employees involved in the prsu grant will provide service through the end of the performance period . stock compensation expense is recorded based on the probability of achievement of the performance conditions specified in the prsu grant . accounts receivable accounts receivable are recognized at their net realizable value . all accounts receivable are trade-related and are recorded at the invoiced amount and do not bear interest . we maintain allowances for doubtful accounts receivable for estimated uncollectible invoices resulting from the customer 's inability to pay , which may result in write-offs . we recorded an allowance for doubtful accounts of $ 0.2 million and less than $ 0.3 million at december 31 , 2020 and 2019 , respectively . 43 inventories inventories are stated at the lower of cost or market . cost was determined using the lifo method for approximately 45.1 % of the inventories as of december 31 , 2020. leaf tobacco is presented in current assets in accordance with standard industry practice , notwithstanding the fact that such tobaccos are carried longer than one year for the purpose of curing . we recorded an inventory valuation allowance of $ 9.9 million and $ 21.5 million at december 31 , 2020 and 2019 , respectively . jumpstart our business startups act of 2012 we chose to “ opt out ” of the provision of the jobs act that permits us , as an “ emerging growth company , ” to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies . as a result , we will comply with new or revised accounting standards as required for public companies . our decision to opt out of the extended transition period provided in the jobs act is irrevocable . results of operations summary the table and discussion set forth below relates to our consolidated results of operations for the years ended december 31 ( in thousands ) : replace_table_token_4_th comparison of year ended december 31 , 2020 , to year ended december 31 , 2019 net sales . for the year ended december 31 , 2020 , overall net sales increased to $ 405.1 million from $ 362.0 million for the year ended december 31 , 2019 , an increase of $ 43.1 million or 11.9 % . the increase in net sales was primarily driven by increased sales volume across all segments . for the year ended december 31 , 2020 , net sales in the zig-zag products segment increased to $ 132.8 million from $ 108.7 million for the year ended december 31 , 2019 , an increase of $ 24.1 million or 22.1 % . for the year ended december 31 , 2020 , zig-zag products volumes increased 19.7 % , and price/mix increased 2.4 % . the increase in net sales was primarily related to double digit growth in us papers and wraps , partially offset by a $ 1.8 million decline in non-focus cigars and myo pipe . 44 for the year ended december 31 , 2020 , net sales in the stoker 's products segment increased to $ 115.9 million from $ 99.9 million for the year ended december 31 , 2019 , an increase of $ 16.0 million or 16.0 % . for the year ended december 31 , 2020 , stoker 's products volume increased 12.0 % and price/mix increased 4.0 % . the increase in net sales was primarily driven by the continuing double-digit volume growth of stoker 's ® mst . sales in chewing tobacco products were up mid-single digits as compared to prior year . mst represented 59 % of stoker 's products revenue in 2020 , up from 54 % a year earlier . for the year ended december 31 , 2020 , net sales in the newgen products segment increased to $ 156.4 million from $ 153.4 million for the year ended december 31 , 2019 , an increase of $ 3.1 million or 2.0 % . the increase in net sales was primarily the result of growth in both the nu-x and vape distribution businesses . gross profit . for the year ended december 31 , 2020 , overall gross profit increased to $ 189.6 million from $ 136.7 million for the year ended december 31 , 2019 , an increase of $ 52.9 million or 38.7 % , due to growth across all segments and $ 24.2 million of costs in 2019 that did not recur primarily related to inventory reserves . consolidated gross

cash provided by financing activities was $ 80.9 million for the year ended december 31 , 2018 and relates to the $ 79.2 million of net cash proceeds raised in the common stock offering we completed in march 2018 , as well as additional cash received in connection with the exercise of vested stock options and warrants , partially offset by net cash paid in connection with the extinguishment of the 2015 term loan and establishment of the 2018 term loan and 2018 revolving credit facility . cash used in financing activities was $ 3.2 million and $ 1.7 million for the years ended december 31 , 2017 and 2016 , respectively , and primarily relates to taxes paid on the net share settlement of equity awards for certain employees . holding company liquidity and capital resources nmih serves as the holding company for our insurance subsidiaries and does not have any significant operations of its own . nmih 's principal liquidity demands include funds for : ( i ) payment of certain corporate expenses ; ( ii ) payment of certain reimbursable expenses of its insurance subsidiaries ; ( iii ) payment of principal and interest related to the 2018 term loan and 2018 revolving credit facility ; ( iv ) tax payments to the internal revenue service ; ( v ) capital support for its subsidiaries ; and ( vi ) payment of dividends , if any , on its common stock . nmih is not subject to any limitations on its ability to pay dividends except those generally applicable to corporations that are incorporated in delaware . delaware law provides that dividends are only payable out of a corporation 's surplus or recent net profits ( subject to certain limitations ) . 64 as of december 31 , 2018 , nmih had $ 64.3 million of cash and investments . nmih 's principal source of net cash is investment income . nmih also has access to $ 85 million of undrawn revolving credit capacity under the 2018 revolving credit facility and $ 2.7 million of ordinary course dividend capacity from re one .

in our zig-zag products segment , we principally market and distribute ( i ) rolling papers , tubes , and related products ; and ( ii ) finished cigars and make-your-own ( “ myo ” ) cigar wraps . in our stoker 's products segment , we ( i ) manufacture and market moist snuff tobacco ( “ mst ” ) and ( ii ) contract for and market loose leaf chewing tobacco products . in our newgen products segment , we ( i ) market and distribute cbd , liquid vapor products and certain other products without tobacco and or nicotine ; ( ii ) distribute a wide assortment of products to non-traditional retail via vaporbeast ; and ( iii ) market and distribute a wide assortment of products to individual consumers via the vaporfi b2c online platform . refer to the ‘ recent developments ' section below for details regarding the recreation marketing investment . 38 our portfolio of brands includes some of the most widely recognized names in the alternative smoking accessories and otp industries , such as zig-zag ® , stoker 's ® , vapor beast ® and vaporfi ® . the following table sets forth the market share and category rank of our core products and demonstrates their industry positions : replace_table_token_3_th ( 1 ) market share and category rank data for all products are derived from msai data 52 weeks endeding 12/26/20 . operations we subscribe to a sales tracking system from msai that records all otp product shipments ( ours as well as those of our competitors ) from approximately 900 wholesalers to over 250,000 traditional retail stores in the u.s. this system enables us to understand individual product share and volume trends across multiple categories down to the individual retail store level , allowing us to allocate field salesforce coverage to the highest opportunity stores . our sales and marketing group of approximately 180 professionals utilize the msai system to efficiently target markets and sales channels with the highest sales potential . our core zig-zag products and stoker 's products segments primarily generate revenues from the sale of our products to wholesale distributors who , in turn , resell the products to retail operations . our acquisition of vaporbeast in 2016 expanded our revenue streams as we began selling directly to non-traditional retail outlets . our acquisition of ivg in 2018 enhanced our b2c revenue stream with the addition of the vapor-fi online platform . the acquisition of solace provided us with a line of leading liquids and a powerful new product development platform . our net sales , which include federal excise taxes , consist of gross sales net of cash discounts , returns , and selling and marketing allowances . we rely on long-standing relationships with high-quality , established manufacturers to provide the majority of our produced products . more than 80 % of our production , as measured by net sales , is outsourced to suppliers . the remaining production consists primarily of our moist snuff tobacco operations located in dresden , tennessee , and louisville , kentucky . our principal operating expenses include the cost of raw materials used to manufacture the limited number of our products which we produce in-house ; the cost of finished products , which are generally purchased goods ; federal excise taxes ; legal expenses ; and compensation expenses , including benefits and costs of salaried personnel . our other principal expenses include interest expense and other expenses . key factors affecting our results of operations we consider the following to be the key factors affecting our results of operations : our ability to further penetrate markets with our existing products ; our ability to introduce new products and product lines that complement our core business ; decreasing interest in tobacco products among consumers ; price sensitivity in our end-markets ; marketing and promotional initiatives , which cause variability in our results ; general economic conditions , including consumer access to disposable income ; cost and increasing regulation of promotional and advertising activities ; cost of complying with regulation , including “ deeming regulation ” ; counterfeit and other illegal products in our end-markets ; currency fluctuations ; our ability to identify attractive acquisition opportunities ; and our ability to integrate acquisitions . 39 recent developments covid-19 impact as a result of the extraordinary situation caused by the covid-19 pandemic , our focus is on the safety and well-being of our colleagues and the communities and customers we serve . as an organization , we have implemented several changes to enhance safety and mitigate health risk in our work environment . for our warehouse and manufacturing operations , these include split shifts , temperature scans , additional contactless hand sanitizing stations , protective equipment , social distancing guidelines , and increased cleaning and sanitization . these changes resulted in higher operational costs related to maintaining a safer work environment and fulfilling orders . we canceled all unnecessary travel and facilitated telecommuting where possible . like many companies , we have changed the way we communicate through increased use of videoconferencing and have implemented tele-selling initiatives through our sales force . some of these changes that are proving to be efficient are likely to remain in-place even after the restrictions caused by the pandemic are lifted and will lead to on-going cost savings . we have also put a hold on new spending commitments as we cautiously manage through this environment . we hired additional employees in our louisville facility and implemented temporary wage increases for our hourly employees to meet increased demand . we shifted production capacity to manufacture hand sanitizers and have donated bottles to hospitals , nursing homes and first responders in our local communities . covid-19 may impact our results . our third-party cigar wrap manufacturer in the dominican republic was temporarily shut down . our supply chain has remained operational otherwise . story_separator_special_tag income taxes we account for income taxes under asc 740. we record the effects of income taxes under the liability method in which deferred income tax assets and liabilities are recognized based on the difference between the financial and tax basis of assets and liabilities using the enacted tax rates in effect for the years in which the differences are expected to reverse . we assess our ability to realize future benefits of deferred tax assets by determining if they meet the “ more likely than not ” criteria in asc 740 , income taxes . if we determine that future benefits do not meet the “ more likely than not ” criteria , a valuation allowance is recorded . stock-based compensation we measure stock compensation costs related to our stock options on the fair value-based method under the provisions of asc 718 , compensation – stock compensation , which requires compensation cost for stock options to be recognized based on the fair value of stock options granted . we determined the fair value of these awards using the black-scholes option pricing model . we grant performance-based restricted stock units ( “ prsu ” ) subject to both performance-based and service-based vesting conditions . the fair value of each prsu is our stock price on the date of grant . for purposes of recognizing compensation expense as services are rendered in accordance with asc 718 , we assume all employees involved in the prsu grant will provide service through the end of the performance period . stock compensation expense is recorded based on the probability of achievement of the performance conditions specified in the prsu grant . accounts receivable accounts receivable are recognized at their net realizable value . all accounts receivable are trade-related and are recorded at the invoiced amount and do not bear interest . we maintain allowances for doubtful accounts receivable for estimated uncollectible invoices resulting from the customer 's inability to pay , which may result in write-offs . we recorded an allowance for doubtful accounts of $ 0.2 million and less than $ 0.3 million at december 31 , 2020 and 2019 , respectively . 43 inventories inventories are stated at the lower of cost or market . cost was determined using the lifo method for approximately 45.1 % of the inventories as of december 31 , 2020. leaf tobacco is presented in current assets in accordance with standard industry practice , notwithstanding the fact that such tobaccos are carried longer than one year for the purpose of curing . we recorded an inventory valuation allowance of $ 9.9 million and $ 21.5 million at december 31 , 2020 and 2019 , respectively . jumpstart our business startups act of 2012 we chose to “ opt out ” of the provision of the jobs act that permits us , as an “ emerging growth company , ” to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies . as a result , we will comply with new or revised accounting standards as required for public companies . our decision to opt out of the extended transition period provided in the jobs act is irrevocable . results of operations summary the table and discussion set forth below relates to our consolidated results of operations for the years ended december 31 ( in thousands ) : replace_table_token_4_th comparison of year ended december 31 , 2020 , to year ended december 31 , 2019 net sales . for the year ended december 31 , 2020 , overall net sales increased to $ 405.1 million from $ 362.0 million for the year ended december 31 , 2019 , an increase of $ 43.1 million or 11.9 % . the increase in net sales was primarily driven by increased sales volume across all segments . for the year ended december 31 , 2020 , net sales in the zig-zag products segment increased to $ 132.8 million from $ 108.7 million for the year ended december 31 , 2019 , an increase of $ 24.1 million or 22.1 % . for the year ended december 31 , 2020 , zig-zag products volumes increased 19.7 % , and price/mix increased 2.4 % . the increase in net sales was primarily related to double digit growth in us papers and wraps , partially offset by a $ 1.8 million decline in non-focus cigars and myo pipe . 44 for the year ended december 31 , 2020 , net sales in the stoker 's products segment increased to $ 115.9 million from $ 99.9 million for the year ended december 31 , 2019 , an increase of $ 16.0 million or 16.0 % . for the year ended december 31 , 2020 , stoker 's products volume increased 12.0 % and price/mix increased 4.0 % . the increase in net sales was primarily driven by the continuing double-digit volume growth of stoker 's ® mst . sales in chewing tobacco products were up mid-single digits as compared to prior year . mst represented 59 % of stoker 's products revenue in 2020 , up from 54 % a year earlier . for the year ended december 31 , 2020 , net sales in the newgen products segment increased to $ 156.4 million from $ 153.4 million for the year ended december 31 , 2019 , an increase of $ 3.1 million or 2.0 % . the increase in net sales was primarily the result of growth in both the nu-x and vape distribution businesses . gross profit . for the year ended december 31 , 2020 , overall gross profit increased to $ 189.6 million from $ 136.7 million for the year ended december 31 , 2019 , an increase of $ 52.9 million or 38.7 % , due to growth across all segments and $ 24.2 million of costs in 2019 that did not recur primarily related to inventory reserves . consolidated gross

loss on extinguishment of debt . for the year ended december 31 , 2020 , there was no loss on extinguishment of debt . for the year ended december 31 , 2019 , loss on extinguishment of debt was $ 1.3 million as the result of paying off the 2018 second lien credit facility . net periodic benefit cost ( income ) , excluding service cost . for the year ended december 31 , 2020 , net periodic cost was $ 0.9 million primarily as a result of the curtailment from the shutdown of the pension plan . for the year ended december 31 , 2019 , net periodic income was $ 5.0 million primarily due to the gain on the termination of the postretirement plan . 45 income tax expense . the company 's income tax expense was $ 10.0 million , or 23.3 % of income before income taxes , for the year ended december 31 , 2020 , and included a discrete tax deduction of $ 3.3 million relating to stock option exercises during the year and a discrete tax benefit of $ 0.6 million from the shutdown of the pension plan . the company 's income tax expense of $ 2.0 million , or 12.9 % of income before income taxes , for the year ended december 31 , 2019 , was lower than the expected annual effective tax rate as a result of discrete tax benefits of $ 4.6 million from the exercise of stock options during the year . consolidated net income . due to the factors described above , net income for the year ended december 31 , 2020 and 2019 , was $ 33.0 million and $ 13.8 million , respectively . comparison of year ended december 31 , 2019 , to year ended december 31 , 2018 net sales . for the year ended december 31 , 2019 , overall net sales increased to $ 362.0 million from $ 332.7 million for the year ended december 31 , 2018 , an increase of $ 29.3 million or 8.8 % .

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

loss on extinguishment of debt . for the year ended december 31 , 2020 , there was no loss on extinguishment of debt . for the year ended december 31 , 2019 , loss on extinguishment of debt was $ 1.3 million as the result of paying off the 2018 second lien credit facility . net periodic benefit cost ( income ) , excluding service cost . for the year ended december 31 , 2020 , net periodic cost was $ 0.9 million primarily as a result of the curtailment from the shutdown of the pension plan . for the year ended december 31 , 2019 , net periodic income was $ 5.0 million primarily due to the gain on the termination of the postretirement plan . 45 income tax expense . the company 's income tax expense was $ 10.0 million , or 23.3 % of income before income taxes , for the year ended december 31 , 2020 , and included a discrete tax deduction of $ 3.3 million relating to stock option exercises during the year and a discrete tax benefit of $ 0.6 million from the shutdown of the pension plan . the company 's income tax expense of $ 2.0 million , or 12.9 % of income before income taxes , for the year ended december 31 , 2019 , was lower than the expected annual effective tax rate as a result of discrete tax benefits of $ 4.6 million from the exercise of stock options during the year . consolidated net income . due to the factors described above , net income for the year ended december 31 , 2020 and 2019 , was $ 33.0 million and $ 13.8 million , respectively . comparison of year ended december 31 , 2019 , to year ended december 31 , 2018 net sales . for the year ended december 31 , 2019 , overall net sales increased to $ 362.0 million from $ 332.7 million for the year ended december 31 , 2018 , an increase of $ 29.3 million or 8.8 % .

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

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 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

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 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

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 .

we have specific initiatives related to improved customer satisfaction , reduced defects , shortened lead times , improved inventory turns and on-time deliveries , reduced warranty costs , and improved working capital utilization . the initiatives are being driven by the continued implementation of our “ lean ” efforts which are fundamentally changing our manufacturing and business processes to be more responsive to customer demand and improving on-time delivery and productivity . in addition to “ lean , ” we are working to achieve these strategic initiatives through product simplification , the creation of centers of excellence , and improved supply chain management . we are also aggressively pursuing cost reduction opportunities to enhance future margins . we continuously monitor market prices of steel . we purchase approximately $ 30,000,000 to $ 40,000,000 of steel annually in a variety of forms including rod , wire , bar , structural and others . generally , as we experience fluctuations in our costs , we reflect them as price increases or surcharges to our customers with the goal of being margin neutral . we are also looking for opportunities for growth via strategic acquisitions or joint ventures . the focus of our acquisition strategy centers on product line expansion in alignment with our existing core product offering and opportunities for non-u.s. market penetration . we operate in a highly competitive and global business environment . we face a variety of opportunities in those markets and geographies , including trends toward increased utilization of the global labor force and the expansion of market opportunities in asia and other emerging markets . while we continue to execute our long-term growth strategy , we are supported by our solid capital structure , including our cash position and flexible debt structure . 28 results of operations fiscal 2016 compared to 2015 fiscal 2016 sales were $ 597,103,000 , an increase of 3.0 % , or $ 17,460,000 compared with fiscal 2015 sales of $ 579,643,000 . sales for the year were positively impacted by $ 74,267,000 due to acquisitions and $ 5,605,000 by price increases . sales for the year were negatively impacted $ 33,082,000 due to a decrease in sales volume . the decline in sales volume was due to industrial recessions caused by weakness in oil & gas , mining , heavy oem , and commercial construction markets affecting our north american hoist and rigging and latin american operations . unfavorable foreign currency translation reduced sales by $ 29,330,000 . our gross profit was $ 187,263,000 and $ 181,607,000 or 31.4 % and 31.3 % of net sales in fiscal 2016 and 2015 , respectively . the fiscal 2016 increase in gross profit of $ 5,656,000 or 3.1 % is the result of $ 24,316,000 from our recent acquisitions , $ 5,605,000 in price increases , $ 769,000 in reduced material costs , and $ 830,000 in reduced plant consolidation activities , offset by $ 11,438,000 in decreased volume , $ 3,337,000 in lower productivity due to reduced fixed cost absorption and inventory adjustments , net of other manufacturing costs , $ 2,051,000 in increased product liability costs , and $ 429,000 in facility impairment costs for a property held for sale . the translation of foreign currencies had an unfavorable impact on gross profit of $ 8,609,000. selling expenses were $ 72,858,000 and $ 69,819,000 or 12.2 % and 12.0 % of net sales in fiscal years 2016 and 2015 , respectively . the acquisitions of magnetek and stb added an additional $ 7,640,000 in selling expense for the year ended march 31 , 2016. the consolidation of two warehouses and the closure of another added $ 859,000 to selling costs . additionally , foreign currency translation had a $ 5,036,000 favorable impact on selling expenses . general and administrative expenses were $ 68,811,000 and $ 54,874,000 or 11.5 % and 9.5 % of net sales in fiscal 2016 and 2015 , respectively . the fiscal 2016 increase was primarily the result of magnetek acquisition transaction costs of $ 5,746,000 and acquisition-related severance costs of $ 2,300,000. in addition , magnetek and stb added $ 5,774,000 in recurring general and administrated expenses . additional increases are the result of lower information technology salaries capitalized as part of the global erp systems project as well as general inflationary increases . foreign currency translation had a $ 2,622,000 favorable impact on general and administrative expenses . amortization of intangibles was $ 5,024,000 and $ 2,266,000 in fiscal 2016 and 2015 , respectively . the increase relates to additional amortization of intangibles related to the magnetek and stb acquisitions . interest and debt expense was $ 7,904,000 and $ 12,390,000 or 1.3 % and 2.1 % of net sales in fiscal 2016 and 2015 , respectively . the decrease in interest and debt expense relates to the redemption of the 7 7/8 % notes in the fourth quarter of fiscal 2015 with the lower interest bearing term loan despite the increased borrowings used to fund the magnetek purchase beginning in the second quarter of fiscal 2016. the fiscal 2015 cost of bond redemption of $ 8,567,000 relates to the call premium and write off of unamortized deferred financing costs associated with our 7 7/8 % notes which were redeemed in february 2015. this transaction is discussed in more detail in the liquidity and capital resources section . there were no similar transactions in fiscal 2016. investment income of $ 796,000 and $ 2,725,000 , in fiscal 2016 and 2015 , respectively , related to earnings on marketable securities held in the company 's wholly owned captive insurance subsidiary . foreign currency exchange loss ( gain ) was $ 2,215,000 and $ 863,000 in fiscal 2016 and 2015 , respectively , as a result of foreign currency volatility related to foreign currency denominated purchases and intercompany debt . story_separator_special_tag if interpreted differently under different conditions or circumstances , changes in our estimates could result in material changes to our reported results . we have identified below the accounting policies involving estimates that are critical to our financial statements . other accounting policies are more fully described in note 2 of our consolidated financial statements . revenue recognition . sales are recorded when title passes to the customer which is generally at the time of shipment to the customer . the company performs ongoing credit evaluations of its customers ' financial condition , but generally does not require collateral to support customer receivables . the credit risk is controlled through credit approvals , limits and monitoring procedures . accounts receivable are reported at net realizable value and do not accrue interest . sales tax is excluded from revenue . pension and other postretirement benefits . the determination of the obligations and expense for pension and postretirement benefits is dependent on our selection of certain assumptions that are used by actuaries in calculating such amounts . those assumptions are disclosed in note 12 to our fiscal 2016 consolidated financial statements and include the discount rates , expected long-term rate of return on plan assets and rates of future increases in compensation and healthcare costs . changes in these assumptions can result in the calculation of different plan expense and liability amounts . further , actual experience can differ from the assumptions and these differences are typically accounted for as actuarial gains or losses that are amortized over future periods . the weighted average pension discount rate assumptions of 4.03 % , 3.83 % , and 4.60 % , as of march 31 , 2016 , 2015 , and 2014 , respectively , are based on long-term aa rated corporate and municipal bond rates . at september 2 , 2015 , the company used a discount rate assumption of 4.30 % in valuing the pension plan obligation acquired in the magnetek acquisition . the change in the discount rate at march 31 , 2016 did not result in a significant change in the total projected benefit obligation . the company adopted updated mortality tables in calculating its u.s. pension obligation . the change in mortality tables resulted in a $ 5,700,000 increase in the projected benefit obligation . the rate of return on plan assets assumptions of 7.22 % for the year ended march 31 , 2016 , and 7.50 % for the years ended march 31 , 2015 and 2014 is based on the targeted plan asset allocation ( approximately 65 % equities and 35 % fixed income ) and their long-term historical returns . our under-funded status for all pension plans as of march 31 , 2016 and 2015 was $ 103,279,000 and $ 57,339,000 , or 24.5 % and 21.9 % of the projected benefit obligation , respectively . our pension contributions during fiscal 2016 and 2015 were approximately $ 5,936,000 and $ 11,013,000 , respectively . the under-funded status may result in future pension expense increases . pension benefit for the march 31 , 2017 fiscal year is expected to approximate $ 983,000 , comparable to the fiscal 2016 benefit of $ 1,208,000 . pension funding contributions for the march 31 , 2017 fiscal year are expected to approximate $ 5,961,000 . the weighted-average compensation increase assumption of 0.44 % as of march 31 , 2016 and 2.30 % and 2.00 % as of march 31 , 2015 and 2014 , respectively is based on expected wage trends and historical patterns . the healthcare costs inflation assumptions of 6.8 % for fiscal 2016 and 7.0 % for fiscal 2015 and 2014 , respectively , are based on anticipated trends . while the healthcare inflation rate assumptions have been decreasing , healthcare costs continue to outpace inflation in the u.s. 35 insurance reserves . our accrued general and product liability reserves as described in note 15 to consolidated financial statements involve actuarial techniques including the methods selected to estimate ultimate claims , and assumptions including emergence patterns , payment patterns , initial expected losses and increased limit factors . these actuarial estimates are subject to a high degree of uncertainty due to a variety of factors , including extended lag time in the reporting and resolution of claims , trends or changes in claim settlement patterns , insurance industry practices , and legal interpretations . changes to these estimates could result in material changes to the amount of expense and liabilities recorded in our financial statements . further , actual costs could differ significantly from the estimated amounts . adjustments to estimated reserves are recorded in the period in which the change in estimate occurs . other insurance reserves such as workers compensation and group health insurance are based on actual historical and current claim data provided by third party administrators or internally maintained . goodwill impairment testing . our goodwill balance of $ 170,716,000 as of march 31 , 2016 is subject to impairment testing . we test goodwill for impairment at least annually , as of the end of february , and more frequently whenever events occur or circumstances change that indicate there may be impairment . these events or circumstances could include a significant long-term adverse change in the business climate , poor indicators of operating performance , or a sale or disposition of a significant portion of a reporting unit . we test goodwill at the reporting unit level , which is one level below our operating segment . we identify our reporting units by assessing whether the components of our operating segment constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components . we also aggregate components that have similar economic characteristics into single reporting units ( for example , similar products and / or services , similar long-term financial results , product processes , classes of customers , or in circumstances where the

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 .

we have specific initiatives related to improved customer satisfaction , reduced defects , shortened lead times , improved inventory turns and on-time deliveries , reduced warranty costs , and improved working capital utilization . the initiatives are being driven by the continued implementation of our “ lean ” efforts which are fundamentally changing our manufacturing and business processes to be more responsive to customer demand and improving on-time delivery and productivity . in addition to “ lean , ” we are working to achieve these strategic initiatives through product simplification , the creation of centers of excellence , and improved supply chain management . we are also aggressively pursuing cost reduction opportunities to enhance future margins . we continuously monitor market prices of steel . we purchase approximately $ 30,000,000 to $ 40,000,000 of steel annually in a variety of forms including rod , wire , bar , structural and others . generally , as we experience fluctuations in our costs , we reflect them as price increases or surcharges to our customers with the goal of being margin neutral . we are also looking for opportunities for growth via strategic acquisitions or joint ventures . the focus of our acquisition strategy centers on product line expansion in alignment with our existing core product offering and opportunities for non-u.s. market penetration . we operate in a highly competitive and global business environment . we face a variety of opportunities in those markets and geographies , including trends toward increased utilization of the global labor force and the expansion of market opportunities in asia and other emerging markets . while we continue to execute our long-term growth strategy , we are supported by our solid capital structure , including our cash position and flexible debt structure . 28 results of operations fiscal 2016 compared to 2015 fiscal 2016 sales were $ 597,103,000 , an increase of 3.0 % , or $ 17,460,000 compared with fiscal 2015 sales of $ 579,643,000 . sales for the year were positively impacted by $ 74,267,000 due to acquisitions and $ 5,605,000 by price increases . sales for the year were negatively impacted $ 33,082,000 due to a decrease in sales volume . the decline in sales volume was due to industrial recessions caused by weakness in oil & gas , mining , heavy oem , and commercial construction markets affecting our north american hoist and rigging and latin american operations . unfavorable foreign currency translation reduced sales by $ 29,330,000 . our gross profit was $ 187,263,000 and $ 181,607,000 or 31.4 % and 31.3 % of net sales in fiscal 2016 and 2015 , respectively . the fiscal 2016 increase in gross profit of $ 5,656,000 or 3.1 % is the result of $ 24,316,000 from our recent acquisitions , $ 5,605,000 in price increases , $ 769,000 in reduced material costs , and $ 830,000 in reduced plant consolidation activities , offset by $ 11,438,000 in decreased volume , $ 3,337,000 in lower productivity due to reduced fixed cost absorption and inventory adjustments , net of other manufacturing costs , $ 2,051,000 in increased product liability costs , and $ 429,000 in facility impairment costs for a property held for sale . the translation of foreign currencies had an unfavorable impact on gross profit of $ 8,609,000. selling expenses were $ 72,858,000 and $ 69,819,000 or 12.2 % and 12.0 % of net sales in fiscal years 2016 and 2015 , respectively . the acquisitions of magnetek and stb added an additional $ 7,640,000 in selling expense for the year ended march 31 , 2016. the consolidation of two warehouses and the closure of another added $ 859,000 to selling costs . additionally , foreign currency translation had a $ 5,036,000 favorable impact on selling expenses . general and administrative expenses were $ 68,811,000 and $ 54,874,000 or 11.5 % and 9.5 % of net sales in fiscal 2016 and 2015 , respectively . the fiscal 2016 increase was primarily the result of magnetek acquisition transaction costs of $ 5,746,000 and acquisition-related severance costs of $ 2,300,000. in addition , magnetek and stb added $ 5,774,000 in recurring general and administrated expenses . additional increases are the result of lower information technology salaries capitalized as part of the global erp systems project as well as general inflationary increases . foreign currency translation had a $ 2,622,000 favorable impact on general and administrative expenses . amortization of intangibles was $ 5,024,000 and $ 2,266,000 in fiscal 2016 and 2015 , respectively . the increase relates to additional amortization of intangibles related to the magnetek and stb acquisitions . interest and debt expense was $ 7,904,000 and $ 12,390,000 or 1.3 % and 2.1 % of net sales in fiscal 2016 and 2015 , respectively . the decrease in interest and debt expense relates to the redemption of the 7 7/8 % notes in the fourth quarter of fiscal 2015 with the lower interest bearing term loan despite the increased borrowings used to fund the magnetek purchase beginning in the second quarter of fiscal 2016. the fiscal 2015 cost of bond redemption of $ 8,567,000 relates to the call premium and write off of unamortized deferred financing costs associated with our 7 7/8 % notes which were redeemed in february 2015. this transaction is discussed in more detail in the liquidity and capital resources section . there were no similar transactions in fiscal 2016. investment income of $ 796,000 and $ 2,725,000 , in fiscal 2016 and 2015 , respectively , related to earnings on marketable securities held in the company 's wholly owned captive insurance subsidiary . foreign currency exchange loss ( gain ) was $ 2,215,000 and $ 863,000 in fiscal 2016 and 2015 , respectively , as a result of foreign currency volatility related to foreign currency denominated purchases and intercompany debt . story_separator_special_tag if interpreted differently under different conditions or circumstances , changes in our estimates could result in material changes to our reported results . we have identified below the accounting policies involving estimates that are critical to our financial statements . other accounting policies are more fully described in note 2 of our consolidated financial statements . revenue recognition . sales are recorded when title passes to the customer which is generally at the time of shipment to the customer . the company performs ongoing credit evaluations of its customers ' financial condition , but generally does not require collateral to support customer receivables . the credit risk is controlled through credit approvals , limits and monitoring procedures . accounts receivable are reported at net realizable value and do not accrue interest . sales tax is excluded from revenue . pension and other postretirement benefits . the determination of the obligations and expense for pension and postretirement benefits is dependent on our selection of certain assumptions that are used by actuaries in calculating such amounts . those assumptions are disclosed in note 12 to our fiscal 2016 consolidated financial statements and include the discount rates , expected long-term rate of return on plan assets and rates of future increases in compensation and healthcare costs . changes in these assumptions can result in the calculation of different plan expense and liability amounts . further , actual experience can differ from the assumptions and these differences are typically accounted for as actuarial gains or losses that are amortized over future periods . the weighted average pension discount rate assumptions of 4.03 % , 3.83 % , and 4.60 % , as of march 31 , 2016 , 2015 , and 2014 , respectively , are based on long-term aa rated corporate and municipal bond rates . at september 2 , 2015 , the company used a discount rate assumption of 4.30 % in valuing the pension plan obligation acquired in the magnetek acquisition . the change in the discount rate at march 31 , 2016 did not result in a significant change in the total projected benefit obligation . the company adopted updated mortality tables in calculating its u.s. pension obligation . the change in mortality tables resulted in a $ 5,700,000 increase in the projected benefit obligation . the rate of return on plan assets assumptions of 7.22 % for the year ended march 31 , 2016 , and 7.50 % for the years ended march 31 , 2015 and 2014 is based on the targeted plan asset allocation ( approximately 65 % equities and 35 % fixed income ) and their long-term historical returns . our under-funded status for all pension plans as of march 31 , 2016 and 2015 was $ 103,279,000 and $ 57,339,000 , or 24.5 % and 21.9 % of the projected benefit obligation , respectively . our pension contributions during fiscal 2016 and 2015 were approximately $ 5,936,000 and $ 11,013,000 , respectively . the under-funded status may result in future pension expense increases . pension benefit for the march 31 , 2017 fiscal year is expected to approximate $ 983,000 , comparable to the fiscal 2016 benefit of $ 1,208,000 . pension funding contributions for the march 31 , 2017 fiscal year are expected to approximate $ 5,961,000 . the weighted-average compensation increase assumption of 0.44 % as of march 31 , 2016 and 2.30 % and 2.00 % as of march 31 , 2015 and 2014 , respectively is based on expected wage trends and historical patterns . the healthcare costs inflation assumptions of 6.8 % for fiscal 2016 and 7.0 % for fiscal 2015 and 2014 , respectively , are based on anticipated trends . while the healthcare inflation rate assumptions have been decreasing , healthcare costs continue to outpace inflation in the u.s. 35 insurance reserves . our accrued general and product liability reserves as described in note 15 to consolidated financial statements involve actuarial techniques including the methods selected to estimate ultimate claims , and assumptions including emergence patterns , payment patterns , initial expected losses and increased limit factors . these actuarial estimates are subject to a high degree of uncertainty due to a variety of factors , including extended lag time in the reporting and resolution of claims , trends or changes in claim settlement patterns , insurance industry practices , and legal interpretations . changes to these estimates could result in material changes to the amount of expense and liabilities recorded in our financial statements . further , actual costs could differ significantly from the estimated amounts . adjustments to estimated reserves are recorded in the period in which the change in estimate occurs . other insurance reserves such as workers compensation and group health insurance are based on actual historical and current claim data provided by third party administrators or internally maintained . goodwill impairment testing . our goodwill balance of $ 170,716,000 as of march 31 , 2016 is subject to impairment testing . we test goodwill for impairment at least annually , as of the end of february , and more frequently whenever events occur or circumstances change that indicate there may be impairment . these events or circumstances could include a significant long-term adverse change in the business climate , poor indicators of operating performance , or a sale or disposition of a significant portion of a reporting unit . we test goodwill at the reporting unit level , which is one level below our operating segment . we identify our reporting units by assessing whether the components of our operating segment constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components . we also aggregate components that have similar economic characteristics into single reporting units ( for example , similar products and / or services , similar long-term financial results , product processes , classes of customers , or in circumstances where the

net cash used by investing activities was $ 203,229,000 , $ 34,079,000 and $ 40,425,000 in fiscal 2016 , 2015 and 2014 , respectively . the most significant use of cash for investing activities relates to our acquisition of magnetek which totaled $ 182,467,000 , net of cash acquired . capital expenditures for fiscal 2016 totaled $ 22,320,000 , of which $ 5,400,000 related to the construction of the getzville corporate headquarters and national training facility . offsetting these uses of cash is $ 1,558,000 in net cash proceeds from the sale of marketable equity securities . the most significant net cash used for investing activities in fiscal 2015 was $ 19,992,000 for the purchase of stb as described in note 3 to the consolidated financial statements . capital expenditures for fiscal 2015 were $ 17,243,000 ( of which $ 1,990,000 relates to the expansion of our china operations and $ 3,449,000 relates to the implementation of our global erp system ) . offsetting these uses of cash is $ 3,230,000 in net cash proceeds from the sale of marketable equity securities by our captive insurance company . the other use of cash for investing activities of $ 74,000 primarily includes proceeds from an insurance settlement of $ 64,000 and cash received from the sale of an asset of $ 116,000 offset by an increase in restricted cash related to the company 's captive insurance company of $ 250,000. cash flow provided ( used ) by financing activities net cash provided ( used ) by financing activities was $ 137,003,000 , $ ( 48,387,000 ) and$ 1,739,000 in fiscal 2016 , 2015 and 2014 , respectively .

as a result of the spin-out of novacopper from novagold , the interim consolidated financial statements have been presented under the continuity of interest basis of accounting whereby the amounts are based on the amounts originally recorded by novagold as if we had held the property from inception . bornite project on october 19 , 2011 , novacopper us and nana signed a collaborative agreement to explore and develop the ambler mining district . under the exploration agreement and option to lease ( the “nana agreement” ) , novacopper us acquired the exclusive right to explore the bornite property and lands deeded to nana through the alaska native claims settlement act ( “ancsa” ) , located adjacent to the arctic project , and the non-exclusive right to access and entry onto nana 's lands . the agreement establishes a framework for any future development of either the bornite project or the arctic project . both projects are included as part of a larger area of interest set forth in the nana agreement . as consideration , novacopper paid $ 4.0 million to nana upon signing the nana agreement and gave nana the right to appoint a member to novacopper 's board of directors within a five year period following our public listing on a stock exchange . nana has not exercised their right to appoint a board member at this time . upon the decision to proceed with development of a mine within the area of interest , nana has a 120 day one time right to purchase an ownership interest in the mine equal to between 16 % -25 % or retain a 15 % net proceeds royalty which is payable after novacopper has recovered certain historical costs , capital and cost of capital . should nana elect to purchase an ownership interest in the mine , consideration will be payable based on the elected percentage purchased and the costs incurred on the properties less $ 40.0 million , not to be less than zero . the parties would form a joint venture and be responsible for all future costs incurred in connection with the mine , including capital costs of the mine , based on each party 's pro-rata share . the completion of the agreement with nana creates a total land package which incorporates our ambler lands with the adjacent bornite and ancsa lands for a total of approximately 352,900 acres ( 142,831 hectares ) . nana would also be granted a net smelter return royalty between 1 % and 2.5 % upon the execution of a mining lease or a surface use agreement , the amount of which is determined by the particular area of land from which production originates . we have accounted for the bornite property as a mineral property with acquisition costs capitalized and exploration costs expensed . corporate developments financing on july 7 , 2014 , we completed a non-brokered private placement with our three largest shareholders for $ 7.5 million in units . each unit was priced at $ 1.15 per unit and consisted of one common share and one common share purchase warrant . each common share purchase warrant entitles the holder to purchase one common share at a price of $ 1.60 per share for a period of five years from the closing date . net proceeds from the private placement were approximately $ 7.2 million . the gross proceeds raised were allocated for the 12 months following closing to fund a minimum of $ 2.7 million on program expenditures , $ 4.0 million on general and administrative expenses including costs associated with the offering , and $ 0.8 million on one-time expenses incurred in reducing annual general and administrative expenses . we are currently on track to meet our budgeted expenditures . long-term incentives on september 9 , 2014 , the board of directors approved a grant of 1,620,000 stock options to employees and directors . 66 share issuances under the plan of arrangement , we committed to issue common shares to satisfy holders of novagold performance share units ( “psus” ) and deferred shares units on record as of the close of business on april 27 , 2012. when a share unit vests , we committed to deliver one common share to such holder for every six shares of novagold the holder is entitled to receive , pursuant to the warrant and share unit terms , rounded down to the nearest whole number . during the year ended november 30 , 2014 , we issued 14,166 psus . as of november 30 , 2014 , no novagold psus remain outstanding and 20,685 novagold dsus remain outstanding , which will settle upon the novagold directors ' retirement . project activities on march 18 , 2014 , we announced the release of an updated ni 43-101 compliant resource estimate for the bornite deposit and on april 1 , 2014 , we filed a ni 43-101 compliant technical report titled “ni 43-101 technical report on the bornite project , northwest alaska , usa” dated effective march 18 , 2014. this updated bornite project resource estimation included the results of drilling completed and the re-logging and re-assaying program undertaken during the 2013 field season . at a base case 0.50 % copper cutoff grade , the bornite project is estimated to contain in-pit indicated resources of 14.1 million tonnes at an average grade of 1.08 % copper or 334 million lbs of contained copper and in-pit inferred resources of 109.6 million tonnes at an average grade of 0.94 % copper or 2.3 billion lbs of contained copper . resources are stated as contained within a pit shell developed using a metal price of $ 3.00/lb copper , mining costs of $ 2.00/tonne , milling costs of $ 11/tonne , general and administrative cost of $ 5.00/tonne , 87 % metallurgical recoveries and an average pit slope of 43 degrees . story_separator_special_tag we do not expect the adoption to have significant changes to our disclosure of going concern as we currently comply with appropriate guidance issued by the u.s. securities and exchange commission and guidance under u.s. auditing standards . critical accounting estimates the most critical accounting estimates upon which our financial status depends are those requiring estimates of the recoverability of our capitalized mineral properties , impairment of long-lived assets and valuation of stock-based compensation . mineral properties and development costs all direct costs related to the acquisition of mineral property interests are capitalized . the acquisition of title to mineral properties is a complicated and uncertain process . the company has taken steps , in accordance with industry standards , to verify the title to mineral properties in which it has an interest . although the company has made efforts to ensure that legal title to its mining assets are properly recorded , there can be no assurance that such title will be secured indefinitely . impairment of long-lived assets management assesses the possibility of impairment in the carrying value of its long-lived assets whenever events or circumstances indicate that the carrying amounts of the asset or asset group may not be recoverable . significant estimates are made in assessing the possibility of impairment . management considers several factors in considering if an indicator of impairment has occurred , including but not limited to , indications of value from external sources , significant changes in the legal , business or regulatory environment , and adverse changes in the use or physical condition of the asset . these factors are subjective and require consideration at each period end . if an indicator of impairment is determined to exist , management calculates the estimated undiscounted future net cash flows relating to the asset or asset group using estimated future prices , mineral resources , and operating , capital and reclamation costs . when the carrying value of an asset exceeds the related undiscounted cash flows , the asset is written down to its estimated fair value , which is usually determined using discounted future cash flows . management 's estimates of mineral prices , mineral resources , foreign exchange , production levels and operating capital and reclamation costs are subject to risk and uncertainties that may affect the determination of the recoverability of the long-lived asset . stock-based compensation compensation expense for options granted to employees , directors and certain service providers is determined based on estimated fair values of the options at the time of grant using the black-scholes option pricing model , which takes into account , as of the grant date , the fair market value of the shares , expected volatility , expected life , expected forfeiture rate , expected dividend yield and the risk-free interest rate over the expected life of the option . the use of the black-scholes option pricing model requires input estimation of the expected life of the option , volatility , and forfeiture rate which can have a significant impact on the valuation model , and resulting expense recorded . risk factors novacopper and its future business , operations and financial condition are subject to various risks and uncertainties due to the nature of its business and the present stage of exploration of its mineral properties . certain of these risks and uncertainties are under the heading “risk factors” under novacopper 's form 10-k dated february 5 , 2015 available on sedar at www.sedar.com and edgar at www.sec.gov and on our website at www.novacopper.com . 73 additional information additional information regarding the company , including our annual report on form 10-k , is available on sedar at www.sedar.com and edgar at www.sec.gov and on our website at www.novacopper.com . cautionary notes forward-looking statements this management 's discussion and analysis contains “forward-looking information” and “forward-looking statements” within the meaning of section 27a of the u.s. securities act of 1933 , as amended , section 21e of the u.s. securities exchange act of 1934 , as amended ( the “exchange act” ) , and other applicable securities laws . these forward-looking statements may include statements regarding perceived merit of properties , exploration results and budgets , mineral reserves and resource estimates , work programs , capital expenditures , operating costs , cash flow estimates , production estimates and similar statements relating to the economic viability of a project , timelines , strategic plans , including the company 's plans and expectations relating to its upper kobuk mineral projects , completion of transactions , market prices for precious and base metals , or other statements that are not statements of fact . these statements relate to analyses and other information that are based on forecasts of future results , estimates of amounts not yet determinable and assumptions of management . statements concerning mineral resource estimates may also be deemed to constitute “forward-looking statements” to the extent that they involve estimates of the mineralization that will be encountered if the property is developed . any statements that express or involve discussions with respect to predictions , expectations , beliefs , plans , projections , objectives , assumptions or future events or performance ( often , but not always , identified by words or phrases such as “expects” , “is expected” , “anticipates” , “believes” , “plans” , “projects” , “estimates” , “assumes” , “intends” , “strategy” , “goals” , “objectives” , “potential” , “possible” or variations thereof or stating that certain actions , events , conditions or results “may” , “could” , “would” , “should” , “might” or “will” be taken , occur or be achieved , or the negative of any of these terms and similar expressions ) are not statements of historical fact and may be forward-looking statements . forward-looking statements are based on a number of material assumptions , including those listed below , which could prove to be significantly incorrect : assumptions made in the interpretation of drill results , the geology ,

net cash used by investing activities was $ 203,229,000 , $ 34,079,000 and $ 40,425,000 in fiscal 2016 , 2015 and 2014 , respectively . the most significant use of cash for investing activities relates to our acquisition of magnetek which totaled $ 182,467,000 , net of cash acquired . capital expenditures for fiscal 2016 totaled $ 22,320,000 , of which $ 5,400,000 related to the construction of the getzville corporate headquarters and national training facility . offsetting these uses of cash is $ 1,558,000 in net cash proceeds from the sale of marketable equity securities . the most significant net cash used for investing activities in fiscal 2015 was $ 19,992,000 for the purchase of stb as described in note 3 to the consolidated financial statements . capital expenditures for fiscal 2015 were $ 17,243,000 ( of which $ 1,990,000 relates to the expansion of our china operations and $ 3,449,000 relates to the implementation of our global erp system ) . offsetting these uses of cash is $ 3,230,000 in net cash proceeds from the sale of marketable equity securities by our captive insurance company . the other use of cash for investing activities of $ 74,000 primarily includes proceeds from an insurance settlement of $ 64,000 and cash received from the sale of an asset of $ 116,000 offset by an increase in restricted cash related to the company 's captive insurance company of $ 250,000. cash flow provided ( used ) by financing activities net cash provided ( used ) by financing activities was $ 137,003,000 , $ ( 48,387,000 ) and$ 1,739,000 in fiscal 2016 , 2015 and 2014 , respectively .

as a result of the spin-out of novacopper from novagold , the interim consolidated financial statements have been presented under the continuity of interest basis of accounting whereby the amounts are based on the amounts originally recorded by novagold as if we had held the property from inception . bornite project on october 19 , 2011 , novacopper us and nana signed a collaborative agreement to explore and develop the ambler mining district . under the exploration agreement and option to lease ( the “nana agreement” ) , novacopper us acquired the exclusive right to explore the bornite property and lands deeded to nana through the alaska native claims settlement act ( “ancsa” ) , located adjacent to the arctic project , and the non-exclusive right to access and entry onto nana 's lands . the agreement establishes a framework for any future development of either the bornite project or the arctic project . both projects are included as part of a larger area of interest set forth in the nana agreement . as consideration , novacopper paid $ 4.0 million to nana upon signing the nana agreement and gave nana the right to appoint a member to novacopper 's board of directors within a five year period following our public listing on a stock exchange . nana has not exercised their right to appoint a board member at this time . upon the decision to proceed with development of a mine within the area of interest , nana has a 120 day one time right to purchase an ownership interest in the mine equal to between 16 % -25 % or retain a 15 % net proceeds royalty which is payable after novacopper has recovered certain historical costs , capital and cost of capital . should nana elect to purchase an ownership interest in the mine , consideration will be payable based on the elected percentage purchased and the costs incurred on the properties less $ 40.0 million , not to be less than zero . the parties would form a joint venture and be responsible for all future costs incurred in connection with the mine , including capital costs of the mine , based on each party 's pro-rata share . the completion of the agreement with nana creates a total land package which incorporates our ambler lands with the adjacent bornite and ancsa lands for a total of approximately 352,900 acres ( 142,831 hectares ) . nana would also be granted a net smelter return royalty between 1 % and 2.5 % upon the execution of a mining lease or a surface use agreement , the amount of which is determined by the particular area of land from which production originates . we have accounted for the bornite property as a mineral property with acquisition costs capitalized and exploration costs expensed . corporate developments financing on july 7 , 2014 , we completed a non-brokered private placement with our three largest shareholders for $ 7.5 million in units . each unit was priced at $ 1.15 per unit and consisted of one common share and one common share purchase warrant . each common share purchase warrant entitles the holder to purchase one common share at a price of $ 1.60 per share for a period of five years from the closing date . net proceeds from the private placement were approximately $ 7.2 million . the gross proceeds raised were allocated for the 12 months following closing to fund a minimum of $ 2.7 million on program expenditures , $ 4.0 million on general and administrative expenses including costs associated with the offering , and $ 0.8 million on one-time expenses incurred in reducing annual general and administrative expenses . we are currently on track to meet our budgeted expenditures . long-term incentives on september 9 , 2014 , the board of directors approved a grant of 1,620,000 stock options to employees and directors . 66 share issuances under the plan of arrangement , we committed to issue common shares to satisfy holders of novagold performance share units ( “psus” ) and deferred shares units on record as of the close of business on april 27 , 2012. when a share unit vests , we committed to deliver one common share to such holder for every six shares of novagold the holder is entitled to receive , pursuant to the warrant and share unit terms , rounded down to the nearest whole number . during the year ended november 30 , 2014 , we issued 14,166 psus . as of november 30 , 2014 , no novagold psus remain outstanding and 20,685 novagold dsus remain outstanding , which will settle upon the novagold directors ' retirement . project activities on march 18 , 2014 , we announced the release of an updated ni 43-101 compliant resource estimate for the bornite deposit and on april 1 , 2014 , we filed a ni 43-101 compliant technical report titled “ni 43-101 technical report on the bornite project , northwest alaska , usa” dated effective march 18 , 2014. this updated bornite project resource estimation included the results of drilling completed and the re-logging and re-assaying program undertaken during the 2013 field season . at a base case 0.50 % copper cutoff grade , the bornite project is estimated to contain in-pit indicated resources of 14.1 million tonnes at an average grade of 1.08 % copper or 334 million lbs of contained copper and in-pit inferred resources of 109.6 million tonnes at an average grade of 0.94 % copper or 2.3 billion lbs of contained copper . resources are stated as contained within a pit shell developed using a metal price of $ 3.00/lb copper , mining costs of $ 2.00/tonne , milling costs of $ 11/tonne , general and administrative cost of $ 5.00/tonne , 87 % metallurgical recoveries and an average pit slope of 43 degrees . story_separator_special_tag we do not expect the adoption to have significant changes to our disclosure of going concern as we currently comply with appropriate guidance issued by the u.s. securities and exchange commission and guidance under u.s. auditing standards . critical accounting estimates the most critical accounting estimates upon which our financial status depends are those requiring estimates of the recoverability of our capitalized mineral properties , impairment of long-lived assets and valuation of stock-based compensation . mineral properties and development costs all direct costs related to the acquisition of mineral property interests are capitalized . the acquisition of title to mineral properties is a complicated and uncertain process . the company has taken steps , in accordance with industry standards , to verify the title to mineral properties in which it has an interest . although the company has made efforts to ensure that legal title to its mining assets are properly recorded , there can be no assurance that such title will be secured indefinitely . impairment of long-lived assets management assesses the possibility of impairment in the carrying value of its long-lived assets whenever events or circumstances indicate that the carrying amounts of the asset or asset group may not be recoverable . significant estimates are made in assessing the possibility of impairment . management considers several factors in considering if an indicator of impairment has occurred , including but not limited to , indications of value from external sources , significant changes in the legal , business or regulatory environment , and adverse changes in the use or physical condition of the asset . these factors are subjective and require consideration at each period end . if an indicator of impairment is determined to exist , management calculates the estimated undiscounted future net cash flows relating to the asset or asset group using estimated future prices , mineral resources , and operating , capital and reclamation costs . when the carrying value of an asset exceeds the related undiscounted cash flows , the asset is written down to its estimated fair value , which is usually determined using discounted future cash flows . management 's estimates of mineral prices , mineral resources , foreign exchange , production levels and operating capital and reclamation costs are subject to risk and uncertainties that may affect the determination of the recoverability of the long-lived asset . stock-based compensation compensation expense for options granted to employees , directors and certain service providers is determined based on estimated fair values of the options at the time of grant using the black-scholes option pricing model , which takes into account , as of the grant date , the fair market value of the shares , expected volatility , expected life , expected forfeiture rate , expected dividend yield and the risk-free interest rate over the expected life of the option . the use of the black-scholes option pricing model requires input estimation of the expected life of the option , volatility , and forfeiture rate which can have a significant impact on the valuation model , and resulting expense recorded . risk factors novacopper and its future business , operations and financial condition are subject to various risks and uncertainties due to the nature of its business and the present stage of exploration of its mineral properties . certain of these risks and uncertainties are under the heading “risk factors” under novacopper 's form 10-k dated february 5 , 2015 available on sedar at www.sedar.com and edgar at www.sec.gov and on our website at www.novacopper.com . 73 additional information additional information regarding the company , including our annual report on form 10-k , is available on sedar at www.sedar.com and edgar at www.sec.gov and on our website at www.novacopper.com . cautionary notes forward-looking statements this management 's discussion and analysis contains “forward-looking information” and “forward-looking statements” within the meaning of section 27a of the u.s. securities act of 1933 , as amended , section 21e of the u.s. securities exchange act of 1934 , as amended ( the “exchange act” ) , and other applicable securities laws . these forward-looking statements may include statements regarding perceived merit of properties , exploration results and budgets , mineral reserves and resource estimates , work programs , capital expenditures , operating costs , cash flow estimates , production estimates and similar statements relating to the economic viability of a project , timelines , strategic plans , including the company 's plans and expectations relating to its upper kobuk mineral projects , completion of transactions , market prices for precious and base metals , or other statements that are not statements of fact . these statements relate to analyses and other information that are based on forecasts of future results , estimates of amounts not yet determinable and assumptions of management . statements concerning mineral resource estimates may also be deemed to constitute “forward-looking statements” to the extent that they involve estimates of the mineralization that will be encountered if the property is developed . any statements that express or involve discussions with respect to predictions , expectations , beliefs , plans , projections , objectives , assumptions or future events or performance ( often , but not always , identified by words or phrases such as “expects” , “is expected” , “anticipates” , “believes” , “plans” , “projects” , “estimates” , “assumes” , “intends” , “strategy” , “goals” , “objectives” , “potential” , “possible” or variations thereof or stating that certain actions , events , conditions or results “may” , “could” , “would” , “should” , “might” or “will” be taken , occur or be achieved , or the negative of any of these terms and similar expressions ) are not statements of historical fact and may be forward-looking statements . forward-looking statements are based on a number of material assumptions , including those listed below , which could prove to be significantly incorrect : assumptions made in the interpretation of drill results , the geology ,

liquidity and capital resources at november 30 , 2014 , we had $ 5.1 million in cash and cash equivalents . we expended $ 8.6 million on operating activities compared with $ 15.2 million for operating activities for the same period in 2013 , and expenditures of $ 19.9 million for operating activities for the same period in 2012. a majority of cash spent on operating activities during all periods was expended on mineral property expenses , salaries and general and administrative expenses , which also accounts for the corresponding decrease . as the exploration field season in the ambler district is between may and early october of each year , a significant portion of the mineral property expenses and operating activities are incurred during this time frame . the decrease is also somewhat offset by an adjustment for non-cash working capital in 2012 as accounts payable and accrued liabilities were higher at $ 2.0 million at november 30 , 2012 compared to $ 1.7 million at november 30 , 2013 and $ 0.9 million at november 30 , 2014. this difference relates mainly to earlier settlement of mineral property expenses in the year and reduced spending in 2013 and 2014 compared to 2012. during the year ended november 30 , 2014 , we generated $ 7.2 million from financing activities compared to expenditures of $ 0.3 million on financing activities in the year ended november 30 , 2013 and $ 43.8 million from financing activities generated in the same period in 2012. the generation of cash in 2014 was raised from the completion of a private placement of $ 7.2 million in july 2014. cash was expended in 2013 to settle vested rsus which were not able to be settled in shares due to an insider participation limit in our rsu plan . cash of $ 40.0 million was received from novagold in april 2012 with the completion of the plan of arrangement .

activities of our subsidiaries , agentus therapeutics and our wholly-owned subsidiary , agenus uk limited . contingent purchase price consideration fair value adjustment contingent purchase price consideration fair value adjustment represents the change in the fair value of our contingent purchase price consideration during the year ended december 31 , 2019 , which resulted from changes in our market capitalization and share price and changes in the credit spread since the prior year end . the fair value of our contingent purchase price consideration is based on estimates from a monte carlo simulation of our market capitalization and share price . non-operating income ( expense ) non-operating income increased $ 2.2 million for the year ended december 31 , 2019 , from expense of $ 2.2 million for the year ended december 31 , 2018 , to income of $ 28,000 for the year ended december 31 , 2019 , primarily due to our increased foreign currency exchange gains in 2019 compared to losses in 2018. interest expense , net interest expense , net increased to $ 41.5 million for the year ended december 31 , 2019 from $ 25.3 million for the year ended december 31 , 2018 , due to increased non-cash interest recorded in connection with our royalty purchase agreement with hcr . year ended december 31 , 2018 compared to the year ended december 31 , 2017 research and development revenue 72 we recognized r & d revenue of approximately $ 19.5 million and $ 42.7 million during the years ended december 31 , 2018 and 2017 , respectively . r & d revenues for the year ended december 31 , 2018 , primarily consisted of fees earned under our incyte collaboration agreement , including $ 10.0 million related to the recognition of milestones and $ 4.1 million related to the reimbursement of development costs , which have decreased due to the stage of the programs under the collaboration , and $ 4.0 million related to the recognition of a milestone under our license agreement with merck . r & d revenues for the year ended december 31 , 2017 , also primarily consisted of fees earned under our incyte collaboration agreement including $ 20.0 million related to the acceleration of milestone payments and $ 14.6 million related to the reimbursement of development costs in addition to $ 4.0 million related to the recognition of a milestone under our license agreement with merck , $ 1.0 million related to the recognition of a milestone under our license agreement with gsk . during the years ended december 31 , 2018 and 2017 , we recorded revenue of $ 1.3 million and $ 3.1 million , respectively , from the amortization of deferred revenue . non-cash royalty revenue related to the sale of future royalties in january 2018 , we sold 100 % of our worldwide rights to receive royalties from gsk on sales of gsk 's vaccines containing our qs-21 stimulon adjuvant to hcr . as described in note 17 to our consolidated financial statements , this transaction has been recorded as a liability that amortizes over the estimated life of our royalty purchase agreement with hcr . as a result of this liability accounting , even though the royalties are remitted directly to hcr , we record these royalties from gsk as revenue . during the years ended december 31 , 2018 , we recognized approximately $ 17.3 million in non-cash royalty revenue related to our agreement with gsk . research and development expense r & d expense increased 7 % to $ 124.6 million for the year ended december 31 , 2018 from $ 116.1 million for the year ended december 31 , 2017. increased expenses in the year ended december 31 , 2018 primarily relate to a $ 7.3 million increase in third-party services and other related expenses largely relating to the advancement of our antibody programs and a $ 3.0 million increase in expenses attributable to the activities of our subsidiaries , agentus therapeutics and our wholly-owned subsidiary in the united kingdom , agenus uk limited , which increase was partially offset by a decrease in expenses due to the closure of our facility in basel , switzerland in 2017. these increases were partially offset by a $ 1.6 million decrease in personnel related expenses , which consists of a $ 2.8 million decrease in share based compensation expense partially offset by a $ 1.2 million increase in other personnel related expenses , and a $ 0.3 million decrease in other r & d expenses . general and administrative expense g & a expenses increased 11 % to $ 37.3 million for the year ended december 31 , 2018 from $ 33.7 million for the year ended december 31 , 2017. increased g & a expense in 2018 primarily relates to a $ 1.9 million increase in professional fees , a $ 1.0 million increase in other g & a expenses , and a $ 1.0 million increase in expenses attributable to the activities of our subsidiaries , agentus therapeutics and our wholly-owned subsidiary in the united kingdom , agenus uk limited , which increase was partially offset by a decrease in expenses due to the closure of our facility in basel , switzerland in 2017. these increases were partially offset by a $ 0.3 million decrease in personnel related expenses , which consists of a $ 1.9 million decrease in share based compensation expense partially offset by a $ 1.7 million increase in other personnel related expenses . contingent purchase price consideration fair value adjustment contingent purchase price consideration fair value adjustment represents the change in the fair value of our contingent purchase price consideration during the year ended december 31 , 2018 , which resulted from changes in our market capitalization and share price and changes in the credit spread since the prior year end . story_separator_special_tag for example , our collaboration with incyte for the development , manufacture and commercialization of cpm antibodies against certain targets is managed by a joint steering committee , which is controlled by incyte . net cash used in operating activities for the years ended december 31 , 2019 and 2018 was $ 18.7 million and $ 131.1 million , respectively . our future ability to generate cash from operations will depend on achieving regulatory approval and market acceptance of our product candidates , achieving benchmarks as defined in existing collaboration agreements , and our ability to enter into new collaborations . please see the “ note regarding forward-looking statements ” of this annual report on form 10-k and the risks highlighted under part i-item 1a . “ risk factors ” of this annual report on form 10-k. 76 the table below summarizes our contractual obligations as of december 31 , 2019 ( in thousands ) . replace_table_token_6_th ( 1 ) includes fixed interest payments and reflects the amendment to our subordinated notes entered into on february 18 , 2020. see note 23 of the notes to our consolidated financial statements contained elsewhere in this annual report on form 10-k for further description of the amendment . ( 2 ) the leases and subleases for our properties expire at various times between 2020 and 2030. the amounts include payments for two leases that were signed but had not yet commenced as of december 31 , 2019. see note 15 of the notes to our consolidated financial statements contained elsewhere in this annual report on form 10-k for further description of our leases . off-balance sheet arrangements at december 31 , 2019 , we had no off-balance sheet arrangements . critical accounting policies and estimates the sec defines “ critical accounting policies ” as those that require the application of management 's most difficult , subjective , or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods . the preparation of consolidated financial statements in conformity with u.s. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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 those estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances . actual results could differ from those estimates . the following listing is not intended to be a comprehensive list of all of our accounting policies . our significant accounting policies are described in note 2 of the notes to our consolidated financial statements contained elsewhere in this annual report on form 10-k. in many cases , the accounting treatment of a particular transaction is dictated by u.s. generally accepted accounting principles , with no need for our judgment in its application . there are also areas in which our judgment in selecting an available alternative would not produce a materially different result . we have identified the following as our critical accounting policies . revenue recognition in may 2014 , the financial accounting standards board ( the “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers ( topic 606 ) , which supersedes existing revenue recognition guidance . we adopted asu 2014-09 and its related amendments ( collectively known as “ asc 606 ” ) on january 1 , 2018 using the modified retrospective method- i.e . , by recognizing the cumulative effect of initially applying asc 606 as an adjustment to the opening balance of equity at january 1 , 2018. the reported results for 2019 and 2018 reflect the application of asc 606 guidance while the reported results for 2017 were prepared under the guidance of asc 605 , revenue recognition . the adoption of asc 606 represented a change in accounting principle that more closely aligned revenue recognition with the delivery of our goods and services and provided financial statement readers with enhanced disclosures . in accordance with asc 606 , revenue is recognized when a customer obtains control of promised goods or services . the amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods and services . refer to note 2 to our consolidated financial statements included within item 8 of this annual report on form 10-k for a more detailed description of our application of asc 606. non-cash interest expense on liability related to sale of future royalties in january 2018 we entered into the hcr royalty purchase agreement with hcr . pursuant to the terms of the hcr royalty purchase agreement , we sold to hcr 100 % of our worldwide rights to receive royalties from gsk on sales of gsk 's vaccines containing our qs-21 stimulon adjuvant . although we sold all of our rights to receive royalties on sales of gsk 's vaccines containing 77 qs-21 , as a result of our obligation to hcr , we recorded the proceeds from this transaction as a liability on our consolidated balance sheet that will be amortized using the interest method over the estimated life of the hcr royalty purchase agreement . as a result , we impute interest on the transaction and record non-cash interest expense at the estimated interest rate . our estimate of the interest rate under the agreement is based on the amount of royalty payments to be received by hcr over the life of the arrangement . we periodically assess the expected royalty payments to hcr from gsk using a combination of historical results and forecasts from market data sources . to the extent such payments are greater or less than our initial estimates or the timing of such payments is

liquidity and capital resources at november 30 , 2014 , we had $ 5.1 million in cash and cash equivalents . we expended $ 8.6 million on operating activities compared with $ 15.2 million for operating activities for the same period in 2013 , and expenditures of $ 19.9 million for operating activities for the same period in 2012. a majority of cash spent on operating activities during all periods was expended on mineral property expenses , salaries and general and administrative expenses , which also accounts for the corresponding decrease . as the exploration field season in the ambler district is between may and early october of each year , a significant portion of the mineral property expenses and operating activities are incurred during this time frame . the decrease is also somewhat offset by an adjustment for non-cash working capital in 2012 as accounts payable and accrued liabilities were higher at $ 2.0 million at november 30 , 2012 compared to $ 1.7 million at november 30 , 2013 and $ 0.9 million at november 30 , 2014. this difference relates mainly to earlier settlement of mineral property expenses in the year and reduced spending in 2013 and 2014 compared to 2012. during the year ended november 30 , 2014 , we generated $ 7.2 million from financing activities compared to expenditures of $ 0.3 million on financing activities in the year ended november 30 , 2013 and $ 43.8 million from financing activities generated in the same period in 2012. the generation of cash in 2014 was raised from the completion of a private placement of $ 7.2 million in july 2014. cash was expended in 2013 to settle vested rsus which were not able to be settled in shares due to an insider participation limit in our rsu plan . cash of $ 40.0 million was received from novagold in april 2012 with the completion of the plan of arrangement .

activities of our subsidiaries , agentus therapeutics and our wholly-owned subsidiary , agenus uk limited . contingent purchase price consideration fair value adjustment contingent purchase price consideration fair value adjustment represents the change in the fair value of our contingent purchase price consideration during the year ended december 31 , 2019 , which resulted from changes in our market capitalization and share price and changes in the credit spread since the prior year end . the fair value of our contingent purchase price consideration is based on estimates from a monte carlo simulation of our market capitalization and share price . non-operating income ( expense ) non-operating income increased $ 2.2 million for the year ended december 31 , 2019 , from expense of $ 2.2 million for the year ended december 31 , 2018 , to income of $ 28,000 for the year ended december 31 , 2019 , primarily due to our increased foreign currency exchange gains in 2019 compared to losses in 2018. interest expense , net interest expense , net increased to $ 41.5 million for the year ended december 31 , 2019 from $ 25.3 million for the year ended december 31 , 2018 , due to increased non-cash interest recorded in connection with our royalty purchase agreement with hcr . year ended december 31 , 2018 compared to the year ended december 31 , 2017 research and development revenue 72 we recognized r & d revenue of approximately $ 19.5 million and $ 42.7 million during the years ended december 31 , 2018 and 2017 , respectively . r & d revenues for the year ended december 31 , 2018 , primarily consisted of fees earned under our incyte collaboration agreement , including $ 10.0 million related to the recognition of milestones and $ 4.1 million related to the reimbursement of development costs , which have decreased due to the stage of the programs under the collaboration , and $ 4.0 million related to the recognition of a milestone under our license agreement with merck . r & d revenues for the year ended december 31 , 2017 , also primarily consisted of fees earned under our incyte collaboration agreement including $ 20.0 million related to the acceleration of milestone payments and $ 14.6 million related to the reimbursement of development costs in addition to $ 4.0 million related to the recognition of a milestone under our license agreement with merck , $ 1.0 million related to the recognition of a milestone under our license agreement with gsk . during the years ended december 31 , 2018 and 2017 , we recorded revenue of $ 1.3 million and $ 3.1 million , respectively , from the amortization of deferred revenue . non-cash royalty revenue related to the sale of future royalties in january 2018 , we sold 100 % of our worldwide rights to receive royalties from gsk on sales of gsk 's vaccines containing our qs-21 stimulon adjuvant to hcr . as described in note 17 to our consolidated financial statements , this transaction has been recorded as a liability that amortizes over the estimated life of our royalty purchase agreement with hcr . as a result of this liability accounting , even though the royalties are remitted directly to hcr , we record these royalties from gsk as revenue . during the years ended december 31 , 2018 , we recognized approximately $ 17.3 million in non-cash royalty revenue related to our agreement with gsk . research and development expense r & d expense increased 7 % to $ 124.6 million for the year ended december 31 , 2018 from $ 116.1 million for the year ended december 31 , 2017. increased expenses in the year ended december 31 , 2018 primarily relate to a $ 7.3 million increase in third-party services and other related expenses largely relating to the advancement of our antibody programs and a $ 3.0 million increase in expenses attributable to the activities of our subsidiaries , agentus therapeutics and our wholly-owned subsidiary in the united kingdom , agenus uk limited , which increase was partially offset by a decrease in expenses due to the closure of our facility in basel , switzerland in 2017. these increases were partially offset by a $ 1.6 million decrease in personnel related expenses , which consists of a $ 2.8 million decrease in share based compensation expense partially offset by a $ 1.2 million increase in other personnel related expenses , and a $ 0.3 million decrease in other r & d expenses . general and administrative expense g & a expenses increased 11 % to $ 37.3 million for the year ended december 31 , 2018 from $ 33.7 million for the year ended december 31 , 2017. increased g & a expense in 2018 primarily relates to a $ 1.9 million increase in professional fees , a $ 1.0 million increase in other g & a expenses , and a $ 1.0 million increase in expenses attributable to the activities of our subsidiaries , agentus therapeutics and our wholly-owned subsidiary in the united kingdom , agenus uk limited , which increase was partially offset by a decrease in expenses due to the closure of our facility in basel , switzerland in 2017. these increases were partially offset by a $ 0.3 million decrease in personnel related expenses , which consists of a $ 1.9 million decrease in share based compensation expense partially offset by a $ 1.7 million increase in other personnel related expenses . contingent purchase price consideration fair value adjustment contingent purchase price consideration fair value adjustment represents the change in the fair value of our contingent purchase price consideration during the year ended december 31 , 2018 , which resulted from changes in our market capitalization and share price and changes in the credit spread since the prior year end . story_separator_special_tag for example , our collaboration with incyte for the development , manufacture and commercialization of cpm antibodies against certain targets is managed by a joint steering committee , which is controlled by incyte . net cash used in operating activities for the years ended december 31 , 2019 and 2018 was $ 18.7 million and $ 131.1 million , respectively . our future ability to generate cash from operations will depend on achieving regulatory approval and market acceptance of our product candidates , achieving benchmarks as defined in existing collaboration agreements , and our ability to enter into new collaborations . please see the “ note regarding forward-looking statements ” of this annual report on form 10-k and the risks highlighted under part i-item 1a . “ risk factors ” of this annual report on form 10-k. 76 the table below summarizes our contractual obligations as of december 31 , 2019 ( in thousands ) . replace_table_token_6_th ( 1 ) includes fixed interest payments and reflects the amendment to our subordinated notes entered into on february 18 , 2020. see note 23 of the notes to our consolidated financial statements contained elsewhere in this annual report on form 10-k for further description of the amendment . ( 2 ) the leases and subleases for our properties expire at various times between 2020 and 2030. the amounts include payments for two leases that were signed but had not yet commenced as of december 31 , 2019. see note 15 of the notes to our consolidated financial statements contained elsewhere in this annual report on form 10-k for further description of our leases . off-balance sheet arrangements at december 31 , 2019 , we had no off-balance sheet arrangements . critical accounting policies and estimates the sec defines “ critical accounting policies ” as those that require the application of management 's most difficult , subjective , or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods . the preparation of consolidated financial statements in conformity with u.s. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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 those estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances . actual results could differ from those estimates . the following listing is not intended to be a comprehensive list of all of our accounting policies . our significant accounting policies are described in note 2 of the notes to our consolidated financial statements contained elsewhere in this annual report on form 10-k. in many cases , the accounting treatment of a particular transaction is dictated by u.s. generally accepted accounting principles , with no need for our judgment in its application . there are also areas in which our judgment in selecting an available alternative would not produce a materially different result . we have identified the following as our critical accounting policies . revenue recognition in may 2014 , the financial accounting standards board ( the “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers ( topic 606 ) , which supersedes existing revenue recognition guidance . we adopted asu 2014-09 and its related amendments ( collectively known as “ asc 606 ” ) on january 1 , 2018 using the modified retrospective method- i.e . , by recognizing the cumulative effect of initially applying asc 606 as an adjustment to the opening balance of equity at january 1 , 2018. the reported results for 2019 and 2018 reflect the application of asc 606 guidance while the reported results for 2017 were prepared under the guidance of asc 605 , revenue recognition . the adoption of asc 606 represented a change in accounting principle that more closely aligned revenue recognition with the delivery of our goods and services and provided financial statement readers with enhanced disclosures . in accordance with asc 606 , revenue is recognized when a customer obtains control of promised goods or services . the amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods and services . refer to note 2 to our consolidated financial statements included within item 8 of this annual report on form 10-k for a more detailed description of our application of asc 606. non-cash interest expense on liability related to sale of future royalties in january 2018 we entered into the hcr royalty purchase agreement with hcr . pursuant to the terms of the hcr royalty purchase agreement , we sold to hcr 100 % of our worldwide rights to receive royalties from gsk on sales of gsk 's vaccines containing our qs-21 stimulon adjuvant . although we sold all of our rights to receive royalties on sales of gsk 's vaccines containing 77 qs-21 , as a result of our obligation to hcr , we recorded the proceeds from this transaction as a liability on our consolidated balance sheet that will be amortized using the interest method over the estimated life of the hcr royalty purchase agreement . as a result , we impute interest on the transaction and record non-cash interest expense at the estimated interest rate . our estimate of the interest rate under the agreement is based on the amount of royalty payments to be received by hcr over the life of the arrangement . we periodically assess the expected royalty payments to hcr from gsk using a combination of historical results and forecasts from market data sources . to the extent such payments are greater or less than our initial estimates or the timing of such payments is

loss on early extinguishment of debt loss on early extinguishment of debt of $ 10.8 million for the year ended december 31 , 2018 represents the payment of premiums and the write-off of unamortized debt issuance costs and discounts incurred in connection with the full redemption and termination of antigenics ' $ 115.0 million principal amount of notes issued pursuant to the note purchase agreement dated september 4 , 2015 with oberland capital sa zermatt llc and the purchasers named therein . non-operating income ( expense ) non-operating expense increased by $ 4.2 million for the year ended december 31 , 2018 , from income of $ 2.0 million for the year ended december 31 , 2017 , to expense of $ 2.2 million for the year ended december 31 , 2018 , primarily due to our increased foreign currency exchange losses in 2018 compared to gains in 2017 . 73 interest expense , net interest expense net increased to $ 25.3 million for the year ended december 31 , 2018 from $ 18.9 million for the year ended december 31 , 2017 , due to the january 2018 closing of the royalty purchase agreement with hcr and the resulting increase in non-cash interest expense compared to the amount recorded for our note purchase agreement , which was outstanding in the year ended december 31 , 2017 , and fully redeemed and terminated simultaneously with the closing of the royalty purchase agreement . inflation we believe that inflation has not had a material adverse effect on our business , results of operations , or financial condition to date . research and development programs for the year ended december 31 , 2019 , our r & d programs consisted largely of our cpm antibody programs as indicated in the following table ( in thousands ) . replace_table_token_5_th * prior to 2014 , costs were incurred by 4-ab , which we acquired in february 2014. r & d program costs include compensation and other direct costs plus an allocation of indirect costs , based on certain assumptions and our review of the status of each program .

we experienced $ 35.5 million in foreign currency gains during fiscal year 2013 and ( $ 20.0 ) million and ( $ 12.1 ) million in foreign currency losses during fiscal years 2012 and 2011 , respectively . to date , we have not entered into hedging transactions related to any currency , and we do not currently plan to utilize hedging transactions in the future . 38 critical accounting policies and estimates general garmin 's discussion and analysis of its financial condition and results of operations are based upon garmin 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the presentation of these financial statements requires garmin 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 on-going basis , garmin evaluates its estimates , including those related to customer sales programs and incentives , product returns , bad debts , inventories , investments , intangible assets , income taxes , warranty obligations , and contingencies and litigation . garmin 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 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 . revenue recognition garmin recognizes revenue when persuasive evidence of an arrangement exists , delivery has occurred , the sales price is fixed or determinable , and collection is probable . for the large majority of garmin 's sales , these criteria are met once product has shipped and title and risk of loss have transferred to the customer . the company recognizes revenue from the sale of hardware products and software bundled with hardware that is essential to the functionality of the hardware in accordance with general revenue recognition accounting guidance . the company recognizes revenue in accordance with industry specific software accounting guidance for standalone sales of software products and sales of software bundled with hardware not essential to the functionality of the hardware . the company generally does not offer specified or unspecified upgrade rights to its customers in connection with software sales . garmin introduced nümaps lifetime™ in january 2009 , which is a single fee program that , subject to the program 's terms and conditions , enables customers to download the latest map and point of interest information every quarter for the useful life of their pnd . the revenue and associated cost of royalties for sales of nümaps lifetime™ products are deferred at the time of sale and recognized ratably on a straight-line basis over the estimated 36-month life of the products . with the acquisition of navigon ag in 2011 , products marketed under the navigon brand have a freshmaps program that enables customers to download the latest map and point of interest information for two years . the revenue and associated cost of royalties for sales of freshmaps products are deferred at the time of sale and recognized ratably on a straight-line basis over the two year period . for multiple-element arrangements that include tangible products that contain software essential to the tangible product 's functionality and undelivered software elements that relate to the tangible product 's essential software , the company allocates revenue to all deliverables based on their relative selling prices . in such circumstances , the accounting principles establish a hierarchy to determine the selling price to be used for allocating revenue to deliverables as follows : ( i ) vendor-specific objective evidence of fair value ( vsoe ) , ( ii ) third-party evidence of selling price ( tpe ) , and ( iii ) best estimate of the selling price ( esp ) . vsoe generally exists only when the company sells the deliverable separately , on more than a limited basis , at prices within a relatively narrow range . in addition to the products listed below , the company has offered certain other products including mobile applications , aviation subscriptions and extended warranties that involve multiple-element arrangements that are immaterial . 39 in 2010 , garmin began offering pnds with lifetime map updates ( lmus ) bundled in the original purchase price . similar to nümaps lifetime™ , lmus enable customers to download the latest map and point of interest information every quarter for the useful life of their pnd . in addition , garmin offers pnds with premium traffic service bundled in the original purchase price in the european market . the company has identified multiple deliverables contained in arrangements involving the sale of pnds which include the lmu and or premium traffic service . the first deliverable is the hardware along with the software essential to the functionality of the hardware device delivered at the time of sale . the second and potentially third deliverables are the lmu and or premium traffic service . the company has allocated revenue between these deliverables using the relative selling price method . amounts allocated to the delivered hardware and the related essential software are recognized at the time of sale provided the other conditions for revenue recognition have been met . the revenue and associated cost of royalties allocated to the lmu and or the subscription for premium traffic service are deferred and recognized on a straight-line basis over the estimated 36-month life of the products . story_separator_special_tag research and development the majority of our research and development costs represent salaries for our engineers , costs for high technology components and costs of test equipment used in product and prototype development . approximately 81 % of the research and development of our products is performed in north america . we are committed to increasing the level of innovative design and development of new products as we strive for expanded ability to serve our existing consumer and aviation markets as well as new markets for gps-enabled devices . we expect our research and development budget to increase in 2014 due to our ongoing commitment to innovation and growth . customers our top ten customers have contributed between 24 % and 29 % of net sales since 2011. we have experienced average sales days in our customer accounts receivable of between 69 and 72 days since 2011. we expect the level of customer accounts receivable days to be relatively stable in 2014. income taxes we have experienced a relatively low effective corporate tax rate due to the proportion of our revenue generated by entities in tax jurisdictions with low statutory rates . in particular , the profit entitlement afforded our swiss-based companies based on their intellectual property rights ownership of our consumer products along with tax incentives offered by the taiwanese government on certain high-technology capital investments have continued to reduce our tax rate . we have taken advantage of the tax benefit in taiwan since our inception and we expect to continue to benefit from lower effective tax rates at least through 2015. our consolidated effective tax rate was approximately 6.3 % during 2013. this is a decrease from an effective rate of 13.1 % in 2012. the significant decline was due to the impact of a $ 68.7 million benefit , which includes the release of uncertain tax position reserves from 2009 offset by taiwan surtax expense due to this reserve release . excluding these items , we would have reported an effective tax rate of 16.8 % for fiscal year 2013 compared to 13.1 % for fiscal year 2012. this increase was primarily driven by an unfavorable income mix across tax jurisdictions , reduced taiwanese tax incentives , and the release of other uncertain tax position reserves , amounting to approximately $ 11.2 million for 2013 and $ 13.0 million for 2012 that are considered immaterial , tend to be more recurring in nature and are comparable between periods . these factors were partially offset by the impact of $ 6.3 million of research and development tax credits related to 2012 which were recognized when the related legislation was enacted in january 2013. management believes that the effective tax rate for fiscal 2014 will be consistent with the 2013 effective tax rate of 16.8 % , excluding special items as outlined above , as operating profits and margins are relatively stable . the actual effective tax rate will depend upon the operating margins , production volume , additional capital investments made during fiscal 2014 , the resolution of uncertain tax positions and the composition of our earnings . 44 results of operations the following table sets forth our results of operations as a percentage of net sales during the periods shown ( the table may not foot due to rounding ) : replace_table_token_5_th the following table sets forth our results of operations through income before income taxes for each of our five segments during the period shown . for each line item in the table the total of the segments ' amounts equals the amount in the consolidated statements of income data included in item 6 . 45 replace_table_token_6_th replace_table_token_7_th replace_table_token_8_th 46 comparison of 52-weeks ended december 28 , 2013 and december 29 , 2012 net sales replace_table_token_9_th net sales decreased 3 % in 2013 when compared to the year-ago period . the decrease was driven by the automotive/mobile segment which posted a 13 % decline with offsetting growth in outdoor , fitness , marine and aviation . automotive/mobile revenue remains the largest portion of our revenue mix at 49 % in 2013 , compared to 55 % in 2012. total unit sales decreased 10 % to 13.9 million units in 2013 from 15.4 million units in 2012. the decrease in unit sales volume was attributable to reduced automotive/mobile volumes due to penetration rates and competing technologies . this decline was partially offset by growth in each of the other segments . automotive/mobile segment revenue decreased 13 % from the year-ago period , as volumes decreased 17 % partially offset by average selling price ( asp ) improvement due to the amortization of previously deferred revenue exceeding current year revenue deferrals in 2013 and increased auto oem contribution with a higher asp . aviation revenues increased 16 % from the year-ago period as the oem market improved in some aircraft categories , as well as contribution from recent share gains and aftermarket products . fitness revenues increased 11 % on the strength of our cycling products , power meter , and the forerunner 10 with strong volume growth partially offset by reduced asps associated with the forerunner 10. revenues in our marine segment increased 7 % as new product introductions were partially offset by a weak first quarter when we discounted many products in advance of new products and a global marine electronics industry that continues to be weak due to macroeconomic instability . the company anticipates revenue of $ 2.6 - $ 2.7 billion in 2014 driven by growth in the outdoor , fitness , aviation and marine segments offset by ongoing declines in the automotive/mobile segment . in general , management believes that continuous innovation and the introduction of new products are essential for future revenue growth . cost of goods sold replace_table_token_10_th 47 cost of goods sold decreased 4 % when compared to the year ago period . as a percentage of revenue , cost of goods sold decreased 50 basis points from the

loss on early extinguishment of debt loss on early extinguishment of debt of $ 10.8 million for the year ended december 31 , 2018 represents the payment of premiums and the write-off of unamortized debt issuance costs and discounts incurred in connection with the full redemption and termination of antigenics ' $ 115.0 million principal amount of notes issued pursuant to the note purchase agreement dated september 4 , 2015 with oberland capital sa zermatt llc and the purchasers named therein . non-operating income ( expense ) non-operating expense increased by $ 4.2 million for the year ended december 31 , 2018 , from income of $ 2.0 million for the year ended december 31 , 2017 , to expense of $ 2.2 million for the year ended december 31 , 2018 , primarily due to our increased foreign currency exchange losses in 2018 compared to gains in 2017 . 73 interest expense , net interest expense net increased to $ 25.3 million for the year ended december 31 , 2018 from $ 18.9 million for the year ended december 31 , 2017 , due to the january 2018 closing of the royalty purchase agreement with hcr and the resulting increase in non-cash interest expense compared to the amount recorded for our note purchase agreement , which was outstanding in the year ended december 31 , 2017 , and fully redeemed and terminated simultaneously with the closing of the royalty purchase agreement . inflation we believe that inflation has not had a material adverse effect on our business , results of operations , or financial condition to date . research and development programs for the year ended december 31 , 2019 , our r & d programs consisted largely of our cpm antibody programs as indicated in the following table ( in thousands ) . replace_table_token_5_th * prior to 2014 , costs were incurred by 4-ab , which we acquired in february 2014. r & d program costs include compensation and other direct costs plus an allocation of indirect costs , based on certain assumptions and our review of the status of each program .

we experienced $ 35.5 million in foreign currency gains during fiscal year 2013 and ( $ 20.0 ) million and ( $ 12.1 ) million in foreign currency losses during fiscal years 2012 and 2011 , respectively . to date , we have not entered into hedging transactions related to any currency , and we do not currently plan to utilize hedging transactions in the future . 38 critical accounting policies and estimates general garmin 's discussion and analysis of its financial condition and results of operations are based upon garmin 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the presentation of these financial statements requires garmin 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 on-going basis , garmin evaluates its estimates , including those related to customer sales programs and incentives , product returns , bad debts , inventories , investments , intangible assets , income taxes , warranty obligations , and contingencies and litigation . garmin 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 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 . revenue recognition garmin recognizes revenue when persuasive evidence of an arrangement exists , delivery has occurred , the sales price is fixed or determinable , and collection is probable . for the large majority of garmin 's sales , these criteria are met once product has shipped and title and risk of loss have transferred to the customer . the company recognizes revenue from the sale of hardware products and software bundled with hardware that is essential to the functionality of the hardware in accordance with general revenue recognition accounting guidance . the company recognizes revenue in accordance with industry specific software accounting guidance for standalone sales of software products and sales of software bundled with hardware not essential to the functionality of the hardware . the company generally does not offer specified or unspecified upgrade rights to its customers in connection with software sales . garmin introduced nümaps lifetime™ in january 2009 , which is a single fee program that , subject to the program 's terms and conditions , enables customers to download the latest map and point of interest information every quarter for the useful life of their pnd . the revenue and associated cost of royalties for sales of nümaps lifetime™ products are deferred at the time of sale and recognized ratably on a straight-line basis over the estimated 36-month life of the products . with the acquisition of navigon ag in 2011 , products marketed under the navigon brand have a freshmaps program that enables customers to download the latest map and point of interest information for two years . the revenue and associated cost of royalties for sales of freshmaps products are deferred at the time of sale and recognized ratably on a straight-line basis over the two year period . for multiple-element arrangements that include tangible products that contain software essential to the tangible product 's functionality and undelivered software elements that relate to the tangible product 's essential software , the company allocates revenue to all deliverables based on their relative selling prices . in such circumstances , the accounting principles establish a hierarchy to determine the selling price to be used for allocating revenue to deliverables as follows : ( i ) vendor-specific objective evidence of fair value ( vsoe ) , ( ii ) third-party evidence of selling price ( tpe ) , and ( iii ) best estimate of the selling price ( esp ) . vsoe generally exists only when the company sells the deliverable separately , on more than a limited basis , at prices within a relatively narrow range . in addition to the products listed below , the company has offered certain other products including mobile applications , aviation subscriptions and extended warranties that involve multiple-element arrangements that are immaterial . 39 in 2010 , garmin began offering pnds with lifetime map updates ( lmus ) bundled in the original purchase price . similar to nümaps lifetime™ , lmus enable customers to download the latest map and point of interest information every quarter for the useful life of their pnd . in addition , garmin offers pnds with premium traffic service bundled in the original purchase price in the european market . the company has identified multiple deliverables contained in arrangements involving the sale of pnds which include the lmu and or premium traffic service . the first deliverable is the hardware along with the software essential to the functionality of the hardware device delivered at the time of sale . the second and potentially third deliverables are the lmu and or premium traffic service . the company has allocated revenue between these deliverables using the relative selling price method . amounts allocated to the delivered hardware and the related essential software are recognized at the time of sale provided the other conditions for revenue recognition have been met . the revenue and associated cost of royalties allocated to the lmu and or the subscription for premium traffic service are deferred and recognized on a straight-line basis over the estimated 36-month life of the products . story_separator_special_tag research and development the majority of our research and development costs represent salaries for our engineers , costs for high technology components and costs of test equipment used in product and prototype development . approximately 81 % of the research and development of our products is performed in north america . we are committed to increasing the level of innovative design and development of new products as we strive for expanded ability to serve our existing consumer and aviation markets as well as new markets for gps-enabled devices . we expect our research and development budget to increase in 2014 due to our ongoing commitment to innovation and growth . customers our top ten customers have contributed between 24 % and 29 % of net sales since 2011. we have experienced average sales days in our customer accounts receivable of between 69 and 72 days since 2011. we expect the level of customer accounts receivable days to be relatively stable in 2014. income taxes we have experienced a relatively low effective corporate tax rate due to the proportion of our revenue generated by entities in tax jurisdictions with low statutory rates . in particular , the profit entitlement afforded our swiss-based companies based on their intellectual property rights ownership of our consumer products along with tax incentives offered by the taiwanese government on certain high-technology capital investments have continued to reduce our tax rate . we have taken advantage of the tax benefit in taiwan since our inception and we expect to continue to benefit from lower effective tax rates at least through 2015. our consolidated effective tax rate was approximately 6.3 % during 2013. this is a decrease from an effective rate of 13.1 % in 2012. the significant decline was due to the impact of a $ 68.7 million benefit , which includes the release of uncertain tax position reserves from 2009 offset by taiwan surtax expense due to this reserve release . excluding these items , we would have reported an effective tax rate of 16.8 % for fiscal year 2013 compared to 13.1 % for fiscal year 2012. this increase was primarily driven by an unfavorable income mix across tax jurisdictions , reduced taiwanese tax incentives , and the release of other uncertain tax position reserves , amounting to approximately $ 11.2 million for 2013 and $ 13.0 million for 2012 that are considered immaterial , tend to be more recurring in nature and are comparable between periods . these factors were partially offset by the impact of $ 6.3 million of research and development tax credits related to 2012 which were recognized when the related legislation was enacted in january 2013. management believes that the effective tax rate for fiscal 2014 will be consistent with the 2013 effective tax rate of 16.8 % , excluding special items as outlined above , as operating profits and margins are relatively stable . the actual effective tax rate will depend upon the operating margins , production volume , additional capital investments made during fiscal 2014 , the resolution of uncertain tax positions and the composition of our earnings . 44 results of operations the following table sets forth our results of operations as a percentage of net sales during the periods shown ( the table may not foot due to rounding ) : replace_table_token_5_th the following table sets forth our results of operations through income before income taxes for each of our five segments during the period shown . for each line item in the table the total of the segments ' amounts equals the amount in the consolidated statements of income data included in item 6 . 45 replace_table_token_6_th replace_table_token_7_th replace_table_token_8_th 46 comparison of 52-weeks ended december 28 , 2013 and december 29 , 2012 net sales replace_table_token_9_th net sales decreased 3 % in 2013 when compared to the year-ago period . the decrease was driven by the automotive/mobile segment which posted a 13 % decline with offsetting growth in outdoor , fitness , marine and aviation . automotive/mobile revenue remains the largest portion of our revenue mix at 49 % in 2013 , compared to 55 % in 2012. total unit sales decreased 10 % to 13.9 million units in 2013 from 15.4 million units in 2012. the decrease in unit sales volume was attributable to reduced automotive/mobile volumes due to penetration rates and competing technologies . this decline was partially offset by growth in each of the other segments . automotive/mobile segment revenue decreased 13 % from the year-ago period , as volumes decreased 17 % partially offset by average selling price ( asp ) improvement due to the amortization of previously deferred revenue exceeding current year revenue deferrals in 2013 and increased auto oem contribution with a higher asp . aviation revenues increased 16 % from the year-ago period as the oem market improved in some aircraft categories , as well as contribution from recent share gains and aftermarket products . fitness revenues increased 11 % on the strength of our cycling products , power meter , and the forerunner 10 with strong volume growth partially offset by reduced asps associated with the forerunner 10. revenues in our marine segment increased 7 % as new product introductions were partially offset by a weak first quarter when we discounted many products in advance of new products and a global marine electronics industry that continues to be weak due to macroeconomic instability . the company anticipates revenue of $ 2.6 - $ 2.7 billion in 2014 driven by growth in the outdoor , fitness , aviation and marine segments offset by ongoing declines in the automotive/mobile segment . in general , management believes that continuous innovation and the introduction of new products are essential for future revenue growth . cost of goods sold replace_table_token_10_th 47 cost of goods sold decreased 4 % when compared to the year ago period . as a percentage of revenue , cost of goods sold decreased 50 basis points from the

net cash provided by operating activities $ 630,084 $ 684,745 $ 822,334 the $ 54.7 million decrease in cash provided by operating activities in fiscal year 2013 compared to fiscal year 2012 was primarily due to the following : · the impact of increasing unrealized foreign currency gains providing $ 80.2 million less cash due primarily to foreign currency rate fluctuations related to our taiwan operations which utilize the taiwan dollar as their functional currency resulting in translation of assets and liabilities to u.s. dollar · deferred revenue/costs providing $ 70.8 million less working capital benefit due to the increased amortization of previously deferred revenue/cost exceeding current period revenue deferrals as discussed in the results of operations section above · other current and noncurrent assets providing $ 61.7 million less cash primarily due to the reimbursement of tax withholdings of $ 51.4 million from the swiss federal tax authority in 2012 · inventories and related provisions for obsolete and slow moving inventories providing $ 11.7 million less cash due to valuation fluctuations related to inventories held in foreign currencies · the impact of decreasing depreciation and amortization providing $ 11.7 million less non-cash adjustment to net income and · the impact of decreasing stock compensation expense providing $ 6.7 million less non-cash adjustment to net income partially offset by : · net income increasing by $ 70.0 million as discussed in the results of operations section above ·

sales of shares of common stock under the atm program , if any , may be made in transactions that are deemed to be “ at the market ” offerings , as defined in rule 415 under the securities act of 1933 , as amended , including , without limitation , sales made by means of ordinary brokers ' transactions on the new york stock exchange , to or through a market maker at market prices prevailing at the time of sale , at prices related to prevailing market prices or at negotiated prices based on prevailing market prices . in addition to the issuance and sale of shares of common stock , the company may enter into forward sale agreements with each of jefferies and raymond james , or their respective affiliates , through the atm program . during the three months ended december 31 , 2019 , the company issued 445,835 shares of common stock at an average price of $ 47.82 per share , for gross proceeds of approximately $ 21.3 million and paid approximately $ 0.3 million in fees to the sales agents . during the year ended december 31 , 2019 , the company issued 1,565,322 shares of common stock at an average price of $ 45.98 per share , for gross proceeds of approximately $ 72.0 million . the company paid approximately $ 1.1 million in fees to the sales agents with respect to such sales and incurred other issuance costs of approximately $ 1.0 million , both of which were netted against the gross proceeds and recorded in additional paid in capital . the atm program may be terminated by the company at any time and expires automatically once aggregate sales under the atm program reach $ 100,000,000 ( see note 8 to our consolidated financial statements ) . 42 we have elected to be taxed as a reit under sections 856 through 860 of the code , and expect to continue to qualify as a reit . to qualify as a reit , we must meet a number of organizational and operational requirements , including a requirement that we distribute at least 90 % of our reit taxable income to our sto ckholders . as a reit , we will be subject to federal income tax on our undistributed reit taxable income and net capital gain and to a 4 % nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than th e sum of ( 1 ) 85 % of our ordinary income , ( 2 ) 95 % of our capital gain net income and ( 3 ) 100 % of our undistributed income from prior years . we believe we qualify for taxation as a reit under the code , and we intend to continue to operate in such a manner , b ut no assurance can be given that we will operate in a manner so as to qualify as a reit . taxable income from certain non-reit activities is managed through a trs and is subject to applicable federal , state , and local income and margin taxes . we had no sig nificant taxes associated with our trs for the years ended december 31 , 2019 , 2018 and 2017 . components of our revenues and expenses revenues rental income . our earnings are primarily attributable to the rental revenue from our multifamily properties . we anticipate that the leases we enter into for our multifamily properties will typically be for one year or less on average . also included are utility reimbursements , late fees , pet fees , and other rental fees charged to tenants . other income . other income includes ancillary income earned from tenants such as non-refundable fees , application fees , laundry fees , cable tv income , and other miscellaneous fees charged to tenants . expenses property operating expenses . property operating expenses include property maintenance costs , salary and employee benefit costs , utilities , casualty-related expenses and recoveries and other property operating costs . real estate taxes and insurance . real estate taxes include the property taxes assessed by local and state authorities depending on the location of each property . insurance includes the cost of commercial , general liability , and other needed insurance for each property . property management fees . property management fees include fees paid to bh , our property manager , or other third party management companies for managing each property ( see note 10 to our consolidated financial statements ) . advisory and administrative fees . advisory and administrative fees include the fees paid to our adviser pursuant to the advisory agreement ( see note 11 to our consolidated financial statements ) . corporate general and administrative expenses . corporate general and administrative expenses include , but are not limited to , audit fees , legal fees , listing fees , board of director fees , equity-based compensation expense , investor relations costs and payments of reimbursements to our adviser for operating expenses . corporate general and administrative expenses and the advisory and administrative fees paid to our adviser ( including advisory and administrative fees on properties defined in the advisory agreement as new assets ) will not exceed 1.5 % of average real estate assets per calendar year ( or part thereof that the advisory agreement is in effect ) , calculated in accordance with the advisory agreement , or the expense cap . the expense cap does not limit the reimbursement by us of expenses related to securities offerings paid by our adviser . story_separator_special_tag the amount incurred during the years ended december 31 , 2018 and 2017 represents the maximum fe e allowed on properties defined as contributed assets under the advisory agreement plus approximately $ 2.1 million and $ 2.0 million , respectively , of advisory and administrative fees incurred on certain properties defined as new assets . for the year ended december 31 , 2018 , our adviser elected to voluntarily waive the advisory and administrative fees incurred on the eight properties we acquired subsequent to october 2016 , which totaled approximately $ 4.1 million . for the year ended december 31 , 2017 , our ad viser elected to voluntarily waive the advisory and administrative fees incurred on the five properties we acquired subsequent to october 2016 , which totaled approximately $ 2.4 million . the advisory and administrative fees waived by our adviser for the yea rs ended december 31 , 2018 and 2017 are considered to be permanently waived for the periods . our adviser is not contractually obligated to waive fees on new assets in the future and may cease waiving fees on new assets at its discretion . advisory and admin istrative fees may increase in future periods as we acquire additional properties , which will be classified as new assets . corporate general and administrative expenses . corporate general and administrative expenses were $ 7.8 million for the year ended december 31 , 2018 compared to $ 6.3 million for the year ended december 31 , 2017 , which was an increase of approximately $ 1.5 million . the increase between the periods was primarily due to approximately $ 4.2 million of equity-based compensation expense recognized during the year ended december 31 , 2018 related to the grants of restricted stock units to our directors , officers , employees and certain key employees of our adviser pursuant to our 2016 ltip , compared to $ 3.1 million of equity-based compensation expense recognized during the year ended december 31 , 2017 ( see note 8 to our consolidated financial statements ) . subject to the expense cap , corporate general and administrative expenses may increase in future periods as we acquire additional properties . property general and administrative expenses . property general and administrative expenses were $ 6.1 million for the year ended december 31 , 2018 compared to $ 6.2 million for the year ended december 31 , 2017 , which was a decrease of approximately $ 0.1 million . the decrease between the periods was primarily due to our acquisition and disposition activity in 2017 and 2018 and the timing of the transactions , as described above . depreciation and amortization . depreciation and amortization costs were $ 47.5 million for the year ended december 31 , 2018 compared to $ 48.8 million for the year ended december 31 , 2017 , which was a decrease of approximately $ 1.3 million . the decrease between the periods was primarily due to the amortization of intangible lease assets of $ 2.5 million related to four properties for the year ended december 31 , 2018 compared to $ 8.9 million related to seven properties for the year ended december 31 , 2017 , which was a decrease of approximately $ 6.4 million . the decrease between the periods was partially offset by a $ 5.1 million increase in depreciation expense , primarily due to our acquisition activity in 2017 and 2018 and the timing of the transactions , as described above . the amortization of intangible lease assets over a six-month period from the date of acquisition is expected to increase the amortization expense during the initial year of operations for each property . other income and expense interest expense . interest expense was $ 28.6 million for the year ended december 31 , 2018 compared to $ 29.6 million for the year ended december 31 , 2017 , which was a decrease of approximately $ 1.0 million . the decrease between the periods was primarily due to an increase in gain recognized related to the effective portion of changes in fair value of our interest rate swap derivatives designated as cash flow hedges of approximately $ 5.3 million ( see “ debt , derivatives and hedging activity – interest rate swap agreements ” below ) . the decrease between the periods was partially offset by an increase in interest on debt of approximately $ 4.6 million . the following table details the various costs included in interest expense for the years ended december 31 , 2018 and 2017 ( in thousands ) : replace_table_token_11_th ( 1 ) prior to our adoption of asu 2017-12 , derivatives and hedging ( topic 815 ) ( “ asu 2017-12 ” ) on january 1 , 2018 , the ineffective portion of changes in the fair value of our derivatives designated as cash flow hedges was recognized directly in net income ( loss ) as interest expense . the adoption of asu 2017-12 eliminates the separate measurement of effectiveness and ineffectiveness , and all changes in the fair value of derivatives that are designated as cash flow hedges are recorded directly in other comprehensive income ( “ oci ” ) . see notes 2 and 7 to our consolidated financial statements for additional information . 48 loss on extinguishment of debt and modification costs . loss on extinguishment of debt and modification costs was $ 3.6 mil lion for the year ended december 31 , 2018 compared to $ 5.7 million for the year ended december 31 , 2017 , which was a decrease of approximately $ 2.1 million . the decrease between the periods was primarily due to decreases in debt modification and other exti nguishment costs of approximately $ 1.5 million and prepayment penalties and defeasance costs of approximately $ 1.0 million . the following table details the various costs included in loss on extinguishment of debt and modification costs for the years ended december 31 , 2018

net cash provided by operating activities $ 630,084 $ 684,745 $ 822,334 the $ 54.7 million decrease in cash provided by operating activities in fiscal year 2013 compared to fiscal year 2012 was primarily due to the following : · the impact of increasing unrealized foreign currency gains providing $ 80.2 million less cash due primarily to foreign currency rate fluctuations related to our taiwan operations which utilize the taiwan dollar as their functional currency resulting in translation of assets and liabilities to u.s. dollar · deferred revenue/costs providing $ 70.8 million less working capital benefit due to the increased amortization of previously deferred revenue/cost exceeding current period revenue deferrals as discussed in the results of operations section above · other current and noncurrent assets providing $ 61.7 million less cash primarily due to the reimbursement of tax withholdings of $ 51.4 million from the swiss federal tax authority in 2012 · inventories and related provisions for obsolete and slow moving inventories providing $ 11.7 million less cash due to valuation fluctuations related to inventories held in foreign currencies · the impact of decreasing depreciation and amortization providing $ 11.7 million less non-cash adjustment to net income and · the impact of decreasing stock compensation expense providing $ 6.7 million less non-cash adjustment to net income partially offset by : · net income increasing by $ 70.0 million as discussed in the results of operations section above ·

sales of shares of common stock under the atm program , if any , may be made in transactions that are deemed to be “ at the market ” offerings , as defined in rule 415 under the securities act of 1933 , as amended , including , without limitation , sales made by means of ordinary brokers ' transactions on the new york stock exchange , to or through a market maker at market prices prevailing at the time of sale , at prices related to prevailing market prices or at negotiated prices based on prevailing market prices . in addition to the issuance and sale of shares of common stock , the company may enter into forward sale agreements with each of jefferies and raymond james , or their respective affiliates , through the atm program . during the three months ended december 31 , 2019 , the company issued 445,835 shares of common stock at an average price of $ 47.82 per share , for gross proceeds of approximately $ 21.3 million and paid approximately $ 0.3 million in fees to the sales agents . during the year ended december 31 , 2019 , the company issued 1,565,322 shares of common stock at an average price of $ 45.98 per share , for gross proceeds of approximately $ 72.0 million . the company paid approximately $ 1.1 million in fees to the sales agents with respect to such sales and incurred other issuance costs of approximately $ 1.0 million , both of which were netted against the gross proceeds and recorded in additional paid in capital . the atm program may be terminated by the company at any time and expires automatically once aggregate sales under the atm program reach $ 100,000,000 ( see note 8 to our consolidated financial statements ) . 42 we have elected to be taxed as a reit under sections 856 through 860 of the code , and expect to continue to qualify as a reit . to qualify as a reit , we must meet a number of organizational and operational requirements , including a requirement that we distribute at least 90 % of our reit taxable income to our sto ckholders . as a reit , we will be subject to federal income tax on our undistributed reit taxable income and net capital gain and to a 4 % nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than th e sum of ( 1 ) 85 % of our ordinary income , ( 2 ) 95 % of our capital gain net income and ( 3 ) 100 % of our undistributed income from prior years . we believe we qualify for taxation as a reit under the code , and we intend to continue to operate in such a manner , b ut no assurance can be given that we will operate in a manner so as to qualify as a reit . taxable income from certain non-reit activities is managed through a trs and is subject to applicable federal , state , and local income and margin taxes . we had no sig nificant taxes associated with our trs for the years ended december 31 , 2019 , 2018 and 2017 . components of our revenues and expenses revenues rental income . our earnings are primarily attributable to the rental revenue from our multifamily properties . we anticipate that the leases we enter into for our multifamily properties will typically be for one year or less on average . also included are utility reimbursements , late fees , pet fees , and other rental fees charged to tenants . other income . other income includes ancillary income earned from tenants such as non-refundable fees , application fees , laundry fees , cable tv income , and other miscellaneous fees charged to tenants . expenses property operating expenses . property operating expenses include property maintenance costs , salary and employee benefit costs , utilities , casualty-related expenses and recoveries and other property operating costs . real estate taxes and insurance . real estate taxes include the property taxes assessed by local and state authorities depending on the location of each property . insurance includes the cost of commercial , general liability , and other needed insurance for each property . property management fees . property management fees include fees paid to bh , our property manager , or other third party management companies for managing each property ( see note 10 to our consolidated financial statements ) . advisory and administrative fees . advisory and administrative fees include the fees paid to our adviser pursuant to the advisory agreement ( see note 11 to our consolidated financial statements ) . corporate general and administrative expenses . corporate general and administrative expenses include , but are not limited to , audit fees , legal fees , listing fees , board of director fees , equity-based compensation expense , investor relations costs and payments of reimbursements to our adviser for operating expenses . corporate general and administrative expenses and the advisory and administrative fees paid to our adviser ( including advisory and administrative fees on properties defined in the advisory agreement as new assets ) will not exceed 1.5 % of average real estate assets per calendar year ( or part thereof that the advisory agreement is in effect ) , calculated in accordance with the advisory agreement , or the expense cap . the expense cap does not limit the reimbursement by us of expenses related to securities offerings paid by our adviser . story_separator_special_tag the amount incurred during the years ended december 31 , 2018 and 2017 represents the maximum fe e allowed on properties defined as contributed assets under the advisory agreement plus approximately $ 2.1 million and $ 2.0 million , respectively , of advisory and administrative fees incurred on certain properties defined as new assets . for the year ended december 31 , 2018 , our adviser elected to voluntarily waive the advisory and administrative fees incurred on the eight properties we acquired subsequent to october 2016 , which totaled approximately $ 4.1 million . for the year ended december 31 , 2017 , our ad viser elected to voluntarily waive the advisory and administrative fees incurred on the five properties we acquired subsequent to october 2016 , which totaled approximately $ 2.4 million . the advisory and administrative fees waived by our adviser for the yea rs ended december 31 , 2018 and 2017 are considered to be permanently waived for the periods . our adviser is not contractually obligated to waive fees on new assets in the future and may cease waiving fees on new assets at its discretion . advisory and admin istrative fees may increase in future periods as we acquire additional properties , which will be classified as new assets . corporate general and administrative expenses . corporate general and administrative expenses were $ 7.8 million for the year ended december 31 , 2018 compared to $ 6.3 million for the year ended december 31 , 2017 , which was an increase of approximately $ 1.5 million . the increase between the periods was primarily due to approximately $ 4.2 million of equity-based compensation expense recognized during the year ended december 31 , 2018 related to the grants of restricted stock units to our directors , officers , employees and certain key employees of our adviser pursuant to our 2016 ltip , compared to $ 3.1 million of equity-based compensation expense recognized during the year ended december 31 , 2017 ( see note 8 to our consolidated financial statements ) . subject to the expense cap , corporate general and administrative expenses may increase in future periods as we acquire additional properties . property general and administrative expenses . property general and administrative expenses were $ 6.1 million for the year ended december 31 , 2018 compared to $ 6.2 million for the year ended december 31 , 2017 , which was a decrease of approximately $ 0.1 million . the decrease between the periods was primarily due to our acquisition and disposition activity in 2017 and 2018 and the timing of the transactions , as described above . depreciation and amortization . depreciation and amortization costs were $ 47.5 million for the year ended december 31 , 2018 compared to $ 48.8 million for the year ended december 31 , 2017 , which was a decrease of approximately $ 1.3 million . the decrease between the periods was primarily due to the amortization of intangible lease assets of $ 2.5 million related to four properties for the year ended december 31 , 2018 compared to $ 8.9 million related to seven properties for the year ended december 31 , 2017 , which was a decrease of approximately $ 6.4 million . the decrease between the periods was partially offset by a $ 5.1 million increase in depreciation expense , primarily due to our acquisition activity in 2017 and 2018 and the timing of the transactions , as described above . the amortization of intangible lease assets over a six-month period from the date of acquisition is expected to increase the amortization expense during the initial year of operations for each property . other income and expense interest expense . interest expense was $ 28.6 million for the year ended december 31 , 2018 compared to $ 29.6 million for the year ended december 31 , 2017 , which was a decrease of approximately $ 1.0 million . the decrease between the periods was primarily due to an increase in gain recognized related to the effective portion of changes in fair value of our interest rate swap derivatives designated as cash flow hedges of approximately $ 5.3 million ( see “ debt , derivatives and hedging activity – interest rate swap agreements ” below ) . the decrease between the periods was partially offset by an increase in interest on debt of approximately $ 4.6 million . the following table details the various costs included in interest expense for the years ended december 31 , 2018 and 2017 ( in thousands ) : replace_table_token_11_th ( 1 ) prior to our adoption of asu 2017-12 , derivatives and hedging ( topic 815 ) ( “ asu 2017-12 ” ) on january 1 , 2018 , the ineffective portion of changes in the fair value of our derivatives designated as cash flow hedges was recognized directly in net income ( loss ) as interest expense . the adoption of asu 2017-12 eliminates the separate measurement of effectiveness and ineffectiveness , and all changes in the fair value of derivatives that are designated as cash flow hedges are recorded directly in other comprehensive income ( “ oci ” ) . see notes 2 and 7 to our consolidated financial statements for additional information . 48 loss on extinguishment of debt and modification costs . loss on extinguishment of debt and modification costs was $ 3.6 mil lion for the year ended december 31 , 2018 compared to $ 5.7 million for the year ended december 31 , 2017 , which was a decrease of approximately $ 2.1 million . the decrease between the periods was primarily due to decreases in debt modification and other exti nguishment costs of approximately $ 1.5 million and prepayment penalties and defeasance costs of approximately $ 1.0 million . the following table details the various costs included in loss on extinguishment of debt and modification costs for the years ended december 31 , 2018

cash flows from operating activities . during the year ended december 31 , 2019 , net cash provided by operating activities was $ 51.4 million compared to net cash provided by operating activities of $ 41.7 million for the year ended december 31 , 2018. the change in cash flows from operating activities was mainly due to an increase in total revenues , partially offset by an increase in total property operating expenses . cash flows from investing activities . during the year ended december 31 , 2019 , net cash used in investing activities was $ 553.1 million compared to net cash used in investing activities of $ 135.2 million for the year ended december 31 , 2018. the change in cash flows from investing activities was mainly due to an increase in acquisitions , partially offset by an increase in dispositions . we sold six properties for net proceeds of approximately $ 286.5 million and acquired 11 properties for a combined purchase price of approximately $ 876.7 million during the period in 2019 ; we sold one property for net proceeds of approximately $ 29.6 million and acquired three properties for a combined purchase price of approximately $ 131.0 million during 2018. cash flows from financing activities . during the year ended december 31 , 2019 , net cash provided by financing activities was $ 529.8 million compared to net cash provided by financing activities of $ 93.4 million for the year ended december 31 , 2018. the change in cash flows from financing activities was mainly due to a net increase in debt of approximately $ 450.6 million between the periods . the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 cash flows from operating activities .

percentage rents , which represent additional rents based upon the level of sales achieved by certain tenants , are recognized at the end of the lease year or earlier if we have determined the required sales level is achieved and the percentage rents are collectible . real estate tax and other cost reimbursements are recognized on an accrual basis over the periods in which the related expenditures are incurred . for a tenant to terminate its lease agreement prior to the end of the agreed term , we may require that they pay a fee to cancel the lease agreement . lease termination fees for which the tenant has relinquished control of the space are generally recognized on the termination date . when a lease is terminated early but the tenant continues to control the space under a modified lease agreement , the lease termination fee is generally recognized evenly over the remaining term of the modified lease agreement . current accounts receivable from tenants primarily relate to contractual minimum rent and percentage rent as well as real estate tax and other cost reimbursements . accounts receivable from straight-line rent is typically longer term in nature and relates to the cumulative amount by which straight-line rental income recorded to date exceeds cash rents billed to date under the contractual lease agreement . we make estimates of the collectability of our current accounts receivable and straight-line rents receivable which requires significant judgment by management . the collectability of receivables is affected by numerous factors including current economic conditions , bankruptcies , and the ability of the tenant to perform under the terms of their lease agreement . while we make estimates of potentially uncollectible amounts and provide an allowance for them through bad debt expense , actual collectability could differ from those estimates which could affect our net income . 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 . at december 31 , 2011 and 2010 , our allowance for doubtful accounts was $ 17.6 million and $ 18.7 million , respectively . historically , we have recognized bad debt expense between 0.4 % and 1.3 % of rental income and it was 0.5 % in 2011 reflecting positive economic changes and their impact to our tenants . a change in the estimate of collectability of a receivable would result in a change to our allowance for doubtful accounts and correspondingly bad debt expense and net income . for example , in the event our estimates were not accurate and we were required to increase our allowance by 1 % of rental income , our bad debt expense would have increased and our net income would have decreased by $ 5.4 million . 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 . at december 31 , 2011 and 2010 , accounts receivable include approximately $ 50.5 million and $ 45.6 million , respectively , related to straight-line rents . correspondingly , these estimates of collectability have a direct impact on our net income . real estate the nature of our business as an owner , redeveloper and operator of retail shopping centers and mixed-use properties means that we invest significant amounts of capital . depreciation and maintenance costs relating to our properties constitute substantial costs for us as well as the industry as a whole . we capitalize real estate investments and depreciate them on a straight-line basis in accordance with gaap and consistent with industry standards based on our best estimates of the assets ' physical and economic useful lives . we periodically review the estimated lives of our assets and implement changes , as necessary , to these estimates and , therefore , to our depreciation rates . these reviews may take into account such factors as the 29 historical retirement and replacement of our assets , expected redevelopments , the repairs required to maintain the condition of our assets , and general economic and real estate factors . certain events could occur that would materially affect our estimates and assumptions related to depreciation . unforeseen competition or changes in customer shopping habits could substantially alter our assumptions regarding our ability to realize the expected return on investment in the property and therefore reduce the economic life of the asset and affect the amount of depreciation expense to be charged against both the current and future revenues . these assessments have a direct impact on our net income . the longer the economic useful life , the lower the depreciation expense will be for that asset in a fiscal period , which in turn will increase our net income . story_separator_special_tag on april 29 , 2011 , we repaid the $ 31.7 million mortgage loan on federal plaza which had an original maturity date of june 1 , 2011. on june 1 , 2011 , we repaid the $ 5.6 million mortgage loan on tysons station which had an original maturity date of september 1 , 2011. on july 7 , 2011 , we replaced our existing $ 300.0 million revolving credit facility with a new $ 400.0 million unsecured revolving credit facility . this new revolving credit facility matures on july 6 , 2015 , subject to a one-year extension at our option , and bears interest at libor plus 115 basis points . the spread over libor is subject to adjustment based on our credit rating . on november 22 , 2011 , we entered into a $ 275.0 million unsecured term loan which bears interest at libor plus 145 basis points . the spread over libor is subject to adjustment based on our credit rating . the loan matures on november 21 , 2018 and is prepayable without penalty after three years . we entered into two interest rate swap agreements to fix the variable rate portion of our $ 275.0 million term loan at 1.72 % from december 1 , 2011 through november 1 , 2018 . the swap agreements effectively fixed the rate on the term loan at 3.17 % . both swaps were designated and qualified as cash flow hedges and are recorded at fair value . in connection with the acquisition of montrose crossing on december 27 , 2011 , our joint venture that owns the property entered into an $ 80.0 million mortgage loan that bears interest at 4.20 % and matures on january 10 , 2022 . as montrose crossing is a consolidated property , 100 % of the mortgage loan is included in our consolidated balance sheet . in connection with the acquisition of plaza el segundo on december 30 , 2011 , we assumed our pro-rata share of an existing mortgage loan with a face amount of $ 175.0 million and a fair value of approximately $ 185.6 million . as plaza el segundo is a consolidated property , 100 % of the mortgage loan is included in our consolidated balance sheet . the mortgage loan requires monthly interest only payments through maturity , bears interest at a weighted average rate of 6.33 % and matures on august 5 , 2017 . mortgage loan receivable refinancing prior to june 30 , 2011 , we were the lender on a first and second mortgage loan on a shopping center and an adjacent commercial building in norwalk , connecticut . our carrying amount of the loans was approximately $ 18.3 million . the loans were in default and foreclosure proceedings had been filed , however , we were in negotiations with the borrower to refinance the loans . on june 30 , 2011 , we refinanced the existing loans with a first mortgage loan which had an initial principal balance of $ 11.9 million , bears interest at 6.0 % , and matures on june 30 , 2014 , subject to a one year extension option . the loan is secured by the shopping center in norwalk , connecticut . as part of the refinancing , we received approximately $ 8.7 million in cash . because the loans were in default , we had certain rights under the first mortgage loan agreement that gave us the ability to direct the activities that most significantly impacted the shopping center . although we did not exercise those rights , the existence of those rights in the loan agreement resulted in the entity being a variable interest entity ( `` vie `` ) . additionally , given our investment in both the first and second mortgage on the property , the overall decline in fair market value since the loans were initiated , and the default status of the loans , we also had the obligation to absorb losses or rights to receive benefits that could potentially be significant to the vie . consequently , we were the primary beneficiary of this vie and consolidated the shopping center and adjacent building from march 30 , 2010 to june 29 , 2011. our investment in the property is included in “ assets held for sale/disposal ” in the consolidated balance sheet at december 31 , 2010 and the operations of the entity are included in “ discontinued operations ” for all periods presented . in conjunction with the refinancing of the loans , we re-evaluated our status as the primary beneficiary of the vie . because the loan is not in default , we no longer have those certain rights that give us the ability to control the activities that most significantly impact the shopping center . our current involvement in the property is solely as the lender on the mortgage loan with protective rights as the lender . therefore , we are no longer the primary beneficiary and deconsolidated the entity as of 33 june 30 , 2011 . the mortgage loan receivable was recorded at its estimated fair value of $ 11.9 million and we recognized a $ 2.0 million gain on deconsolidation as part of the refinancing which is included in “ discontinued operations - gain on deconsolidation of vie ” for 2011 . as of december 31 , 2011 , the loan was performing and the carrying amount of the mortgage loan was $ 11.7 million which is included in “ mortgage notes receivable ” on the balance sheet . this amount also reflects our maximum exposure to loss related to this investment . the change in design of the entity including the refinancing of the loan was a vie reconsideration event . given that the loan is no longer in default , we , as lender , do not have the power to direct the activities that most significantly impact the

cash flows from operating activities . during the year ended december 31 , 2019 , net cash provided by operating activities was $ 51.4 million compared to net cash provided by operating activities of $ 41.7 million for the year ended december 31 , 2018. the change in cash flows from operating activities was mainly due to an increase in total revenues , partially offset by an increase in total property operating expenses . cash flows from investing activities . during the year ended december 31 , 2019 , net cash used in investing activities was $ 553.1 million compared to net cash used in investing activities of $ 135.2 million for the year ended december 31 , 2018. the change in cash flows from investing activities was mainly due to an increase in acquisitions , partially offset by an increase in dispositions . we sold six properties for net proceeds of approximately $ 286.5 million and acquired 11 properties for a combined purchase price of approximately $ 876.7 million during the period in 2019 ; we sold one property for net proceeds of approximately $ 29.6 million and acquired three properties for a combined purchase price of approximately $ 131.0 million during 2018. cash flows from financing activities . during the year ended december 31 , 2019 , net cash provided by financing activities was $ 529.8 million compared to net cash provided by financing activities of $ 93.4 million for the year ended december 31 , 2018. the change in cash flows from financing activities was mainly due to a net increase in debt of approximately $ 450.6 million between the periods . the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 cash flows from operating activities .

percentage rents , which represent additional rents based upon the level of sales achieved by certain tenants , are recognized at the end of the lease year or earlier if we have determined the required sales level is achieved and the percentage rents are collectible . real estate tax and other cost reimbursements are recognized on an accrual basis over the periods in which the related expenditures are incurred . for a tenant to terminate its lease agreement prior to the end of the agreed term , we may require that they pay a fee to cancel the lease agreement . lease termination fees for which the tenant has relinquished control of the space are generally recognized on the termination date . when a lease is terminated early but the tenant continues to control the space under a modified lease agreement , the lease termination fee is generally recognized evenly over the remaining term of the modified lease agreement . current accounts receivable from tenants primarily relate to contractual minimum rent and percentage rent as well as real estate tax and other cost reimbursements . accounts receivable from straight-line rent is typically longer term in nature and relates to the cumulative amount by which straight-line rental income recorded to date exceeds cash rents billed to date under the contractual lease agreement . we make estimates of the collectability of our current accounts receivable and straight-line rents receivable which requires significant judgment by management . the collectability of receivables is affected by numerous factors including current economic conditions , bankruptcies , and the ability of the tenant to perform under the terms of their lease agreement . while we make estimates of potentially uncollectible amounts and provide an allowance for them through bad debt expense , actual collectability could differ from those estimates which could affect our net income . 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 . at december 31 , 2011 and 2010 , our allowance for doubtful accounts was $ 17.6 million and $ 18.7 million , respectively . historically , we have recognized bad debt expense between 0.4 % and 1.3 % of rental income and it was 0.5 % in 2011 reflecting positive economic changes and their impact to our tenants . a change in the estimate of collectability of a receivable would result in a change to our allowance for doubtful accounts and correspondingly bad debt expense and net income . for example , in the event our estimates were not accurate and we were required to increase our allowance by 1 % of rental income , our bad debt expense would have increased and our net income would have decreased by $ 5.4 million . 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 . at december 31 , 2011 and 2010 , accounts receivable include approximately $ 50.5 million and $ 45.6 million , respectively , related to straight-line rents . correspondingly , these estimates of collectability have a direct impact on our net income . real estate the nature of our business as an owner , redeveloper and operator of retail shopping centers and mixed-use properties means that we invest significant amounts of capital . depreciation and maintenance costs relating to our properties constitute substantial costs for us as well as the industry as a whole . we capitalize real estate investments and depreciate them on a straight-line basis in accordance with gaap and consistent with industry standards based on our best estimates of the assets ' physical and economic useful lives . we periodically review the estimated lives of our assets and implement changes , as necessary , to these estimates and , therefore , to our depreciation rates . these reviews may take into account such factors as the 29 historical retirement and replacement of our assets , expected redevelopments , the repairs required to maintain the condition of our assets , and general economic and real estate factors . certain events could occur that would materially affect our estimates and assumptions related to depreciation . unforeseen competition or changes in customer shopping habits could substantially alter our assumptions regarding our ability to realize the expected return on investment in the property and therefore reduce the economic life of the asset and affect the amount of depreciation expense to be charged against both the current and future revenues . these assessments have a direct impact on our net income . the longer the economic useful life , the lower the depreciation expense will be for that asset in a fiscal period , which in turn will increase our net income . story_separator_special_tag on april 29 , 2011 , we repaid the $ 31.7 million mortgage loan on federal plaza which had an original maturity date of june 1 , 2011. on june 1 , 2011 , we repaid the $ 5.6 million mortgage loan on tysons station which had an original maturity date of september 1 , 2011. on july 7 , 2011 , we replaced our existing $ 300.0 million revolving credit facility with a new $ 400.0 million unsecured revolving credit facility . this new revolving credit facility matures on july 6 , 2015 , subject to a one-year extension at our option , and bears interest at libor plus 115 basis points . the spread over libor is subject to adjustment based on our credit rating . on november 22 , 2011 , we entered into a $ 275.0 million unsecured term loan which bears interest at libor plus 145 basis points . the spread over libor is subject to adjustment based on our credit rating . the loan matures on november 21 , 2018 and is prepayable without penalty after three years . we entered into two interest rate swap agreements to fix the variable rate portion of our $ 275.0 million term loan at 1.72 % from december 1 , 2011 through november 1 , 2018 . the swap agreements effectively fixed the rate on the term loan at 3.17 % . both swaps were designated and qualified as cash flow hedges and are recorded at fair value . in connection with the acquisition of montrose crossing on december 27 , 2011 , our joint venture that owns the property entered into an $ 80.0 million mortgage loan that bears interest at 4.20 % and matures on january 10 , 2022 . as montrose crossing is a consolidated property , 100 % of the mortgage loan is included in our consolidated balance sheet . in connection with the acquisition of plaza el segundo on december 30 , 2011 , we assumed our pro-rata share of an existing mortgage loan with a face amount of $ 175.0 million and a fair value of approximately $ 185.6 million . as plaza el segundo is a consolidated property , 100 % of the mortgage loan is included in our consolidated balance sheet . the mortgage loan requires monthly interest only payments through maturity , bears interest at a weighted average rate of 6.33 % and matures on august 5 , 2017 . mortgage loan receivable refinancing prior to june 30 , 2011 , we were the lender on a first and second mortgage loan on a shopping center and an adjacent commercial building in norwalk , connecticut . our carrying amount of the loans was approximately $ 18.3 million . the loans were in default and foreclosure proceedings had been filed , however , we were in negotiations with the borrower to refinance the loans . on june 30 , 2011 , we refinanced the existing loans with a first mortgage loan which had an initial principal balance of $ 11.9 million , bears interest at 6.0 % , and matures on june 30 , 2014 , subject to a one year extension option . the loan is secured by the shopping center in norwalk , connecticut . as part of the refinancing , we received approximately $ 8.7 million in cash . because the loans were in default , we had certain rights under the first mortgage loan agreement that gave us the ability to direct the activities that most significantly impacted the shopping center . although we did not exercise those rights , the existence of those rights in the loan agreement resulted in the entity being a variable interest entity ( `` vie `` ) . additionally , given our investment in both the first and second mortgage on the property , the overall decline in fair market value since the loans were initiated , and the default status of the loans , we also had the obligation to absorb losses or rights to receive benefits that could potentially be significant to the vie . consequently , we were the primary beneficiary of this vie and consolidated the shopping center and adjacent building from march 30 , 2010 to june 29 , 2011. our investment in the property is included in “ assets held for sale/disposal ” in the consolidated balance sheet at december 31 , 2010 and the operations of the entity are included in “ discontinued operations ” for all periods presented . in conjunction with the refinancing of the loans , we re-evaluated our status as the primary beneficiary of the vie . because the loan is not in default , we no longer have those certain rights that give us the ability to control the activities that most significantly impact the shopping center . our current involvement in the property is solely as the lender on the mortgage loan with protective rights as the lender . therefore , we are no longer the primary beneficiary and deconsolidated the entity as of 33 june 30 , 2011 . the mortgage loan receivable was recorded at its estimated fair value of $ 11.9 million and we recognized a $ 2.0 million gain on deconsolidation as part of the refinancing which is included in “ discontinued operations - gain on deconsolidation of vie ” for 2011 . as of december 31 , 2011 , the loan was performing and the carrying amount of the mortgage loan was $ 11.7 million which is included in “ mortgage notes receivable ” on the balance sheet . this amount also reflects our maximum exposure to loss related to this investment . the change in design of the entity including the refinancing of the loan was a vie reconsideration event . given that the loan is no longer in default , we , as lender , do not have the power to direct the activities that most significantly impact the

net cash provided by operating activities decreased $ 12.0 million to $ 244.7 million during 2011 from $ 256.7 million during 2010 . the decrease was primarily attributable to the $ 16.2 million payment of the final judgment related to a previously disclosed lawsuit offset by higher net income before certain non-cash items . net cash used in investing activities increased $ 9.3 million to $ 196.4 million during 2011 from $ 187.1 million during 2010 . 42 the increase was primarily attributable to : $ 53.4 million increase in capital investments , and $ 46.4 million increase in acquisitions of real estate primarily due to the december 2011 montrose crossing acquisition , partially offset by $ 34.6 million cash received from our newbury street partnership due to the sale of its properties in october 2011 , $ 23.7 million in proceeds from sales of real estate primarily from the sale of feasterville shopping center in july 2011 , $ 10.5 million acquisition of a first mortgage loan in march 2010 , $ 10.0 million decrease in contributions to the newbury street partnership due to the $ 16.7 million initial investment in 2010 , and $ 8.7 million payment received in june 2011 related to the refinancing of a mortgage loan receivable . net cash provided by financing activities increased $ 192.9 million to $ 3.7 million during 2011 from $ 189.2 million used in 2010 . the increase was primarily attributable to : $ 272.2 million in net proceeds from the term loan in november 2011 , $ 170.4 million decrease in repayment of mortgages , capital leases and notes payable due substantially to the $ 250.0 million payoff of our term loan in 2010 offset by the payoff of two mortgages totaling $ 37.4 million in 2011 , and $ 150.3 million increase in net proceeds from the issuance of common shares due primarily to the sale of 1.7 million shares under our atm equity program entered into in february 2011 , partially offset by $ 157.7 million increase in net repayments on our revolving credit facility , net of financing costs , $ 148.5 million in net proceeds from the issuance of 5.90

we believe the pricing of assets that we would like to sell remains reasonably firm at the same time that the pricing of our common shares has dropped well below our net asset value . if this market phenomenon continues , our disposition activity could increase accordingly . in late august 2017 , the texas gulf coast , including the houston metropolitan area , was subjected to extensive flooding by hurricane harvey . additionally in september 2017 , much of florida was faced with the damaging winds of hurricane irma . we have assessed the impact of both hurricanes , which caused nominal damage to our properties within the affected areas and temporarily interrupted the operations of some of our tenants . as of december 31 , 2017 , we have recorded $ 1.8 million in costs related to the storms in operating expense . although most of our tenants ' operations have resumed and repairs are almost completed , we will continue to monitor and adjust earnings as needed for storm damage estimates related to insurance claims in future periods . 26 we intend to recycle non-core operating centers that no longer meet our ownership criteria and that will provide capital for growth opportunities . during 2017 , we disposed of real estate assets , which were owned by us either directly or through our interest in real estate joint ventures or partnerships , with our share of aggregate gross sales proceeds totaling $ 444.1 million . subsequent to december 31 , 2017 , we sold real estate assets with our share of aggregate gross sales proceeds totaling approximately $ 220.6 million . we have approximately $ 92 million of dispositions currently under contracts or letters of intent ; however , there are no assurances that these transactions will close at such prices or at all . for 2018 , we believe we will complete dispositions in amounts between $ 250 million and $ 450 million ; however , there are no assurances that this will actually occur , or at what values , or whether we may potentially exceed this range . we intend to continue to actively seek acquisition properties that meet our return hurdles and to actively evaluate other opportunities as they enter the market . for 2018 , we expect to invest in acquisition investments , which could potentially range from $ 50 million to $ 150 million ; however , there are no assurances that this will actually occur . we intend to continue to focus on identifying new development projects as another source of growth , as well as continue to look for internal growth opportunities . although we have begun the development of mixed-use projects , the opportunities for additional new development projects are limited at this time due to a lack of demand for new retail space . during 2017 , we invested $ 93.1 million in three new development projects that are partially or wholly owned . also during 2017 , we invested $ 28.0 million in 16 redevelopment projects that were partially or wholly owned . for 2018 , we expect to invest in new development and redevelopments in the range of $ 125 million to $ 175 million , but we can give no assurances that this will actually occur . we strive to maintain a strong , conservative capital structure which should provide ready access to a variety of attractive long and short-term capital sources . we carefully balance lower cost , short-term financing with long-term liabilities associated with acquired or developed long-term assets . we continue to look for transactions that will strengthen our consolidated balance sheet and further enhance our access to various sources of capital , while reducing our cost of capital . due to the variability in the capital markets , there can be no assurance that favorable pricing and availability will be available in the future . operational metrics in assessing the performance of our centers , management carefully monitors various operating metrics of the portfolio . as a result of our strong leasing activity and low tenant fallout , the operating metrics of our portfolio remained strong in 2017 as we focused on increasing rental rates and same property net operating income ( `` spnoi `` and see non-gaap financial measures for additional information ) . our portfolio delivered solid operating results with : occupancy of 94.8 % at december 31 , 2017 ; an increase of 2.6 % in spnoi including redevelopments for the twelve months ended december 31 , 2017 over the same period of 2016 ; and rental rate increases of 23.1 % for new leases and 9.0 % for renewals during the twelve months ended december 31 , 2017 . below are performance metrics associated with our signed occupancy , spnoi growth and leasing activity on a pro rata basis : replace_table_token_8_th replace_table_token_9_th _ ( 1 ) see non-gaap financial measures for a definition of the measurement of spnoi and a reconciliation to operating income within this section of item 7 . 27 replace_table_token_10_th _ ( 1 ) average external lease commissions per square foot for the three and twelve months ended december 31 , 2017 were $ 5.71 and $ 5.51 , respectively . changing shopping habits , driven by rapid expansion of internet-driven procurement , has led to increased financial problems for many retailers , which has had a negative impact on the retail real estate sector . we continue to monitor the effects of these trends , including the impact of retail customer spending over the long-term . we believe the desirability of our physical locations , the significant diversification of our portfolio , both geographically and by tenant base , and the quality of our portfolio , along with its leading retailers or service providers that sell primarily grocery and basic necessity-type goods and services , position us well to mitigate the impact of these changes . story_separator_special_tag in 2016 , a $ 2.0 million gain was realized as compared to a $ 6.1 million loss in 2015. for the year ended december 31 , 2016 , the weighted average debt outstanding was $ 2.2 billion at a weighted average interest rate of 3.9 % as compared to $ 2.0 billion outstanding at a weighted average interest rate of 4.2 % in the same period of 2015. interest and other income the decrease in interest and other income of $ 2.0 million is primarily attributable to a $ 1.7 million litigation settlement received in 2015 . 33 gain on sale and acquisition of real estate joint venture and partnership interests the gain in 2016 of $ 48.3 million is primarily attributable to a $ 37.4 million gain associated with the remeasurement of our 51 % unconsolidated real estate partnership interest to fair value associated with the exchange of properties among the partners , a $ 9.0 million gain associated with the fair value realization upon consolidation of our equity associated with the acquisition of a partner 's 50 % interest in a previously unconsolidated tenancy-in-common arrangement and a gain of $ 1.9 million associated with the remeasurement of a land parcel from an unconsolidated real estate joint venture . the gain in 2015 of $ .9 million is primarily attributable to our return of equity associated with an unconsolidated joint venture 's disposition of its real estate property . provision for income taxes the increase of $ 6.8 million in the provision for income taxes is attributable to our taxable reit subsidiary associated primarily with the gain from the exchange of properties among the partners of an unconsolidated real estate joint venture and the disposition of the development in raleigh , north carolina . effects of inflation we have structured our leases in such a way as to remain largely unaffected should significant inflation occur . many leases provide for increasing minimum rental rates during the terms of the leases through escalation provisions . in addition , many of our leases are for terms of less than 10 years , allowing us to adjust rental rates to changing market conditions when the leases expire . many of our leases also contain percentage rent provisions whereby we receive increased rentals based on the tenants ' gross sales . most of our leases also require the tenants to pay their proportionate share of operating expenses and real estate taxes . as a result of these lease provisions , increases in operating expenses due to inflation , as well as real estate tax rate increases , generally do not have a significant adverse effect upon our operating results as they are absorbed by our tenants . under the current economic climate , inflation has been rising very slowly . economic conditions we believe that underlying economic fundamentals continue to show positive , albeit slow , growth . we also believe that consumer confidence is currently positive due in part to improvements in the labor market and changes in the tax law . furthermore , personal income and housing prices are continuing to increase in our primary markets . we believe there is a direct correlation between housing wealth and consumption , and we expect rebounding home prices will further strengthen retail fundamentals , including rent growth and net operating income . our focus on supermarket-anchored centers in densely populated major metropolitan areas should position our portfolio to take advantage of the ever-changing retail landscape . with respect to houston and other markets that are energy dependent , increasing oil prices have positively impacted the local economy and has begun to favorably affect the office and multifamily real estate sectors . if prices should decline again for an extended duration , the performance of our centers in the houston market could be impacted ; we believe however , that having most of our centers in dense , high income areas of houston and the lack of retail completions in the last five years , combined with population growth , and the diversification of houston 's industries , reduces the potential negative impact to us in houston of low oil prices . as strengthening retail fundamentals drive demand for investments in top-tier retail real estate , we continue to dedicate internal resources to identify and evaluate available assets in our markets so that we may purchase the best assets and properties with the strongest upside potential . also , we continue to look for redevelopment opportunities within our existing portfolio by repositioning our anchor tenants and new development opportunities to spur growth . capital resources and liquidity our primary operating liquidity needs are paying our common share dividends , maintaining and operating our existing properties , paying our debt service costs , excluding debt maturities , and funding capital expenditures . under our 2018 business plan , cash flows from operating activities are expected to meet these planned capital needs . the primary sources of capital for funding any debt maturities , acquisitions , new developments and redevelopments are our excess cash flow generated by our operating properties ; credit facilities ; proceeds from both secured and unsecured debt issuances ; proceeds from common and preferred equity issuances ; and cash generated from the sale of property and the formation of joint ventures . amounts outstanding under the unsecured revolving credit facility are retired as needed with proceeds from the issuance of long-term debt , common and preferred equity , cash generated from the disposition of properties and cash flow generated by our operating properties . 34 as of december 31 , 2017 , we had available borrowing capacity of $ 493.6 million under our unsecured revolving credit facility , and our debt maturities for 2018 total $ 113.4 million . we believe net proceeds from planned capital recycling , combined with our available capacity under the revolving credit and short-term borrowing facilities , will provide adequate liquidity to fund our capital needs

net cash provided by operating activities decreased $ 12.0 million to $ 244.7 million during 2011 from $ 256.7 million during 2010 . the decrease was primarily attributable to the $ 16.2 million payment of the final judgment related to a previously disclosed lawsuit offset by higher net income before certain non-cash items . net cash used in investing activities increased $ 9.3 million to $ 196.4 million during 2011 from $ 187.1 million during 2010 . 42 the increase was primarily attributable to : $ 53.4 million increase in capital investments , and $ 46.4 million increase in acquisitions of real estate primarily due to the december 2011 montrose crossing acquisition , partially offset by $ 34.6 million cash received from our newbury street partnership due to the sale of its properties in october 2011 , $ 23.7 million in proceeds from sales of real estate primarily from the sale of feasterville shopping center in july 2011 , $ 10.5 million acquisition of a first mortgage loan in march 2010 , $ 10.0 million decrease in contributions to the newbury street partnership due to the $ 16.7 million initial investment in 2010 , and $ 8.7 million payment received in june 2011 related to the refinancing of a mortgage loan receivable . net cash provided by financing activities increased $ 192.9 million to $ 3.7 million during 2011 from $ 189.2 million used in 2010 . the increase was primarily attributable to : $ 272.2 million in net proceeds from the term loan in november 2011 , $ 170.4 million decrease in repayment of mortgages , capital leases and notes payable due substantially to the $ 250.0 million payoff of our term loan in 2010 offset by the payoff of two mortgages totaling $ 37.4 million in 2011 , and $ 150.3 million increase in net proceeds from the issuance of common shares due primarily to the sale of 1.7 million shares under our atm equity program entered into in february 2011 , partially offset by $ 157.7 million increase in net repayments on our revolving credit facility , net of financing costs , $ 148.5 million in net proceeds from the issuance of 5.90

we believe the pricing of assets that we would like to sell remains reasonably firm at the same time that the pricing of our common shares has dropped well below our net asset value . if this market phenomenon continues , our disposition activity could increase accordingly . in late august 2017 , the texas gulf coast , including the houston metropolitan area , was subjected to extensive flooding by hurricane harvey . additionally in september 2017 , much of florida was faced with the damaging winds of hurricane irma . we have assessed the impact of both hurricanes , which caused nominal damage to our properties within the affected areas and temporarily interrupted the operations of some of our tenants . as of december 31 , 2017 , we have recorded $ 1.8 million in costs related to the storms in operating expense . although most of our tenants ' operations have resumed and repairs are almost completed , we will continue to monitor and adjust earnings as needed for storm damage estimates related to insurance claims in future periods . 26 we intend to recycle non-core operating centers that no longer meet our ownership criteria and that will provide capital for growth opportunities . during 2017 , we disposed of real estate assets , which were owned by us either directly or through our interest in real estate joint ventures or partnerships , with our share of aggregate gross sales proceeds totaling $ 444.1 million . subsequent to december 31 , 2017 , we sold real estate assets with our share of aggregate gross sales proceeds totaling approximately $ 220.6 million . we have approximately $ 92 million of dispositions currently under contracts or letters of intent ; however , there are no assurances that these transactions will close at such prices or at all . for 2018 , we believe we will complete dispositions in amounts between $ 250 million and $ 450 million ; however , there are no assurances that this will actually occur , or at what values , or whether we may potentially exceed this range . we intend to continue to actively seek acquisition properties that meet our return hurdles and to actively evaluate other opportunities as they enter the market . for 2018 , we expect to invest in acquisition investments , which could potentially range from $ 50 million to $ 150 million ; however , there are no assurances that this will actually occur . we intend to continue to focus on identifying new development projects as another source of growth , as well as continue to look for internal growth opportunities . although we have begun the development of mixed-use projects , the opportunities for additional new development projects are limited at this time due to a lack of demand for new retail space . during 2017 , we invested $ 93.1 million in three new development projects that are partially or wholly owned . also during 2017 , we invested $ 28.0 million in 16 redevelopment projects that were partially or wholly owned . for 2018 , we expect to invest in new development and redevelopments in the range of $ 125 million to $ 175 million , but we can give no assurances that this will actually occur . we strive to maintain a strong , conservative capital structure which should provide ready access to a variety of attractive long and short-term capital sources . we carefully balance lower cost , short-term financing with long-term liabilities associated with acquired or developed long-term assets . we continue to look for transactions that will strengthen our consolidated balance sheet and further enhance our access to various sources of capital , while reducing our cost of capital . due to the variability in the capital markets , there can be no assurance that favorable pricing and availability will be available in the future . operational metrics in assessing the performance of our centers , management carefully monitors various operating metrics of the portfolio . as a result of our strong leasing activity and low tenant fallout , the operating metrics of our portfolio remained strong in 2017 as we focused on increasing rental rates and same property net operating income ( `` spnoi `` and see non-gaap financial measures for additional information ) . our portfolio delivered solid operating results with : occupancy of 94.8 % at december 31 , 2017 ; an increase of 2.6 % in spnoi including redevelopments for the twelve months ended december 31 , 2017 over the same period of 2016 ; and rental rate increases of 23.1 % for new leases and 9.0 % for renewals during the twelve months ended december 31 , 2017 . below are performance metrics associated with our signed occupancy , spnoi growth and leasing activity on a pro rata basis : replace_table_token_8_th replace_table_token_9_th _ ( 1 ) see non-gaap financial measures for a definition of the measurement of spnoi and a reconciliation to operating income within this section of item 7 . 27 replace_table_token_10_th _ ( 1 ) average external lease commissions per square foot for the three and twelve months ended december 31 , 2017 were $ 5.71 and $ 5.51 , respectively . changing shopping habits , driven by rapid expansion of internet-driven procurement , has led to increased financial problems for many retailers , which has had a negative impact on the retail real estate sector . we continue to monitor the effects of these trends , including the impact of retail customer spending over the long-term . we believe the desirability of our physical locations , the significant diversification of our portfolio , both geographically and by tenant base , and the quality of our portfolio , along with its leading retailers or service providers that sell primarily grocery and basic necessity-type goods and services , position us well to mitigate the impact of these changes . story_separator_special_tag in 2016 , a $ 2.0 million gain was realized as compared to a $ 6.1 million loss in 2015. for the year ended december 31 , 2016 , the weighted average debt outstanding was $ 2.2 billion at a weighted average interest rate of 3.9 % as compared to $ 2.0 billion outstanding at a weighted average interest rate of 4.2 % in the same period of 2015. interest and other income the decrease in interest and other income of $ 2.0 million is primarily attributable to a $ 1.7 million litigation settlement received in 2015 . 33 gain on sale and acquisition of real estate joint venture and partnership interests the gain in 2016 of $ 48.3 million is primarily attributable to a $ 37.4 million gain associated with the remeasurement of our 51 % unconsolidated real estate partnership interest to fair value associated with the exchange of properties among the partners , a $ 9.0 million gain associated with the fair value realization upon consolidation of our equity associated with the acquisition of a partner 's 50 % interest in a previously unconsolidated tenancy-in-common arrangement and a gain of $ 1.9 million associated with the remeasurement of a land parcel from an unconsolidated real estate joint venture . the gain in 2015 of $ .9 million is primarily attributable to our return of equity associated with an unconsolidated joint venture 's disposition of its real estate property . provision for income taxes the increase of $ 6.8 million in the provision for income taxes is attributable to our taxable reit subsidiary associated primarily with the gain from the exchange of properties among the partners of an unconsolidated real estate joint venture and the disposition of the development in raleigh , north carolina . effects of inflation we have structured our leases in such a way as to remain largely unaffected should significant inflation occur . many leases provide for increasing minimum rental rates during the terms of the leases through escalation provisions . in addition , many of our leases are for terms of less than 10 years , allowing us to adjust rental rates to changing market conditions when the leases expire . many of our leases also contain percentage rent provisions whereby we receive increased rentals based on the tenants ' gross sales . most of our leases also require the tenants to pay their proportionate share of operating expenses and real estate taxes . as a result of these lease provisions , increases in operating expenses due to inflation , as well as real estate tax rate increases , generally do not have a significant adverse effect upon our operating results as they are absorbed by our tenants . under the current economic climate , inflation has been rising very slowly . economic conditions we believe that underlying economic fundamentals continue to show positive , albeit slow , growth . we also believe that consumer confidence is currently positive due in part to improvements in the labor market and changes in the tax law . furthermore , personal income and housing prices are continuing to increase in our primary markets . we believe there is a direct correlation between housing wealth and consumption , and we expect rebounding home prices will further strengthen retail fundamentals , including rent growth and net operating income . our focus on supermarket-anchored centers in densely populated major metropolitan areas should position our portfolio to take advantage of the ever-changing retail landscape . with respect to houston and other markets that are energy dependent , increasing oil prices have positively impacted the local economy and has begun to favorably affect the office and multifamily real estate sectors . if prices should decline again for an extended duration , the performance of our centers in the houston market could be impacted ; we believe however , that having most of our centers in dense , high income areas of houston and the lack of retail completions in the last five years , combined with population growth , and the diversification of houston 's industries , reduces the potential negative impact to us in houston of low oil prices . as strengthening retail fundamentals drive demand for investments in top-tier retail real estate , we continue to dedicate internal resources to identify and evaluate available assets in our markets so that we may purchase the best assets and properties with the strongest upside potential . also , we continue to look for redevelopment opportunities within our existing portfolio by repositioning our anchor tenants and new development opportunities to spur growth . capital resources and liquidity our primary operating liquidity needs are paying our common share dividends , maintaining and operating our existing properties , paying our debt service costs , excluding debt maturities , and funding capital expenditures . under our 2018 business plan , cash flows from operating activities are expected to meet these planned capital needs . the primary sources of capital for funding any debt maturities , acquisitions , new developments and redevelopments are our excess cash flow generated by our operating properties ; credit facilities ; proceeds from both secured and unsecured debt issuances ; proceeds from common and preferred equity issuances ; and cash generated from the sale of property and the formation of joint ventures . amounts outstanding under the unsecured revolving credit facility are retired as needed with proceeds from the issuance of long-term debt , common and preferred equity , cash generated from the disposition of properties and cash flow generated by our operating properties . 34 as of december 31 , 2017 , we had available borrowing capacity of $ 493.6 million under our unsecured revolving credit facility , and our debt maturities for 2018 total $ 113.4 million . we believe net proceeds from planned capital recycling , combined with our available capacity under the revolving credit and short-term borrowing facilities , will provide adequate liquidity to fund our capital needs

debt total debt outstanding was $ 2.1 billion at december 31 , 2017 and consists of $ 2.1 billion , including the effect of $ 200 million of interest rate swap contracts , which bears interest at fixed rates , and $ 17.9 million , which bears interest at variable rates . additionally , of our total debt , $ 413.7 million was secured by operating centers while the remaining $ 1.7 billion was unsecured . 36 at december 31 , 2017 , we have a $ 500 million unsecured revolving credit facility , which expires in march 2020 and provides borrowing rates that float at a margin over libor plus a facility fee . at december 31 , 2017 , the borrowing margin and facility fee , which are priced off a grid that is tied to our senior unsecured credit ratings , were 90 and 15 basis points , respectively . the facility also contains a competitive bid feature that allows us to request bids for up to $ 250 million . additionally , an accordion feature allows us to increase the facility amount up to $ 850 million . as of january 31 , 2018 , we had no amounts outstanding , and the available balance was $ 493.6 million , net of $ 6.4 million in outstanding letters of credit . at december 31 , 2017 , we have a $ 10 million unsecured short-term facility that we maintain for cash management purposes . the facility , which matures in march 2018 , provides for fixed interest rate loans at a 30 -day libor rate plus borrowing margin , facility fee and an unused facility fee of 125 , 10 , and 5 basis points , respectively . as of january 31 , 2018 , we had no amounts outstanding under this facility . during 2017 , the maximum balance and weighted average balance outstanding under both facilities combined were $ 245.0 million and $ 133.4 million , respectively , at a weighted average interest rate of 1.8 % .

cce has obtained the required approval from polish airports , which is the co-shareholder in cpl , and from the polish minister of finance . we anticipate closing the transaction in early april 2013. the following table summarizes the polish cities in which cpl operate d as of december 31 , 2012 , each casino 's location , number of slots and tables . replace_table_token_3_th cpl obtained an additional gaming license in the city of plock and opened a casino on february 10 , 2013 . plock , one of the oldest cities in poland , has more than 1 3 0,000 inhabitants and is located approximately 62 miles north of warsaw . cpl is also participating in other license applications , including another location in warsaw . decisions from the polish minister of finance on these applications are pending . 28 in december 2010 , we entered into a long-term management agreement to direct the operation of the casino at the radisson aruba resort , casino & spa . we receive a management fee consisting of a fixed fee , plus a percentage of the casino 's ebitda . we were not required to invest any amounts under the management agreement . we recognize in our statement of earnings , foreign currency transaction gains or losses resulting from the translation of casino operations and other transactions that are denominated in a currency other than u.s. dollars . our casinos in canada represent a significant portion of our business , and the revenue generated and expenses incurred by these operations are generally denominated in canadian dollars . a decrease in the value of this currency in relation to the value of the u.s. dollar would decrease the earnings from our foreign operations when translated into u.s. dollars , and an increase in the value of this currency in relation to the value of the u.s. dollar would increase the earnings from our foreign operations when translated into u.s. dollars . see note 2 `` significant accounting policies - foreign currency translation `` to the consolidated financial statements included elsewhere in this report . presentation of foreign currency amounts - the average exchange rates to the u.s. dollar used to translate balances during each reported period are as follows : replace_table_token_4_th 29 recent developments on november 30 , 2012 , cce signed credit and management agreements with united horseman of alberta inc. ( “ uha ” ) in connection with the development of a proposed racing entertainment center ( “ rec ” ) in balzac , north metropolitan area of calgary , alberta , canada . we would manage the rec upon completion . both the credit and management agreements are subject to development approvals and licensing from the aglc as discussed below . the proposed project would be located less than one mile north of the city limits of calgary and 4.5 miles from the calgary international airport . the location is ideally positioned at an exit off the queen elizabeth ii highway , which is the main corridor between calgary and edmonton and one of the most heavily used highways in wes tern canada . the location is also next to the crossiron mills shopping mall , a major regional attraction . the location would allow the rec to capture both the north and the northwest calgary markets , where there is not currently a casino . the rec would be located approximately 17 miles from century casino calgary and would serve what we believe is a different customer base including customers who also are interested in horse racing . the rec project would be the only horse race track in the calgary area and would consist of a 5.5 furlongs ( 0.7 miles ) race track , a gaming floor proposing 625 slot machines , a bar , a lounge , restaurant facilities , an off-track-betting area and an entertainment area . this rec license is the only license still available in any metropolitan area of alberta . the license application for this rec project pre-dates a recent three-year moratorium imposed by the alberta gaming and liquor commission ( “ aglc ” ) on new casinos and recs . the aglc also has an option to extend the moratorium for an additional two years . the rec project is subject to development approvals and licensing from the aglc . uha and cce have submitted the relevant applications , but there is no assurance that the needed approvals will be obtained or as to the timing of such approvals . horse racing alberta , the governing authority for horse racing in alberta , has already approved the rec project and issued a license . we anticipate that the rec would be completed 12 to 18 months following completion of the approval process . t here is no assurance that the needed approvals will be obtained or as to the timin g of such approvals . cce has agreed to loan to uha up to cad 13 million ( $ 13 million ) for the exclusive use of developing the rec project . the loan has an interest rate of libor plus 800 basis points and a term of five years and is convertible at cce 's option once the project becomes operational into an ownership position in uha of up to 60 % . the loan is secured by a leasehold mortgage on the rec property and a pledge of uha 's stock by the majority of uha shareholders . we intend to fund the loan with borrowings under our bmo credit agreement . we have paid $ 0.1 million in deferred financing costs related to legal fees incurred for the uha loan . in addition , we have placed $ 0.3 million in escrow related to the uha loan . story_separator_special_tag million in stock - based compensation expense as a component of general and administrative expenses . at december 31 , 201 2 , we had less than $ 0.1 million of total unrecognized compensation expense related to stock options . earnings from equity investment we own 33.3 % of all shares issued by cpl . our portion of cpl 's earnings is recorded as earnings from equity investment . we recorded a decrease in earnings fr om our investment in cpl of $ 0.2 million for the year ended december 31 , 2012 compared to year ended december 31 , 2011. the decrease for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 is primarily the result of lower performing properties that were in a start-up phase during the second and third quarters of 2012 offset by increased gaming revenue . for the nine months ended september 30 , 2012 compared to the nine months ended september 30 , 2011 , cpl 's market share decreased from 58 % to 43 % . we believe the decrease is due to the addition of 19 operations to the market during 2012 and lower performing properties that were in a start-up phase during the second and third quarters of 2012 . on october 11 , 2012 , cce signed an agreement with lot polish airlines to acquire an additional 33.3 % ownership interest in cpl . cce has obtained required approval from the co-shareholder in cpl , polish airports and from the polish minister of finance . upon closing of the transaction , cce will own a 66.6 % ownership interest in cpl . the purchase price is approximately $ 6 . 9 million , and o n february 21 , 2013 , we borrowed cad 7.3 million ( approximately $ 7.2 million based on the exchange rate in effect on february 21 , 2013 ) from the bmo credit agreement to pay for the investment . we anticipate closing the transaction in early april 2013. once the transaction is final , we anticipate consolidating cpl as a majority-owned subsidiary for which we would have a c ontrolling financial interest . we would account for and report the 33.3 % polish airports ownership interest as a non-controlling financial interest . consolidation of cpl would increase our overall net operating revenue and operating costs and expenses because previously we have reported our interest in cpl under the equity method . in march 2011 , the polish internal revenue service ( “ polish irs ” ) conducted a tax audit of cpl to review the calculation and payment of personal income tax by cpl employees covering january 2011. based on this audit , the polish irs concluded that cpl should calculate , collect and remit to the polish irs personal income tax on tips received by cpl employees from casino customers . after proceedings between cpl and the polish irs , the director of the tax chamber in warsaw confirmed the opinion of the polish irs on november 19 , 2012 , and on november 30 , 2012 cpl paid pln 125,269 ( less than $ 0.1 million ) to the polish irs resulting from the decision . cpl appealed the decision to the regional administrative court in warsaw on december 21 , 2012. a final decision is not expect to be reached in 2013 and could take longer . similar litigation involving competitors concerning the treatment of tips is ongoing . 38 non-operating income ( expense ) non-operating income ( expense ) for t he years ended december 31 , 2012 and 2011 was as follows : replace_table_token_12_th interest income interest income is directly related to interest earned on our cash reserves . interest expense the decr ease in interest expense of $ 0.1 million for the year ended decem ber 31 , 2012 compared to the year ended december 31 , 2011 is due to interest expense savings from a lower average debt balance in 2012 of $ 5.1 million compared to a n average debt balance of $ 10.7 million in 2011. the decrease in interest expense was offset by prepayment penalties of $ 0.2 million related to the early payoff of the edmonton mortgage in may 2012 . taxes the company 's income tax expense by jurisdiction is summarized in the table below : replace_table_token_13_th the u . s . effective income tax rate has increased for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 due to a one-time withholding tax payment of $ 0.1 million related to a canadian intercompany payable offset by the benefit associated with utilizing net operating losses that had been previously reserved . the canadian effective income tax rate increased for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 due primarily to the translation effect of foreign currency gains and losses related to the change in the foreign exchange rate and interest expense related to lower principal balances on third party debt related to our canadian properties . the effective tax rates of our foreign properties are impacted by the movement of exchange rates primarily due to intercompany loans which are denominated in u.s. dollars . therefore , foreign currency gains or losses recorded in each property 's local currency do not impact our earnings reported in u.s. dollars . certain intercompany loans of our foreign properties are denominated in u.s. dollars . therefore , foreign currency gains or losses can significantly impact each jurisdiction 's effective tax rate . 39 liquidity and capital resources cash flows our business is capital intensive , and we rely heavily on the ability of our casinos to generate operating cash flow . we use the cash flows that we generate to maintain operations , fund reinvestment in existing properties for both refurbishment and expansion projects , repay third party debt , and pursue additional growth

debt total debt outstanding was $ 2.1 billion at december 31 , 2017 and consists of $ 2.1 billion , including the effect of $ 200 million of interest rate swap contracts , which bears interest at fixed rates , and $ 17.9 million , which bears interest at variable rates . additionally , of our total debt , $ 413.7 million was secured by operating centers while the remaining $ 1.7 billion was unsecured . 36 at december 31 , 2017 , we have a $ 500 million unsecured revolving credit facility , which expires in march 2020 and provides borrowing rates that float at a margin over libor plus a facility fee . at december 31 , 2017 , the borrowing margin and facility fee , which are priced off a grid that is tied to our senior unsecured credit ratings , were 90 and 15 basis points , respectively . the facility also contains a competitive bid feature that allows us to request bids for up to $ 250 million . additionally , an accordion feature allows us to increase the facility amount up to $ 850 million . as of january 31 , 2018 , we had no amounts outstanding , and the available balance was $ 493.6 million , net of $ 6.4 million in outstanding letters of credit . at december 31 , 2017 , we have a $ 10 million unsecured short-term facility that we maintain for cash management purposes . the facility , which matures in march 2018 , provides for fixed interest rate loans at a 30 -day libor rate plus borrowing margin , facility fee and an unused facility fee of 125 , 10 , and 5 basis points , respectively . as of january 31 , 2018 , we had no amounts outstanding under this facility . during 2017 , the maximum balance and weighted average balance outstanding under both facilities combined were $ 245.0 million and $ 133.4 million , respectively , at a weighted average interest rate of 1.8 % .

cce has obtained the required approval from polish airports , which is the co-shareholder in cpl , and from the polish minister of finance . we anticipate closing the transaction in early april 2013. the following table summarizes the polish cities in which cpl operate d as of december 31 , 2012 , each casino 's location , number of slots and tables . replace_table_token_3_th cpl obtained an additional gaming license in the city of plock and opened a casino on february 10 , 2013 . plock , one of the oldest cities in poland , has more than 1 3 0,000 inhabitants and is located approximately 62 miles north of warsaw . cpl is also participating in other license applications , including another location in warsaw . decisions from the polish minister of finance on these applications are pending . 28 in december 2010 , we entered into a long-term management agreement to direct the operation of the casino at the radisson aruba resort , casino & spa . we receive a management fee consisting of a fixed fee , plus a percentage of the casino 's ebitda . we were not required to invest any amounts under the management agreement . we recognize in our statement of earnings , foreign currency transaction gains or losses resulting from the translation of casino operations and other transactions that are denominated in a currency other than u.s. dollars . our casinos in canada represent a significant portion of our business , and the revenue generated and expenses incurred by these operations are generally denominated in canadian dollars . a decrease in the value of this currency in relation to the value of the u.s. dollar would decrease the earnings from our foreign operations when translated into u.s. dollars , and an increase in the value of this currency in relation to the value of the u.s. dollar would increase the earnings from our foreign operations when translated into u.s. dollars . see note 2 `` significant accounting policies - foreign currency translation `` to the consolidated financial statements included elsewhere in this report . presentation of foreign currency amounts - the average exchange rates to the u.s. dollar used to translate balances during each reported period are as follows : replace_table_token_4_th 29 recent developments on november 30 , 2012 , cce signed credit and management agreements with united horseman of alberta inc. ( “ uha ” ) in connection with the development of a proposed racing entertainment center ( “ rec ” ) in balzac , north metropolitan area of calgary , alberta , canada . we would manage the rec upon completion . both the credit and management agreements are subject to development approvals and licensing from the aglc as discussed below . the proposed project would be located less than one mile north of the city limits of calgary and 4.5 miles from the calgary international airport . the location is ideally positioned at an exit off the queen elizabeth ii highway , which is the main corridor between calgary and edmonton and one of the most heavily used highways in wes tern canada . the location is also next to the crossiron mills shopping mall , a major regional attraction . the location would allow the rec to capture both the north and the northwest calgary markets , where there is not currently a casino . the rec would be located approximately 17 miles from century casino calgary and would serve what we believe is a different customer base including customers who also are interested in horse racing . the rec project would be the only horse race track in the calgary area and would consist of a 5.5 furlongs ( 0.7 miles ) race track , a gaming floor proposing 625 slot machines , a bar , a lounge , restaurant facilities , an off-track-betting area and an entertainment area . this rec license is the only license still available in any metropolitan area of alberta . the license application for this rec project pre-dates a recent three-year moratorium imposed by the alberta gaming and liquor commission ( “ aglc ” ) on new casinos and recs . the aglc also has an option to extend the moratorium for an additional two years . the rec project is subject to development approvals and licensing from the aglc . uha and cce have submitted the relevant applications , but there is no assurance that the needed approvals will be obtained or as to the timing of such approvals . horse racing alberta , the governing authority for horse racing in alberta , has already approved the rec project and issued a license . we anticipate that the rec would be completed 12 to 18 months following completion of the approval process . t here is no assurance that the needed approvals will be obtained or as to the timin g of such approvals . cce has agreed to loan to uha up to cad 13 million ( $ 13 million ) for the exclusive use of developing the rec project . the loan has an interest rate of libor plus 800 basis points and a term of five years and is convertible at cce 's option once the project becomes operational into an ownership position in uha of up to 60 % . the loan is secured by a leasehold mortgage on the rec property and a pledge of uha 's stock by the majority of uha shareholders . we intend to fund the loan with borrowings under our bmo credit agreement . we have paid $ 0.1 million in deferred financing costs related to legal fees incurred for the uha loan . in addition , we have placed $ 0.3 million in escrow related to the uha loan . story_separator_special_tag million in stock - based compensation expense as a component of general and administrative expenses . at december 31 , 201 2 , we had less than $ 0.1 million of total unrecognized compensation expense related to stock options . earnings from equity investment we own 33.3 % of all shares issued by cpl . our portion of cpl 's earnings is recorded as earnings from equity investment . we recorded a decrease in earnings fr om our investment in cpl of $ 0.2 million for the year ended december 31 , 2012 compared to year ended december 31 , 2011. the decrease for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 is primarily the result of lower performing properties that were in a start-up phase during the second and third quarters of 2012 offset by increased gaming revenue . for the nine months ended september 30 , 2012 compared to the nine months ended september 30 , 2011 , cpl 's market share decreased from 58 % to 43 % . we believe the decrease is due to the addition of 19 operations to the market during 2012 and lower performing properties that were in a start-up phase during the second and third quarters of 2012 . on october 11 , 2012 , cce signed an agreement with lot polish airlines to acquire an additional 33.3 % ownership interest in cpl . cce has obtained required approval from the co-shareholder in cpl , polish airports and from the polish minister of finance . upon closing of the transaction , cce will own a 66.6 % ownership interest in cpl . the purchase price is approximately $ 6 . 9 million , and o n february 21 , 2013 , we borrowed cad 7.3 million ( approximately $ 7.2 million based on the exchange rate in effect on february 21 , 2013 ) from the bmo credit agreement to pay for the investment . we anticipate closing the transaction in early april 2013. once the transaction is final , we anticipate consolidating cpl as a majority-owned subsidiary for which we would have a c ontrolling financial interest . we would account for and report the 33.3 % polish airports ownership interest as a non-controlling financial interest . consolidation of cpl would increase our overall net operating revenue and operating costs and expenses because previously we have reported our interest in cpl under the equity method . in march 2011 , the polish internal revenue service ( “ polish irs ” ) conducted a tax audit of cpl to review the calculation and payment of personal income tax by cpl employees covering january 2011. based on this audit , the polish irs concluded that cpl should calculate , collect and remit to the polish irs personal income tax on tips received by cpl employees from casino customers . after proceedings between cpl and the polish irs , the director of the tax chamber in warsaw confirmed the opinion of the polish irs on november 19 , 2012 , and on november 30 , 2012 cpl paid pln 125,269 ( less than $ 0.1 million ) to the polish irs resulting from the decision . cpl appealed the decision to the regional administrative court in warsaw on december 21 , 2012. a final decision is not expect to be reached in 2013 and could take longer . similar litigation involving competitors concerning the treatment of tips is ongoing . 38 non-operating income ( expense ) non-operating income ( expense ) for t he years ended december 31 , 2012 and 2011 was as follows : replace_table_token_12_th interest income interest income is directly related to interest earned on our cash reserves . interest expense the decr ease in interest expense of $ 0.1 million for the year ended decem ber 31 , 2012 compared to the year ended december 31 , 2011 is due to interest expense savings from a lower average debt balance in 2012 of $ 5.1 million compared to a n average debt balance of $ 10.7 million in 2011. the decrease in interest expense was offset by prepayment penalties of $ 0.2 million related to the early payoff of the edmonton mortgage in may 2012 . taxes the company 's income tax expense by jurisdiction is summarized in the table below : replace_table_token_13_th the u . s . effective income tax rate has increased for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 due to a one-time withholding tax payment of $ 0.1 million related to a canadian intercompany payable offset by the benefit associated with utilizing net operating losses that had been previously reserved . the canadian effective income tax rate increased for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 due primarily to the translation effect of foreign currency gains and losses related to the change in the foreign exchange rate and interest expense related to lower principal balances on third party debt related to our canadian properties . the effective tax rates of our foreign properties are impacted by the movement of exchange rates primarily due to intercompany loans which are denominated in u.s. dollars . therefore , foreign currency gains or losses recorded in each property 's local currency do not impact our earnings reported in u.s. dollars . certain intercompany loans of our foreign properties are denominated in u.s. dollars . therefore , foreign currency gains or losses can significantly impact each jurisdiction 's effective tax rate . 39 liquidity and capital resources cash flows our business is capital intensive , and we rely heavily on the ability of our casinos to generate operating cash flow . we use the cash flows that we generate to maintain operations , fund reinvestment in existing properties for both refurbishment and expansion projects , repay third party debt , and pursue additional growth

cash an d cash equivalents totaled $ 24.8 million at december 31 , 2012 , and we had working capital ( current assets minus current liabilities ) of $ 13.5 million compared to c ash and cash equivalents of $ 2 5 .2 mil lion and working capital of $ 6.0 million at december 31 , 201 1 . the decrease in cash and cash equivalents is due to $ 9 . 1 million for the repayment of the edmonton mortgage , $ 3.8 million for various capital expenditures and $ 0.4 million for deferred financing and escrow costs related to the uha loan . these uses of cash were offset by $ 9.2 million cash provided by operating activities , $ 3.2 million in proceeds from bmo borrowings net of principal repayments and deferred financing costs and $ 0.3 million proceeds from the exercise of stock options . the increase in working capital is due to the $ 9.1 million repayment of the edmonton mortgage , which was classified as a current liability as of december 31 , 2011. net cash provided by operating activities was $ 9 .2 million and $ 10.7 million in 2012 and 2011 , respectively . our cash flows from operations have historically been positive and sufficient to fund ordinary operations .

prior to august 1 , 2019 , finwise bank retained 5 % of the balances and sold a 95 % participation to ef spv . on august 1 , 2019 , ef spv purchased an additional 1 % participation in the outstanding portfolio with the participation percentage revised going forward to 96 % . these loan participation purchases are funded through a separate financing facility ( the `` ef spv facility `` ) , effective february 1 , 2019 , and through cash flows from operations generated by ef spv . the ef spv facility has a maximum total borrowing amount available of $ 150 million . we do not own ef spv , but we have a credit default protection agreement with ef spv whereby we provide credit protection to the investors in ef spv against rise loan losses in return for a credit premium . elevate is required to consolidate ef spv as a variable interest entity under gaap and the consolidated financial statements include revenue , losses and loans receivable related to the 96 % of the rise installment loans originated by finwise bank and sold to ef spv . 76 the elastic line of credit product is originated by a third-party lender , republic bank , which initially provides all of the funding for that product . republic bank retains 10 % of the balances of all loans originated and sells a 90 % loan participation in the elastic lines of credit . an spv structure was implemented such that the loan participations are sold by republic bank to elastic spv , ltd. ( “ elastic spv ” ) and elastic spv receives its funding from vpc in a separate financing facility ( the “ espv facility ” ) , which was finalized on july 13 , 2015. we do not own elastic spv but we have a credit default protection agreement with elastic spv whereby we provide credit protection to the investors in elastic spv against elastic loan losses in return for a credit premium . per the terms of this agreement , under us gaap , the company is the primary beneficiary of elastic spv and is required to consolidate the financial results of elastic spv as a variable interest entity ( `` vie `` ) in its consolidated financial results . the espv facility has also been amended several times and the original commitment amount of $ 50 million has grown to $ 350 million as of december 31 , 2019 . see “ —liquidity and capital resources—debt facilities . ” our management assesses our financial performance and future strategic goals through key metrics based primarily on the following three themes : revenue growth . key metrics related to revenue growth that we monitor by product include the ending and average combined loan balances outstanding , the effective apr of our product loan portfolios , the total dollar value of loans originated , the number of new customer loans made , the ending number of customer loans outstanding and the related customer acquisition costs ( “ cac ” ) associated with each new customer loan made . we include cac as a key metric when analyzing revenue growth ( rather than as a key metric within margin expansion ) . stable credit quality . since the time they were managing our legacy us products , our management team has maintained stable credit quality across the loan portfolio they were managing . additionally , in the periods covered in this management 's discussion and analysis of financial condition and results of operations , we have improved our credit quality . the credit quality metrics we monitor include net charge-offs as a percentage of revenues , the combined loan loss reserve as a percentage of outstanding combined loans , total provision for loan losses as a percentage of revenues and the percentage of past due combined loans receivable – principal . margin expansion . we expect that our operating margins will continue to expand over the near term as we lower our direct marketing costs and efficiently manage our operating expenses while continuing to improve our credit quality . over the next several years , as we continue to scale our loan portfolio , we anticipate that our direct marketing costs primarily associated with new customer acquisitions will decline to approximately 10 % of revenues and our operating expenses will decline to approximately 20 % of revenues . we aim to manage our business to achieve a long-term operating margin of 20 % , and do not expect our operating margin to increase beyond that level , as we intend to pass on any improvements over our targeted margins to our customers in the form of lower aprs . we believe this is a critical component of our responsible lending platform and over time will also help us continue to attract new customers and retain existing customers . key financial and operating metrics as discussed above , we regularly monitor a number of metrics in order to measure our current performance and project our future performance . these metrics aid us in developing and refining our growth strategies and in making strategic decisions . certain of our metrics are non-gaap financial measures . we believe that such metrics are useful in period-to-period comparisons of our core business . however , non-gaap financial measures are not an alternative to any measure of financial performance calculated and presented in accordance with us gaap . see “ —non-gaap financial measures ” for a reconciliation of our non-gaap measures to us gaap . 77 revenues replace_table_token_7_th _ ( 1 ) combined loans receivable is defined as loans owned by the company and consolidated vies plus loans originated and owned by third-party lenders pursuant to our cso programs . story_separator_special_tag hence , another key credit quality metric we monitor is the percentage of past due combined loans receivable – principal , as an increase in past due loans will cause an increase in our combined loan loss reserve and related additional provision for loan losses to increase the reserve . for customers that are not past due , we further stratify these loans into loss rates by payment number , as a new customer that is about to make a first loan payment has a significantly higher risk of loss than a customer who has successfully made ten payments on an existing loan with us . based on this methodology , during the past three years we have seen our combined loan loss reserve as a percentage of combined loans receivable fluctuate between approximately 13 % and 17 % depending on the overall mix of new , former and past due customer loans . recent trends . total loan loss provision for the year ended december 31 , 2019 was 49 % of revenues , which was within our targeted range of 45 % to 55 % , and lower than the 52 % in the prior year period . for the year ended december 31 , 2019 , net charge-offs as a percentage of revenues totaled 50 % , compared to 52 % in the prior year period . we expect total loan loss provision as a percentage of revenues to continue to remain within our targeted range due to ongoing maturation of the loan portfolio and continued improvements in our underwriting models and processes . the combined loan loss reserve as a percentage of combined loans receivable totaled 13 % and 14 % as of december 31 , 2019 and december 31 , 2018 , respectively , reflecting improvements in our credit quality in each product portfolio . past due loan balances at december 31 , 2019 were 10 % of total combined loans receivable - principal , down from 11 % from a year ago . additionally , we also look at principal loan charge-offs ( including both credit and fraud losses ) by vintage as a percentage of combined loans originated - principal . as the below table shows , our cumulative principal loan charge-offs through december 31 , 2019 for each annual vintage since the 2013 vintage are generally under 30 % and continue to generally trend at or slightly below our 25 % to 30 % targeted range . in the beginning of 2019 , we implemented new fraud tools that have helped lower fraud losses . additionally , we rolled out our next generation of credit models during the second quarter of 2019 and continued refining the models during the third quarter of 2019. the preliminary data on the 2019 vintage is that it is performing better than both 2017 and 2018 vintages . 82 ( 1 ) the 2019 vintage is not yet fully mature from a loss perspective . 83 margins replace_table_token_13_th _ ( 1 ) non-gaap measure . see “ —non-gaap financial measures—net charge-offs and additional provision for loan losses . ” gross margin is calculated as revenues minus cost of sales , or gross profit , expressed as a percentage of revenues , and operating margin is calculated as operating income expressed as a percentage of revenues . we expect our margins to continue to increase as we continue to scale our business while maintaining stable credit quality . we allocate all marketing spend only to new customer loans . as our loan portfolio continues to mature with more customer loans that are from repeat customers , we will be generating revenue from those repeat customer loans without incurring any related marketing expense . as a result , we expect marketing expense as a percentage of revenue to continue to decline over time resulting in an increased gross profit margin . additionally , being an online fintech company , we believe that as we continue to scale our business , we will generate operating efficiencies and our operating expense as a percentage of revenues will decline resulting in an increased operating margin . recent operating margin trends . for the year ended december 31 , 2019 , our operating margin was 15 % , which was an improvement from 12 % in the prior year period . this increase was largely due to a higher gross margin driven by lower direct marketing costs and an overall lower loan loss provision due to improved credit quality in the loan portfolio . direct marketing costs for the year ended december 31 , 2019 decreased to 7 % of revenue from 10 % in the prior year period . this decrease is due to the measured new customer growth we targeted as we focused on deploying our new credit models during the second quarter of 2019 and refining our credit models during the third quarter of 2019. the lower marketing spend , coupled with improved marketing efficiencies , resulted in a cac of $ 207 for the year ended december 31 , 2019 , which is below the low end of our targeted range of $ 250 to $ 300 and lower than the cac of $ 245 for the prior year . we expect cac to continue to be within or below our targeted range of $ 250 to $ 300 as we continue to optimize the efficiency of our marketing channels for our rise and elastic products , and benefit from decreased competition in the uk , although we may see some quarterly volatility in cac . 84 non-gaap financial measures we believe that the inclusion of the following non-gaap financial measures in this annual report on form 10-k can provide a useful measure for period-to-period comparisons of our core business , provide transparency and useful information to investors and others in understanding and evaluating our operating results , and enable investors to better compare our operating performance with the

cash an d cash equivalents totaled $ 24.8 million at december 31 , 2012 , and we had working capital ( current assets minus current liabilities ) of $ 13.5 million compared to c ash and cash equivalents of $ 2 5 .2 mil lion and working capital of $ 6.0 million at december 31 , 201 1 . the decrease in cash and cash equivalents is due to $ 9 . 1 million for the repayment of the edmonton mortgage , $ 3.8 million for various capital expenditures and $ 0.4 million for deferred financing and escrow costs related to the uha loan . these uses of cash were offset by $ 9.2 million cash provided by operating activities , $ 3.2 million in proceeds from bmo borrowings net of principal repayments and deferred financing costs and $ 0.3 million proceeds from the exercise of stock options . the increase in working capital is due to the $ 9.1 million repayment of the edmonton mortgage , which was classified as a current liability as of december 31 , 2011. net cash provided by operating activities was $ 9 .2 million and $ 10.7 million in 2012 and 2011 , respectively . our cash flows from operations have historically been positive and sufficient to fund ordinary operations .

prior to august 1 , 2019 , finwise bank retained 5 % of the balances and sold a 95 % participation to ef spv . on august 1 , 2019 , ef spv purchased an additional 1 % participation in the outstanding portfolio with the participation percentage revised going forward to 96 % . these loan participation purchases are funded through a separate financing facility ( the `` ef spv facility `` ) , effective february 1 , 2019 , and through cash flows from operations generated by ef spv . the ef spv facility has a maximum total borrowing amount available of $ 150 million . we do not own ef spv , but we have a credit default protection agreement with ef spv whereby we provide credit protection to the investors in ef spv against rise loan losses in return for a credit premium . elevate is required to consolidate ef spv as a variable interest entity under gaap and the consolidated financial statements include revenue , losses and loans receivable related to the 96 % of the rise installment loans originated by finwise bank and sold to ef spv . 76 the elastic line of credit product is originated by a third-party lender , republic bank , which initially provides all of the funding for that product . republic bank retains 10 % of the balances of all loans originated and sells a 90 % loan participation in the elastic lines of credit . an spv structure was implemented such that the loan participations are sold by republic bank to elastic spv , ltd. ( “ elastic spv ” ) and elastic spv receives its funding from vpc in a separate financing facility ( the “ espv facility ” ) , which was finalized on july 13 , 2015. we do not own elastic spv but we have a credit default protection agreement with elastic spv whereby we provide credit protection to the investors in elastic spv against elastic loan losses in return for a credit premium . per the terms of this agreement , under us gaap , the company is the primary beneficiary of elastic spv and is required to consolidate the financial results of elastic spv as a variable interest entity ( `` vie `` ) in its consolidated financial results . the espv facility has also been amended several times and the original commitment amount of $ 50 million has grown to $ 350 million as of december 31 , 2019 . see “ —liquidity and capital resources—debt facilities . ” our management assesses our financial performance and future strategic goals through key metrics based primarily on the following three themes : revenue growth . key metrics related to revenue growth that we monitor by product include the ending and average combined loan balances outstanding , the effective apr of our product loan portfolios , the total dollar value of loans originated , the number of new customer loans made , the ending number of customer loans outstanding and the related customer acquisition costs ( “ cac ” ) associated with each new customer loan made . we include cac as a key metric when analyzing revenue growth ( rather than as a key metric within margin expansion ) . stable credit quality . since the time they were managing our legacy us products , our management team has maintained stable credit quality across the loan portfolio they were managing . additionally , in the periods covered in this management 's discussion and analysis of financial condition and results of operations , we have improved our credit quality . the credit quality metrics we monitor include net charge-offs as a percentage of revenues , the combined loan loss reserve as a percentage of outstanding combined loans , total provision for loan losses as a percentage of revenues and the percentage of past due combined loans receivable – principal . margin expansion . we expect that our operating margins will continue to expand over the near term as we lower our direct marketing costs and efficiently manage our operating expenses while continuing to improve our credit quality . over the next several years , as we continue to scale our loan portfolio , we anticipate that our direct marketing costs primarily associated with new customer acquisitions will decline to approximately 10 % of revenues and our operating expenses will decline to approximately 20 % of revenues . we aim to manage our business to achieve a long-term operating margin of 20 % , and do not expect our operating margin to increase beyond that level , as we intend to pass on any improvements over our targeted margins to our customers in the form of lower aprs . we believe this is a critical component of our responsible lending platform and over time will also help us continue to attract new customers and retain existing customers . key financial and operating metrics as discussed above , we regularly monitor a number of metrics in order to measure our current performance and project our future performance . these metrics aid us in developing and refining our growth strategies and in making strategic decisions . certain of our metrics are non-gaap financial measures . we believe that such metrics are useful in period-to-period comparisons of our core business . however , non-gaap financial measures are not an alternative to any measure of financial performance calculated and presented in accordance with us gaap . see “ —non-gaap financial measures ” for a reconciliation of our non-gaap measures to us gaap . 77 revenues replace_table_token_7_th _ ( 1 ) combined loans receivable is defined as loans owned by the company and consolidated vies plus loans originated and owned by third-party lenders pursuant to our cso programs . story_separator_special_tag hence , another key credit quality metric we monitor is the percentage of past due combined loans receivable – principal , as an increase in past due loans will cause an increase in our combined loan loss reserve and related additional provision for loan losses to increase the reserve . for customers that are not past due , we further stratify these loans into loss rates by payment number , as a new customer that is about to make a first loan payment has a significantly higher risk of loss than a customer who has successfully made ten payments on an existing loan with us . based on this methodology , during the past three years we have seen our combined loan loss reserve as a percentage of combined loans receivable fluctuate between approximately 13 % and 17 % depending on the overall mix of new , former and past due customer loans . recent trends . total loan loss provision for the year ended december 31 , 2019 was 49 % of revenues , which was within our targeted range of 45 % to 55 % , and lower than the 52 % in the prior year period . for the year ended december 31 , 2019 , net charge-offs as a percentage of revenues totaled 50 % , compared to 52 % in the prior year period . we expect total loan loss provision as a percentage of revenues to continue to remain within our targeted range due to ongoing maturation of the loan portfolio and continued improvements in our underwriting models and processes . the combined loan loss reserve as a percentage of combined loans receivable totaled 13 % and 14 % as of december 31 , 2019 and december 31 , 2018 , respectively , reflecting improvements in our credit quality in each product portfolio . past due loan balances at december 31 , 2019 were 10 % of total combined loans receivable - principal , down from 11 % from a year ago . additionally , we also look at principal loan charge-offs ( including both credit and fraud losses ) by vintage as a percentage of combined loans originated - principal . as the below table shows , our cumulative principal loan charge-offs through december 31 , 2019 for each annual vintage since the 2013 vintage are generally under 30 % and continue to generally trend at or slightly below our 25 % to 30 % targeted range . in the beginning of 2019 , we implemented new fraud tools that have helped lower fraud losses . additionally , we rolled out our next generation of credit models during the second quarter of 2019 and continued refining the models during the third quarter of 2019. the preliminary data on the 2019 vintage is that it is performing better than both 2017 and 2018 vintages . 82 ( 1 ) the 2019 vintage is not yet fully mature from a loss perspective . 83 margins replace_table_token_13_th _ ( 1 ) non-gaap measure . see “ —non-gaap financial measures—net charge-offs and additional provision for loan losses . ” gross margin is calculated as revenues minus cost of sales , or gross profit , expressed as a percentage of revenues , and operating margin is calculated as operating income expressed as a percentage of revenues . we expect our margins to continue to increase as we continue to scale our business while maintaining stable credit quality . we allocate all marketing spend only to new customer loans . as our loan portfolio continues to mature with more customer loans that are from repeat customers , we will be generating revenue from those repeat customer loans without incurring any related marketing expense . as a result , we expect marketing expense as a percentage of revenue to continue to decline over time resulting in an increased gross profit margin . additionally , being an online fintech company , we believe that as we continue to scale our business , we will generate operating efficiencies and our operating expense as a percentage of revenues will decline resulting in an increased operating margin . recent operating margin trends . for the year ended december 31 , 2019 , our operating margin was 15 % , which was an improvement from 12 % in the prior year period . this increase was largely due to a higher gross margin driven by lower direct marketing costs and an overall lower loan loss provision due to improved credit quality in the loan portfolio . direct marketing costs for the year ended december 31 , 2019 decreased to 7 % of revenue from 10 % in the prior year period . this decrease is due to the measured new customer growth we targeted as we focused on deploying our new credit models during the second quarter of 2019 and refining our credit models during the third quarter of 2019. the lower marketing spend , coupled with improved marketing efficiencies , resulted in a cac of $ 207 for the year ended december 31 , 2019 , which is below the low end of our targeted range of $ 250 to $ 300 and lower than the cac of $ 245 for the prior year . we expect cac to continue to be within or below our targeted range of $ 250 to $ 300 as we continue to optimize the efficiency of our marketing channels for our rise and elastic products , and benefit from decreased competition in the uk , although we may see some quarterly volatility in cac . 84 non-gaap financial measures we believe that the inclusion of the following non-gaap financial measures in this annual report on form 10-k can provide a useful measure for period-to-period comparisons of our core business , provide transparency and useful information to investors and others in understanding and evaluating our operating results , and enable investors to better compare our operating performance with the

debt facilities vpc facility vpc facility term notes on january 30 , 2014 , we entered into the vpc facility in order to fund our rise and sunny products and provide working capital . the vpc facility has been amended several times , with the most recent amendment effective february 1 , 2019 , to increase the maximum total borrowing amount available and other terms of the vpc facility . the vpc facility provided the following term notes as of december 31 , 2019 : a maximum borrowing amount of $ 350 million used to fund the rise loan portfolio ( “ us term note ” ) . prior to the february 1 , 2019 amendment , the interest rate paid on this facility was a base rate ( defined as the 3-month libor , with a 1 % floor ) plus 11 % . this resulted in a blended interest rate paid of 12.79 % on debt outstanding under this facility as of december 31 , 2018 . the company entered into an interest rate cap on january 11 , 2018 to mitigate the floating interest rate risk on the aggregate $ 240 million outstanding as of december 31 , 2017. this cap matured in february 2019. upon the february 1 , 2019 amendment date , the interest rate of the debt outstanding as of the amendment date was fixed through the january 1 , 2024 maturity date at 10.23 % ( base rate of 2.73 % plus 7.5 % ) . all future borrowings under this facility will bear an interest rate at a base rate ( defined as the greater of 3-month libor , the five-year libor swap rate or 1 % ) plus 7.5 % at the borrowing date . the weighted-average base rate on the outstanding balance at december 31 , 2019 was 2.73 % and the overall rate was 10.23 % . a maximum borrowing amount of $ 132 million used to fund the uk sunny loan portfolio ( “ uk term note ” ) . prior to the february 1 , 2019 amendment , the interest rate paid on this facility was a base rate ( defined as the 3-month libor rate ) plus 14 % .

some fuel switching will also occur from prb to ilb in newly scrubbed utilities located near ilb coal supply . growth in international coal import demand has resulted primarily from increased demand for thermal coal for electricity generation by emerging global economies , particularly by asian countries in the pacific market where coal is the primary fuel source for new power generation . we believe that the widening of the panama canal in 2014 should lower freight rates which would enhance coal exports to asia . in europe , domestic coal supply has declined due to reduction in domestic production as a result of the region 's declining coal reserve base and a reduction in government subsidies for coal mining , particularly in poland , germany and spain . additionally , the international atomic energy agency projects slower global growth in nuclear power capacity following the 2011 earthquake in japan and related nuclear incident . germany , in particular , has closed certain older facilities and is planning to shut down its remaining nuclear plants by 2022. coal-fired generation is expected to meet a large portion of this additional demand . we believe that the decline in domestic production in europe , coupled with an expected increase in coal-fired power generation , will result in an increase in thermal coal imports . 19 due to the location of our coal mine , we expect to continue concentrating our efforts on supplying the domestic market . we expect as more coal is exported from the ilb , the coal that remains for the domestic market will increase in value . as discussed further under “ competitive pressures ” on page nine , natural gas has increased its share as a fuel in electrical generation in recent years . yorktown distribution as previously disclosed , each time after we filed our 2011 form 10-qs for the first three quarters , we were advised by yorktown energy partners vi , l.p. , an investor for the last sixyears , that it had distributed shares of our common stock to its limited and general partners . first and second quarter distributions were 750,000 shares each and the third quarter distribution was 556,000 shares for a total of 2,056,000 shares . after the three distributions , yorktown and its affiliates collectively hold about 13 million shares of our common stock representing about 46 % of total shares outstanding . while we do not know yorktown 's ultimate strategy to realize the value of their hallador investment for their partners , we expect that over time distributions such as these will improve our liquidity and float . if and when we are advised of another yorktown distribution after this form 10-k is filed , we will timely report such on a form 8-k. our consolidated financial statements should be read in conjunction with this discussion . prospective information see page four of this report for a table that illustrates the status of our current coal contracts . story_separator_special_tag font-size : 10pt ; font-weight : bold `` > our effective tax rate for 2011 and 2010 was in the 37-39 % range and we expect such rate to be in the 32-36 % range for 2012 . 45 % ownership in savoy savoy operates almost exclusively in michigan . they have an interest in the trenton-black river play in southern michigan . they hold 200,000 gross acres ( about 100,000 net ) in hillsdale and lenawee counties . during 2011 savoy drilled 17 gross wells in this play of which 8 were dry and 9 were successful . during 2012 savoy plans on drilling 25 additional wells in the play . drilling locations in this play are identified based on the evaluation of extensive 3-d seismic shoots . savoy operates their own wells and their working interest averages between 40 and 50 % and their net revenue interest averages between 34 and 42 % . savoy 's net daily oil production currently averages about 805 barrels of oil and 340 ( mcf ) of gas . savoy has an interest in about 63 wells ( 25 net ) . loe was about $ 8 per barrel of oil . savoy 's proved reserves are stated below and also in note 5 to the financial statements . the pre-tax ( savoy is a partnership ) present value of their future cash flows discounted at 10 % ( pv10 ) was about $ 97 million . investors should note that the above numbers are to the 100 % ; our ownership in savoy is about 45 % so our share of the pv10 using sec prices would be about $ 44 million . the 2011 reserve report was prepared by netherland , sewell & associates , inc. ( nsai ) . see note 5 for the qualifications of nsai . the 2010 reserve report was prepared by timothy lovseth , our full-time geologist who has 30 years of experience in the oil and gas industry . mr. lovseth has no ownership in savoy . 23 the table below illustrates the growth in savoy over the last two years ; such unaudited amounts are to the 100 % , in other words not shown proportionate to our 45 % interest ( financial statement data in thousands ) : replace_table_token_2_th 24 critical accounting estimates and significant accounting policies we believe that the estimates of our coal reserves and our deferred tax assets and liability accounts are our only critical accounting estimates . since the carlisle mine has only been in production since february 2007 we do not have a long history to rely on . the reserve estimates are used in the dd & a calculation , in our impairment test and in our internal cash flow projections . if these estimates turn out to be materially under or over-stated ; our dd & a expense and impairment test may be affected . furthermore , if our coal reserves are materially story_separator_special_tag some fuel switching will also occur from prb to ilb in newly scrubbed utilities located near ilb coal supply . growth in international coal import demand has resulted primarily from increased demand for thermal coal for electricity generation by emerging global economies , particularly by asian countries in the pacific market where coal is the primary fuel source for new power generation . we believe that the widening of the panama canal in 2014 should lower freight rates which would enhance coal exports to asia . in europe , domestic coal supply has declined due to reduction in domestic production as a result of the region 's declining coal reserve base and a reduction in government subsidies for coal mining , particularly in poland , germany and spain . additionally , the international atomic energy agency projects slower global growth in nuclear power capacity following the 2011 earthquake in japan and related nuclear incident . germany , in particular , has closed certain older facilities and is planning to shut down its remaining nuclear plants by 2022. coal-fired generation is expected to meet a large portion of this additional demand . we believe that the decline in domestic production in europe , coupled with an expected increase in coal-fired power generation , will result in an increase in thermal coal imports . 19 due to the location of our coal mine , we expect to continue concentrating our efforts on supplying the domestic market . we expect as more coal is exported from the ilb , the coal that remains for the domestic market will increase in value . as discussed further under “ competitive pressures ” on page nine , natural gas has increased its share as a fuel in electrical generation in recent years . yorktown distribution as previously disclosed , each time after we filed our 2011 form 10-qs for the first three quarters , we were advised by yorktown energy partners vi , l.p. , an investor for the last sixyears , that it had distributed shares of our common stock to its limited and general partners . first and second quarter distributions were 750,000 shares each and the third quarter distribution was 556,000 shares for a total of 2,056,000 shares . after the three distributions , yorktown and its affiliates collectively hold about 13 million shares of our common stock representing about 46 % of total shares outstanding . while we do not know yorktown 's ultimate strategy to realize the value of their hallador investment for their partners , we expect that over time distributions such as these will improve our liquidity and float . if and when we are advised of another yorktown distribution after this form 10-k is filed , we will timely report such on a form 8-k. our consolidated financial statements should be read in conjunction with this discussion . prospective information see page four of this report for a table that illustrates the status of our current coal contracts . story_separator_special_tag font-size : 10pt ; font-weight : bold `` > our effective tax rate for 2011 and 2010 was in the 37-39 % range and we expect such rate to be in the 32-36 % range for 2012 . 45 % ownership in savoy savoy operates almost exclusively in michigan . they have an interest in the trenton-black river play in southern michigan . they hold 200,000 gross acres ( about 100,000 net ) in hillsdale and lenawee counties . during 2011 savoy drilled 17 gross wells in this play of which 8 were dry and 9 were successful . during 2012 savoy plans on drilling 25 additional wells in the play . drilling locations in this play are identified based on the evaluation of extensive 3-d seismic shoots . savoy operates their own wells and their working interest averages between 40 and 50 % and their net revenue interest averages between 34 and 42 % . savoy 's net daily oil production currently averages about 805 barrels of oil and 340 ( mcf ) of gas . savoy has an interest in about 63 wells ( 25 net ) . loe was about $ 8 per barrel of oil . savoy 's proved reserves are stated below and also in note 5 to the financial statements . the pre-tax ( savoy is a partnership ) present value of their future cash flows discounted at 10 % ( pv10 ) was about $ 97 million . investors should note that the above numbers are to the 100 % ; our ownership in savoy is about 45 % so our share of the pv10 using sec prices would be about $ 44 million . the 2011 reserve report was prepared by netherland , sewell & associates , inc. ( nsai ) . see note 5 for the qualifications of nsai . the 2010 reserve report was prepared by timothy lovseth , our full-time geologist who has 30 years of experience in the oil and gas industry . mr. lovseth has no ownership in savoy . 23 the table below illustrates the growth in savoy over the last two years ; such unaudited amounts are to the 100 % , in other words not shown proportionate to our 45 % interest ( financial statement data in thousands ) : replace_table_token_2_th 24 critical accounting estimates and significant accounting policies we believe that the estimates of our coal reserves and our deferred tax assets and liability accounts are our only critical accounting estimates . since the carlisle mine has only been in production since february 2007 we do not have a long history to rely on . the reserve estimates are used in the dd & a calculation , in our impairment test and in our internal cash flow projections . if these estimates turn out to be materially under or over-stated ; our dd & a expense and impairment test may be affected . furthermore , if our coal reserves are materially

debt facilities vpc facility vpc facility term notes on january 30 , 2014 , we entered into the vpc facility in order to fund our rise and sunny products and provide working capital . the vpc facility has been amended several times , with the most recent amendment effective february 1 , 2019 , to increase the maximum total borrowing amount available and other terms of the vpc facility . the vpc facility provided the following term notes as of december 31 , 2019 : a maximum borrowing amount of $ 350 million used to fund the rise loan portfolio ( “ us term note ” ) . prior to the february 1 , 2019 amendment , the interest rate paid on this facility was a base rate ( defined as the 3-month libor , with a 1 % floor ) plus 11 % . this resulted in a blended interest rate paid of 12.79 % on debt outstanding under this facility as of december 31 , 2018 . the company entered into an interest rate cap on january 11 , 2018 to mitigate the floating interest rate risk on the aggregate $ 240 million outstanding as of december 31 , 2017. this cap matured in february 2019. upon the february 1 , 2019 amendment date , the interest rate of the debt outstanding as of the amendment date was fixed through the january 1 , 2024 maturity date at 10.23 % ( base rate of 2.73 % plus 7.5 % ) . all future borrowings under this facility will bear an interest rate at a base rate ( defined as the greater of 3-month libor , the five-year libor swap rate or 1 % ) plus 7.5 % at the borrowing date . the weighted-average base rate on the outstanding balance at december 31 , 2019 was 2.73 % and the overall rate was 10.23 % . a maximum borrowing amount of $ 132 million used to fund the uk sunny loan portfolio ( “ uk term note ” ) . prior to the february 1 , 2019 amendment , the interest rate paid on this facility was a base rate ( defined as the 3-month libor rate ) plus 14 % .

some fuel switching will also occur from prb to ilb in newly scrubbed utilities located near ilb coal supply . growth in international coal import demand has resulted primarily from increased demand for thermal coal for electricity generation by emerging global economies , particularly by asian countries in the pacific market where coal is the primary fuel source for new power generation . we believe that the widening of the panama canal in 2014 should lower freight rates which would enhance coal exports to asia . in europe , domestic coal supply has declined due to reduction in domestic production as a result of the region 's declining coal reserve base and a reduction in government subsidies for coal mining , particularly in poland , germany and spain . additionally , the international atomic energy agency projects slower global growth in nuclear power capacity following the 2011 earthquake in japan and related nuclear incident . germany , in particular , has closed certain older facilities and is planning to shut down its remaining nuclear plants by 2022. coal-fired generation is expected to meet a large portion of this additional demand . we believe that the decline in domestic production in europe , coupled with an expected increase in coal-fired power generation , will result in an increase in thermal coal imports . 19 due to the location of our coal mine , we expect to continue concentrating our efforts on supplying the domestic market . we expect as more coal is exported from the ilb , the coal that remains for the domestic market will increase in value . as discussed further under “ competitive pressures ” on page nine , natural gas has increased its share as a fuel in electrical generation in recent years . yorktown distribution as previously disclosed , each time after we filed our 2011 form 10-qs for the first three quarters , we were advised by yorktown energy partners vi , l.p. , an investor for the last sixyears , that it had distributed shares of our common stock to its limited and general partners . first and second quarter distributions were 750,000 shares each and the third quarter distribution was 556,000 shares for a total of 2,056,000 shares . after the three distributions , yorktown and its affiliates collectively hold about 13 million shares of our common stock representing about 46 % of total shares outstanding . while we do not know yorktown 's ultimate strategy to realize the value of their hallador investment for their partners , we expect that over time distributions such as these will improve our liquidity and float . if and when we are advised of another yorktown distribution after this form 10-k is filed , we will timely report such on a form 8-k. our consolidated financial statements should be read in conjunction with this discussion . prospective information see page four of this report for a table that illustrates the status of our current coal contracts . story_separator_special_tag font-size : 10pt ; font-weight : bold `` > our effective tax rate for 2011 and 2010 was in the 37-39 % range and we expect such rate to be in the 32-36 % range for 2012 . 45 % ownership in savoy savoy operates almost exclusively in michigan . they have an interest in the trenton-black river play in southern michigan . they hold 200,000 gross acres ( about 100,000 net ) in hillsdale and lenawee counties . during 2011 savoy drilled 17 gross wells in this play of which 8 were dry and 9 were successful . during 2012 savoy plans on drilling 25 additional wells in the play . drilling locations in this play are identified based on the evaluation of extensive 3-d seismic shoots . savoy operates their own wells and their working interest averages between 40 and 50 % and their net revenue interest averages between 34 and 42 % . savoy 's net daily oil production currently averages about 805 barrels of oil and 340 ( mcf ) of gas . savoy has an interest in about 63 wells ( 25 net ) . loe was about $ 8 per barrel of oil . savoy 's proved reserves are stated below and also in note 5 to the financial statements . the pre-tax ( savoy is a partnership ) present value of their future cash flows discounted at 10 % ( pv10 ) was about $ 97 million . investors should note that the above numbers are to the 100 % ; our ownership in savoy is about 45 % so our share of the pv10 using sec prices would be about $ 44 million . the 2011 reserve report was prepared by netherland , sewell & associates , inc. ( nsai ) . see note 5 for the qualifications of nsai . the 2010 reserve report was prepared by timothy lovseth , our full-time geologist who has 30 years of experience in the oil and gas industry . mr. lovseth has no ownership in savoy . 23 the table below illustrates the growth in savoy over the last two years ; such unaudited amounts are to the 100 % , in other words not shown proportionate to our 45 % interest ( financial statement data in thousands ) : replace_table_token_2_th 24 critical accounting estimates and significant accounting policies we believe that the estimates of our coal reserves and our deferred tax assets and liability accounts are our only critical accounting estimates . since the carlisle mine has only been in production since february 2007 we do not have a long history to rely on . the reserve estimates are used in the dd & a calculation , in our impairment test and in our internal cash flow projections . if these estimates turn out to be materially under or over-stated ; our dd & a expense and impairment test may be affected . furthermore , if our coal reserves are materially story_separator_special_tag some fuel switching will also occur from prb to ilb in newly scrubbed utilities located near ilb coal supply . growth in international coal import demand has resulted primarily from increased demand for thermal coal for electricity generation by emerging global economies , particularly by asian countries in the pacific market where coal is the primary fuel source for new power generation . we believe that the widening of the panama canal in 2014 should lower freight rates which would enhance coal exports to asia . in europe , domestic coal supply has declined due to reduction in domestic production as a result of the region 's declining coal reserve base and a reduction in government subsidies for coal mining , particularly in poland , germany and spain . additionally , the international atomic energy agency projects slower global growth in nuclear power capacity following the 2011 earthquake in japan and related nuclear incident . germany , in particular , has closed certain older facilities and is planning to shut down its remaining nuclear plants by 2022. coal-fired generation is expected to meet a large portion of this additional demand . we believe that the decline in domestic production in europe , coupled with an expected increase in coal-fired power generation , will result in an increase in thermal coal imports . 19 due to the location of our coal mine , we expect to continue concentrating our efforts on supplying the domestic market . we expect as more coal is exported from the ilb , the coal that remains for the domestic market will increase in value . as discussed further under “ competitive pressures ” on page nine , natural gas has increased its share as a fuel in electrical generation in recent years . yorktown distribution as previously disclosed , each time after we filed our 2011 form 10-qs for the first three quarters , we were advised by yorktown energy partners vi , l.p. , an investor for the last sixyears , that it had distributed shares of our common stock to its limited and general partners . first and second quarter distributions were 750,000 shares each and the third quarter distribution was 556,000 shares for a total of 2,056,000 shares . after the three distributions , yorktown and its affiliates collectively hold about 13 million shares of our common stock representing about 46 % of total shares outstanding . while we do not know yorktown 's ultimate strategy to realize the value of their hallador investment for their partners , we expect that over time distributions such as these will improve our liquidity and float . if and when we are advised of another yorktown distribution after this form 10-k is filed , we will timely report such on a form 8-k. our consolidated financial statements should be read in conjunction with this discussion . prospective information see page four of this report for a table that illustrates the status of our current coal contracts . story_separator_special_tag font-size : 10pt ; font-weight : bold `` > our effective tax rate for 2011 and 2010 was in the 37-39 % range and we expect such rate to be in the 32-36 % range for 2012 . 45 % ownership in savoy savoy operates almost exclusively in michigan . they have an interest in the trenton-black river play in southern michigan . they hold 200,000 gross acres ( about 100,000 net ) in hillsdale and lenawee counties . during 2011 savoy drilled 17 gross wells in this play of which 8 were dry and 9 were successful . during 2012 savoy plans on drilling 25 additional wells in the play . drilling locations in this play are identified based on the evaluation of extensive 3-d seismic shoots . savoy operates their own wells and their working interest averages between 40 and 50 % and their net revenue interest averages between 34 and 42 % . savoy 's net daily oil production currently averages about 805 barrels of oil and 340 ( mcf ) of gas . savoy has an interest in about 63 wells ( 25 net ) . loe was about $ 8 per barrel of oil . savoy 's proved reserves are stated below and also in note 5 to the financial statements . the pre-tax ( savoy is a partnership ) present value of their future cash flows discounted at 10 % ( pv10 ) was about $ 97 million . investors should note that the above numbers are to the 100 % ; our ownership in savoy is about 45 % so our share of the pv10 using sec prices would be about $ 44 million . the 2011 reserve report was prepared by netherland , sewell & associates , inc. ( nsai ) . see note 5 for the qualifications of nsai . the 2010 reserve report was prepared by timothy lovseth , our full-time geologist who has 30 years of experience in the oil and gas industry . mr. lovseth has no ownership in savoy . 23 the table below illustrates the growth in savoy over the last two years ; such unaudited amounts are to the 100 % , in other words not shown proportionate to our 45 % interest ( financial statement data in thousands ) : replace_table_token_2_th 24 critical accounting estimates and significant accounting policies we believe that the estimates of our coal reserves and our deferred tax assets and liability accounts are our only critical accounting estimates . since the carlisle mine has only been in production since february 2007 we do not have a long history to rely on . the reserve estimates are used in the dd & a calculation , in our impairment test and in our internal cash flow projections . if these estimates turn out to be materially under or over-stated ; our dd & a expense and impairment test may be affected . furthermore , if our coal reserves are materially

liquidity and capital resources for 2011 we generated $ 61 million in cash from operations which enabled us to reduce our bank debt by $ 10 million , invest $ 24 million in the carlisle mine , buy land for about $ 9 million for the allerton project and pay a special dividend of $ 3.5 million . for 2012 we are scheduled to extinguish our bank debt in december and we anticipate our capital expenditures for the carlisle mine falling to $ 10-12 million . we expect next year 's cash from operations to be lower due to the non-recurring gain of $ 10.7 million . future cash flow from operations could be negatively impacted depending on the final outcome of our contract negotiations as discussed on page four of this report . our cash flow from operations will also be negatively impacted by payments of state and federal income taxes . 20 we do not anticipate any liquidity issues in the foreseeable future . eventually , when we develop a new reserve , we intend to incur additional debt and restructure our existing credit facility . we have no material off-balance sheet arrangements . during may 2010 we declared our first cash dividend of $ 0.10 per common share of which there were 27,782,028 outstanding . furthermore , our board approved that the dividend would also apply to the 1,150,000 outstanding rsus and to the 434,167 outstanding stock options on that date . the total cash payment for all the outstanding securities was about $ 2.9 million . during may 2011 we declared another special dividend of $ 0.12 per share . as was done last year , the dividend also applied to our outstanding rsus and stock options . the total cash payment for all the outstanding securities was about $ 3.5 million . we evaluated our cash position and capital requirements and decided to declare another special cash dividend of $ .14 per share payable in april 2012. the total payment , which also covers our outstanding rsus and options , will be about $ 4.1million .

the fire & safety/diversified products segment produces firefighting pumps and controls , valves , monitors , nozzles , rescue tools , lifting bags and other components and systems for the fire and rescue industry , engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications , and precision equipment for dispensing , metering , and mixing colorants and paints used in a variety of retail and commercial businesses around the world . the fire & safety/diversified products segment is comprised of the fire & safety platform ( comprised of class 1 , hale , akron brass , awg fittings , godiva , dinglee , hurst jaws of life , lukas , and vetter ) , the band-it platform , and the dispensing platform . our 2017 financial results were as follows : sales of $ 2.3 billion increased 8 % , reflecting a 6 % increase in organic sales ( excluding acquisitions and divestitures ) and a 2 % increase due to acquisitions/divestitures . operating income of $ 502.6 million was up 22 % and operating margin of 22.0 % was up 250 basis points , respectively , from the prior year . net income increased 24 % to $ 337.3 million . diluted eps of $ 4.36 increased $ 0.83 , or 24 % , compared to 2016 . our 2017 financial results , adjusted for $ 8.5 million of restructuring expense and a $ 9.3 million gain on sale of a business , compared to our 2016 financial results , adjusted for $ 3.7 million of restructuring expense , a $ 3.6 million pension settlement charge and a $ 22.3 million loss on the sale of businesses - net , were as follows ( these non-gaap measures have been reconciled to u.s. gaap measures in item 6 , “ selected financial data ” ) : adjusted operating income of $ 501.7 million was up 14 % and adjusted operating margin of 21.9 % was up 120 basis points , respectively , from the prior year . 17 adjusted net income increased 16 % to $ 333.7 million . adjusted eps of $ 4.31 was 15 % higher than prior year adjusted eps of $ 3.75 . based on continued order strength in the fourth quarter , as well as benefits from our growth initiatives and segmentation efforts , we project approximately 5 % organic revenue growth in 2018. full year 2018 eps is expected to be in the range of $ 4.90 to $ 5.10. results of operations the following is a discussion and analysis of our results of operations for each of the three years in the period ended december 31 , 2017 . for purposes of this item , reference is made to the consolidated statements of operations in part ii , item 8 , “ financial statements and supplementary data . ” segment operating income excludes unallocated corporate operating expenses . management 's primary measurements of segment performance are sales , operating income , and operating margin . in the following discussion , and throughout this report , references to organic sales , a non-gaap measure , refers to sales from continuing operations calculated according to generally accepted accounting principles in the united states but excludes ( 1 ) the impact of foreign currency translation and ( 2 ) sales from acquired or divested businesses during the first twelve months of ownership or divestiture . the portion of sales attributable to foreign currency translation is calculated as the difference between ( a ) the period-to-period change in organic sales and ( b ) the period-to-period change in organic sales after applying prior period foreign exchange rates to the current year period . management believes that reporting organic sales provides useful information to investors by helping identify underlying growth trends in our business and facilitating easier comparisons of our revenue performance with prior and future periods and to our peers . the company excludes the effect of foreign currency translation from organic sales because foreign currency translation is not under management 's control , is subject to volatility and can obscure underlying business trends . the company excludes the effect of acquisitions and divestitures because the nature , size , and number of acquisitions and divestitures can vary dramatically from period to period and between the company and its peers and can also obscure underlying business trends and make comparisons of long-term performance difficult . performance in 2017 compared with 2016 replace_table_token_14_th sales in 2017 were $ 2.3 billion , an 8 % increase from last year . this increase reflects a 6 % increase in organic sales and a 2 % increase from acquisitions/divestitures ( acquisitions : thinxxs - december 2017 ; sfc koenig - september 2016 ; awg fittings - july 2016 and akron brass - march 2016 / divestitures : faure herman - october 2017 ; cvi korea - december 2016 ; ietg - october 2016 ; cvi japan - september 2016 and hydra-stop - july 2016 ) . sales to customers outside the u.s. represented approximately 49 % of total sales in 2017 compared with 50 % in 2016 . in 2017 , fluid & metering technologies contributed 38 % of sales and 42 % of operating income ; health & science technologies contributed 36 % of sales and 32 % of operating income ; and fire & safety/diversified products contributed 26 % of sales and 26 % of operating income . gross profit of $ 1.0 billion in 2017 increased $ 95.9 million , or 10 % , from 2016 , while gross margin increased 90 basis points to 44.9 % in 2017 from 44.0 % in 2016 . the increase in gross profit and margin is primarily a result of increased sales volume and the dilutive impact in the prior year attributable to $ 14.7 million of fair value inventory step-up charges from 2016 acquisitions . sg & a expenses increased to $ 524.9 story_separator_special_tag operating income of $ 412.4 million in 2016 decreased from $ 437.0 million in 2015 , primarily as a result of the impact of the four divestitures in 2016 and the associated loss compared to the one divestiture in 2015 and the associated gain as well as the incremental fair value inventory step-up charges related to the 2016 acquisitions , partially offset by the reversal of $ 4.7 million of contingent consideration related to a 2015 acquisition and lower restructuring costs recorded in 2016 compared to 2015. operating margin of 19.5 % in 2016 was down 210 basis points from 21.6 % in 2015 primarily due to the loss on the sale of businesses in 2016 compared to a gain on the sale of a business in 2015 , partially offset by productivity improvements and lower restructuring costs year over year . other ( income ) expense - net changed by $ 4.7 million from expense of $ 3.0 million in 2015 to income of $ 1.7 million in 2016 mainly due to $ 4.7 million of foreign currency transaction gains on intercompany loans that were established in conjunction with the sfc koenig acquisition . interest expense increased to $ 45.6 million in 2016 from $ 41.6 million in 2015. the increase was primarily due to the $ 200 million series of senior notes issued in 2016 and higher borrowings outstanding on the revolving facility . the provision for income taxes is based upon estimated annual tax rates for the year applied to federal , state and foreign income . the provision for income taxes decreased to $ 97.4 million in 2016 compared to $ 109.5 million in 2015. the effective tax rate decreased to 26.4 % in 2016 compared to 27.9 % in 2015 , due to tax benefits on the divestitures of cvi korea and cvi japan , certain return-to-provision adjustments and the early adoption of asu 2016-09 and the related tax effects of share based payments now recognized as a reduction to income tax expense . these adjustments were offset by the incurrence of additional foreign withholding taxes , the prior year revaluation of the italian deferred tax liability related to the reduction in the italian statutory tax rate and tax expense on the divestiture of the hydra-stop product line and the prior year divestiture of the ismatec product line as well as the mix of global pre-tax income among jurisdictions . net income for the year of $ 271.1 million decreased from the $ 282.8 million in 2015. diluted earnings per share in 2016 of $ 3.53 decreased $ 0.09 from $ 3.62 in 2015. fluid & metering technologies segment replace_table_token_19_th sales of $ 849.1 million decreased $ 11.7 million , or 1 % , in 2016 compared with 2015. this decrease reflected a 1 % decline in organic sales , a 1 % increase from acquisitions ( alfa valvole - june 2015 ) and 1 % of unfavorable foreign currency translation . in 2016 , sales were flat domestically and decreased approximately 3 % internationally . sales to customers outside the u.s. were approximately 44 % of total segment sales in both 2016 and 2015. sales within our energy platform increased compared to 2015 primarily due to strength within the aviation market , partially offset by continued weakness in the propane and oil and gas markets as well as challenges in the mobile end market . sales within our pumps platform ( formerly industrial ) decreased compared to 2015 due to weakness in the north american industrial distribution market . sales within the water platform decreased due to the divestitures of hydra-stop and ietg and slowing demand in the chemical end market , partially offset by increased municipal spending . sales within our agriculture platform increased year over year due to increased demand in the second half of 2016 from both oems and distributors in anticipation of the 2017 planting season . sales within the valves platform , which was created in the third quarter of 2015 , increased as a result of the full year impact of the alfa valvole acquisition , offset by a challenging oil & gas market and overall weakness in the european market . 22 operating income and operating margin of $ 217.5 million and 25.6 % , respectively , were higher than the $ 206.4 million and 24.0 % , respectively , recorded in 2015 , primarily due to the full year impact of the alfa valvole acquisition as well as productivity initiatives , partially offset by lower volume . health & science technologies segment replace_table_token_20_th sales of $ 744.8 million increased $ 5.8 million , or 1 % , in 2016 compared with 2015. this increase reflected a 1 % decrease in organic sales , a 3 % increase from acquisitions / divestitures ( acquisitions : sfc koenig - september 2016 ; cidra precision services - july 2015 and novotema - may 2015. divestitures : cvi korea - december 2016 and cvi japan - september 2016 ) and 1 % of unfavorable foreign currency translation . in 2016 , sales decreased 1 % domestically and increased 3 % internationally . sales to customers outside the u.s. were approximately 55 % of total segment sales in both 2016 and 2015. sales within our scientific fluidics & optics platform were down year over year due to slowed demand in the industrial and laser optics end markets as well as the impact of the cvi japan and cvi korea divestitures in 2016 and the ismatec divestiture in 2015 partially offset by strong demand in the core biotech and in-vitro diagnostic markets coupled with the full year impact of the cidra precision services acquisition and a strong semiconductor market . sales within our material processing technologies platform decreased compared to 2015 due to challenges in the north american markets which offset strength in the european and indian pharma markets . sales within our sealing solutions platform increased compared to 2015 due to

liquidity and capital resources for 2011 we generated $ 61 million in cash from operations which enabled us to reduce our bank debt by $ 10 million , invest $ 24 million in the carlisle mine , buy land for about $ 9 million for the allerton project and pay a special dividend of $ 3.5 million . for 2012 we are scheduled to extinguish our bank debt in december and we anticipate our capital expenditures for the carlisle mine falling to $ 10-12 million . we expect next year 's cash from operations to be lower due to the non-recurring gain of $ 10.7 million . future cash flow from operations could be negatively impacted depending on the final outcome of our contract negotiations as discussed on page four of this report . our cash flow from operations will also be negatively impacted by payments of state and federal income taxes . 20 we do not anticipate any liquidity issues in the foreseeable future . eventually , when we develop a new reserve , we intend to incur additional debt and restructure our existing credit facility . we have no material off-balance sheet arrangements . during may 2010 we declared our first cash dividend of $ 0.10 per common share of which there were 27,782,028 outstanding . furthermore , our board approved that the dividend would also apply to the 1,150,000 outstanding rsus and to the 434,167 outstanding stock options on that date . the total cash payment for all the outstanding securities was about $ 2.9 million . during may 2011 we declared another special dividend of $ 0.12 per share . as was done last year , the dividend also applied to our outstanding rsus and stock options . the total cash payment for all the outstanding securities was about $ 3.5 million . we evaluated our cash position and capital requirements and decided to declare another special cash dividend of $ .14 per share payable in april 2012. the total payment , which also covers our outstanding rsus and options , will be about $ 4.1million .

the fire & safety/diversified products segment produces firefighting pumps and controls , valves , monitors , nozzles , rescue tools , lifting bags and other components and systems for the fire and rescue industry , engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications , and precision equipment for dispensing , metering , and mixing colorants and paints used in a variety of retail and commercial businesses around the world . the fire & safety/diversified products segment is comprised of the fire & safety platform ( comprised of class 1 , hale , akron brass , awg fittings , godiva , dinglee , hurst jaws of life , lukas , and vetter ) , the band-it platform , and the dispensing platform . our 2017 financial results were as follows : sales of $ 2.3 billion increased 8 % , reflecting a 6 % increase in organic sales ( excluding acquisitions and divestitures ) and a 2 % increase due to acquisitions/divestitures . operating income of $ 502.6 million was up 22 % and operating margin of 22.0 % was up 250 basis points , respectively , from the prior year . net income increased 24 % to $ 337.3 million . diluted eps of $ 4.36 increased $ 0.83 , or 24 % , compared to 2016 . our 2017 financial results , adjusted for $ 8.5 million of restructuring expense and a $ 9.3 million gain on sale of a business , compared to our 2016 financial results , adjusted for $ 3.7 million of restructuring expense , a $ 3.6 million pension settlement charge and a $ 22.3 million loss on the sale of businesses - net , were as follows ( these non-gaap measures have been reconciled to u.s. gaap measures in item 6 , “ selected financial data ” ) : adjusted operating income of $ 501.7 million was up 14 % and adjusted operating margin of 21.9 % was up 120 basis points , respectively , from the prior year . 17 adjusted net income increased 16 % to $ 333.7 million . adjusted eps of $ 4.31 was 15 % higher than prior year adjusted eps of $ 3.75 . based on continued order strength in the fourth quarter , as well as benefits from our growth initiatives and segmentation efforts , we project approximately 5 % organic revenue growth in 2018. full year 2018 eps is expected to be in the range of $ 4.90 to $ 5.10. results of operations the following is a discussion and analysis of our results of operations for each of the three years in the period ended december 31 , 2017 . for purposes of this item , reference is made to the consolidated statements of operations in part ii , item 8 , “ financial statements and supplementary data . ” segment operating income excludes unallocated corporate operating expenses . management 's primary measurements of segment performance are sales , operating income , and operating margin . in the following discussion , and throughout this report , references to organic sales , a non-gaap measure , refers to sales from continuing operations calculated according to generally accepted accounting principles in the united states but excludes ( 1 ) the impact of foreign currency translation and ( 2 ) sales from acquired or divested businesses during the first twelve months of ownership or divestiture . the portion of sales attributable to foreign currency translation is calculated as the difference between ( a ) the period-to-period change in organic sales and ( b ) the period-to-period change in organic sales after applying prior period foreign exchange rates to the current year period . management believes that reporting organic sales provides useful information to investors by helping identify underlying growth trends in our business and facilitating easier comparisons of our revenue performance with prior and future periods and to our peers . the company excludes the effect of foreign currency translation from organic sales because foreign currency translation is not under management 's control , is subject to volatility and can obscure underlying business trends . the company excludes the effect of acquisitions and divestitures because the nature , size , and number of acquisitions and divestitures can vary dramatically from period to period and between the company and its peers and can also obscure underlying business trends and make comparisons of long-term performance difficult . performance in 2017 compared with 2016 replace_table_token_14_th sales in 2017 were $ 2.3 billion , an 8 % increase from last year . this increase reflects a 6 % increase in organic sales and a 2 % increase from acquisitions/divestitures ( acquisitions : thinxxs - december 2017 ; sfc koenig - september 2016 ; awg fittings - july 2016 and akron brass - march 2016 / divestitures : faure herman - october 2017 ; cvi korea - december 2016 ; ietg - october 2016 ; cvi japan - september 2016 and hydra-stop - july 2016 ) . sales to customers outside the u.s. represented approximately 49 % of total sales in 2017 compared with 50 % in 2016 . in 2017 , fluid & metering technologies contributed 38 % of sales and 42 % of operating income ; health & science technologies contributed 36 % of sales and 32 % of operating income ; and fire & safety/diversified products contributed 26 % of sales and 26 % of operating income . gross profit of $ 1.0 billion in 2017 increased $ 95.9 million , or 10 % , from 2016 , while gross margin increased 90 basis points to 44.9 % in 2017 from 44.0 % in 2016 . the increase in gross profit and margin is primarily a result of increased sales volume and the dilutive impact in the prior year attributable to $ 14.7 million of fair value inventory step-up charges from 2016 acquisitions . sg & a expenses increased to $ 524.9 story_separator_special_tag operating income of $ 412.4 million in 2016 decreased from $ 437.0 million in 2015 , primarily as a result of the impact of the four divestitures in 2016 and the associated loss compared to the one divestiture in 2015 and the associated gain as well as the incremental fair value inventory step-up charges related to the 2016 acquisitions , partially offset by the reversal of $ 4.7 million of contingent consideration related to a 2015 acquisition and lower restructuring costs recorded in 2016 compared to 2015. operating margin of 19.5 % in 2016 was down 210 basis points from 21.6 % in 2015 primarily due to the loss on the sale of businesses in 2016 compared to a gain on the sale of a business in 2015 , partially offset by productivity improvements and lower restructuring costs year over year . other ( income ) expense - net changed by $ 4.7 million from expense of $ 3.0 million in 2015 to income of $ 1.7 million in 2016 mainly due to $ 4.7 million of foreign currency transaction gains on intercompany loans that were established in conjunction with the sfc koenig acquisition . interest expense increased to $ 45.6 million in 2016 from $ 41.6 million in 2015. the increase was primarily due to the $ 200 million series of senior notes issued in 2016 and higher borrowings outstanding on the revolving facility . the provision for income taxes is based upon estimated annual tax rates for the year applied to federal , state and foreign income . the provision for income taxes decreased to $ 97.4 million in 2016 compared to $ 109.5 million in 2015. the effective tax rate decreased to 26.4 % in 2016 compared to 27.9 % in 2015 , due to tax benefits on the divestitures of cvi korea and cvi japan , certain return-to-provision adjustments and the early adoption of asu 2016-09 and the related tax effects of share based payments now recognized as a reduction to income tax expense . these adjustments were offset by the incurrence of additional foreign withholding taxes , the prior year revaluation of the italian deferred tax liability related to the reduction in the italian statutory tax rate and tax expense on the divestiture of the hydra-stop product line and the prior year divestiture of the ismatec product line as well as the mix of global pre-tax income among jurisdictions . net income for the year of $ 271.1 million decreased from the $ 282.8 million in 2015. diluted earnings per share in 2016 of $ 3.53 decreased $ 0.09 from $ 3.62 in 2015. fluid & metering technologies segment replace_table_token_19_th sales of $ 849.1 million decreased $ 11.7 million , or 1 % , in 2016 compared with 2015. this decrease reflected a 1 % decline in organic sales , a 1 % increase from acquisitions ( alfa valvole - june 2015 ) and 1 % of unfavorable foreign currency translation . in 2016 , sales were flat domestically and decreased approximately 3 % internationally . sales to customers outside the u.s. were approximately 44 % of total segment sales in both 2016 and 2015. sales within our energy platform increased compared to 2015 primarily due to strength within the aviation market , partially offset by continued weakness in the propane and oil and gas markets as well as challenges in the mobile end market . sales within our pumps platform ( formerly industrial ) decreased compared to 2015 due to weakness in the north american industrial distribution market . sales within the water platform decreased due to the divestitures of hydra-stop and ietg and slowing demand in the chemical end market , partially offset by increased municipal spending . sales within our agriculture platform increased year over year due to increased demand in the second half of 2016 from both oems and distributors in anticipation of the 2017 planting season . sales within the valves platform , which was created in the third quarter of 2015 , increased as a result of the full year impact of the alfa valvole acquisition , offset by a challenging oil & gas market and overall weakness in the european market . 22 operating income and operating margin of $ 217.5 million and 25.6 % , respectively , were higher than the $ 206.4 million and 24.0 % , respectively , recorded in 2015 , primarily due to the full year impact of the alfa valvole acquisition as well as productivity initiatives , partially offset by lower volume . health & science technologies segment replace_table_token_20_th sales of $ 744.8 million increased $ 5.8 million , or 1 % , in 2016 compared with 2015. this increase reflected a 1 % decrease in organic sales , a 3 % increase from acquisitions / divestitures ( acquisitions : sfc koenig - september 2016 ; cidra precision services - july 2015 and novotema - may 2015. divestitures : cvi korea - december 2016 and cvi japan - september 2016 ) and 1 % of unfavorable foreign currency translation . in 2016 , sales decreased 1 % domestically and increased 3 % internationally . sales to customers outside the u.s. were approximately 55 % of total segment sales in both 2016 and 2015. sales within our scientific fluidics & optics platform were down year over year due to slowed demand in the industrial and laser optics end markets as well as the impact of the cvi japan and cvi korea divestitures in 2016 and the ismatec divestiture in 2015 partially offset by strong demand in the core biotech and in-vitro diagnostic markets coupled with the full year impact of the cidra precision services acquisition and a strong semiconductor market . sales within our material processing technologies platform decreased compared to 2015 due to challenges in the north american markets which offset strength in the european and indian pharma markets . sales within our sealing solutions platform increased compared to 2015 due to

cash flows from operating activities increased $ 32.8 million , or 8.2 % , to $ 432.8 million in 2017 , primarily due to higher earnings in 2017. at december 31 , 2017 , working capital was $ 643.1 million and the company 's current ratio was 2.78 to 1 . at december 31 , 2017 , the company 's cash and cash equivalents totaled $ 376.0 million , of which $ 219.6 million was held outside of the united states . investing activities cash flows used in investing activities decreased $ 454.5 million to $ 54.7 million in 2017 , primarily as a result of $ 471.8 million less cash paid for acquisitions , $ 17.3 million of lower proceeds from the sale of businesses , and $ 6.0 million of higher proceeds from fixed asset disposals , partially offset by $ 5.6 million of higher capital expenditures . cash flows from operations were more than adequate to fund capital expenditures of $ 43.9 million and $ 38.2 million in 2017 and 2016 , respectively . capital expenditures were generally for machinery and equipment that improved productivity , although a portion was for business system technology , replacement of equipment , and construction of new facilities . management believes that the company has ample capacity in its plants and equipment to meet demand increases for future growth in the intermediate term . the company acquired thinxxs in december 2017 for cash consideration of $ 38.2 million and the assumption of $ 1.2 million in debt .

as a result of anticipated commercial effectiveness , the company expects increased working capital to support growth , especially of na/hme mobility and seating products , which would include investments in demonstration units and the working capital needed to support the extended quote-to-cash process for power wheelchairs . also , the company will make additional restructuring and capital investments as it continues to reshape the business over the course of 2018. the company expects spending on capital expenditures to increase from recent low levels to approximately $ 20,000,000 to $ 25,000,000 in 2018. as a result , the company anticipates its cash flow usage for 2018 will be similar to the cash used in 2017 , including consideration of seasonality of cash flow usage during the year . as noted previously , the company is gradually applying the transformation to the europe segment , which may slightly reduce the segment 's net sales as it begins to shift its product mix toward more clinically valued , higher-margin products . regarding the ipg segment , the company expects its new strategic selling approach in the capital selling environment to continue to take time to yield growth . in its pursuit of increased shareholder value , the company continues to prioritize its emphasis on a culture of quality excellence and achieving its long-term earnings potential . favorable long-term demand ultimately , demand for the company 's products and services is based on the need to provide care for people with certain conditions . the company 's medical devices provide solutions for end-users and caregivers . therefore , the demand for the company 's medical equipment is largely driven by population growth and the incidence of certain conditions where treatment may be supplemented by the company 's devices . the company also provides solutions to help equipment providers and residential care operators deliver cost-effective and high-quality care . the company believes that its commercial team , customer relationships , products and solutions , supply chain infrastructure , and strong research and development pipeline will create favorable business potential . 36 part ii management discussion & analysis results of operations results of operations the company has completed various divestitures over the past few years as part of its focus on other lines of business where the company 's resources can best generate returns . the most recent divested operations are explained below . on september 30 , 2016 , the company completed the sale of its subsidiary , garden city medical inc. for approximately $ 13,829,000 in cash ( `` gcm `` ) , to compass health brands . gcm , doing business as pmi and pinnacle medsource , sourced and distributed primarily single-use products under the brand probasics by pmi . gcm was part of the north america/home medical equipment ( na/hme ) segment . the net proceeds from the transaction were $ 12,729,000 , net of expenses . the company recorded a pre-tax gain of $ 7,386,000 in the third quarter of 2016 , which represented the excess of the net sales price over the book value of the assets and liabilities of gcm . the sale of gcm was dilutive to the company 's results . the company determined that the sale of gcm did not meet the criteria for classification as a discontinued operation in accordance with asu 2014-08 but the `` held for sale `` criteria of asc 360-10-45-9 were met and thus gcm was treated as held for sale for purposes of the consolidated balance sheets as of december 31 , 2015. as such , the results of the rentals businesses are included in the results from continuing operations discussion below . on july 2 , 2015 , the company sold its rentals businesses to joerns healthcare parent , llc , for approximately $ 15,500,000 in cash , which was subject to final post-closing adjustments . the rentals businesses had been operated on a stand-alone basis and reported as part of the ipg segment of the company . the company recorded a pre-tax gain of approximately $ 24,000 in the third quarter of 2015 , which represented the excess of the net sales price over the book value of the assets and liabilities of the rentals businesses , as of the date of completion of the disposition . the sale of the rentals businesses was not dilutive to the company 's results . the company determined that the sale of the rentals businesses did not meet the criteria for classification as a discontinued operation in accordance with asu 2014-08. the rentals businesses were treated as held for sale as of june 30 , 2015 until sold on july 2 , 2015 . as such , the results of the rentals businesses are included in the results from continuing operations . reclassifications & other changes - during the first quarter of 2017 , a subsidiary , formerly included in the europe segment , was transferred to the na/hme segment as the subsidiary is managed by the na/hme segment manager effective january 1 , 2017. segment results for 2016 and 2015 have been changed accordingly . in 2016 , the company redefined the measure by which it evaluates segment profit or loss to be segment operating profit ( loss ) . the previous performance measure was earnings before income taxes . all prior periods presented were restated to reflect the new measure . 37 part ii management discussion & analysis net sales net sales 2017 versus 2016 replace_table_token_5_th the table above provides net sales change as reported and as adjusted to exclude the impact of foreign exchange translation ( constant currency net sales ) as well as net sales further adjusted to exclude the impact of the sale of gcm , which was sold in september 2016 and not deemed a discontinued operation from an external reporting perspective . story_separator_special_tag % , excluding the impact of the divested gcm business and foreign currency translation , sg & a expense decreased $ 7,998,000 , or 6.0 % , compared to 2016 driven primarily by decreased employment , legal and product liability costs partially offset by unfavorable foreign currency transactions . ipg - sg & a expenses for ipg decreased by 7.1 % , or $ 826,000 , in 2017 compared to 2016 . excluding the impact of foreign currency translation , sg & a expenses decrease d by $ 835,000 , or 7.2 % , primarily related to lower employment costs . asia/pacific - asia/pacific sg & a expenses decreased 2.9 % , or $ 459,000 , in 2017 compared to 2016 . foreign currency translation increased expense by $ 286,000 or 1.8 % . excluding the foreign currency translation impact , sg & a expenses decrease d $ 745,000 , or 4.7 % , principally related to lower employment costs and favorable foreign currency transactions . other - sg & a expenses related to the other segment increased by 10.7 % or $ 2,151,000 in 2017 as compared to 2016 primarily related to increased employment costs . 44 part ii management discussion & analysis sg & a 2016 versus 2015 replace_table_token_12_th consolidated sg & a expenses as a percentage of net sales were 29.0 % in 2016 and 27.9 % in 2015. the overall dollar decrease was $ 14,865,000 , or 4.7 % , with foreign currency translation decreasing expense by $ 4,226,000 or 1.4 % . excluding the impact of foreign currency translation , sg & a expenses decreased $ 10,639,000 , or 3.3 % . excluding the impacts of all the divested businesses and foreign currency translation , sg & a expense increased $ 2,212,000 , or 0.7 % , compared to 2015 , primarily related to increased product liability and employment costs . the sg & a expense in 2015 included a write-off of costs related to a canceled legacy software program based on a change in the na/hme it strategy . europe - european sg & a expenses increased by 2.4 % , or $ 2,810,000 , in 2016 compared to 2015. foreign currency translation decreased expense by approximately $ 3,224,000 or 2.7 % . excluding the foreign currency translation impact , sg & a expenses increased by $ 6,034,000 , or 5.1 % , principally related to increased employment costs . na/hme - sg & a expenses for na/hme decreased 3.1 % , or $ 4,334,000 , in 2016 compared to 2015 with foreign currency translation decreasing expense by $ 722,000 or 0.5 % . excluding the foreign currency translation , sg & a expense decreased $ 3,612,000 , or 2.6 % , principally as a result of reduced regulatory costs in 2016 , a $ 4,031,000 write-off of costs for a canceled legacy software program in 2015 , and a reduction in expense in 2016 resulting from the gcm divestiture . ipg - sg & a expenses for ipg decreased by 50.7 % , or $ 11,949,000 , in 2016 compared to 2015. excluding the impact of foreign currency translation , sg & a expenses decreased by $ 11,927,000 , or 50.6 % , primarily related to a reduction in expense for the rentals business divestiture ( $ 11,239,000 ) and employment costs . asia/pacific - asia/pacific sg & a expenses decreased 6.1 % , or $ 1,018,000 , in 2016 compared to 2015. foreign currency translation decreased expense by $ 258,000 or 1.6 % . excluding the foreign currency translation impact , sg & a expenses decreased $ 760,000 , or 4.5 % , principally as a result of favorable foreign currency transactions and reduced employment costs . other - sg & a expenses related to the other segment decreased by 1.8 % or $ 374,000 in 2016 as compared to 2015 primarily related to decreased legal expense in 2016 . 45 part ii management discussion & analysis operating income operating income ( loss ) replace_table_token_13_th 2017 versus 2016 consolidated operating loss increased by $ 24,944,000 to a loss of $ 40,159,000 in 2017 from a loss of $ 15,215,000 in 2016 . excluding a $ 7,386,000 gain on sale of the gcm business in 2016 , the loss increased by $ 17,558,000 compared to 2016 primarily due to increased restructuring costs of $ 9,827,000 and lower net sales . europe - operating income decrease d in 2017 compared to 2016 primarily related to unfavorable manufacturing costs , including unfavorable foreign exchange , and increased information technology , r & d and employment costs , partially offset by increased constant currency net sales , favorable net sales mix and reduced warranty expense . na/hme - operating loss increased in 2017 compared to 2016 primarily related to net sales declines partially offset by favorable sales mix and reduced freight , employment , product liability , warranty , legal and r & d expenses . in addition , 2016 included $ 1,969,000 in operating income for gcm . ipg - operating income increased in 2017 compared to 2016 primarily related to reduced sg & a , related to employment costs , and favorable product mix principally offset by net sales declines . asia/pacific - operating loss decreased in 2017 compared to 2016 primarily related to increased constant currency net sales , favorable sales mix , reduced r & d expense , and favorable foreign exchange . all other - operating loss increased in 2017 compared to 2016 due to increased employment costs . gain on sale of business as a result of the sale of gcm on september 30 , 2016 , the company recorded a gain in 2016 of $ 7,386,000 on the sale , which represents the excess of the net sales price over the book value of the net assets of gcm . charge related to restructuring activities the company 's restructuring charges were primarily originally necessitated by continued declines in medicare

cash flows from operating activities increased $ 32.8 million , or 8.2 % , to $ 432.8 million in 2017 , primarily due to higher earnings in 2017. at december 31 , 2017 , working capital was $ 643.1 million and the company 's current ratio was 2.78 to 1 . at december 31 , 2017 , the company 's cash and cash equivalents totaled $ 376.0 million , of which $ 219.6 million was held outside of the united states . investing activities cash flows used in investing activities decreased $ 454.5 million to $ 54.7 million in 2017 , primarily as a result of $ 471.8 million less cash paid for acquisitions , $ 17.3 million of lower proceeds from the sale of businesses , and $ 6.0 million of higher proceeds from fixed asset disposals , partially offset by $ 5.6 million of higher capital expenditures . cash flows from operations were more than adequate to fund capital expenditures of $ 43.9 million and $ 38.2 million in 2017 and 2016 , respectively . capital expenditures were generally for machinery and equipment that improved productivity , although a portion was for business system technology , replacement of equipment , and construction of new facilities . management believes that the company has ample capacity in its plants and equipment to meet demand increases for future growth in the intermediate term . the company acquired thinxxs in december 2017 for cash consideration of $ 38.2 million and the assumption of $ 1.2 million in debt .

as a result of anticipated commercial effectiveness , the company expects increased working capital to support growth , especially of na/hme mobility and seating products , which would include investments in demonstration units and the working capital needed to support the extended quote-to-cash process for power wheelchairs . also , the company will make additional restructuring and capital investments as it continues to reshape the business over the course of 2018. the company expects spending on capital expenditures to increase from recent low levels to approximately $ 20,000,000 to $ 25,000,000 in 2018. as a result , the company anticipates its cash flow usage for 2018 will be similar to the cash used in 2017 , including consideration of seasonality of cash flow usage during the year . as noted previously , the company is gradually applying the transformation to the europe segment , which may slightly reduce the segment 's net sales as it begins to shift its product mix toward more clinically valued , higher-margin products . regarding the ipg segment , the company expects its new strategic selling approach in the capital selling environment to continue to take time to yield growth . in its pursuit of increased shareholder value , the company continues to prioritize its emphasis on a culture of quality excellence and achieving its long-term earnings potential . favorable long-term demand ultimately , demand for the company 's products and services is based on the need to provide care for people with certain conditions . the company 's medical devices provide solutions for end-users and caregivers . therefore , the demand for the company 's medical equipment is largely driven by population growth and the incidence of certain conditions where treatment may be supplemented by the company 's devices . the company also provides solutions to help equipment providers and residential care operators deliver cost-effective and high-quality care . the company believes that its commercial team , customer relationships , products and solutions , supply chain infrastructure , and strong research and development pipeline will create favorable business potential . 36 part ii management discussion & analysis results of operations results of operations the company has completed various divestitures over the past few years as part of its focus on other lines of business where the company 's resources can best generate returns . the most recent divested operations are explained below . on september 30 , 2016 , the company completed the sale of its subsidiary , garden city medical inc. for approximately $ 13,829,000 in cash ( `` gcm `` ) , to compass health brands . gcm , doing business as pmi and pinnacle medsource , sourced and distributed primarily single-use products under the brand probasics by pmi . gcm was part of the north america/home medical equipment ( na/hme ) segment . the net proceeds from the transaction were $ 12,729,000 , net of expenses . the company recorded a pre-tax gain of $ 7,386,000 in the third quarter of 2016 , which represented the excess of the net sales price over the book value of the assets and liabilities of gcm . the sale of gcm was dilutive to the company 's results . the company determined that the sale of gcm did not meet the criteria for classification as a discontinued operation in accordance with asu 2014-08 but the `` held for sale `` criteria of asc 360-10-45-9 were met and thus gcm was treated as held for sale for purposes of the consolidated balance sheets as of december 31 , 2015. as such , the results of the rentals businesses are included in the results from continuing operations discussion below . on july 2 , 2015 , the company sold its rentals businesses to joerns healthcare parent , llc , for approximately $ 15,500,000 in cash , which was subject to final post-closing adjustments . the rentals businesses had been operated on a stand-alone basis and reported as part of the ipg segment of the company . the company recorded a pre-tax gain of approximately $ 24,000 in the third quarter of 2015 , which represented the excess of the net sales price over the book value of the assets and liabilities of the rentals businesses , as of the date of completion of the disposition . the sale of the rentals businesses was not dilutive to the company 's results . the company determined that the sale of the rentals businesses did not meet the criteria for classification as a discontinued operation in accordance with asu 2014-08. the rentals businesses were treated as held for sale as of june 30 , 2015 until sold on july 2 , 2015 . as such , the results of the rentals businesses are included in the results from continuing operations . reclassifications & other changes - during the first quarter of 2017 , a subsidiary , formerly included in the europe segment , was transferred to the na/hme segment as the subsidiary is managed by the na/hme segment manager effective january 1 , 2017. segment results for 2016 and 2015 have been changed accordingly . in 2016 , the company redefined the measure by which it evaluates segment profit or loss to be segment operating profit ( loss ) . the previous performance measure was earnings before income taxes . all prior periods presented were restated to reflect the new measure . 37 part ii management discussion & analysis net sales net sales 2017 versus 2016 replace_table_token_5_th the table above provides net sales change as reported and as adjusted to exclude the impact of foreign exchange translation ( constant currency net sales ) as well as net sales further adjusted to exclude the impact of the sale of gcm , which was sold in september 2016 and not deemed a discontinued operation from an external reporting perspective . story_separator_special_tag % , excluding the impact of the divested gcm business and foreign currency translation , sg & a expense decreased $ 7,998,000 , or 6.0 % , compared to 2016 driven primarily by decreased employment , legal and product liability costs partially offset by unfavorable foreign currency transactions . ipg - sg & a expenses for ipg decreased by 7.1 % , or $ 826,000 , in 2017 compared to 2016 . excluding the impact of foreign currency translation , sg & a expenses decrease d by $ 835,000 , or 7.2 % , primarily related to lower employment costs . asia/pacific - asia/pacific sg & a expenses decreased 2.9 % , or $ 459,000 , in 2017 compared to 2016 . foreign currency translation increased expense by $ 286,000 or 1.8 % . excluding the foreign currency translation impact , sg & a expenses decrease d $ 745,000 , or 4.7 % , principally related to lower employment costs and favorable foreign currency transactions . other - sg & a expenses related to the other segment increased by 10.7 % or $ 2,151,000 in 2017 as compared to 2016 primarily related to increased employment costs . 44 part ii management discussion & analysis sg & a 2016 versus 2015 replace_table_token_12_th consolidated sg & a expenses as a percentage of net sales were 29.0 % in 2016 and 27.9 % in 2015. the overall dollar decrease was $ 14,865,000 , or 4.7 % , with foreign currency translation decreasing expense by $ 4,226,000 or 1.4 % . excluding the impact of foreign currency translation , sg & a expenses decreased $ 10,639,000 , or 3.3 % . excluding the impacts of all the divested businesses and foreign currency translation , sg & a expense increased $ 2,212,000 , or 0.7 % , compared to 2015 , primarily related to increased product liability and employment costs . the sg & a expense in 2015 included a write-off of costs related to a canceled legacy software program based on a change in the na/hme it strategy . europe - european sg & a expenses increased by 2.4 % , or $ 2,810,000 , in 2016 compared to 2015. foreign currency translation decreased expense by approximately $ 3,224,000 or 2.7 % . excluding the foreign currency translation impact , sg & a expenses increased by $ 6,034,000 , or 5.1 % , principally related to increased employment costs . na/hme - sg & a expenses for na/hme decreased 3.1 % , or $ 4,334,000 , in 2016 compared to 2015 with foreign currency translation decreasing expense by $ 722,000 or 0.5 % . excluding the foreign currency translation , sg & a expense decreased $ 3,612,000 , or 2.6 % , principally as a result of reduced regulatory costs in 2016 , a $ 4,031,000 write-off of costs for a canceled legacy software program in 2015 , and a reduction in expense in 2016 resulting from the gcm divestiture . ipg - sg & a expenses for ipg decreased by 50.7 % , or $ 11,949,000 , in 2016 compared to 2015. excluding the impact of foreign currency translation , sg & a expenses decreased by $ 11,927,000 , or 50.6 % , primarily related to a reduction in expense for the rentals business divestiture ( $ 11,239,000 ) and employment costs . asia/pacific - asia/pacific sg & a expenses decreased 6.1 % , or $ 1,018,000 , in 2016 compared to 2015. foreign currency translation decreased expense by $ 258,000 or 1.6 % . excluding the foreign currency translation impact , sg & a expenses decreased $ 760,000 , or 4.5 % , principally as a result of favorable foreign currency transactions and reduced employment costs . other - sg & a expenses related to the other segment decreased by 1.8 % or $ 374,000 in 2016 as compared to 2015 primarily related to decreased legal expense in 2016 . 45 part ii management discussion & analysis operating income operating income ( loss ) replace_table_token_13_th 2017 versus 2016 consolidated operating loss increased by $ 24,944,000 to a loss of $ 40,159,000 in 2017 from a loss of $ 15,215,000 in 2016 . excluding a $ 7,386,000 gain on sale of the gcm business in 2016 , the loss increased by $ 17,558,000 compared to 2016 primarily due to increased restructuring costs of $ 9,827,000 and lower net sales . europe - operating income decrease d in 2017 compared to 2016 primarily related to unfavorable manufacturing costs , including unfavorable foreign exchange , and increased information technology , r & d and employment costs , partially offset by increased constant currency net sales , favorable net sales mix and reduced warranty expense . na/hme - operating loss increased in 2017 compared to 2016 primarily related to net sales declines partially offset by favorable sales mix and reduced freight , employment , product liability , warranty , legal and r & d expenses . in addition , 2016 included $ 1,969,000 in operating income for gcm . ipg - operating income increased in 2017 compared to 2016 primarily related to reduced sg & a , related to employment costs , and favorable product mix principally offset by net sales declines . asia/pacific - operating loss decreased in 2017 compared to 2016 primarily related to increased constant currency net sales , favorable sales mix , reduced r & d expense , and favorable foreign exchange . all other - operating loss increased in 2017 compared to 2016 due to increased employment costs . gain on sale of business as a result of the sale of gcm on september 30 , 2016 , the company recorded a gain in 2016 of $ 7,386,000 on the sale , which represents the excess of the net sales price over the book value of the net assets of gcm . charge related to restructuring activities the company 's restructuring charges were primarily originally necessitated by continued declines in medicare

liquidity and capital resources the company continues to maintain an adequate liquidity position through its cash balances and unused bank lines of credit ( see long-term debt in the notes to the consolidated financial statements included in this report ) as described below . key balances on the company 's balance sheet and related metrics : replace_table_token_17_th ( 1 ) current assets less current liabilities . ( 2 ) long-term debt and total debt include debt issuance costs recognized as a deduction from the carrying amount of debt liability and debt discounts classified as debt or equity . ( 3 ) reflects the combined availability of the company 's north american and european asset-based revolving credit facilities . the change is borrowing availability is due to changes in the calculated borrowing base . the company 's cash and cash equivalents were $ 176,528,000 and $ 124,234,000 at december 31 , 2017 and december 31 , 2016 , respectively . the increase in cash balances at december 31 , 2017 compared to december 31 , 2016 was primarily the result of the net proceeds received from the issuance of the 2022 notes in the second quarter of 2017 partially offset by cash utilized for normal operations and by the february 2 , 2017 repurchase of all the outstanding principal amount of convertible senior subordinated debentures due 2027 ( the `` debentures '' ) totaling $ 13,350,000 as the holders exercised their february 1 , 2017 right to require the company to repurchase their debentures . debt repayments , acquisitions , divestitures , the timing of vendor payments , the timing of customer rebate payments , the granting of extended payment terms to significant national accounts and other activity can have a significant impact on the company 's cash flow and borrowings outstanding such that the cash reported at the end of a given period may be materially different than cash levels during a given period .

end-use applications for our materials in the consumer electronics market include cell phones , tablets , gaming systems and other hand-held devices , and the market 's demand for increased power and miniaturization in these applications favors the use of our high-performance materials . as a material supplier , we sell to stamping houses and sub-assembly shops so we are several steps removed from the final consumer . our sales to this market in a given period , therefore , are affected by downstream inventory levels and production schedules and changes in market share of the intermediaries within the supply chain and not necessarily by changes in sales of the final product or in consumer demand in that period . while our marketing staff works closely with various demand generators to develop new applications , technologies can be closely guarded for competitive reasons and we do lose applications from time to time due to rapid changes in technologies and applications that have short life spans . underlying volumes sold to the industrial components and commercial aerospace market continued to grow in both 2012 and 2011. the growth in both years was driven by higher sales of materials for heavy equipment , as a result of product development and market penetration efforts , and improved aerospace market conditions . sales of x-ray windows for industrial applications also contributed to the sales growth in 2011 over 2010 but sales of these products softened in 2012. sales to the industrial components and aerospace market were approximately 12 % of our total sales in 2012. defense and science market sales , which were approximately 10 % of our total sales in 2012 , declined at a double-digit rate in 2012 from 2011 primarily as a result of government delays and spending cuts . the majority of the decline was in optics and precious metal applications as our traditional beryllium-based defense and science sales showed a more minor decline . defense and science sales in 2011 were relatively unchanged from 2010. sales to the medical market grew in 2012 and 2011 over the respective prior year largely due to increased sales for blood glucose test strip applications . medical sales , which also include x-ray window applications , accounted for approximately 8 % of our total sales in 2012. energy market sales softened in 2012 from 2011 after growing significantly in 2011 over 2010. sales for oil and gas applications , which were a main driver for the growth in 2011 , declined in 2012 due to a reduction in the rig count . sales of materials for solar energy , fuel cells and other alternative energy applications contributed to the growth in 2011 but declined in 2012 due to weaker market conditions . energy market sales were 8 % of our total sales in 2012. automotive electronics sales declined slightly in 2012 from 2011 after growing at a double-digit rate in 2011 over 2010. the growth in beryllium copper strip sales , primarily in the u.s. , was partially offset by softer demand in europe and weaker sales of optics . the growth in 2011 was largely due to solid demand in the domestic and european markets . automotive electronics sales were approximately 6 % of total sales in 2012. the order entry rate strengthened in the first half of 2012 over a weak fourth quarter 2011 , but then softened in the second half of the year . total order entry was 2 % higher than sales in 2012. similar to 2012 , order entry rates started 2011 off fairly strong , but weakened in the second half of the year and in the fourth quarter in particular . the total order entry level in 2011 , while higher than the order entry level in 2010 , was approximately 3 % lower than sales in 2011 . 22 our sales are affected by metal prices , as changes in the prices we pay for precious metals and various base metals , primarily copper , are passed on to our customers . the average prices for the metals we purchased in 2012 were lower than they were in 2011 when the prices for various metals reached all-time or near-term record highs . the net change in metal prices resulted in an estimated $ 5.3 million decrease in sales in 2012 from 2011 and an estimated $ 195.6 million increase in sales in 2011 over 2010. we manufacture precious metal products using our metal that we sell to the customer or on a toll basis using metal that the customer supplies to us . shifts in the relationship between the use of owned versus customer-supplied metal can affect the sales comparisons between periods , and in 2012 , customer-supplied metal increased as a percent of the total metal shipped . this shift in the source of metal reduced our sales of precious metal by an estimated $ 73.0 million in 2012 compared to 2011. since the cost of the precious metal is a pass-through , a change in the metal 's source does not have a corresponding impact on gross margin . as part of our product rationalization efforts , we exited the silver investment bar business in 2012. this non-strategic product line generated extremely low margins that could not support the associated level of working capital and overhead . this action resulted in a reduction of sales of approximately $ 44.6 million in 2012 from 2011 with an immaterial impact on profitability . the acquisition of amc in the first quarter 2012 had a minor impact on sales as did having a full year of eis in 2012 after it was acquired in the fourth quarter 2011. domestic sales declined 23 % in 2012 from 2011 after growing 23 % in 2011 over 2010. domestic sales include the majority of the impact of the differences in metal price pass-through between periods . story_separator_special_tag the all other column shows an operating loss of $ 6.6 million in 2012 compared to $ 10.1 million in 2011 and $ 8.3 million in 2010. the reduction in the loss in 2012 from 2011 was due to the costs associated with the company name change incurred in 2011 and an increase in costs charged to the business units offset in part by an increase in various corporate costs and other factors . the primary difference between the 2011 and 2010 results was due to the costs associated with the company name change , due diligence and acquisition costs , various corporate initiatives and other factors offset in part by lower incentive compensation and an increase in costs charged out to the business units . advanced material technologies replace_table_token_7_th advanced material technologies manufactures precious , non-precious and specialty metal products , including vapor deposition targets , frame lid assemblies , clad and precious metal preforms , high temperature braze materials , ultra-fine wire , advanced chemicals , optics , performance coatings and microelectronic packages . these products are used in wireless , semiconductor , photonic , hybrid and other microelectronic applications within the consumer electronics and telecommunications infrastructure markets . other key markets for these products include medical , defense and science , energy and industrial components . advanced material technologies also has metal cleaning operations and in-house refineries that allow for the reclaim of precious metals from internally generated or customers ' scrap . this segment has domestic facilities in new york , connecticut , wisconsin , new mexico , massachusetts and california and international facilities in asia and europe . sales from advanced material technologies were $ 847.8 million , a decline of $ 204.0 million , or 19 % , from sales of $ 1.1 billion in 2011. sales in 2011 were an improvement of $ 172.8 million , or 20 % , over sales of $ 879.0 million in 2010. the previously discussed impact of changes in the amount of customer-supplied metal flowed through this segment 's sales as did the discontinuation of investment bar sales . we adjust our selling prices to reflect the price we pay for the precious and various non-precious metals sold . while a change in the cost of the metal is generally a pass-through to the customer , we generate a margin on our fabrication efforts irrespective of the type of metal used in a given application . on average , the applicable metal prices were higher in each of 2012 and 2011 26 than the respective prior years , although the increase in prices in 2012 was not substantial . we estimate that the higher metal price pass-through increased advanced material technologies ' sales an estimated $ 3.2 million in 2012 from 2011 and $ 180.5 million in 2011 over 2010. while the metal price impact was greater than the total sales increase in 2011 , underlying volumes processed grew in 2011 due to differences in product mix , customer-supplied metal and other factors . after adjusting for differences in the metal price pass-through and the use of customer-supplied metal , advanced material technologies ' sales to the consumer electronics and medical markets increased in 2012 over 2011 while sales to its other major markets were flat to down . the majority of the sales into the consumer electronics market from this segment are vapor deposition targets , lids , wire and other related precious and non-precious metal products for semiconductors and other microelectronic applications . these materials are used in wireless , led , handheld devices and other applications as well as in a number of applications within the defense and science market . the growth in consumer electronics sales in 2012 was largely due to the acquisition of eis , which produces optical coatings and related products for projection display , gaming and other applications . consumer electronic sales in 2011 were flat with 2010 as strong sales in the first half of that year were offset by a weaker second half of the year due to stagnant demand . sales of precious metal products for led applications into the consumer electronics market declined in 2012 due to the slower than anticipated growth in end-use consumer demand for led products driven by the high price to the final customer . as a result , manufacturers of led products have been designing ways to reduce costs , including reducing the consumption of high cost materials . these new designs use less of our materials and therefore negatively impact the level of our shipments for these applications . this change also resulted in excess downstream inventories during 2012 that needed to be worked down , further depressing our sales in the short term . since we are an up-front material supplier , changes in our consumer electronics sales levels do not necessarily correspond to changes in the end-use consumer demand in the same period due to downstream inventory positions , the time to develop and deploy new products and manufacturing lead times and scheduling . while our product and market development efforts allow us to capture new applications , we do lose existing applications and customers from time to time due to the rapid change in technologies and other factors . sales of large area coatings products , primarily precision precious metal coated polymer films , grew approximately 35 % in 2012 over 2011 and 50 % in 2011 over 2010 after adjusting for the estimated metal price difference . the growth in 2012 was predominately due to application development efforts and geographic expansion of our sales of blood glucose test strip materials into the medical market as well as share gains within the existing customer base . lower manufacturing yields and the inability to hold tolerances resulted in missed sales to a key customer and the loss of a portion of the business to our competitor in 2010. new processes were developed and qualified with the customer

liquidity and capital resources the company continues to maintain an adequate liquidity position through its cash balances and unused bank lines of credit ( see long-term debt in the notes to the consolidated financial statements included in this report ) as described below . key balances on the company 's balance sheet and related metrics : replace_table_token_17_th ( 1 ) current assets less current liabilities . ( 2 ) long-term debt and total debt include debt issuance costs recognized as a deduction from the carrying amount of debt liability and debt discounts classified as debt or equity . ( 3 ) reflects the combined availability of the company 's north american and european asset-based revolving credit facilities . the change is borrowing availability is due to changes in the calculated borrowing base . the company 's cash and cash equivalents were $ 176,528,000 and $ 124,234,000 at december 31 , 2017 and december 31 , 2016 , respectively . the increase in cash balances at december 31 , 2017 compared to december 31 , 2016 was primarily the result of the net proceeds received from the issuance of the 2022 notes in the second quarter of 2017 partially offset by cash utilized for normal operations and by the february 2 , 2017 repurchase of all the outstanding principal amount of convertible senior subordinated debentures due 2027 ( the `` debentures '' ) totaling $ 13,350,000 as the holders exercised their february 1 , 2017 right to require the company to repurchase their debentures . debt repayments , acquisitions , divestitures , the timing of vendor payments , the timing of customer rebate payments , the granting of extended payment terms to significant national accounts and other activity can have a significant impact on the company 's cash flow and borrowings outstanding such that the cash reported at the end of a given period may be materially different than cash levels during a given period .

end-use applications for our materials in the consumer electronics market include cell phones , tablets , gaming systems and other hand-held devices , and the market 's demand for increased power and miniaturization in these applications favors the use of our high-performance materials . as a material supplier , we sell to stamping houses and sub-assembly shops so we are several steps removed from the final consumer . our sales to this market in a given period , therefore , are affected by downstream inventory levels and production schedules and changes in market share of the intermediaries within the supply chain and not necessarily by changes in sales of the final product or in consumer demand in that period . while our marketing staff works closely with various demand generators to develop new applications , technologies can be closely guarded for competitive reasons and we do lose applications from time to time due to rapid changes in technologies and applications that have short life spans . underlying volumes sold to the industrial components and commercial aerospace market continued to grow in both 2012 and 2011. the growth in both years was driven by higher sales of materials for heavy equipment , as a result of product development and market penetration efforts , and improved aerospace market conditions . sales of x-ray windows for industrial applications also contributed to the sales growth in 2011 over 2010 but sales of these products softened in 2012. sales to the industrial components and aerospace market were approximately 12 % of our total sales in 2012. defense and science market sales , which were approximately 10 % of our total sales in 2012 , declined at a double-digit rate in 2012 from 2011 primarily as a result of government delays and spending cuts . the majority of the decline was in optics and precious metal applications as our traditional beryllium-based defense and science sales showed a more minor decline . defense and science sales in 2011 were relatively unchanged from 2010. sales to the medical market grew in 2012 and 2011 over the respective prior year largely due to increased sales for blood glucose test strip applications . medical sales , which also include x-ray window applications , accounted for approximately 8 % of our total sales in 2012. energy market sales softened in 2012 from 2011 after growing significantly in 2011 over 2010. sales for oil and gas applications , which were a main driver for the growth in 2011 , declined in 2012 due to a reduction in the rig count . sales of materials for solar energy , fuel cells and other alternative energy applications contributed to the growth in 2011 but declined in 2012 due to weaker market conditions . energy market sales were 8 % of our total sales in 2012. automotive electronics sales declined slightly in 2012 from 2011 after growing at a double-digit rate in 2011 over 2010. the growth in beryllium copper strip sales , primarily in the u.s. , was partially offset by softer demand in europe and weaker sales of optics . the growth in 2011 was largely due to solid demand in the domestic and european markets . automotive electronics sales were approximately 6 % of total sales in 2012. the order entry rate strengthened in the first half of 2012 over a weak fourth quarter 2011 , but then softened in the second half of the year . total order entry was 2 % higher than sales in 2012. similar to 2012 , order entry rates started 2011 off fairly strong , but weakened in the second half of the year and in the fourth quarter in particular . the total order entry level in 2011 , while higher than the order entry level in 2010 , was approximately 3 % lower than sales in 2011 . 22 our sales are affected by metal prices , as changes in the prices we pay for precious metals and various base metals , primarily copper , are passed on to our customers . the average prices for the metals we purchased in 2012 were lower than they were in 2011 when the prices for various metals reached all-time or near-term record highs . the net change in metal prices resulted in an estimated $ 5.3 million decrease in sales in 2012 from 2011 and an estimated $ 195.6 million increase in sales in 2011 over 2010. we manufacture precious metal products using our metal that we sell to the customer or on a toll basis using metal that the customer supplies to us . shifts in the relationship between the use of owned versus customer-supplied metal can affect the sales comparisons between periods , and in 2012 , customer-supplied metal increased as a percent of the total metal shipped . this shift in the source of metal reduced our sales of precious metal by an estimated $ 73.0 million in 2012 compared to 2011. since the cost of the precious metal is a pass-through , a change in the metal 's source does not have a corresponding impact on gross margin . as part of our product rationalization efforts , we exited the silver investment bar business in 2012. this non-strategic product line generated extremely low margins that could not support the associated level of working capital and overhead . this action resulted in a reduction of sales of approximately $ 44.6 million in 2012 from 2011 with an immaterial impact on profitability . the acquisition of amc in the first quarter 2012 had a minor impact on sales as did having a full year of eis in 2012 after it was acquired in the fourth quarter 2011. domestic sales declined 23 % in 2012 from 2011 after growing 23 % in 2011 over 2010. domestic sales include the majority of the impact of the differences in metal price pass-through between periods . story_separator_special_tag the all other column shows an operating loss of $ 6.6 million in 2012 compared to $ 10.1 million in 2011 and $ 8.3 million in 2010. the reduction in the loss in 2012 from 2011 was due to the costs associated with the company name change incurred in 2011 and an increase in costs charged to the business units offset in part by an increase in various corporate costs and other factors . the primary difference between the 2011 and 2010 results was due to the costs associated with the company name change , due diligence and acquisition costs , various corporate initiatives and other factors offset in part by lower incentive compensation and an increase in costs charged out to the business units . advanced material technologies replace_table_token_7_th advanced material technologies manufactures precious , non-precious and specialty metal products , including vapor deposition targets , frame lid assemblies , clad and precious metal preforms , high temperature braze materials , ultra-fine wire , advanced chemicals , optics , performance coatings and microelectronic packages . these products are used in wireless , semiconductor , photonic , hybrid and other microelectronic applications within the consumer electronics and telecommunications infrastructure markets . other key markets for these products include medical , defense and science , energy and industrial components . advanced material technologies also has metal cleaning operations and in-house refineries that allow for the reclaim of precious metals from internally generated or customers ' scrap . this segment has domestic facilities in new york , connecticut , wisconsin , new mexico , massachusetts and california and international facilities in asia and europe . sales from advanced material technologies were $ 847.8 million , a decline of $ 204.0 million , or 19 % , from sales of $ 1.1 billion in 2011. sales in 2011 were an improvement of $ 172.8 million , or 20 % , over sales of $ 879.0 million in 2010. the previously discussed impact of changes in the amount of customer-supplied metal flowed through this segment 's sales as did the discontinuation of investment bar sales . we adjust our selling prices to reflect the price we pay for the precious and various non-precious metals sold . while a change in the cost of the metal is generally a pass-through to the customer , we generate a margin on our fabrication efforts irrespective of the type of metal used in a given application . on average , the applicable metal prices were higher in each of 2012 and 2011 26 than the respective prior years , although the increase in prices in 2012 was not substantial . we estimate that the higher metal price pass-through increased advanced material technologies ' sales an estimated $ 3.2 million in 2012 from 2011 and $ 180.5 million in 2011 over 2010. while the metal price impact was greater than the total sales increase in 2011 , underlying volumes processed grew in 2011 due to differences in product mix , customer-supplied metal and other factors . after adjusting for differences in the metal price pass-through and the use of customer-supplied metal , advanced material technologies ' sales to the consumer electronics and medical markets increased in 2012 over 2011 while sales to its other major markets were flat to down . the majority of the sales into the consumer electronics market from this segment are vapor deposition targets , lids , wire and other related precious and non-precious metal products for semiconductors and other microelectronic applications . these materials are used in wireless , led , handheld devices and other applications as well as in a number of applications within the defense and science market . the growth in consumer electronics sales in 2012 was largely due to the acquisition of eis , which produces optical coatings and related products for projection display , gaming and other applications . consumer electronic sales in 2011 were flat with 2010 as strong sales in the first half of that year were offset by a weaker second half of the year due to stagnant demand . sales of precious metal products for led applications into the consumer electronics market declined in 2012 due to the slower than anticipated growth in end-use consumer demand for led products driven by the high price to the final customer . as a result , manufacturers of led products have been designing ways to reduce costs , including reducing the consumption of high cost materials . these new designs use less of our materials and therefore negatively impact the level of our shipments for these applications . this change also resulted in excess downstream inventories during 2012 that needed to be worked down , further depressing our sales in the short term . since we are an up-front material supplier , changes in our consumer electronics sales levels do not necessarily correspond to changes in the end-use consumer demand in the same period due to downstream inventory positions , the time to develop and deploy new products and manufacturing lead times and scheduling . while our product and market development efforts allow us to capture new applications , we do lose existing applications and customers from time to time due to the rapid change in technologies and other factors . sales of large area coatings products , primarily precision precious metal coated polymer films , grew approximately 35 % in 2012 over 2011 and 50 % in 2011 over 2010 after adjusting for the estimated metal price difference . the growth in 2012 was predominately due to application development efforts and geographic expansion of our sales of blood glucose test strip materials into the medical market as well as share gains within the existing customer base . lower manufacturing yields and the inability to hold tolerances resulted in missed sales to a key customer and the loss of a portion of the business to our competitor in 2010. new processes were developed and qualified with the customer

cash totaled $ 16.1 million as of december 31 , 2012 , an increase of $ 3.8 million from the cash balance of $ 12.3 million as of year-end 2011. cash declined $ 3.8 million in 2011 as excess cash , coupled with the cash provided from operations , were used to finance the acquisition of eis , capital expenditures , a reduction in debt and the repurchase of shares . 34 accounts receivable totaled $ 126.5 million as of year-end 2012 , an increase of $ 8.7 million , or 7 % , from the year-end 2011 balance of $ 117.8 million . the growth was primarily due to a slowdown in the days sales outstanding ( dso ) , a measure of how fast receivables are collected , from approximately 32 days at year-end 2011 to approximately 37 days at year-end 2012. the dso of 37 days is within our normal operating range . the year-end 2011 accounts receivable balance was $ 21.6 million , or 16 % , lower than the accounts receivable balance of $ 139.4 million as of year-end 2010. this decrease was due to a combination of changes in the sales volume , as sales in the fourth quarter 2011 were 6 % lower than sales in the fourth quarter 2010 , and a 4 day improvement in the dso . the expense for accounts written off to bad debts and changes in the allowance for doubtful accounts remained low at $ 0.4 million in 2012 and $ 0.1 million in 2011. we have procedures in place to closely monitor our accounts receivable aging and to follow-up on past due accounts . we evaluate the credit position of new customers in advance of the initial sale and we evaluate our existing customers ' credit positions on an ongoing basis . we will revise credit terms offered to our customers as conditions warrant in order to minimize our exposures . credit terms may vary by country based upon local customary practice and competition .

the company 's financial statements as of june 30 , 2012 and for the fiscal years ended june 30 , 2012 and 2011 are on a combined basis and presented as carve-out financial statements as the company was not a separate consolidated group prior to the distribution date . these statements reflect the combined historical results of operations , financial position and cash flows of 21st century fox 's publishing businesses , its education division and other australian assets . subsequent to the distribution date , the company 's financial statements as of and for the year ended june 30 , 2013 are presented on a consolidated basis as the company became a separate consolidated group . 38 the company 's consolidated and combined statements of operations ( the “statements of operations” ) for the fiscal years ended june 30 , 2013 , 2012 and 2011 include allocations of general corporate expenses for certain support functions that were provided on a centralized basis by 21st century fox and not recorded at the business unit level , such as expenses related to finance , human resources , information technology , facilities , and legal , among others . these expenses have been allocated to the company on the basis of direct usage when identifiable , with the remainder allocated on a pro rata basis of combined or consolidated revenues , operating income , headcount or other measures of the company . management believes the assumptions underlying the combined and consolidated financial statements ( the “financial statements” ) , including the assumptions regarding allocating general corporate expenses from 21st century fox are reasonable . nevertheless , the financial statements may not include all of the actual expenses that would have been incurred by the company and may not reflect the company 's consolidated and combined results of operations , financial position and cash flows had it been a stand-alone company during the periods presented . actual costs that would have been incurred if the company had been a stand-alone company would depend on multiple factors , including organizational structure and strategic decisions made in various areas , including information technology and infrastructure . the company 's consolidated balance sheet as of june 30 , 2013 consists of the company 's consolidated balances , subsequent to the separation . the balances reflect the assets and liabilities that were historically included in 21st century fox 's publishing business , its education division and other australian assets , as well as assets and liabilities transferred to the company as part of the internal reorganization . all assets and liabilities included in the company 's consolidated balance sheet are recorded on a historical cost basis . the company 's combined balance sheet as of june 30 , 2012 consists of the combined balances of 21st century fox 's publishing businesses , its education division and other australian assets . the consolidated and combined balance sheets will be referred to as the “balance sheets” herein . the financial statements have been prepared in accordance with generally accepted accounting principles in the united states of america ( “gaap” ) . all intracompany transactions and accounts within news corporation have been eliminated for the financial statements . for purposes of the company 's financial statements for periods prior to the separation , income tax expense has been recorded as if the company filed tax returns on a stand-alone basis separate from 21st century fox . this separate return methodology applies the accounting guidance for income taxes to the stand-alone financial statements as if the company was a stand-alone enterprise for the periods prior to the distribution date . therefore , cash tax payments and items of current and deferred taxes may not be reflective of the company 's actual tax balances prior to or subsequent to the separation . prior to the distribution date , the company 's operating results were included in 21st century fox 's consolidated u.s. federal and state income tax returns . pursuant to rules promulgated by the internal revenue service and various state taxing authorities , the company will file its initial u.s. income tax returns for the period june 29 , 2013 , through june 30 , 2013. the income tax accounts reflected in the balance sheets as of june 30 , 2013 include income taxes payable and deferred taxes allocated to the company at the time of the separation . the calculation of the company 's income taxes involves considerable judgment and the use of both estimates and allocations . management 's discussion and analysis of financial condition and results of operations is intended to help provide an understanding of the company 's financial condition , changes in financial condition and results of operations for the fiscal periods presented . this discussion is organized as follows : overview of the company 's business —this section provides a general description of the company 's businesses , as well as developments that occurred during fiscal 2012 , fiscal 2013 or early fiscal 2014 that the company believes are important in understanding its results of operations and financial condition or to disclose known trends . results of operations —this section provides an analysis of the company 's results of operations for the three fiscal years ended june 30 , 2013 , respectively . this analysis is presented on both a consolidated or 39 combined basis and a segment basis . in addition , a brief description is provided of significant transactions and events that impact the comparability of the results being analyzed . story_separator_special_tag in march 2013 , the company sold its 44 % equity interest in sky network television ltd. for approximately $ 675 million . in april 2013 , the company sold its remaining 10 % investment in the dow jones indexes business to cme . since 2010 , the company has divested all of its interests in the dow jones indexes business and stoxx and received cumulative proceeds of approximately $ 1 billion . in september 2013 , the company sold the dow jones local media group , which operates eight daily and 15 weekly newspapers in seven states . results of operations results of operations—fiscal 2013 versus fiscal 2012 the following table sets forth the company 's operating results for fiscal 2013 as compared to fiscal 2012. replace_table_token_3_th * * not meaningful 44 revenues — revenues increased 3 % for the fiscal year ended june 30 , 2013 as compared to fiscal 2012 , primarily due to the inclusion of revenues resulting from the consolidation of fox sports australia and the acquisition of thomas nelson ( the “acquisitions” ) of approximately $ 324 million and $ 172 million , respectively , and higher u.k. newspaper revenues of approximately $ 89 million principally due to the inclusion of revenues from the launch of the sunday edition of the sun in february 2012. also contributing to the revenue increase was higher advertising revenues at the digital real estate services segment of $ 59 million . these increases were partially offset by lower revenues at the australian newspapers of $ 350 million , primarily reflecting lower newspaper advertising revenues principally due to the continued challenging economic environment in australia , and lower revenues at dow jones of $ 76 million reflecting lower advertising revenues . operating expenses — operating expenses increased 6 % for the fiscal year ended june 30 , 2013 as compared to fiscal 2012 , primarily due to the inclusion of operating expenses related to the acquisitions of $ 370 million , partially offset by a $ 96 million decrease in operating expenses at the news and information services segment primarily due to lower printing , production and distribution expenses resulting from decreased revenues . selling , general and administrative expenses — selling , general and administrative expenses increased 1 % for the fiscal year ended june 30 , 2013 as compared to fiscal 2012 , primarily due to a $ 99 million increase at the other segment , the inclusion of $ 35 million in expenses resulting from the acquisitions and higher expenses of $ 20 million in the digital real estate services segment directly relating to revenue growth supporting innovation , development and the sale of real estate advertising products . these increases were partially offset by lower expenses of $ 87 million at the news and information services segment principally resulting from the positive impact of cost savings initiatives and lower litigation settlement costs at the book publishing segment of approximately $ 25 million related to an e-books antitrust action that settled in fiscal 2012. depreciation and amortization — depreciation and amortization increased 13 % for the fiscal year ended june 30 , 2013 as compared to fiscal 2012 , primarily due to the inclusion of expenses resulting from the acquisitions of approximately $ 32 million and higher depreciation expense at the news and information services segment of $ 25 million . impairment and restructuring charges — during the fourth quarter of fiscal 2013 , as part of the company 's long-range planning process in preparation for the separation , the company adjusted its future outlook and related strategy principally with respect to the news and information services business in australia and secondarily with respect to the news and information services businesses in the u.s. these adjustments reflect adverse trends affecting the company 's news and information services segment , including declines in advertising revenue and continued declines in the economic environment in australia , and resulted in a reduction in expected future cash flows . as a result , the company determined that the fair value of these reporting units declined below their respective carrying values and recorded non-cash impairment charges of approximately $ 1.4 billion ( $ 1.1 billion , net of tax ) in the fiscal year ended june 30 , 2013. the charges primarily consisted of a write-down of the company 's goodwill of $ 494 million , a write-down of intangible assets ( primarily newspaper mastheads ) of $ 862 million , and a write-down of fixed assets of $ 46 million . the impairment charges also include $ 42 million for the potential sale of assets at values below their carrying values . during the fourth quarter of fiscal 2012 , the company completed its annual impairment review of goodwill and indefinite-lived intangible assets . as a result of the impairment review performed , the company recorded non-cash impairment charges of approximately $ 2.6 billion ( $ 2.2 billion , net of tax ) for the fiscal year ended june 30 , 2012. the charges consisted of a write-down of goodwill of approximately $ 1.3 billion and a write-down of the indefinite-lived intangible assets ( primarily newspaper mastheads and distribution networks ) of approximately $ 1.3 billion . these impairment charges were primarily the result of adverse trends affecting several businesses in the company 's news and information services segment , including secular declines in the economic environment in australia , a decline in in-store advertising spend by consumer packaged goods manufacturers in the u.s. and lower forecasted revenues from certain businesses utilizing various trade names owned by the company 's newspaper operations . the charges also reflected the expected sale of certain assets at a value below their carrying value . 45 in fiscal 2013 , the company recorded restructuring charges of $ 293 million , of which $ 276 million related to the newspaper businesses . the restructuring charges primarily related to the reorganization of the australian newspaper businesses

cash totaled $ 16.1 million as of december 31 , 2012 , an increase of $ 3.8 million from the cash balance of $ 12.3 million as of year-end 2011. cash declined $ 3.8 million in 2011 as excess cash , coupled with the cash provided from operations , were used to finance the acquisition of eis , capital expenditures , a reduction in debt and the repurchase of shares . 34 accounts receivable totaled $ 126.5 million as of year-end 2012 , an increase of $ 8.7 million , or 7 % , from the year-end 2011 balance of $ 117.8 million . the growth was primarily due to a slowdown in the days sales outstanding ( dso ) , a measure of how fast receivables are collected , from approximately 32 days at year-end 2011 to approximately 37 days at year-end 2012. the dso of 37 days is within our normal operating range . the year-end 2011 accounts receivable balance was $ 21.6 million , or 16 % , lower than the accounts receivable balance of $ 139.4 million as of year-end 2010. this decrease was due to a combination of changes in the sales volume , as sales in the fourth quarter 2011 were 6 % lower than sales in the fourth quarter 2010 , and a 4 day improvement in the dso . the expense for accounts written off to bad debts and changes in the allowance for doubtful accounts remained low at $ 0.4 million in 2012 and $ 0.1 million in 2011. we have procedures in place to closely monitor our accounts receivable aging and to follow-up on past due accounts . we evaluate the credit position of new customers in advance of the initial sale and we evaluate our existing customers ' credit positions on an ongoing basis . we will revise credit terms offered to our customers as conditions warrant in order to minimize our exposures . credit terms may vary by country based upon local customary practice and competition .

the company 's financial statements as of june 30 , 2012 and for the fiscal years ended june 30 , 2012 and 2011 are on a combined basis and presented as carve-out financial statements as the company was not a separate consolidated group prior to the distribution date . these statements reflect the combined historical results of operations , financial position and cash flows of 21st century fox 's publishing businesses , its education division and other australian assets . subsequent to the distribution date , the company 's financial statements as of and for the year ended june 30 , 2013 are presented on a consolidated basis as the company became a separate consolidated group . 38 the company 's consolidated and combined statements of operations ( the “statements of operations” ) for the fiscal years ended june 30 , 2013 , 2012 and 2011 include allocations of general corporate expenses for certain support functions that were provided on a centralized basis by 21st century fox and not recorded at the business unit level , such as expenses related to finance , human resources , information technology , facilities , and legal , among others . these expenses have been allocated to the company on the basis of direct usage when identifiable , with the remainder allocated on a pro rata basis of combined or consolidated revenues , operating income , headcount or other measures of the company . management believes the assumptions underlying the combined and consolidated financial statements ( the “financial statements” ) , including the assumptions regarding allocating general corporate expenses from 21st century fox are reasonable . nevertheless , the financial statements may not include all of the actual expenses that would have been incurred by the company and may not reflect the company 's consolidated and combined results of operations , financial position and cash flows had it been a stand-alone company during the periods presented . actual costs that would have been incurred if the company had been a stand-alone company would depend on multiple factors , including organizational structure and strategic decisions made in various areas , including information technology and infrastructure . the company 's consolidated balance sheet as of june 30 , 2013 consists of the company 's consolidated balances , subsequent to the separation . the balances reflect the assets and liabilities that were historically included in 21st century fox 's publishing business , its education division and other australian assets , as well as assets and liabilities transferred to the company as part of the internal reorganization . all assets and liabilities included in the company 's consolidated balance sheet are recorded on a historical cost basis . the company 's combined balance sheet as of june 30 , 2012 consists of the combined balances of 21st century fox 's publishing businesses , its education division and other australian assets . the consolidated and combined balance sheets will be referred to as the “balance sheets” herein . the financial statements have been prepared in accordance with generally accepted accounting principles in the united states of america ( “gaap” ) . all intracompany transactions and accounts within news corporation have been eliminated for the financial statements . for purposes of the company 's financial statements for periods prior to the separation , income tax expense has been recorded as if the company filed tax returns on a stand-alone basis separate from 21st century fox . this separate return methodology applies the accounting guidance for income taxes to the stand-alone financial statements as if the company was a stand-alone enterprise for the periods prior to the distribution date . therefore , cash tax payments and items of current and deferred taxes may not be reflective of the company 's actual tax balances prior to or subsequent to the separation . prior to the distribution date , the company 's operating results were included in 21st century fox 's consolidated u.s. federal and state income tax returns . pursuant to rules promulgated by the internal revenue service and various state taxing authorities , the company will file its initial u.s. income tax returns for the period june 29 , 2013 , through june 30 , 2013. the income tax accounts reflected in the balance sheets as of june 30 , 2013 include income taxes payable and deferred taxes allocated to the company at the time of the separation . the calculation of the company 's income taxes involves considerable judgment and the use of both estimates and allocations . management 's discussion and analysis of financial condition and results of operations is intended to help provide an understanding of the company 's financial condition , changes in financial condition and results of operations for the fiscal periods presented . this discussion is organized as follows : overview of the company 's business —this section provides a general description of the company 's businesses , as well as developments that occurred during fiscal 2012 , fiscal 2013 or early fiscal 2014 that the company believes are important in understanding its results of operations and financial condition or to disclose known trends . results of operations —this section provides an analysis of the company 's results of operations for the three fiscal years ended june 30 , 2013 , respectively . this analysis is presented on both a consolidated or 39 combined basis and a segment basis . in addition , a brief description is provided of significant transactions and events that impact the comparability of the results being analyzed . story_separator_special_tag in march 2013 , the company sold its 44 % equity interest in sky network television ltd. for approximately $ 675 million . in april 2013 , the company sold its remaining 10 % investment in the dow jones indexes business to cme . since 2010 , the company has divested all of its interests in the dow jones indexes business and stoxx and received cumulative proceeds of approximately $ 1 billion . in september 2013 , the company sold the dow jones local media group , which operates eight daily and 15 weekly newspapers in seven states . results of operations results of operations—fiscal 2013 versus fiscal 2012 the following table sets forth the company 's operating results for fiscal 2013 as compared to fiscal 2012. replace_table_token_3_th * * not meaningful 44 revenues — revenues increased 3 % for the fiscal year ended june 30 , 2013 as compared to fiscal 2012 , primarily due to the inclusion of revenues resulting from the consolidation of fox sports australia and the acquisition of thomas nelson ( the “acquisitions” ) of approximately $ 324 million and $ 172 million , respectively , and higher u.k. newspaper revenues of approximately $ 89 million principally due to the inclusion of revenues from the launch of the sunday edition of the sun in february 2012. also contributing to the revenue increase was higher advertising revenues at the digital real estate services segment of $ 59 million . these increases were partially offset by lower revenues at the australian newspapers of $ 350 million , primarily reflecting lower newspaper advertising revenues principally due to the continued challenging economic environment in australia , and lower revenues at dow jones of $ 76 million reflecting lower advertising revenues . operating expenses — operating expenses increased 6 % for the fiscal year ended june 30 , 2013 as compared to fiscal 2012 , primarily due to the inclusion of operating expenses related to the acquisitions of $ 370 million , partially offset by a $ 96 million decrease in operating expenses at the news and information services segment primarily due to lower printing , production and distribution expenses resulting from decreased revenues . selling , general and administrative expenses — selling , general and administrative expenses increased 1 % for the fiscal year ended june 30 , 2013 as compared to fiscal 2012 , primarily due to a $ 99 million increase at the other segment , the inclusion of $ 35 million in expenses resulting from the acquisitions and higher expenses of $ 20 million in the digital real estate services segment directly relating to revenue growth supporting innovation , development and the sale of real estate advertising products . these increases were partially offset by lower expenses of $ 87 million at the news and information services segment principally resulting from the positive impact of cost savings initiatives and lower litigation settlement costs at the book publishing segment of approximately $ 25 million related to an e-books antitrust action that settled in fiscal 2012. depreciation and amortization — depreciation and amortization increased 13 % for the fiscal year ended june 30 , 2013 as compared to fiscal 2012 , primarily due to the inclusion of expenses resulting from the acquisitions of approximately $ 32 million and higher depreciation expense at the news and information services segment of $ 25 million . impairment and restructuring charges — during the fourth quarter of fiscal 2013 , as part of the company 's long-range planning process in preparation for the separation , the company adjusted its future outlook and related strategy principally with respect to the news and information services business in australia and secondarily with respect to the news and information services businesses in the u.s. these adjustments reflect adverse trends affecting the company 's news and information services segment , including declines in advertising revenue and continued declines in the economic environment in australia , and resulted in a reduction in expected future cash flows . as a result , the company determined that the fair value of these reporting units declined below their respective carrying values and recorded non-cash impairment charges of approximately $ 1.4 billion ( $ 1.1 billion , net of tax ) in the fiscal year ended june 30 , 2013. the charges primarily consisted of a write-down of the company 's goodwill of $ 494 million , a write-down of intangible assets ( primarily newspaper mastheads ) of $ 862 million , and a write-down of fixed assets of $ 46 million . the impairment charges also include $ 42 million for the potential sale of assets at values below their carrying values . during the fourth quarter of fiscal 2012 , the company completed its annual impairment review of goodwill and indefinite-lived intangible assets . as a result of the impairment review performed , the company recorded non-cash impairment charges of approximately $ 2.6 billion ( $ 2.2 billion , net of tax ) for the fiscal year ended june 30 , 2012. the charges consisted of a write-down of goodwill of approximately $ 1.3 billion and a write-down of the indefinite-lived intangible assets ( primarily newspaper mastheads and distribution networks ) of approximately $ 1.3 billion . these impairment charges were primarily the result of adverse trends affecting several businesses in the company 's news and information services segment , including secular declines in the economic environment in australia , a decline in in-store advertising spend by consumer packaged goods manufacturers in the u.s. and lower forecasted revenues from certain businesses utilizing various trade names owned by the company 's newspaper operations . the charges also reflected the expected sale of certain assets at a value below their carrying value . 45 in fiscal 2013 , the company recorded restructuring charges of $ 293 million , of which $ 276 million related to the newspaper businesses . the restructuring charges primarily related to the reorganization of the australian newspaper businesses

liquidity and capital resources current financial condition the company 's principal source of liquidity is internally generated funds and cash and cash equivalents on hand . in accordance with the separation and distribution agreement , 21st century fox made a cash contribution to the company such that at the distribution date , the company had approximately $ 2.4 billion of cash on hand and will receive the remaining $ 0.2 billion from 21st century fox during the first quarter of fiscal 2014. the company expects these elements of liquidity will enable it to meet its liquidity needs in the foreseeable future . in addition , the company expects to establish a revolving credit facility during fiscal 2014 and expects to have access to the worldwide capital markets , subject to market conditions , in order to issue debt if required . although the company believes that its future cash from operations , together with its access to the capital markets , will provide adequate resources to fund its operating and financing needs , its access to , and the availability of , financing on acceptable terms in the future will be affected by many factors , including : ( i ) its credit rating , ( ii ) the liquidity of the overall capital markets and ( iii ) the current state of the economy . there can be no assurances that the company will continue to have access to the capital markets on acceptable terms . see “item 1a . risk factors” for a further discussion . as of june 30 , 2013 , the company 's consolidated assets included $ 644 million in cash and cash equivalents that was held by its foreign subsidiaries . $ 235 million of this amount is cash held at the digital real estate services segment which is not readily accessible by the company as it is held by rea group , a majority owned but separately listed public company . rea group must declare a dividend in order for the company to have access to its share of rea group 's cash balance .

3 ( ii ) b amended and restated bylaws reflecting changes made to the company 's certificate of incorporation to remove certain outdated and redundant provisions that existed in our prior bylaws with respect to corporate governance , shareholder and director meeting procedures , and indemnification procedures . changes to the bylaws include , among other things : ( i ) amendments to reflect the new story_separator_special_tag of financial condition and results of operations the following discussion and analysis should be read in conjunction with our financial statements and related notes and the other information appearing in this report . as used in this report , unless the context otherwise indicates , references to “ we , ” “ our , ” “ ours , ” and “ us ” refer to earthstone energy , inc. and its subsidiary collectively . as an oil and natural gas producer , our revenue , cash flow from operations , other income and profitability , reserve values , access to capital and future rate of growth are substantially dependent upon the prevailing prices of crude oil and natural gas . declines in commodity prices will materially and adversely affect our financial condition , liquidity , ability to obtain financing and operating results . lower commodity prices may reduce the amount of crude oil and natural gas that we can produce economically . prevailing prices for such commodities are subject to wide fluctuation in response to relatively minor changes in supply and demand and a variety of additional factors beyond our control , such as global , political and economic conditions . historically , prices received for crude oil and natural gas production have been volatile and unpredictable , and such volatility is expected to continue . most of our production is sold at market prices . generally , if the commodity indexes fall , the price that we receive for our production will also decline . therefore , the amount of revenue that we realize is to a large extent determined by factors beyond our control . liquidity and capital resources story_separator_special_tag improvements and leasehold acreage . these projects were funded entirely with internally generated cash flow . as of march 31 , 2012 , we have afes totaling $ 5,574,000 for our share in completion costs of new wells in which we share a working interest . at present cash flow levels , we expect to have sufficient funds available for our share of both the outstanding afes and any additional acreage , seismic and or drilling cost requirements that might arise from our existing opportunities . we may alter or vary all or part of any planned capital expenditures for reasons including , but not limited to changes in circumstances , unforeseen opportunities , the inability to negotiate favorable acquisition , farmout , joint venture or divestiture terms , commodity prices , lack of cash flow , and lack of additional funding . we are continually evaluating drilling and acquisition opportunities for possible participation . typically , at any one time , several opportunities are in various stages of evaluation . our policy is to not disclose the specifics of a project or prospect , nor to speculate on such ventures , until such time as those various opportunities are finalized and undertaken . we caution that the absence of news and or press releases should not be interpreted as a lack of development or activity . divestitures/abandonments on january 31 , 2012 , we completed the divestiture and sale of the company 's working and or override interests in 38 wells in weld county , colorado to an unrelated third party for $ 5,900,000. after customary adjustments and expenses , the net proceeds from the transaction were $ 5,404,000. the adjusted purchase price was impacted by commissions , sales costs and post effective date revenue and expense modifications to the purchase price . the wells were considered non-core properties for the company , given the company 's focus on other areas , primarily the williston basin . impact of inflation and pricing we deal primarily in u.s. dollars . inflation has not had a material impact on the company in recent years because of the relatively low rates of inflation in the united states . however , the oil and natural gas industry can be cyclical and the demand for production places pressure on the economic stability and pricing within the industry . typically , as prices for oil and natural gas increase , associated costs rise . conversely , cost declines are likely to lag and may not adjust downward in proportion to declining prices . changes in prices impact our revenues , estimates of reserves , assessments of any impairment of oil and natural gas properties , as well as values of properties being acquired or sold . price changes have the potential to affect our ability to raise capital , borrow money , and retain personnel . while we do not presently expect business costs to materially rise , higher prices for oil and natural gas could result in increases in the costs of materials , services and personnel . 22 other commitments other than the aforementioned outstanding afes , we do not have any other commitments beyond our office lease and software maintenance contracts . see note 6 to the consolidated financial statements . results of operations selected financial information the following provides selected financial information and averages for the years ended march 31 , 2012 and 2011. certain prior year amounts may have been reclassified to conform to the current presentation . story_separator_special_tag replace_table_token_6_th 1 due to the timing and accuracy of sales information received from a third party operator as described in “ volumes and prices ” below , sales volume amounts may not be indicative of actual production or future performance . 2 amount does not include water service and disposal revenue . for the year ended march 31 , 2012 , this revenue amount is net of $ 156,000 in well service and water disposal revenue , which would otherwise total $ 11,712,000 in revenue for the year ended march 31 , 2012 , compared to $ 107,000 to total $ 8,206,000 for the year ended march 31 , 2011 . 3 overall lifting cost ( oil and gas production expenses and production taxes ) 4 averages calculated based upon non-rounded figures 23 the year ended march 31 , 2012 compared with the year ended march 31 , 2011 overview . net income for the year ended march 31 , 2012 , was double that of the previous year at $ 3,279,000 compared to $ 1,602,000 for the year ended march 31 , 2011. the increase in the sales price per barrel of oil equivalent ( “ boe ” ) and rise in sales volumes , offset by increases in production costs and general and administrative ( “ g & a ” ) expense , resulted in the increase in net income . revenues . oil and natural gas sales revenue increased $ 3,457,000 ( 43 % ) for the year ended march 31 , 2012 , as compared to the year ended march 31 , 2011 , due to an overall 15 % higher realized price per boe , and 20 % overall increase in sales volumes . volumes and prices . on an equivalent barrel basis , sales were 146,000 boe for the year ended march 31 , 2012 compared to 122,000 boe for the year ended march 31 , 2011. oil sales volumes increased 16 % from 93,613 barrels for the year ended march 31 , 2011 to 108,653 barrels for the year ended march 31 , 2012 , while the average price per barrel increased 29 % from $ 74.06 for the year ended march 31 , 2011 to $ 95.73 for the year ended march 31 , 2012. the rise in oil volumes resulted from production from the 24 newly producing wells offset , expectedly , by declines in existing wells . natural gas sales volumes increased 32 % from 172,386 mcf for the year ended march 31 , 2011 to 226,760 mcf for the year ended march 31 , 2012 , while the average price per mcf dropped 25 % , from $ 6.76 for the year ended march 31 , 2011 to $ 5.09 for the year ended march 31 , 2012. production expenses . production expenses are comprised of the following items : replace_table_token_7_th oil and natural gas production expense increased $ 953,000 ( 27 % ) for the year ended march 31 , 2012 , as compared to the year ended march 31 , 2011. the two principal components of oil and gas production expense are routine lease operating expenses ( “ loe ” ) and workovers . routine expenses typically include such items as daily well maintenance , utilities , fuel , water disposal and minor surface equipment repairs . workovers primarily include downhole repairs and are generally random in nature . although workovers are expected , they can be much more frequent in some wells than others and their associated costs can be significant . therefore , workovers account for more dramatic fluctuations in oil and gas expense from period to period . 24 loe , production taxes , and transportation and other expenses increased $ 596,000 ( 32 % ) , $ 351,000 ( 60 % ) , and $ 73,000 ( 34 % ) , respectively , for the year ended march 31 , 2012 , as compared to the year ended march 31 , 2011. all fluctuate with sales revenue , which increased 43 % year over year . production taxes as a percent of oil and natural gas sales revenue were comparable year over year at 8.1 % versus 7.2 % . workover expense decreased $ 67,000 ( 8 % ) for the year ended march 31 , 2012 , as compared to the year ended march 31 , 2011. the overall lifting cost ( oil and natural gas production expense plus production taxes ) per boe increased 6 % from $ 28.83 for the year ended march 31 , 2011 to $ 30.59 for the year ended march 31 , 2012. this increase resulted from the increase loe described above . this lifting cost per equivalent barrel is not indicative of all wells , and certain high cost wells could be shut-in should oil prices drop below certain levels . other expenses . depletion and depreciation expense decreased $ 49,000 ( 4 % ) for the year ended march 31 , 2012 as compared to the year ended march 31 , 2011 due to the disposition of d-j basin properties in 2012 , somewhat offset by new wells . depletion expense per boe decreased from $ 9.24 for the year ended march 31 , 2011 to $ 7.27 for the year ended march 31 , 2012. general and administrative ( “ g & a ” ) expense rose $ 561,000 ( 37 % ) for the year ended march 31 , 2012 , as compared to the year ended march 31 , 2011. eighty percent of this increase relates to personnel costs , as additional management , staff and a board member were added in 2012. state franchise taxes resulted in 15 % of the rise in costs . the sum of various other administrative costs account for the remaining fluctuation in the expense . as a percent of total sales revenue , g & a expense remained steady at 18 % both years

liquidity and capital resources current financial condition the company 's principal source of liquidity is internally generated funds and cash and cash equivalents on hand . in accordance with the separation and distribution agreement , 21st century fox made a cash contribution to the company such that at the distribution date , the company had approximately $ 2.4 billion of cash on hand and will receive the remaining $ 0.2 billion from 21st century fox during the first quarter of fiscal 2014. the company expects these elements of liquidity will enable it to meet its liquidity needs in the foreseeable future . in addition , the company expects to establish a revolving credit facility during fiscal 2014 and expects to have access to the worldwide capital markets , subject to market conditions , in order to issue debt if required . although the company believes that its future cash from operations , together with its access to the capital markets , will provide adequate resources to fund its operating and financing needs , its access to , and the availability of , financing on acceptable terms in the future will be affected by many factors , including : ( i ) its credit rating , ( ii ) the liquidity of the overall capital markets and ( iii ) the current state of the economy . there can be no assurances that the company will continue to have access to the capital markets on acceptable terms . see “item 1a . risk factors” for a further discussion . as of june 30 , 2013 , the company 's consolidated assets included $ 644 million in cash and cash equivalents that was held by its foreign subsidiaries . $ 235 million of this amount is cash held at the digital real estate services segment which is not readily accessible by the company as it is held by rea group , a majority owned but separately listed public company . rea group must declare a dividend in order for the company to have access to its share of rea group 's cash balance .

3 ( ii ) b amended and restated bylaws reflecting changes made to the company 's certificate of incorporation to remove certain outdated and redundant provisions that existed in our prior bylaws with respect to corporate governance , shareholder and director meeting procedures , and indemnification procedures . changes to the bylaws include , among other things : ( i ) amendments to reflect the new story_separator_special_tag of financial condition and results of operations the following discussion and analysis should be read in conjunction with our financial statements and related notes and the other information appearing in this report . as used in this report , unless the context otherwise indicates , references to “ we , ” “ our , ” “ ours , ” and “ us ” refer to earthstone energy , inc. and its subsidiary collectively . as an oil and natural gas producer , our revenue , cash flow from operations , other income and profitability , reserve values , access to capital and future rate of growth are substantially dependent upon the prevailing prices of crude oil and natural gas . declines in commodity prices will materially and adversely affect our financial condition , liquidity , ability to obtain financing and operating results . lower commodity prices may reduce the amount of crude oil and natural gas that we can produce economically . prevailing prices for such commodities are subject to wide fluctuation in response to relatively minor changes in supply and demand and a variety of additional factors beyond our control , such as global , political and economic conditions . historically , prices received for crude oil and natural gas production have been volatile and unpredictable , and such volatility is expected to continue . most of our production is sold at market prices . generally , if the commodity indexes fall , the price that we receive for our production will also decline . therefore , the amount of revenue that we realize is to a large extent determined by factors beyond our control . liquidity and capital resources story_separator_special_tag improvements and leasehold acreage . these projects were funded entirely with internally generated cash flow . as of march 31 , 2012 , we have afes totaling $ 5,574,000 for our share in completion costs of new wells in which we share a working interest . at present cash flow levels , we expect to have sufficient funds available for our share of both the outstanding afes and any additional acreage , seismic and or drilling cost requirements that might arise from our existing opportunities . we may alter or vary all or part of any planned capital expenditures for reasons including , but not limited to changes in circumstances , unforeseen opportunities , the inability to negotiate favorable acquisition , farmout , joint venture or divestiture terms , commodity prices , lack of cash flow , and lack of additional funding . we are continually evaluating drilling and acquisition opportunities for possible participation . typically , at any one time , several opportunities are in various stages of evaluation . our policy is to not disclose the specifics of a project or prospect , nor to speculate on such ventures , until such time as those various opportunities are finalized and undertaken . we caution that the absence of news and or press releases should not be interpreted as a lack of development or activity . divestitures/abandonments on january 31 , 2012 , we completed the divestiture and sale of the company 's working and or override interests in 38 wells in weld county , colorado to an unrelated third party for $ 5,900,000. after customary adjustments and expenses , the net proceeds from the transaction were $ 5,404,000. the adjusted purchase price was impacted by commissions , sales costs and post effective date revenue and expense modifications to the purchase price . the wells were considered non-core properties for the company , given the company 's focus on other areas , primarily the williston basin . impact of inflation and pricing we deal primarily in u.s. dollars . inflation has not had a material impact on the company in recent years because of the relatively low rates of inflation in the united states . however , the oil and natural gas industry can be cyclical and the demand for production places pressure on the economic stability and pricing within the industry . typically , as prices for oil and natural gas increase , associated costs rise . conversely , cost declines are likely to lag and may not adjust downward in proportion to declining prices . changes in prices impact our revenues , estimates of reserves , assessments of any impairment of oil and natural gas properties , as well as values of properties being acquired or sold . price changes have the potential to affect our ability to raise capital , borrow money , and retain personnel . while we do not presently expect business costs to materially rise , higher prices for oil and natural gas could result in increases in the costs of materials , services and personnel . 22 other commitments other than the aforementioned outstanding afes , we do not have any other commitments beyond our office lease and software maintenance contracts . see note 6 to the consolidated financial statements . results of operations selected financial information the following provides selected financial information and averages for the years ended march 31 , 2012 and 2011. certain prior year amounts may have been reclassified to conform to the current presentation . story_separator_special_tag replace_table_token_6_th 1 due to the timing and accuracy of sales information received from a third party operator as described in “ volumes and prices ” below , sales volume amounts may not be indicative of actual production or future performance . 2 amount does not include water service and disposal revenue . for the year ended march 31 , 2012 , this revenue amount is net of $ 156,000 in well service and water disposal revenue , which would otherwise total $ 11,712,000 in revenue for the year ended march 31 , 2012 , compared to $ 107,000 to total $ 8,206,000 for the year ended march 31 , 2011 . 3 overall lifting cost ( oil and gas production expenses and production taxes ) 4 averages calculated based upon non-rounded figures 23 the year ended march 31 , 2012 compared with the year ended march 31 , 2011 overview . net income for the year ended march 31 , 2012 , was double that of the previous year at $ 3,279,000 compared to $ 1,602,000 for the year ended march 31 , 2011. the increase in the sales price per barrel of oil equivalent ( “ boe ” ) and rise in sales volumes , offset by increases in production costs and general and administrative ( “ g & a ” ) expense , resulted in the increase in net income . revenues . oil and natural gas sales revenue increased $ 3,457,000 ( 43 % ) for the year ended march 31 , 2012 , as compared to the year ended march 31 , 2011 , due to an overall 15 % higher realized price per boe , and 20 % overall increase in sales volumes . volumes and prices . on an equivalent barrel basis , sales were 146,000 boe for the year ended march 31 , 2012 compared to 122,000 boe for the year ended march 31 , 2011. oil sales volumes increased 16 % from 93,613 barrels for the year ended march 31 , 2011 to 108,653 barrels for the year ended march 31 , 2012 , while the average price per barrel increased 29 % from $ 74.06 for the year ended march 31 , 2011 to $ 95.73 for the year ended march 31 , 2012. the rise in oil volumes resulted from production from the 24 newly producing wells offset , expectedly , by declines in existing wells . natural gas sales volumes increased 32 % from 172,386 mcf for the year ended march 31 , 2011 to 226,760 mcf for the year ended march 31 , 2012 , while the average price per mcf dropped 25 % , from $ 6.76 for the year ended march 31 , 2011 to $ 5.09 for the year ended march 31 , 2012. production expenses . production expenses are comprised of the following items : replace_table_token_7_th oil and natural gas production expense increased $ 953,000 ( 27 % ) for the year ended march 31 , 2012 , as compared to the year ended march 31 , 2011. the two principal components of oil and gas production expense are routine lease operating expenses ( “ loe ” ) and workovers . routine expenses typically include such items as daily well maintenance , utilities , fuel , water disposal and minor surface equipment repairs . workovers primarily include downhole repairs and are generally random in nature . although workovers are expected , they can be much more frequent in some wells than others and their associated costs can be significant . therefore , workovers account for more dramatic fluctuations in oil and gas expense from period to period . 24 loe , production taxes , and transportation and other expenses increased $ 596,000 ( 32 % ) , $ 351,000 ( 60 % ) , and $ 73,000 ( 34 % ) , respectively , for the year ended march 31 , 2012 , as compared to the year ended march 31 , 2011. all fluctuate with sales revenue , which increased 43 % year over year . production taxes as a percent of oil and natural gas sales revenue were comparable year over year at 8.1 % versus 7.2 % . workover expense decreased $ 67,000 ( 8 % ) for the year ended march 31 , 2012 , as compared to the year ended march 31 , 2011. the overall lifting cost ( oil and natural gas production expense plus production taxes ) per boe increased 6 % from $ 28.83 for the year ended march 31 , 2011 to $ 30.59 for the year ended march 31 , 2012. this increase resulted from the increase loe described above . this lifting cost per equivalent barrel is not indicative of all wells , and certain high cost wells could be shut-in should oil prices drop below certain levels . other expenses . depletion and depreciation expense decreased $ 49,000 ( 4 % ) for the year ended march 31 , 2012 as compared to the year ended march 31 , 2011 due to the disposition of d-j basin properties in 2012 , somewhat offset by new wells . depletion expense per boe decreased from $ 9.24 for the year ended march 31 , 2011 to $ 7.27 for the year ended march 31 , 2012. general and administrative ( “ g & a ” ) expense rose $ 561,000 ( 37 % ) for the year ended march 31 , 2012 , as compared to the year ended march 31 , 2011. eighty percent of this increase relates to personnel costs , as additional management , staff and a board member were added in 2012. state franchise taxes resulted in 15 % of the rise in costs . the sum of various other administrative costs account for the remaining fluctuation in the expense . as a percent of total sales revenue , g & a expense remained steady at 18 % both years

liquidity outlook . our primary source of funding is the net cash flow from the sale of our oil and natural gas production . the profitability and cash flow generated by our operations in any particular accounting period will be directly related to : ( a ) the volume of oil and gas produced and sold , ( b ) the average realized prices for oil and gas sold , and ( c ) lifting costs . at the current price of oil , we believe the cash generated from operations , along with existing cash balances , should enable us to meet our existing and normal recurring obligations during the next year and beyond . overview of our capital structure . we recognize the importance of developing our capital resource base in order to pursue our objectives . however , subsequent to our last public offering in 1980 , debt financing has been the sole source of external funding . in addition to our routine production-related costs , general and administrative expenses and , when necessary , debt repayment requirements , we require capital to fund our exploratory and development drilling efforts and the acquisition of additional properties as well as the enhancement of held and newly acquired properties . we have received numerous inquiries regarding the possibility of funding our efforts through equity contributions or debt instruments . given strong cash flows , and the relatively modest nature of our current drilling projects , we have thus far declined these overtures . our primary concern in this area is the dilution of our existing shareholders .

since these measures do not incorporate revenues , changes in working capital and non-operating cash costs , they are not necessarily indicative of operating profit or cash flow from operations as determined under gaap . changes in numerous factors including , but not limited to , mining rates , milling rates , gold grade , gold recovery , and the costs of labor , consumables and mine site general and administrative activities can cause these measures to increase or decrease . we believe that these measures are the same or similar to the measures of other gold mining companies , but may not be comparable to similarly titled measures in every instance . all figures and amounts in this item 7 are shown on a 100 % basis , which represents our current beneficial interest in gold production and revenues . once all capital has been repaid , the government of ghana would receive 10 % of the dividends from the subsidiaries owning the bogoso/prestea and wassa mines . our business through our subsidiaries and joint ventures we own a controlling interest in three significant gold properties in southern ghana in west africa : the bogoso/prestea property ( “bogoso/prestea” ) , the wassa property ( “wassa” ) and the prestea underground property ( “prestea underground” ) . bogoso and prestea are adjoining properties , operating as a single operation and referred to as “bogoso/prestea” . bogoso/prestea and the prestea underground are owned by our 90 % owned subsidiary bogoso gold limited ( “bgl” ) . in 2004 we sold 147,875 ounces of gold from bogoso/prestea for an average gold price of approximately $ 410 per ounce having a cash operating cost of approximately $ 250 per ounce . essentially all of our gold production to date has come from bogoso/prestea . through another 90 % owned subsidiary , wexford goldfields limited ( “wgl” ) , we own the wassa gold property , located some 35 kilometers east of bogoso/prestea . a newly constructed ore processing plant at wassa is now in its commissioning and testing phase , processing heap leach materials left by a former owner . we expect that the new plant will achieve its full design capacity of 10,000 tonnes per day in the first quarter of 2005. the prestea underground is located on the prestea property and consists of a currently inactive underground gold mine and associated support facilities . as of december 31 , 2004 , bgl , our 90 % owned subsidiary , owned a 90 % operating interest in this mine . we are currently seeking to determine if the underground mine can be reactivated on a profitable basis . we hold interests in exploration joint ventures , managed by joint venture partners , in mali and sierra leone in west africa and hold active exploration properties in ghana , suriname and french guiana . we hold interests in gold exploration properties in peru and chile through our affiliate goldmin holdings , and in the democratic republic of the congo through an investment in moto goldmines limited . our corporate headquarters is located in littleton , colorado . our accounting records are kept in compliance with canadian gaap and all of our operations , except for the french guiana office , transact business in us dollars and keep financial records in us dollars . business strategy and development since 1999 our business and development strategy has been focused primarily on the acquisition of producing and development stage gold properties in ghana and on the exploration , development and operation of these properties . we also explore for gold . since 1999 our exploration efforts have been focused on ghana , other west african countries and south america . we are currently carrying out technical and environmental studies to expand production at bogoso/prestea . we commenced development at wassa in mid-2003 , and expect it to be fully operational in early 2005. if the above mentioned expansion and development plans at bogoso/prestea are approved and permitted as expected , our annualized production is expected to range between 375,000 and 425,000 ounces of 52 gold by 2007. achievement of this target is subject to numerous risks . see the discussion of risk factors in item 1 above . our overall objective is to grow our business to become a mid-tier gold producer ( which we understand to be a producer with annual production of approximately 500,000 ounces ) over the next few years . as part of the effort to achieve our goal , we are actively investigating potential acquisition and merger candidates . however , we presently have no agreement or understanding with respect to any specific potential transaction . trends and events 2004 operational summary gold production totaled 147,875 ounces in 2004 , down from 174,315 ounces in 2003. production during 2004 was adversely affected by mining and processing difficulties experienced in the latter part of the year as the bogoso/prestea processing plant transitioned from oxide ores to transition and non-refractory sulfide ores which are not as well suited for processing in the bogoso plant as were the oxide ores milled earlier in the year . start-up difficulties with the new flotation circuit and unusually high rainfall during the second and third quarters also reduced mine output and hampered efficient plant operations . to compensate for the ore shortage , the bogoso plant supplemented the pit ore with stockpiled ores which were also not very well suited for processing in the bogoso plant . the net result was a lower processing rate and reduced gold recovery which in turn reduced gold output and sales revenues as compared to 2003. additional information on 2004 operations is contained below in the result of operations section . the lower revenues resulted in earnings of $ 2.6 million during 2004 , down from $ 22.0 million in 2003. earnings were also reduced by $ 4.1 million of expenses related to the iamgold tender offer . story_separator_special_tag cash operating costs averaged $ 250 per ounce , compared to $ 166 per ounce in 2003 , and total cash costs averaged $ 264 per ounce , up from $ 184 per ounce in 2003. depreciation and amortization were higher than in 2003 mostly due to the amortization costs of new assets added in late 2003 and in 2004 such as the flotation plant at bogoso . increases in corporate general and administrative costs contributed to the lower income versus 2003. higher compensation costs relating to additional administrative personnel relative to 2003 , increases in investor relations costs , higher insurance costs , sarbanes-oxley compliance costs and an overall higher level of corporate activity in response to the growth of the company all contributed to the increase in general and administrative costs . a $ 1.5 million tax benefit was recorded during 2004. recognition of a deferred tax asset was deemed appropriate at the end of 2004 in light of the continued ghanaian operating profits at bgl . we have substantial tax assets in canada and france mostly due to past losses , capital allowances and tax pools , but a tax valuation allowance has been provided in an amount equal to net tax assets in these jurisdictions . bogoso/prestea operations 2004 2003 2002 ore mined ( t ) 1,411,243 2,001,905 2,222,767 waste mined ( t ) 8,065,915 6,791,926 5,211,335 ore milled ( t ) 1,650,412 2,093,600 2,271,747 grade milled ( g/t ) 4.09 3.29 2.31 recovery ( % ) 67.3 81.2 74.4 story_separator_special_tag concentrates for over 18 years . a total of six biox ® operations have been successfully commissioned since commercialization of the process , of which four are still operating . two new biox ® plants are currently under construction , the suzdal plant in kazahstan and the fosterville plant in australia , which are scheduled for commissioning during 2005. four additional biox ® plants are now in various stages of development and are currently scheduled for commissioning during 2005 and 2006. one of the larger bio-oxidation plants which was built by grd minproc in the mid-1990s , is located at anglogold ashanti 's obuasi mine , which is also located on the ashanti gold trend , 130 kilometers northeast of bogoso/prestea . we believe that the sulfide mineralization at obuasi is similar to the bogoso/prestea material . our metallurgical assessment of the suitability of the bio-oxidation process for bogoso/prestea ores has been a four-year project . the work has involved metallurgical assessments on some 32 samples representative of the current sulfide reserves , including a flotation , biox ® and neutralization pilot plant program on a nine-tonne bulk sample compiled by the blending of approximately 90 diamond drill hole cores . 58 upon completion of the biox ® upgrade , the bogoso processing plant is expected to have a nominal capacity of 3.5 million tonnes per annum to process refractory sulfide ores from our bogoso and northern prestea pits , where we currently have proven and probable refractory reserves of approximately 20.5 million tonnes at an average grade of 2.81 grams per tonne . gold production from the bogoso mill , following a mining fleet upgrade and installation of the bogoso biox ® circuit , is expected to average approximately 270,000 ounces per annum and to vary between 260,000 to 290,000 ounces per annum at an average cash operating cost between $ 250 to $ 270 per ounce after commercial production is achieved in 2006. estimated gold recoveries from the biox ® process are expected to average 86 % and vary between 78 % and 88 % . wassa gold mine while we experienced significant construction delays during 2004 , the construction phase of the wassa project was substantially complete by december 31 , 2004 except for the power line which is now under construction and which we expect to complete by mid-year 2005. following discussions in november 2004 , our contract with mdm was terminated on november 29 , 2004. all of the required power line permits have been obtained , and all of the material power line construction equipment has been delivered and staged for construction or are on order . while the power line is still under construction , the existing powerhouse at wassa should generate all of the power needed to fully operate the plant and associated facilities until the connection to the local power grid is completed . as of december 31 , 2004 acquisition and development costs totaled $ 66.5 million including feasibility study costs , development drilling and geology , operating equipment and plant and site construction costs . the remaining project costs at december 31 , 2004 are estimated to be $ 7.0 million , consisting of $ 5.0 million for completion of the power line and $ 2.0 million for completion of miscellaneous items at the plant site . an additional $ 14 million is also budgeted in 2005 for purchase of additional mining equipment . during 2004 while testing and commissioning the mine we poured 5,292 ounces of gold resulting in $ 2.3 million of preproduction revenues which were credited against mine development costs . commissioning and testing of the new wassa processing plant began in late 2004. by december wassa had poured 5,292 ounces of gold resulting in $ 2.3 million of preproduction revenues which were credited against mine development costs . we expect wassa will achieve commercial production during the first quarter of 2005 , processing at its design capacity of approximately 10,000 tonnes per day . our 2005 mining plan involves processing most of the heap leach material left on the pads by the former owner which will furnish a low cost ore feed to the new plant during its first year of operations and will also clear the pad area for use as a tailings dam site . mining will be performed initially using a mixture of equipment transferred from bogoso/prestea and contract equipment until new equipment is procured . during

liquidity outlook . our primary source of funding is the net cash flow from the sale of our oil and natural gas production . the profitability and cash flow generated by our operations in any particular accounting period will be directly related to : ( a ) the volume of oil and gas produced and sold , ( b ) the average realized prices for oil and gas sold , and ( c ) lifting costs . at the current price of oil , we believe the cash generated from operations , along with existing cash balances , should enable us to meet our existing and normal recurring obligations during the next year and beyond . overview of our capital structure . we recognize the importance of developing our capital resource base in order to pursue our objectives . however , subsequent to our last public offering in 1980 , debt financing has been the sole source of external funding . in addition to our routine production-related costs , general and administrative expenses and , when necessary , debt repayment requirements , we require capital to fund our exploratory and development drilling efforts and the acquisition of additional properties as well as the enhancement of held and newly acquired properties . we have received numerous inquiries regarding the possibility of funding our efforts through equity contributions or debt instruments . given strong cash flows , and the relatively modest nature of our current drilling projects , we have thus far declined these overtures . our primary concern in this area is the dilution of our existing shareholders .

since these measures do not incorporate revenues , changes in working capital and non-operating cash costs , they are not necessarily indicative of operating profit or cash flow from operations as determined under gaap . changes in numerous factors including , but not limited to , mining rates , milling rates , gold grade , gold recovery , and the costs of labor , consumables and mine site general and administrative activities can cause these measures to increase or decrease . we believe that these measures are the same or similar to the measures of other gold mining companies , but may not be comparable to similarly titled measures in every instance . all figures and amounts in this item 7 are shown on a 100 % basis , which represents our current beneficial interest in gold production and revenues . once all capital has been repaid , the government of ghana would receive 10 % of the dividends from the subsidiaries owning the bogoso/prestea and wassa mines . our business through our subsidiaries and joint ventures we own a controlling interest in three significant gold properties in southern ghana in west africa : the bogoso/prestea property ( “bogoso/prestea” ) , the wassa property ( “wassa” ) and the prestea underground property ( “prestea underground” ) . bogoso and prestea are adjoining properties , operating as a single operation and referred to as “bogoso/prestea” . bogoso/prestea and the prestea underground are owned by our 90 % owned subsidiary bogoso gold limited ( “bgl” ) . in 2004 we sold 147,875 ounces of gold from bogoso/prestea for an average gold price of approximately $ 410 per ounce having a cash operating cost of approximately $ 250 per ounce . essentially all of our gold production to date has come from bogoso/prestea . through another 90 % owned subsidiary , wexford goldfields limited ( “wgl” ) , we own the wassa gold property , located some 35 kilometers east of bogoso/prestea . a newly constructed ore processing plant at wassa is now in its commissioning and testing phase , processing heap leach materials left by a former owner . we expect that the new plant will achieve its full design capacity of 10,000 tonnes per day in the first quarter of 2005. the prestea underground is located on the prestea property and consists of a currently inactive underground gold mine and associated support facilities . as of december 31 , 2004 , bgl , our 90 % owned subsidiary , owned a 90 % operating interest in this mine . we are currently seeking to determine if the underground mine can be reactivated on a profitable basis . we hold interests in exploration joint ventures , managed by joint venture partners , in mali and sierra leone in west africa and hold active exploration properties in ghana , suriname and french guiana . we hold interests in gold exploration properties in peru and chile through our affiliate goldmin holdings , and in the democratic republic of the congo through an investment in moto goldmines limited . our corporate headquarters is located in littleton , colorado . our accounting records are kept in compliance with canadian gaap and all of our operations , except for the french guiana office , transact business in us dollars and keep financial records in us dollars . business strategy and development since 1999 our business and development strategy has been focused primarily on the acquisition of producing and development stage gold properties in ghana and on the exploration , development and operation of these properties . we also explore for gold . since 1999 our exploration efforts have been focused on ghana , other west african countries and south america . we are currently carrying out technical and environmental studies to expand production at bogoso/prestea . we commenced development at wassa in mid-2003 , and expect it to be fully operational in early 2005. if the above mentioned expansion and development plans at bogoso/prestea are approved and permitted as expected , our annualized production is expected to range between 375,000 and 425,000 ounces of 52 gold by 2007. achievement of this target is subject to numerous risks . see the discussion of risk factors in item 1 above . our overall objective is to grow our business to become a mid-tier gold producer ( which we understand to be a producer with annual production of approximately 500,000 ounces ) over the next few years . as part of the effort to achieve our goal , we are actively investigating potential acquisition and merger candidates . however , we presently have no agreement or understanding with respect to any specific potential transaction . trends and events 2004 operational summary gold production totaled 147,875 ounces in 2004 , down from 174,315 ounces in 2003. production during 2004 was adversely affected by mining and processing difficulties experienced in the latter part of the year as the bogoso/prestea processing plant transitioned from oxide ores to transition and non-refractory sulfide ores which are not as well suited for processing in the bogoso plant as were the oxide ores milled earlier in the year . start-up difficulties with the new flotation circuit and unusually high rainfall during the second and third quarters also reduced mine output and hampered efficient plant operations . to compensate for the ore shortage , the bogoso plant supplemented the pit ore with stockpiled ores which were also not very well suited for processing in the bogoso plant . the net result was a lower processing rate and reduced gold recovery which in turn reduced gold output and sales revenues as compared to 2003. additional information on 2004 operations is contained below in the result of operations section . the lower revenues resulted in earnings of $ 2.6 million during 2004 , down from $ 22.0 million in 2003. earnings were also reduced by $ 4.1 million of expenses related to the iamgold tender offer . story_separator_special_tag cash operating costs averaged $ 250 per ounce , compared to $ 166 per ounce in 2003 , and total cash costs averaged $ 264 per ounce , up from $ 184 per ounce in 2003. depreciation and amortization were higher than in 2003 mostly due to the amortization costs of new assets added in late 2003 and in 2004 such as the flotation plant at bogoso . increases in corporate general and administrative costs contributed to the lower income versus 2003. higher compensation costs relating to additional administrative personnel relative to 2003 , increases in investor relations costs , higher insurance costs , sarbanes-oxley compliance costs and an overall higher level of corporate activity in response to the growth of the company all contributed to the increase in general and administrative costs . a $ 1.5 million tax benefit was recorded during 2004. recognition of a deferred tax asset was deemed appropriate at the end of 2004 in light of the continued ghanaian operating profits at bgl . we have substantial tax assets in canada and france mostly due to past losses , capital allowances and tax pools , but a tax valuation allowance has been provided in an amount equal to net tax assets in these jurisdictions . bogoso/prestea operations 2004 2003 2002 ore mined ( t ) 1,411,243 2,001,905 2,222,767 waste mined ( t ) 8,065,915 6,791,926 5,211,335 ore milled ( t ) 1,650,412 2,093,600 2,271,747 grade milled ( g/t ) 4.09 3.29 2.31 recovery ( % ) 67.3 81.2 74.4 story_separator_special_tag concentrates for over 18 years . a total of six biox ® operations have been successfully commissioned since commercialization of the process , of which four are still operating . two new biox ® plants are currently under construction , the suzdal plant in kazahstan and the fosterville plant in australia , which are scheduled for commissioning during 2005. four additional biox ® plants are now in various stages of development and are currently scheduled for commissioning during 2005 and 2006. one of the larger bio-oxidation plants which was built by grd minproc in the mid-1990s , is located at anglogold ashanti 's obuasi mine , which is also located on the ashanti gold trend , 130 kilometers northeast of bogoso/prestea . we believe that the sulfide mineralization at obuasi is similar to the bogoso/prestea material . our metallurgical assessment of the suitability of the bio-oxidation process for bogoso/prestea ores has been a four-year project . the work has involved metallurgical assessments on some 32 samples representative of the current sulfide reserves , including a flotation , biox ® and neutralization pilot plant program on a nine-tonne bulk sample compiled by the blending of approximately 90 diamond drill hole cores . 58 upon completion of the biox ® upgrade , the bogoso processing plant is expected to have a nominal capacity of 3.5 million tonnes per annum to process refractory sulfide ores from our bogoso and northern prestea pits , where we currently have proven and probable refractory reserves of approximately 20.5 million tonnes at an average grade of 2.81 grams per tonne . gold production from the bogoso mill , following a mining fleet upgrade and installation of the bogoso biox ® circuit , is expected to average approximately 270,000 ounces per annum and to vary between 260,000 to 290,000 ounces per annum at an average cash operating cost between $ 250 to $ 270 per ounce after commercial production is achieved in 2006. estimated gold recoveries from the biox ® process are expected to average 86 % and vary between 78 % and 88 % . wassa gold mine while we experienced significant construction delays during 2004 , the construction phase of the wassa project was substantially complete by december 31 , 2004 except for the power line which is now under construction and which we expect to complete by mid-year 2005. following discussions in november 2004 , our contract with mdm was terminated on november 29 , 2004. all of the required power line permits have been obtained , and all of the material power line construction equipment has been delivered and staged for construction or are on order . while the power line is still under construction , the existing powerhouse at wassa should generate all of the power needed to fully operate the plant and associated facilities until the connection to the local power grid is completed . as of december 31 , 2004 acquisition and development costs totaled $ 66.5 million including feasibility study costs , development drilling and geology , operating equipment and plant and site construction costs . the remaining project costs at december 31 , 2004 are estimated to be $ 7.0 million , consisting of $ 5.0 million for completion of the power line and $ 2.0 million for completion of miscellaneous items at the plant site . an additional $ 14 million is also budgeted in 2005 for purchase of additional mining equipment . during 2004 while testing and commissioning the mine we poured 5,292 ounces of gold resulting in $ 2.3 million of preproduction revenues which were credited against mine development costs . commissioning and testing of the new wassa processing plant began in late 2004. by december wassa had poured 5,292 ounces of gold resulting in $ 2.3 million of preproduction revenues which were credited against mine development costs . we expect wassa will achieve commercial production during the first quarter of 2005 , processing at its design capacity of approximately 10,000 tonnes per day . our 2005 mining plan involves processing most of the heap leach material left on the pads by the former owner which will furnish a low cost ore feed to the new plant during its first year of operations and will also clear the pad area for use as a tailings dam site . mining will be performed initially using a mixture of equipment transferred from bogoso/prestea and contract equipment until new equipment is procured . during

cash operating cost per ounce $ 250 $ 166 $ 193 royalties per ounce $ 14 $ 18 $ 22 total cash cost per ounce $ 264 $ 184 $ 215 the bogoso processing plant processed an average of 4,509 tonnes per day in 2004 , down from 5,736 tonnes per day in 2003. all of the ore processed in 2004 came from the plant-north ore body and from old bogoso transition ore stockpiles . the average ore grade processed in 2004 was 4.09 grams per tonne , up from 3.29 grams per tonne in 2003 , but gold recovery dropped to 67.3 % from 81 % in 2003. lower recovery was directly related to the non-refractory sulfide ores and to the transition ores which typically have lower recoveries than the oxide ores milled in 2003 . 2003 compared to 2002 net income totaled $ 22.0 million or $ 0.198 per share on revenues of $ 64.4 million for 2003 , versus net income of $ 4.9 million or $ 0.067 per share on revenues of $ 38.8 million during 2002. higher gold prices , increased gold production , a $ 2.3 million gain on currency exchange rates and a $ 1.9 million gain on the sale of marketable securities were the major factors contributing to the earnings improvement . realized gold prices averaged $ 364 per ounce for the year , a 17 % increase from the $ 311 per ounce realized in 2002. a weakened us dollar in 2003 versus most other major world currencies is thought to be responsible for much of the increased gold price during 2003 .

we seek to maximize the fair value of the distressed mortgage loans that we acquired using means that are appropriate for the particular loan , including both proprietary and nonproprietary loan modification programs , special servicing and other initiatives focused on avoiding foreclosure , when possible . when we are unable to effect a cure for a mortgage loan delinquency , our objective is timely acquisition and or liquidation of the property securing the mortgage loan through the use , in part , of short sales and deed-in-lieu-of-foreclosure programs . we may elect to hold certain real estate acquired in settlement of loans ( “ reo ” ) as income-producing properties for extended periods as a means of maximizing our returns on such properties . in addition to individual loan and property resolutions , we consider bulk sale opportunities from our existing distressed portfolio investments . during the year ended december 31 , 2016 , we completed bulk sales totaling $ 483.8 million in fair value of distressed mortgage loans . during the year ended december 31 , 2016 , we did not acquire distressed mortgage loans and we received proceeds from liquidation , payoffs , paydowns and sales from our portfolio of distressed mortgage loans and reo totaling $ 947.7 million . we also participate in other mortgage-related activities , including : acquisition of reit-eligible mortgage-backed or mortgage-related securities . we held mbs with fair values totaling $ 865.1 million at december 31 , 2016. acquisition of ess relating to msrs held by pfsi . during the year ended december 31 , 2016 , we did not purchase any ess from pfsi . pursuant to a recapture agreement with pls we received ess with fair value totaling $ 6.6 million . we sold $ 59.0 million of ess relating to freddie mac and fannie mae msrs back to pls . we held ess with a fair value totaling $ 288.7 million at december 31 , 2016. acquisition of small balance ( typically under $ 10 million ) commercial real estate loans . during the year ended december 31 , 2016 , we acquired $ 18.1 million in fair value of small balance commercial real estate loans . at december 31 , 2016 , we held $ 9.0 million at fair value of such mortgage loans . 46 to the extent that we transfer correspondent production loans into private label securitizations , retention of a portion of the securities created in the securitization transaction . our private label securitization is accounted for as a financing arrangement . sales of securities included in the securitization are treated as issuances of debt . our board of trustees has authorized a repurchase program under which we may repurchase up to $ 200 million of our outstanding common shares . during the year ended december 31 , 2016 , we repurchased approximately 7.4 million common shares at a cost of $ 98.4 million . we have repurchased a cumulative total of 8.4 million common shares at a cost of $ 114.7 million under the program . the repurchased common shares were canceled upon settlement of the repurchase transactions and returned to the authorized but unissued share pool . we believe that we qualify to be taxed as a reit and as such will not be subject to federal income tax on that portion of our income that is distributed to shareholders as long as we meet applicable reit asset , income and share ownership tests . if we fail to qualify as a reit , and do not qualify for certain statutory relief provisions , our profits will be subject to income taxes and we may be precluded from qualifying as a reit for the four tax years following the year we lose our reit qualification . a portion of our activities , including our correspondent production business , is conducted in our trs , which is subject to corporate federal and state income taxes . accordingly , we have made a provision for income taxes with respect to the operations of our trs . we expect that the effective rate for the provision for income taxes may be volatile in future periods . our goal is to manage the business to take full advantage of the tax benefits afforded to us as a reit . observations on current market conditions our business is affected by macroeconomic conditions in the united states , including economic growth , unemployment rates , the residential housing market and interest rate levels and expectations . the u.s. economy continues to grow , albeit at a modest pace , as reflected in recent economic data . during 2016 , u.s. real gross domestic product expanded at an annual rate of 1.9 % , compared to 2.4 % for 2015. the national seasonally adjusted unemployment rate was 4.7 % at december 31 , 2016 , 5.0 % at december 31 , 2015 and 5.6 % at december 31 , 2014. delinquency rates on residential real estate loans remain somewhat elevated compared to historical rates , but have been steadily declining . as reported by the federal reserve bank , during the third quarter of 2016 , the delinquency rate on residential real estate loans held by commercial banks was 4.3 % , a reduction from 5.2 % during the fourth quarter of 2015. residential real estate activity remains strong . the seasonally adjusted annual rate of existing home sales for december 2016 was 1.5 % higher than for december 2015 , and the national median existing home price for all housing types was $ 233,500 , a 3.8 % increase from december 2015 ( source : national association of realtors® ) . on a national level , foreclosure filings during 2016 decreased by 14 % , as compared to 2015. however , foreclosure activity is expected to remain above historical average levels through 2017 and beyond . story_separator_special_tag if the fair value of impaired msrs subsequently increases , we recognize the increase in fair value in current period income and , through a reduction in the valuation allowance , adjust the carrying value of the msrs to a level not in excess of amortized cost . when evaluating msrs for impairment , we stratify the assets by predominant risk characteristic including loan type ( fixed-rate or adjustable-rate ) and note interest rate . we stratify fixed-rate mortgage loans into note interest rate pools of 50 basis points for note interest rates between 3.0 % and 4.5 % and a single pool for note interest rates below 3 % . we evaluate adjustable-rate mortgage loans with initial interest rates of 4.5 % or less in a single pool . we periodically review the various impairment strata to determine whether the fair value of the impaired msrs in a given stratum is likely to recover . when we conclude that recovery of the fair value is unlikely in the foreseeable future , a write-down of the cost of the msrs for that stratum to its estimated recoverable value is charged to the valuation allowance . amortization and impairment of msrs accounted for using the amortization method are included in current period income as a component of net mortgage loan servicing fees . msrs accounted for at fair value we include changes in fair value of msrs accounted for at fair value in current period income as a component of net mortgage loan servicing fees . 51 a shift in the market for msrs or a change in our manager 's assessment of an input to the valuation of msrs can have a significant effect on the fair value of msrs and in our income for the period . we believe the most significant “ level 3 ” fair value inputs to the valuation of msrs are the pricing spread ( discount rate ) , prepayment speed and annual per-loan cost of servicing . following is a summary of the effect on fair value of various changes to these key inputs that our manager uses in making its fair value estimates as of december 31 , 2016 : replace_table_token_9_th the preceding asset analyses hold constant all of the inputs other than the input that is being changed to show an estimate of the effect on fair value of a change in a specific input . we expect that in a market shock event , multiple inputs would be affected and the effects of these changes may compound or counteract each other . furthermore , certain of our msrs are accounted for using the amortization method and are carried at the lower of amortized cost or fair value . such assets ' carrying value may not be immediately affected as a result of a change in input values depending on the carrying value ( carrying value is the amortized cost reduced by the applicable valuation allowance ) of the msr asset before the change in input occurs and whether the input change causes our estimate of fair value to change to a level below the amortized cost of those msrs . therefore the preceding analyses are not projections of the effects of a shock event or a change in our manager 's estimate of an input and should not be relied upon as earnings projections . critical accounting policies not tied to fair value liability for representations and warranties we record a provision for losses relating to our representations and warranties as part of our mortgage loan sale transactions , which are generally to the agencies . the method we use to estimate the liability for representations and warranties is a function of the representations and warranties made to such investors and considers a combination of factors , including , but not limited to , estimated future default and mortgage loan repurchase rates , the potential severity of loss in the event of default and the probability of reimbursement by the mortgage originator who sold the mortgage loan to us . we establish a liability at the time we sell the mortgage loans to the investors and periodically update our liability estimate . the level of the liability for representations and warranties is difficult to estimate and requires considerable judgment . the level of mortgage loan repurchase losses is dependent on economic factors , investor behavior , and other external conditions that may change over the lives of the underlying mortgage loans . our estimate of the liability for representations and warranties is developed by our manager 's credit administration staff . the liability estimate is reviewed and approved by our manager 's senior management credit committee which includes its chief executive , credit , portfolio risk , mortgage operations , and mortgage banking officers . as economic fundamentals change , as investor and agency evaluations of their loss mitigation strategies ( including claims under representations and warranties ) change and as the mortgage market and general economic conditions affect our correspondent sellers , the level of repurchase activity and ensuing losses will change and such changes may be material to us . as a result of these changes , we have adjusted , and may in the future be required to adjust , the estimate of our liability for representations and warranties . such adjustments may be material to our financial condition and net income . consolidation-securitizations we enter into various types of on- and off-balance sheet transactions with special purpose entities ( “ spes ” ) , which are trusts that are established for a limited purpose . generally , spes are formed in connection with securitization transactions . in a securitization transaction , we transfer mortgage loans on our balance sheet to an spe , which then issues to investors various forms of interests in those assets . in a securitization transaction , we typically receive cash and or interests in an spe in exchange for the assets we

cash operating cost per ounce $ 250 $ 166 $ 193 royalties per ounce $ 14 $ 18 $ 22 total cash cost per ounce $ 264 $ 184 $ 215 the bogoso processing plant processed an average of 4,509 tonnes per day in 2004 , down from 5,736 tonnes per day in 2003. all of the ore processed in 2004 came from the plant-north ore body and from old bogoso transition ore stockpiles . the average ore grade processed in 2004 was 4.09 grams per tonne , up from 3.29 grams per tonne in 2003 , but gold recovery dropped to 67.3 % from 81 % in 2003. lower recovery was directly related to the non-refractory sulfide ores and to the transition ores which typically have lower recoveries than the oxide ores milled in 2003 . 2003 compared to 2002 net income totaled $ 22.0 million or $ 0.198 per share on revenues of $ 64.4 million for 2003 , versus net income of $ 4.9 million or $ 0.067 per share on revenues of $ 38.8 million during 2002. higher gold prices , increased gold production , a $ 2.3 million gain on currency exchange rates and a $ 1.9 million gain on the sale of marketable securities were the major factors contributing to the earnings improvement . realized gold prices averaged $ 364 per ounce for the year , a 17 % increase from the $ 311 per ounce realized in 2002. a weakened us dollar in 2003 versus most other major world currencies is thought to be responsible for much of the increased gold price during 2003 .

we seek to maximize the fair value of the distressed mortgage loans that we acquired using means that are appropriate for the particular loan , including both proprietary and nonproprietary loan modification programs , special servicing and other initiatives focused on avoiding foreclosure , when possible . when we are unable to effect a cure for a mortgage loan delinquency , our objective is timely acquisition and or liquidation of the property securing the mortgage loan through the use , in part , of short sales and deed-in-lieu-of-foreclosure programs . we may elect to hold certain real estate acquired in settlement of loans ( “ reo ” ) as income-producing properties for extended periods as a means of maximizing our returns on such properties . in addition to individual loan and property resolutions , we consider bulk sale opportunities from our existing distressed portfolio investments . during the year ended december 31 , 2016 , we completed bulk sales totaling $ 483.8 million in fair value of distressed mortgage loans . during the year ended december 31 , 2016 , we did not acquire distressed mortgage loans and we received proceeds from liquidation , payoffs , paydowns and sales from our portfolio of distressed mortgage loans and reo totaling $ 947.7 million . we also participate in other mortgage-related activities , including : acquisition of reit-eligible mortgage-backed or mortgage-related securities . we held mbs with fair values totaling $ 865.1 million at december 31 , 2016. acquisition of ess relating to msrs held by pfsi . during the year ended december 31 , 2016 , we did not purchase any ess from pfsi . pursuant to a recapture agreement with pls we received ess with fair value totaling $ 6.6 million . we sold $ 59.0 million of ess relating to freddie mac and fannie mae msrs back to pls . we held ess with a fair value totaling $ 288.7 million at december 31 , 2016. acquisition of small balance ( typically under $ 10 million ) commercial real estate loans . during the year ended december 31 , 2016 , we acquired $ 18.1 million in fair value of small balance commercial real estate loans . at december 31 , 2016 , we held $ 9.0 million at fair value of such mortgage loans . 46 to the extent that we transfer correspondent production loans into private label securitizations , retention of a portion of the securities created in the securitization transaction . our private label securitization is accounted for as a financing arrangement . sales of securities included in the securitization are treated as issuances of debt . our board of trustees has authorized a repurchase program under which we may repurchase up to $ 200 million of our outstanding common shares . during the year ended december 31 , 2016 , we repurchased approximately 7.4 million common shares at a cost of $ 98.4 million . we have repurchased a cumulative total of 8.4 million common shares at a cost of $ 114.7 million under the program . the repurchased common shares were canceled upon settlement of the repurchase transactions and returned to the authorized but unissued share pool . we believe that we qualify to be taxed as a reit and as such will not be subject to federal income tax on that portion of our income that is distributed to shareholders as long as we meet applicable reit asset , income and share ownership tests . if we fail to qualify as a reit , and do not qualify for certain statutory relief provisions , our profits will be subject to income taxes and we may be precluded from qualifying as a reit for the four tax years following the year we lose our reit qualification . a portion of our activities , including our correspondent production business , is conducted in our trs , which is subject to corporate federal and state income taxes . accordingly , we have made a provision for income taxes with respect to the operations of our trs . we expect that the effective rate for the provision for income taxes may be volatile in future periods . our goal is to manage the business to take full advantage of the tax benefits afforded to us as a reit . observations on current market conditions our business is affected by macroeconomic conditions in the united states , including economic growth , unemployment rates , the residential housing market and interest rate levels and expectations . the u.s. economy continues to grow , albeit at a modest pace , as reflected in recent economic data . during 2016 , u.s. real gross domestic product expanded at an annual rate of 1.9 % , compared to 2.4 % for 2015. the national seasonally adjusted unemployment rate was 4.7 % at december 31 , 2016 , 5.0 % at december 31 , 2015 and 5.6 % at december 31 , 2014. delinquency rates on residential real estate loans remain somewhat elevated compared to historical rates , but have been steadily declining . as reported by the federal reserve bank , during the third quarter of 2016 , the delinquency rate on residential real estate loans held by commercial banks was 4.3 % , a reduction from 5.2 % during the fourth quarter of 2015. residential real estate activity remains strong . the seasonally adjusted annual rate of existing home sales for december 2016 was 1.5 % higher than for december 2015 , and the national median existing home price for all housing types was $ 233,500 , a 3.8 % increase from december 2015 ( source : national association of realtors® ) . on a national level , foreclosure filings during 2016 decreased by 14 % , as compared to 2015. however , foreclosure activity is expected to remain above historical average levels through 2017 and beyond . story_separator_special_tag if the fair value of impaired msrs subsequently increases , we recognize the increase in fair value in current period income and , through a reduction in the valuation allowance , adjust the carrying value of the msrs to a level not in excess of amortized cost . when evaluating msrs for impairment , we stratify the assets by predominant risk characteristic including loan type ( fixed-rate or adjustable-rate ) and note interest rate . we stratify fixed-rate mortgage loans into note interest rate pools of 50 basis points for note interest rates between 3.0 % and 4.5 % and a single pool for note interest rates below 3 % . we evaluate adjustable-rate mortgage loans with initial interest rates of 4.5 % or less in a single pool . we periodically review the various impairment strata to determine whether the fair value of the impaired msrs in a given stratum is likely to recover . when we conclude that recovery of the fair value is unlikely in the foreseeable future , a write-down of the cost of the msrs for that stratum to its estimated recoverable value is charged to the valuation allowance . amortization and impairment of msrs accounted for using the amortization method are included in current period income as a component of net mortgage loan servicing fees . msrs accounted for at fair value we include changes in fair value of msrs accounted for at fair value in current period income as a component of net mortgage loan servicing fees . 51 a shift in the market for msrs or a change in our manager 's assessment of an input to the valuation of msrs can have a significant effect on the fair value of msrs and in our income for the period . we believe the most significant “ level 3 ” fair value inputs to the valuation of msrs are the pricing spread ( discount rate ) , prepayment speed and annual per-loan cost of servicing . following is a summary of the effect on fair value of various changes to these key inputs that our manager uses in making its fair value estimates as of december 31 , 2016 : replace_table_token_9_th the preceding asset analyses hold constant all of the inputs other than the input that is being changed to show an estimate of the effect on fair value of a change in a specific input . we expect that in a market shock event , multiple inputs would be affected and the effects of these changes may compound or counteract each other . furthermore , certain of our msrs are accounted for using the amortization method and are carried at the lower of amortized cost or fair value . such assets ' carrying value may not be immediately affected as a result of a change in input values depending on the carrying value ( carrying value is the amortized cost reduced by the applicable valuation allowance ) of the msr asset before the change in input occurs and whether the input change causes our estimate of fair value to change to a level below the amortized cost of those msrs . therefore the preceding analyses are not projections of the effects of a shock event or a change in our manager 's estimate of an input and should not be relied upon as earnings projections . critical accounting policies not tied to fair value liability for representations and warranties we record a provision for losses relating to our representations and warranties as part of our mortgage loan sale transactions , which are generally to the agencies . the method we use to estimate the liability for representations and warranties is a function of the representations and warranties made to such investors and considers a combination of factors , including , but not limited to , estimated future default and mortgage loan repurchase rates , the potential severity of loss in the event of default and the probability of reimbursement by the mortgage originator who sold the mortgage loan to us . we establish a liability at the time we sell the mortgage loans to the investors and periodically update our liability estimate . the level of the liability for representations and warranties is difficult to estimate and requires considerable judgment . the level of mortgage loan repurchase losses is dependent on economic factors , investor behavior , and other external conditions that may change over the lives of the underlying mortgage loans . our estimate of the liability for representations and warranties is developed by our manager 's credit administration staff . the liability estimate is reviewed and approved by our manager 's senior management credit committee which includes its chief executive , credit , portfolio risk , mortgage operations , and mortgage banking officers . as economic fundamentals change , as investor and agency evaluations of their loss mitigation strategies ( including claims under representations and warranties ) change and as the mortgage market and general economic conditions affect our correspondent sellers , the level of repurchase activity and ensuing losses will change and such changes may be material to us . as a result of these changes , we have adjusted , and may in the future be required to adjust , the estimate of our liability for representations and warranties . such adjustments may be material to our financial condition and net income . consolidation-securitizations we enter into various types of on- and off-balance sheet transactions with special purpose entities ( “ spes ” ) , which are trusts that are established for a limited purpose . generally , spes are formed in connection with securitization transactions . in a securitization transaction , we transfer mortgage loans on our balance sheet to an spe , which then issues to investors various forms of interests in those assets . in a securitization transaction , we typically receive cash and or interests in an spe in exchange for the assets we

cash flows our cash flows for the years ended december 31 , 2016 , 2015 and 2014 are summarized below : replace_table_token_54_th our cash flows resulted in a net decrease in cash of $ 23.6 million during 2016 , as discussed below . operating activities cash used by operating activities totaled $ 621.5 million during 2016 , as compared to cash used by operating activities of $ 863.2 million and $ 366.0 million during 2015 and 2014 , respectively . the decreased use of cash in our operating activities from 2015 to 2016 is primarily due to slower growth of our inventory of mortgage loans acquired for sale at december 31 , 2016 as compared to december 31 , 2015. likewise , the increased use of cash in our operating activities during 2015 as compared to 2014 is due to faster growth in our inventory of mortgage loans held for sale during 2015 as compared to 2014. investing activities net cash provided by our investing activities was $ 194.0 million during 2016 , as compared to cash provided by investing activities of $ 11.5 million during 2015. the increase in cash flows from investing activities reflects proceeds from sales and repayments on our investments , which exceeded our investments primarily consisting of crt agreements and mbs during 2016 , as compared to 2015. we realized cash inflows from repayments of mbs , sales and repayments of mortgage loans , repayment of ess , sales of reo and distributions from crt agreements totaling $ 1.3 billion .

as of december 31 , 2019 , the company owned 15 hotels , representing 1,908 rooms , in eight states , including one hotel owned through an 80 % interest in an unconsolidated joint venture .  agreement and plan of merger  on july 19 , 2019 , company parties and the nht parties entered into the merger agreement . closing of the acquisition did not occur on march 23 , 2020 , the contemplated closing date of the acquisition , and has not occurred as of the time of this filing . the company parties and the nht parties are in discussions concerning potential amendments to restructure the transaction , which will be disclosed if and when such amendments are agreed . there can be no assurance with respect to the outcome of such discussions , and the company continues reviewing its options and reserves all rights and remedies under the merger agreement .  there can be no assurances that the acquisition of the company will be completed .  hotel property portfolio activity  acquisitions  during the year ended december 31 , 2019 , there were no hotel acquisitions .  subsequent to year end , on february 14 , 2020 , the company purchased o u r joint venture partner 's interest in the atlanta jv for $ 7.3 million .  dispositions  pursuant to our disposition strategy , the following h otel sales were completed in 2019 :     date of sale location brand condor lender number of rooms gross proceeds ( in thousands ) 03/22/2019 solomons , md quality inn credit facility 59 $ 4,320  net proceeds , a fter the payment of related expenses , totale d $ 4.2 million in 2019 . the net proceeds were used to repay borrowings under the company 's credit facility .  based on the criteria discussed in the footnotes to the consolidated financial statements , as of december 31 , 2019 , the company had no hotels classified as held for sale . as of december 31 , 2018 , the company had one hotel held for sale which was sold in 2019. if a hotel is considered held for sale as of the most recent balance sheet presented 29 or was sold in any period presented , the hotel property and the debt it collateralizes are shown as held for sale in all periods presented .  operating performance metrics  the following table present s our comparative same-store occupancy , adr , and revpar for all our h otels owned at december 31 , 2019 . same-store occupancy , adr , and revpar reflect the performance of hotels during the entire period , regardless of our ownership during the period presented . results for the hotels for periods prior to our ownership were provided to us by prior owners and have not been adjusted by us or audited or reviewed by our independent auditors . the performance metrics for the hotel acquired through 80 % ownership of the atlanta aloft jv , also presented below , reflect 100 % of the operating results of the property , including our interest and the interest of our partner .    replace_table_token_7_th  total same-store revpar remained almost consistent between the periods , increasing by 0.1 % during 2019 , driven by a 1.3 % increase in adr which was partially offset by a decrease in occupancy of 1.2 % . the largest revpar increases during this period were the el paso fairfield inn ( increase of 9.6 % ) and the atlanta aloft jv ( increase of 5.8 % ) . these increases were partially offset by a decrease at the san antonio springhilll suites ( decrease of 12.3 % ) . at the el paso fairfield inn , the increase in revpar was driven by both increases in occupancy ( 4.4 % ) and adr ( 5.0 % ) resulting from increased business in the market due to border and immigration issues and increased activity at fort bliss . the performance of the atlanta aloft , which was driven by an increase in adr of 4.6 % , was largely the result of the 2019 super bowl in the market . at the san antonio springhill suites , the decrease was driven by a much weaker 2019 convention schedule and the timing of athletic events when compared to 2018 .  r esults of operations replace_table_token_8_th  comparison of the year ended decem ber 31 , 2019 to the year en ded december 31 , 2018 ( in thousands , except per share amounts )  revenue  revenue decreased by a total of $ 4,005 primarily as a result of decreased revenue from properties sold during and between the periods of $ 4,090 which was partially offset by revenue from properties acquired during the first quarter of 2018 which increased by $ 512. revenue related to new investment platform properties owned throughout both periods decreased by $ 427 as a result of the changes in revpar discussed above .  30 expenses  hotel and property operations expense also decreased by $ 2,239 as a result of decreased expenses from properties sold during and between the periods of $ 3,013 which was partially offset by expenses from properties acquired during the first quarter of 2018 which increased by $ 405. in total , hotel and property operations expenses increased slightly as consistent as a percentage of total revenue from 63.0 % in 2018 to 63.5 % in 2019 .  general and administrative expense decreased by $ 517 between the periods largely due to decreased compensation costs as well as decreased professional services and travel costs as a result of decreased transactional activity . story_separator_special_tag following this modification , contractual debt maturities on debt outstanding at december 31 , 2019 were as follows :   replace_table_token_12_th  contractual obligations 37  below is a summary of certain obligations that will require capital as of december 31 , 2019 , without consideration of debt amendments that took place subsequent to year end , and the effect such obligations are expected to have on our future liquidity and cash flows ( in thousands ) :    replace_table_token_13_th ( 1 ) interest rate payments on our variable rate debt have been estimated using interest rates in effect at december 31 , 2019 . as previously discussed , the company 's key bank credit facility was amended subsequent to year end to move the maturity of $ 86,845 of debt outstanding at december 31 , 2019 from 2020 to 2021 .  we have various standing or renewable contracts with vendors . these contracts are all cancelable with immaterial or no cancellation penalties . contract terms are generally one year or less . we also have management agreements in place for the management and operation of our hotel properties .  inflation  we rely on the performance of our hotels to increase revenues to keep pace with inflation . generally , our hotel operators possess the ability to adjust room rates daily to reflect the effects of inflation . however , competitive pressures may limit the ability of our management companies to raise room rates .  off balance sheet financing transactions  we have not entered into any off balance sheet financing transactions .  critical accounting policies  our consolidated financial statements have been prepared in conformity with u.s. gaap , which requires management to make estimates and assumptions that effect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period . while we do not believe the reported amounts would be materially different , application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and , as a result , actual results could differ from these estimates . we evaluate our estimates and judgments on an ongoing basis . we base our estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances .  critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management 's most difficult , complex , or subjective judgments . we have identified the following principal accounting policies that have a material effect on our co nsolidated financial statements .  investment in hotel properties  at the time of acquisition , the company allocates the purchase price of assets to asset classes based on the fair value of the acquired real estate , furniture , fixtures , and equipment , and intangible assets , if any , and the fair value of liabilities assumed , including debt . acquisition date fair values are determined based on replacement costs , appraised values , and estimated fair values using methods similar to those used by independent appraisers including discounted cash flows and capitalization rates .  effective january 1 , 2018 , we adopted financial accounting standards board ( “ fasb ” ) asu no . 2017-01 , clarifying the definition of a business . as such , if substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset or group of similar identifiable assets , the set is not considered a business . when we conclude that an acquisition meets this threshold , acquisition costs will be capitalized as part of our allocation of the purchase price of the acquired hotel properties . this guidance is applied prospectively . we 38 concluded that all hotel acquisitions in 2018 were acquisition s of assets and as such acquisition costs were capitalized as part of these transactions .  prior to january 1 , 2018 , hotel acquisitions were considered business combinations and acquisition costs , such as transfer taxes , title insurance , environmental and property condition reviews , and legal and accounting fees , were expensed as incurred . these types of costs continue to be expensed if they are related to potential acquisitions that are not completed .  the company 's investments in hotel properties are recorded at cost and are depreciated using the straight-line method over an estimated useful life of 15 to 40 years for buildings and improvements and 3 to 12 years for furniture and equipment .  renovations and or replacements that improve or extend the life of the hotel properties are capitalized and depreciated over their useful lives . repairs and maintenance are expensed as incurred .  the initial fees incurred to enter into the franchise agreements are capitalized and amortized over the life of the franchise agreements using the straight-line method . amortization expense is included in depreciation and amortization in the consolidated statements of operations .  on an ongoing basis , the company reviews the carrying value of each held for use hotel to determine if certain circumstances , known as triggering events , exist indicating impairment to the carrying value of the hotel or that depreciation periods should be modified . these triggering events include a significant change in the cash flows of or a significant adverse change in the business climate for a hotel . if facts or circumstances support the possibility of impairment , the company will prepare an estimate of the undiscounted future cash flows , without interest charges , of the specific hotel and determine if the investment in such hotel is recoverable based on these undiscounted future cash flows . if the investment is not recoverable based on this analysis , an impairment charge will be taken , if

cash flows our cash flows for the years ended december 31 , 2016 , 2015 and 2014 are summarized below : replace_table_token_54_th our cash flows resulted in a net decrease in cash of $ 23.6 million during 2016 , as discussed below . operating activities cash used by operating activities totaled $ 621.5 million during 2016 , as compared to cash used by operating activities of $ 863.2 million and $ 366.0 million during 2015 and 2014 , respectively . the decreased use of cash in our operating activities from 2015 to 2016 is primarily due to slower growth of our inventory of mortgage loans acquired for sale at december 31 , 2016 as compared to december 31 , 2015. likewise , the increased use of cash in our operating activities during 2015 as compared to 2014 is due to faster growth in our inventory of mortgage loans held for sale during 2015 as compared to 2014. investing activities net cash provided by our investing activities was $ 194.0 million during 2016 , as compared to cash provided by investing activities of $ 11.5 million during 2015. the increase in cash flows from investing activities reflects proceeds from sales and repayments on our investments , which exceeded our investments primarily consisting of crt agreements and mbs during 2016 , as compared to 2015. we realized cash inflows from repayments of mbs , sales and repayments of mortgage loans , repayment of ess , sales of reo and distributions from crt agreements totaling $ 1.3 billion .

as of december 31 , 2019 , the company owned 15 hotels , representing 1,908 rooms , in eight states , including one hotel owned through an 80 % interest in an unconsolidated joint venture .  agreement and plan of merger  on july 19 , 2019 , company parties and the nht parties entered into the merger agreement . closing of the acquisition did not occur on march 23 , 2020 , the contemplated closing date of the acquisition , and has not occurred as of the time of this filing . the company parties and the nht parties are in discussions concerning potential amendments to restructure the transaction , which will be disclosed if and when such amendments are agreed . there can be no assurance with respect to the outcome of such discussions , and the company continues reviewing its options and reserves all rights and remedies under the merger agreement .  there can be no assurances that the acquisition of the company will be completed .  hotel property portfolio activity  acquisitions  during the year ended december 31 , 2019 , there were no hotel acquisitions .  subsequent to year end , on february 14 , 2020 , the company purchased o u r joint venture partner 's interest in the atlanta jv for $ 7.3 million .  dispositions  pursuant to our disposition strategy , the following h otel sales were completed in 2019 :     date of sale location brand condor lender number of rooms gross proceeds ( in thousands ) 03/22/2019 solomons , md quality inn credit facility 59 $ 4,320  net proceeds , a fter the payment of related expenses , totale d $ 4.2 million in 2019 . the net proceeds were used to repay borrowings under the company 's credit facility .  based on the criteria discussed in the footnotes to the consolidated financial statements , as of december 31 , 2019 , the company had no hotels classified as held for sale . as of december 31 , 2018 , the company had one hotel held for sale which was sold in 2019. if a hotel is considered held for sale as of the most recent balance sheet presented 29 or was sold in any period presented , the hotel property and the debt it collateralizes are shown as held for sale in all periods presented .  operating performance metrics  the following table present s our comparative same-store occupancy , adr , and revpar for all our h otels owned at december 31 , 2019 . same-store occupancy , adr , and revpar reflect the performance of hotels during the entire period , regardless of our ownership during the period presented . results for the hotels for periods prior to our ownership were provided to us by prior owners and have not been adjusted by us or audited or reviewed by our independent auditors . the performance metrics for the hotel acquired through 80 % ownership of the atlanta aloft jv , also presented below , reflect 100 % of the operating results of the property , including our interest and the interest of our partner .    replace_table_token_7_th  total same-store revpar remained almost consistent between the periods , increasing by 0.1 % during 2019 , driven by a 1.3 % increase in adr which was partially offset by a decrease in occupancy of 1.2 % . the largest revpar increases during this period were the el paso fairfield inn ( increase of 9.6 % ) and the atlanta aloft jv ( increase of 5.8 % ) . these increases were partially offset by a decrease at the san antonio springhilll suites ( decrease of 12.3 % ) . at the el paso fairfield inn , the increase in revpar was driven by both increases in occupancy ( 4.4 % ) and adr ( 5.0 % ) resulting from increased business in the market due to border and immigration issues and increased activity at fort bliss . the performance of the atlanta aloft , which was driven by an increase in adr of 4.6 % , was largely the result of the 2019 super bowl in the market . at the san antonio springhill suites , the decrease was driven by a much weaker 2019 convention schedule and the timing of athletic events when compared to 2018 .  r esults of operations replace_table_token_8_th  comparison of the year ended decem ber 31 , 2019 to the year en ded december 31 , 2018 ( in thousands , except per share amounts )  revenue  revenue decreased by a total of $ 4,005 primarily as a result of decreased revenue from properties sold during and between the periods of $ 4,090 which was partially offset by revenue from properties acquired during the first quarter of 2018 which increased by $ 512. revenue related to new investment platform properties owned throughout both periods decreased by $ 427 as a result of the changes in revpar discussed above .  30 expenses  hotel and property operations expense also decreased by $ 2,239 as a result of decreased expenses from properties sold during and between the periods of $ 3,013 which was partially offset by expenses from properties acquired during the first quarter of 2018 which increased by $ 405. in total , hotel and property operations expenses increased slightly as consistent as a percentage of total revenue from 63.0 % in 2018 to 63.5 % in 2019 .  general and administrative expense decreased by $ 517 between the periods largely due to decreased compensation costs as well as decreased professional services and travel costs as a result of decreased transactional activity . story_separator_special_tag following this modification , contractual debt maturities on debt outstanding at december 31 , 2019 were as follows :   replace_table_token_12_th  contractual obligations 37  below is a summary of certain obligations that will require capital as of december 31 , 2019 , without consideration of debt amendments that took place subsequent to year end , and the effect such obligations are expected to have on our future liquidity and cash flows ( in thousands ) :    replace_table_token_13_th ( 1 ) interest rate payments on our variable rate debt have been estimated using interest rates in effect at december 31 , 2019 . as previously discussed , the company 's key bank credit facility was amended subsequent to year end to move the maturity of $ 86,845 of debt outstanding at december 31 , 2019 from 2020 to 2021 .  we have various standing or renewable contracts with vendors . these contracts are all cancelable with immaterial or no cancellation penalties . contract terms are generally one year or less . we also have management agreements in place for the management and operation of our hotel properties .  inflation  we rely on the performance of our hotels to increase revenues to keep pace with inflation . generally , our hotel operators possess the ability to adjust room rates daily to reflect the effects of inflation . however , competitive pressures may limit the ability of our management companies to raise room rates .  off balance sheet financing transactions  we have not entered into any off balance sheet financing transactions .  critical accounting policies  our consolidated financial statements have been prepared in conformity with u.s. gaap , which requires management to make estimates and assumptions that effect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period . while we do not believe the reported amounts would be materially different , application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and , as a result , actual results could differ from these estimates . we evaluate our estimates and judgments on an ongoing basis . we base our estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances .  critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management 's most difficult , complex , or subjective judgments . we have identified the following principal accounting policies that have a material effect on our co nsolidated financial statements .  investment in hotel properties  at the time of acquisition , the company allocates the purchase price of assets to asset classes based on the fair value of the acquired real estate , furniture , fixtures , and equipment , and intangible assets , if any , and the fair value of liabilities assumed , including debt . acquisition date fair values are determined based on replacement costs , appraised values , and estimated fair values using methods similar to those used by independent appraisers including discounted cash flows and capitalization rates .  effective january 1 , 2018 , we adopted financial accounting standards board ( “ fasb ” ) asu no . 2017-01 , clarifying the definition of a business . as such , if substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset or group of similar identifiable assets , the set is not considered a business . when we conclude that an acquisition meets this threshold , acquisition costs will be capitalized as part of our allocation of the purchase price of the acquired hotel properties . this guidance is applied prospectively . we 38 concluded that all hotel acquisitions in 2018 were acquisition s of assets and as such acquisition costs were capitalized as part of these transactions .  prior to january 1 , 2018 , hotel acquisitions were considered business combinations and acquisition costs , such as transfer taxes , title insurance , environmental and property condition reviews , and legal and accounting fees , were expensed as incurred . these types of costs continue to be expensed if they are related to potential acquisitions that are not completed .  the company 's investments in hotel properties are recorded at cost and are depreciated using the straight-line method over an estimated useful life of 15 to 40 years for buildings and improvements and 3 to 12 years for furniture and equipment .  renovations and or replacements that improve or extend the life of the hotel properties are capitalized and depreciated over their useful lives . repairs and maintenance are expensed as incurred .  the initial fees incurred to enter into the franchise agreements are capitalized and amortized over the life of the franchise agreements using the straight-line method . amortization expense is included in depreciation and amortization in the consolidated statements of operations .  on an ongoing basis , the company reviews the carrying value of each held for use hotel to determine if certain circumstances , known as triggering events , exist indicating impairment to the carrying value of the hotel or that depreciation periods should be modified . these triggering events include a significant change in the cash flows of or a significant adverse change in the business climate for a hotel . if facts or circumstances support the possibility of impairment , the company will prepare an estimate of the undiscounted future cash flows , without interest charges , of the specific hotel and determine if the investment in such hotel is recoverable based on these undiscounted future cash flows . if the investment is not recoverable based on this analysis , an impairment charge will be taken , if

sources and uses of cash  cash provided by operating activities . our cash provided by operations was $ 9.3 million and $ 10.7 million for the years ended december 31 , 2019 and 2018 , respectively , a decrease of $ 1.4 million . this change in operating cash flow was driven by a change in net income , after adjusting for non-cash items , which decreased by $ 3.0 million . this decrease was partially offset by differing changes in liabilities between the periods , driven most significantly by differences in the timing of the payment of property taxes . other changes in operating assets and liabilities between the periods discussed were individually insignificant .  cash provided by ( used in ) investing activities . our cash provided by ( used in ) investing activities was $ 4.4 million and ( $ 16.5 million ) for the years ended december 31 , 2019 and 2018 , respectively , an increase of $ 20.9 million . the increase in these cash flows was driven by decreased cash spent on hotel acquisitions of $ 35.6 million , partially offset by a decrease in net proceeds from the sale of hotels of $ 15.5 million between the periods .  cash provided by ( used in ) financing activities . our cash provided by ( used in ) financing activities was ( $ 14.4 million ) and $ 4.6 million for the years ended december 31 , 2019 and 2018 , respectively , a decrease of $ 19.0 million . the decrease was driven by decreased debt proceeds of $ 33.8 million due to a decrease in hotel acquisitions , partially offset by a decrease in repayments of debt of $ 15.0 million due to a decrease in hotel sales .  outstanding indebtedness  at december 31 , 2019 , we had long-term debt of $ 135.4 million with a weighted average term to maturity of 1.5 years and a weighted average interest rate of 4.22 % .

the results of industrial filtration have been included in the company 's financial statements since the date of the acquisition . as a result , the consolidated financial results for the year ended december 31 , 2014 do not reflect a full twelve months of the industrial filtration business . the acquisition resulted in the inclusion of industrial filtration 's assets and liabilities as of the acquisition date at their respective fair values . accordingly , the acquisition materially affected the company 's results of operations and financial position . below are financial highlights comparing lydall 's 2014 results to its 2013 results : consolidated net sales of $ 535.8 million , an increase of $ 137.9 million , or 34.6 % , as net sales increased 6.4 % related to pre-acquisition businesses and 28.2 % from the acquisition . foreign currency translation had a minimal impact on sales . gross margin increased to 21.5 % , compared to 21.4 % , principally led by the t/a fibers segment which experienced favorable product mix as well as improved absorption of fixed costs and lower raw material costs , partially offset by lower industrial filtration segment gross margin . 18 selling , product development and administrative expenses were $ 80.9 million , or 15.1 % of net sales , compared to $ 56.5 million , or 14.2 % of net sales ; ◦ inclusion of the industrial filtration segment in 2014 increased selling , product development and administrative expenses by $ 9.5 million ; ◦ selling , product development and administrative expenses increased by $ 5.4 million in all of the company 's pre-acquisition operating businesses including in the performance materials , t/a fibers and t/a metals segments as well as in other products and services . this increase was primarily related to a $ 2.9 million commission settlement in the t/a metals segment as the company terminated a long-standing commercial sales agreement in 2014. other increases were primarily associated with higher salaries and benefits expenses , including an increase of $ 1.3 million in accrued incentive compensation under the company 's 2014 bonus program . excluding the $ 2.9 million commission settlement expense in the t/a metals segment , selling , product development and administrative expenses in the company 's pre-acquisition operating businesses were flat as a percentage of net sales in 2014 compared to 2013 . ◦ corporate office administrative expenses increased by $ 9.6 million primarily due to a non-cash pension plan settlement charge of $ 4.9 million associated with a voluntary one-time lump sum payment option elected by certain former u.s. employees under the company 's domestic defined benefit pension plan , an increase of $ 1.4 million of transaction related costs associated with the industrial filtration acquisition , and increases in salaries and benefit expenses , including greater accrued incentive compensation under the company 's 2014 bonus program and stock-based compensation aggregating to $ 1.3 million , and increases in other administrative expenses . operating income was $ 34.0 million , or 6.4 % of net sales , compared to $ 28.7 million , or 7.2 % of net sales ; ◦ industrial filtration segment operating income was $ 6.4 million , or 5.7 % of industrial filtration segment net sales , including the unfavorable impact of $ 2.1 million , or 180 basis points , of purchase accounting adjustments relating to inventory step-up . ◦ operating income from performance materials , t/a metals , t/a fibers , ops and corporate office was $ 27.6 million , or 6.5 % of pre-acquisition business net sales , compared to $ 28.7 million , or 7.2 % in 2013. the increase in selling , product development and administrative expenses of $ 14.9 million was partially offset by an increase in gross profit of $ 13.8 million in 2014 compared to 2013. the increase in gross profit was primarily from the t/a fibers segment and to a lesser extent the t/a metals segment due to higher sales volumes and a favorable mix of part sales in both segments , and improved absorption of fixed costs , lower raw material costs and labor efficiencies in the t/a fibers segment . net income was $ 21.8 million , or $ 1.28 per diluted share , compared to $ 19.2 million , or $ 1.14 per diluted share in 2013 ; cash generated from operations was $ 41.6 million in 2014 compared to $ 30.3 million in 2013 , the increase primarily a result of increased net income adjusted for non-cash items , in 2014 compared to 2013 , offset to some extent by increased working capital requirements . other matters on february 18 , 2014 , the company amended and restated its $ 35 million senior secured revolving domestic credit facility to increase the available borrowing under this agreement to $ 100 million . the amended credit facility , secured by substantially all of the assets of the company , has a maturity date of january 31 , 2019 and was completed with the same financial institution as well as two additional financial institutions . the company entered into this amended credit facility in part to fund $ 60 million of the purchase price of the acquisition , as well as provide the company with greater borrowing flexibility , more favorable interest rates and financial covenants . as of december 31 , 2014 , the company had outstanding borrowings under this credit facility of $ 40 million , and a consolidated leverage ratio of 0.7. on january 30 , 2015 , the company sold all of the outstanding shares of common stock of its vital fluids business for a cash purchase price of $ 29.9 million , subject to a customary post-closing adjustment ( the “ disposition ” ) . the disposition was completed pursuant to a stock purchase and sale agreement , dated january 30 , 2015 , by and among the company , and the buyer . story_separator_special_tag million , or 5.1 % , in 2013 compared to 2012 , due to decreased sales volumes offset to some extent by the positive impact of foreign currency translation of $ 1.1 million or 0.9 % . a reduction in filtration net sales of $ 3.6 million , or 5.3 % , primarily contributed to the reduction in segment net sales as demand for products in europe was lower due to macroeconomic conditions . net sales in the thermal insulation business decreased by $ 1.5 million , including $ 4.5 million of lower net sales in 2013 of electrical papers products . the company completed in 2012 its obligation to manufacture and sell these products , pursuant to an agreement with the buyer of this product line in a prior year . this reduction was partially offset by higher net sales of other thermal insulation products of $ 3.0 million , including greater demand for products used to transport cryogenic products and insulate commercial buildings . net sales of life sciences filtration products decreased by $ 0.9 million , or 7.9 % , in 2013 compared to 2012 due to decreased demand for products used in water and respiration application products . the performance materials segment reported operating income of $ 9.5 million , or 8.4 % of net sales in 2013 , compared to operating income of $ 10.4 million , or 8.8 % of net sales in 2012. operating income in 2012 included a $ 0.8 million gain from services provided to the buyer of the electrical papers product line in accordance with the terms of a license agreement , which expired june 30 , 2012. operating income in 2013 was essentially flat with 2012 when excluding this gain of $ 0.8 million from 2012. during 2013 , the impact of lower sales volume , unfavorable absorption of fixed overhead costs and unfavorable product mix on operating income was nearly offset by lower selling , product development and administrative expenses of $ 2.0 million , or 10.6 % , in 2013 compared to 2012 , primarily due to cost containment measures . the segment reported lower general administrative expenses of $ 0.9 million , lower salaries , benefits and accrued incentive compensation of $ 0.6 million , and reductions in research and development expenses of $ 0.4 million . the reduction in general administrative expenses of $ 0.9 million was primarily related to a loss on 24 disposal of assets in 2012 , lower amortization of intangible assets , lower professional services and lower travel expenses in 2013 compared to 2012. industrial filtration segment segment net sales were $ 112.2 million from the acquisition date of february 20 , 2014 through december 31 , 2014. approximately 50 % of net sales in this segment were manufactured at industrial filtration sites in north america with the remaining net sales split nearly evenly between manufacturing sites in europe and asia . the industrial filtration segment reported operating income of $ 6.4 million , or 5.7 % of net sales from the acquisition date through december 31 , 2014 , which included the impact of purchase accounting adjustments in cost of sales related to inventory step-up of $ 2.1 million negatively impacting operating margin by 180 basis points . there were no comparative results for the year ended december 31 , 2013 as the industrial filtration segment was created through the acquisition of that business on february 20 , 2014. thermal/acoustical metals segment segment net sales increased by $ 5.9 million , or 3.7 % , in 2014 compared to 2013. foreign currency translation positively impacted net sales by $ 0.1 million , or 0.1 % , in 2014 compared to 2013. automotive parts net sales increased by $ 9.3 million , or 6.8 % , in 2014 compared to 2013 , primarily due to increased demand from customers served by the company 's north american and european automotive operations and to a lesser extent , parts sales in china as the company 's new manufacturing facility began production in 2014. market conditions in north america have continued to remain favorable and improved in europe which led to increased sales volumes . tooling net sales in 2014 were lower by $ 3.4 million , or 15.3 % , due to timing of new product launches , particularly in europe . the thermal/acoustical metals segment reported operating income of $ 13.8 million , or 8.4 % of net sales , in 2014 compared to $ 14.1 million , or 8.9 % of net sales , in 2013. the decrease in operating income was due to an increase in selling , product development and administrative costs of $ 3.5 million in 2014 compared to 2013. this increase was primarily related to higher sales commission expenses of $ 1.9 million , largely the result of a $ 2.9 million commission settlement expense in the second quarter of 2014 associated with the termination of a long-standing commercial sales agreement in europe . also , increases in salaries and benefits expense of $ 0.5 million , professional service expenses of $ 0.4 million , primarily legal expenses associated with the on-going german federal cartel investigation , and other increases in selling expenses contributed to the overall increase in expenses . this increase in selling , general and administrative costs was offset to some extent by an increase in gross profit of $ 3.2 million , primarily in north america and europe , due to increased sales volume and a favorable mix of sales of automotive parts . this increased gross profit was offset to some extent by higher production costs , primarily related to sourcing raw material in china as the company began production operations in 2014. segment net sales increased by $ 4.5 million , or 2.9 % , in 2013 compared to 2012. foreign currency translation positively impacted net sales by $ 2.7 million , or 1.8 % , in 2013 compared to 2012.

sources and uses of cash  cash provided by operating activities . our cash provided by operations was $ 9.3 million and $ 10.7 million for the years ended december 31 , 2019 and 2018 , respectively , a decrease of $ 1.4 million . this change in operating cash flow was driven by a change in net income , after adjusting for non-cash items , which decreased by $ 3.0 million . this decrease was partially offset by differing changes in liabilities between the periods , driven most significantly by differences in the timing of the payment of property taxes . other changes in operating assets and liabilities between the periods discussed were individually insignificant .  cash provided by ( used in ) investing activities . our cash provided by ( used in ) investing activities was $ 4.4 million and ( $ 16.5 million ) for the years ended december 31 , 2019 and 2018 , respectively , an increase of $ 20.9 million . the increase in these cash flows was driven by decreased cash spent on hotel acquisitions of $ 35.6 million , partially offset by a decrease in net proceeds from the sale of hotels of $ 15.5 million between the periods .  cash provided by ( used in ) financing activities . our cash provided by ( used in ) financing activities was ( $ 14.4 million ) and $ 4.6 million for the years ended december 31 , 2019 and 2018 , respectively , a decrease of $ 19.0 million . the decrease was driven by decreased debt proceeds of $ 33.8 million due to a decrease in hotel acquisitions , partially offset by a decrease in repayments of debt of $ 15.0 million due to a decrease in hotel sales .  outstanding indebtedness  at december 31 , 2019 , we had long-term debt of $ 135.4 million with a weighted average term to maturity of 1.5 years and a weighted average interest rate of 4.22 % .

the results of industrial filtration have been included in the company 's financial statements since the date of the acquisition . as a result , the consolidated financial results for the year ended december 31 , 2014 do not reflect a full twelve months of the industrial filtration business . the acquisition resulted in the inclusion of industrial filtration 's assets and liabilities as of the acquisition date at their respective fair values . accordingly , the acquisition materially affected the company 's results of operations and financial position . below are financial highlights comparing lydall 's 2014 results to its 2013 results : consolidated net sales of $ 535.8 million , an increase of $ 137.9 million , or 34.6 % , as net sales increased 6.4 % related to pre-acquisition businesses and 28.2 % from the acquisition . foreign currency translation had a minimal impact on sales . gross margin increased to 21.5 % , compared to 21.4 % , principally led by the t/a fibers segment which experienced favorable product mix as well as improved absorption of fixed costs and lower raw material costs , partially offset by lower industrial filtration segment gross margin . 18 selling , product development and administrative expenses were $ 80.9 million , or 15.1 % of net sales , compared to $ 56.5 million , or 14.2 % of net sales ; ◦ inclusion of the industrial filtration segment in 2014 increased selling , product development and administrative expenses by $ 9.5 million ; ◦ selling , product development and administrative expenses increased by $ 5.4 million in all of the company 's pre-acquisition operating businesses including in the performance materials , t/a fibers and t/a metals segments as well as in other products and services . this increase was primarily related to a $ 2.9 million commission settlement in the t/a metals segment as the company terminated a long-standing commercial sales agreement in 2014. other increases were primarily associated with higher salaries and benefits expenses , including an increase of $ 1.3 million in accrued incentive compensation under the company 's 2014 bonus program . excluding the $ 2.9 million commission settlement expense in the t/a metals segment , selling , product development and administrative expenses in the company 's pre-acquisition operating businesses were flat as a percentage of net sales in 2014 compared to 2013 . ◦ corporate office administrative expenses increased by $ 9.6 million primarily due to a non-cash pension plan settlement charge of $ 4.9 million associated with a voluntary one-time lump sum payment option elected by certain former u.s. employees under the company 's domestic defined benefit pension plan , an increase of $ 1.4 million of transaction related costs associated with the industrial filtration acquisition , and increases in salaries and benefit expenses , including greater accrued incentive compensation under the company 's 2014 bonus program and stock-based compensation aggregating to $ 1.3 million , and increases in other administrative expenses . operating income was $ 34.0 million , or 6.4 % of net sales , compared to $ 28.7 million , or 7.2 % of net sales ; ◦ industrial filtration segment operating income was $ 6.4 million , or 5.7 % of industrial filtration segment net sales , including the unfavorable impact of $ 2.1 million , or 180 basis points , of purchase accounting adjustments relating to inventory step-up . ◦ operating income from performance materials , t/a metals , t/a fibers , ops and corporate office was $ 27.6 million , or 6.5 % of pre-acquisition business net sales , compared to $ 28.7 million , or 7.2 % in 2013. the increase in selling , product development and administrative expenses of $ 14.9 million was partially offset by an increase in gross profit of $ 13.8 million in 2014 compared to 2013. the increase in gross profit was primarily from the t/a fibers segment and to a lesser extent the t/a metals segment due to higher sales volumes and a favorable mix of part sales in both segments , and improved absorption of fixed costs , lower raw material costs and labor efficiencies in the t/a fibers segment . net income was $ 21.8 million , or $ 1.28 per diluted share , compared to $ 19.2 million , or $ 1.14 per diluted share in 2013 ; cash generated from operations was $ 41.6 million in 2014 compared to $ 30.3 million in 2013 , the increase primarily a result of increased net income adjusted for non-cash items , in 2014 compared to 2013 , offset to some extent by increased working capital requirements . other matters on february 18 , 2014 , the company amended and restated its $ 35 million senior secured revolving domestic credit facility to increase the available borrowing under this agreement to $ 100 million . the amended credit facility , secured by substantially all of the assets of the company , has a maturity date of january 31 , 2019 and was completed with the same financial institution as well as two additional financial institutions . the company entered into this amended credit facility in part to fund $ 60 million of the purchase price of the acquisition , as well as provide the company with greater borrowing flexibility , more favorable interest rates and financial covenants . as of december 31 , 2014 , the company had outstanding borrowings under this credit facility of $ 40 million , and a consolidated leverage ratio of 0.7. on january 30 , 2015 , the company sold all of the outstanding shares of common stock of its vital fluids business for a cash purchase price of $ 29.9 million , subject to a customary post-closing adjustment ( the “ disposition ” ) . the disposition was completed pursuant to a stock purchase and sale agreement , dated january 30 , 2015 , by and among the company , and the buyer . story_separator_special_tag million , or 5.1 % , in 2013 compared to 2012 , due to decreased sales volumes offset to some extent by the positive impact of foreign currency translation of $ 1.1 million or 0.9 % . a reduction in filtration net sales of $ 3.6 million , or 5.3 % , primarily contributed to the reduction in segment net sales as demand for products in europe was lower due to macroeconomic conditions . net sales in the thermal insulation business decreased by $ 1.5 million , including $ 4.5 million of lower net sales in 2013 of electrical papers products . the company completed in 2012 its obligation to manufacture and sell these products , pursuant to an agreement with the buyer of this product line in a prior year . this reduction was partially offset by higher net sales of other thermal insulation products of $ 3.0 million , including greater demand for products used to transport cryogenic products and insulate commercial buildings . net sales of life sciences filtration products decreased by $ 0.9 million , or 7.9 % , in 2013 compared to 2012 due to decreased demand for products used in water and respiration application products . the performance materials segment reported operating income of $ 9.5 million , or 8.4 % of net sales in 2013 , compared to operating income of $ 10.4 million , or 8.8 % of net sales in 2012. operating income in 2012 included a $ 0.8 million gain from services provided to the buyer of the electrical papers product line in accordance with the terms of a license agreement , which expired june 30 , 2012. operating income in 2013 was essentially flat with 2012 when excluding this gain of $ 0.8 million from 2012. during 2013 , the impact of lower sales volume , unfavorable absorption of fixed overhead costs and unfavorable product mix on operating income was nearly offset by lower selling , product development and administrative expenses of $ 2.0 million , or 10.6 % , in 2013 compared to 2012 , primarily due to cost containment measures . the segment reported lower general administrative expenses of $ 0.9 million , lower salaries , benefits and accrued incentive compensation of $ 0.6 million , and reductions in research and development expenses of $ 0.4 million . the reduction in general administrative expenses of $ 0.9 million was primarily related to a loss on 24 disposal of assets in 2012 , lower amortization of intangible assets , lower professional services and lower travel expenses in 2013 compared to 2012. industrial filtration segment segment net sales were $ 112.2 million from the acquisition date of february 20 , 2014 through december 31 , 2014. approximately 50 % of net sales in this segment were manufactured at industrial filtration sites in north america with the remaining net sales split nearly evenly between manufacturing sites in europe and asia . the industrial filtration segment reported operating income of $ 6.4 million , or 5.7 % of net sales from the acquisition date through december 31 , 2014 , which included the impact of purchase accounting adjustments in cost of sales related to inventory step-up of $ 2.1 million negatively impacting operating margin by 180 basis points . there were no comparative results for the year ended december 31 , 2013 as the industrial filtration segment was created through the acquisition of that business on february 20 , 2014. thermal/acoustical metals segment segment net sales increased by $ 5.9 million , or 3.7 % , in 2014 compared to 2013. foreign currency translation positively impacted net sales by $ 0.1 million , or 0.1 % , in 2014 compared to 2013. automotive parts net sales increased by $ 9.3 million , or 6.8 % , in 2014 compared to 2013 , primarily due to increased demand from customers served by the company 's north american and european automotive operations and to a lesser extent , parts sales in china as the company 's new manufacturing facility began production in 2014. market conditions in north america have continued to remain favorable and improved in europe which led to increased sales volumes . tooling net sales in 2014 were lower by $ 3.4 million , or 15.3 % , due to timing of new product launches , particularly in europe . the thermal/acoustical metals segment reported operating income of $ 13.8 million , or 8.4 % of net sales , in 2014 compared to $ 14.1 million , or 8.9 % of net sales , in 2013. the decrease in operating income was due to an increase in selling , product development and administrative costs of $ 3.5 million in 2014 compared to 2013. this increase was primarily related to higher sales commission expenses of $ 1.9 million , largely the result of a $ 2.9 million commission settlement expense in the second quarter of 2014 associated with the termination of a long-standing commercial sales agreement in europe . also , increases in salaries and benefits expense of $ 0.5 million , professional service expenses of $ 0.4 million , primarily legal expenses associated with the on-going german federal cartel investigation , and other increases in selling expenses contributed to the overall increase in expenses . this increase in selling , general and administrative costs was offset to some extent by an increase in gross profit of $ 3.2 million , primarily in north america and europe , due to increased sales volume and a favorable mix of sales of automotive parts . this increased gross profit was offset to some extent by higher production costs , primarily related to sourcing raw material in china as the company began production operations in 2014. segment net sales increased by $ 4.5 million , or 2.9 % , in 2013 compared to 2012. foreign currency translation positively impacted net sales by $ 2.7 million , or 1.8 % , in 2013 compared to 2012.

net cash provided by operating activities in 2014 was $ 41.6 million compared with $ 30.3 million in 2013 . this increase was primarily due to increases in net income of $ 2.7 million and non-cash adjustments to net income of $ 10.4 million . net operating assets and liabilities increased $ 6.4 million in 2014 , compared to an increase in operating assets and liabilities of $ 4.7 million in 2013 . the increase in operating assets and liabilities in 2014 was due to an increase in accounts receivable of $ 7.2 million primarily due to the addition of the industrial filtration segment . prepaid expenses and other assets and taxes receivable increased $ 6.4 million in 2014 , partially offset by a decrease in inventory $ 4.5 million in 2014 , due to lower inventory days on hand from improvements within the industrial filtration business . further offsetting the increase in operating assets and liabilities in 2014 was a $ 3.3 million increase in accrued payroll and other compensation mainly due to higher accruals related to the company 's incentive bonus program and health benefits . net cash provided by operating activities in 2013 was $ 30.3 million compared with $ 34.4 million in 2012. this decrease was primarily due to an increase in operating assets and liabilities of $ 4.7 million in 2013 , compared to a decrease in operating assets and liabilities of $ 3.0 million in 2012 , for a change of $ 7.7 million , partially offset by improvement in net income of $ 2.3 million .

with respect to most of our client assets under management , we utilize a “ value ” investment style focused on achieving superior long-term , risk-adjusted returns by investing in companies with high levels of free cash flow , improving returns on equity and strengthening balance sheets that are well positioned for growth but whose value is not fully recognized in the marketplace . this investment approach is designed to preserve capital during unfavorable periods and provide superior real returns over the long term . our investment teams have significant industry experience . our investment team members have average investment experience of seventeen years . we have focused on building a foundation in terms of personnel and infrastructure to support a potentially much larger business . we have also developed investment strategies that we believe will be desirable within our target institutional , wealth management and mutual fund markets . the cost of developing new products and growing the organization as a whole has resulted in our incurring expenses that , in some cases , do not currently have significant offsetting revenues . while we continue to evolve our products , we believe that the appropriate foundation and products are in place such that investors will recognize the value in these products , thereby generating new revenue streams for westwood . 2018 highlights the following items are highlights for the year ended december 31 , 2018 : assets under management as of december 31 , 2018 were $ 16.6 billion , a 31 % decrease compared to december 31 , 2017 . quarterly average assets under management decreased 8 % to $ 21.4 billion for 2018 compared to 2017 , which contributed to the 9 % decrease in total revenue from 2017. our largecap value , emerging markets plus , smidcap , smidcap plus , emerging markets , and emerging markets smidcap strategies exhibited strong performance . our smallcap strategy was selected as a subadvisor to the morningstar u.s. equity fund . the effective tax rate decreased to 26.6 % for 2018 compared to 41.0 % for 2017 related to the tax reform act enacted in december 2017. in october 2018 , our board approved a 6 % increase in our quarterly dividend to $ 0.72 per share for an annual rate of $ 2.88 per share , which results in a dividend yield of 8.5 % using the year-end stock price of $ 34.00 per share . we repurchased 108,289 shares of our common stock for an aggregate purchase price of $ 4.0 million . our financial position remains strong with liquid cash and short-term investments of $ 118.2 million and no debt as of december 31 , 2018 . we closed the sale of our omaha-based wealth management operations , received net proceeds of $ 10.0 million and recognized a $ 0.5 million gain on sale . 25 revenues we derive our revenues from investment advisory fees , trust fees and other revenues . our advisory fees are generated by westwood management and westwood international advisors , which manage client accounts under investment advisory and subadvisory agreements . advisory fees are calculated based on a percentage of assets under management and are paid in accordance with the terms of the agreements . advisory fees are paid quarterly in advance based on assets under management on the last day of the preceding quarter , quarterly in arrears based on assets under management on the last day of the quarter just ended , or are based on a daily or monthly analysis of assets under management for the stated period . we recognize advisory fee revenues as services are rendered . a limited number of our clients have a contractual performance-based fee component in their contracts , which generates additional revenues if we outperform a specified index over a specific period of time . we record revenue for performance-based fees at the end of the measurement period . since our advance paying clients ' billing periods coincide with the calendar quarter to which such payments relate , revenue is recognized within the quarter , and our consolidated financial statements contain no deferred advisory fee revenues . our trust fees are generated by westwood trust pursuant to trust or custodial agreements . trust fees are separately negotiated with each client and are generally based on a percentage of assets under management . westwood trust also provides trust services to a small number of clients on a fixed fee basis . trust fees are primarily either paid quarterly in arrears based on a daily average of assets under management for the quarter , or monthly based on the month-end assets under management . since billing periods for most of westwood trust 's clients coincide with the calendar quarter , revenue is fully recognized within the quarter and our consolidated financial statements do not contain a significant amount of deferred revenue . our other revenues generally consist of interest and investment income . although we generally invest most of our cash in u.s. treasury securities , we also invest in equity and fixed income instruments and money market funds , including seed money for new investment strategies . employee compensation and benefits employee compensation and benefits costs generally consist of salaries , incentive compensation , equity-based compensation expense and benefits . sales and marketing sales and marketing costs relate to our marketing efforts , including travel and entertainment , direct marketing and advertising costs . westwood mutual funds westwood mutual funds expenses relate to our marketing , distribution and administration of the westwood funds ® . information technology information technology expenses are generally costs associated with proprietary investment research tools , maintenance and support , computing hardware , software licenses , telecommunications and other related costs . professional services professional services expenses generally consist of costs associated with subadvisory fees , audit , legal and other professional services . story_separator_special_tag as the company and its representatives do not have representation on the westwood funds® or the private equity independent boards of directors , which direct the activities that most significantly impact the entities ' economic performance , we determined that the westwood funds® and the private equity were not vies . therefore , the ucits fund , westwood funds® and private equity should be analyzed under the voe consolidation method . based on our analysis of our investments in these entities for the periods ending december 31 , 2018 and 2017 , we have not consolidated the ctfs , private equity funds or llcs under the vie method or the ucits fund , westwood funds® or private equity under the voe method , and therefore the financial results of these entities are not included in the company 's consolidated financial results . we have included the disclosures related to vies and voes in note 12 “ variable interest entities ” to our consolidated financial statements included in part ii . item 8 “ financial statements and supplementary data . ” business combinations in allocating the purchase price of a business combination , the company records all assets acquired and liabilities assumed at fair value with the excess of the purchase price over the aggregate fair values recorded as goodwill . asc 820 , fair 35 value measurements and disclosures , defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . the purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values as of the date of acquisition . to the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed such excess is allocated to goodwill . the company determines the estimated fair values after review and consideration of relevant information , including discounted cash flows , quoted market prices and estimates made by management . the fair value assigned to identifiable intangible assets acquired is based on estimates and assumptions made by management at the time of the acquisition . the company adjusts the preliminary purchase price allocation , as necessary , during the measurement period of up to one year after the acquisition closing date as it obtains more information as to the facts and circumstances existing as of the acquisition date . acquisition-related costs are recognized separately from the acquisition purchase price and are expensed as incurred . goodwill goodwill is not amortized but is tested for impairment , at least annually . we assess the recoverability of the carrying amount of goodwill either qualitatively or quantitatively as of july 1 of each fiscal year or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable . when assessing the recoverability of goodwill , we may first assess qualitative factors . if an initial qualitative assessment indicates that it is more likely than not that the carrying amount exceeds fair value , a quantitative analysis may be required . we may also elect to skip the qualitative assessment and proceed directly to the quantitative analysis . recoverability of the carrying value of goodwill is measured at the reporting unit level . we have identified two reporting units , which are consistent with our reporting segments . in performing a quantitative analysis , we measure the recoverability of goodwill for our reporting units using a combination of the income approach and the market multiple approach . the income approach is based on the long-term projected future cash flows of the reporting units . we discount the estimated cash flows to present value using a weighted average cost of capital that considers factors such as market assumptions , the timing of cash flows and the risks inherent in such cash flows . the key assumptions used in the market multiple valuation require significant management judgment , including the determination of our peer group and the valuation multiples of such peer group . if the carrying value exceeds the fair value , an impairment loss is measured by reducing the goodwill to the fair market value . we completed our annual impairment assessments during 2018 , 2017 and 2016 and concluded that no impairment losses were required . intangible assets our definite-lived intangible assets represent the acquisition date fair value of the intangible assets acquired , net of amortization . the values of these assets are comprised mostly of client relationships but also include valuations of trade names and non-compete agreements . in valuing these assets , we made significant estimates regarding the useful life , growth rates and potential attrition of the assets acquired . we periodically review our intangible assets for events or circumstances that would indicate impairment . if we determine the carrying value exceeds fair value , we would record an impairment to remove the amount that exceeded fair value . we completed our annual impairment assessments during 2018 , 2017 and 2016 and concluded that no impairment losses were required . stock-based compensation we have granted restricted stock to employees and non-employee directors . we calculate compensation cost for restricted stock grants by using the fair market value of our common stock at the date of grant , the number of shares issued and an adjustment for restrictions on dividends . we amortize compensation cost on a straight-line basis over the applicable service period . we adjust our compensation cost for forfeitures as they occur . we grant performance-based share awards to certain employees , the vesting of which is subject to the employee 's continuing employment and the company 's achievement of certain performance goals . we assess actual performance versus the predetermined performance goals and record compensation costs once we conclude that it is probable that we will meet the performance

net cash provided by operating activities in 2014 was $ 41.6 million compared with $ 30.3 million in 2013 . this increase was primarily due to increases in net income of $ 2.7 million and non-cash adjustments to net income of $ 10.4 million . net operating assets and liabilities increased $ 6.4 million in 2014 , compared to an increase in operating assets and liabilities of $ 4.7 million in 2013 . the increase in operating assets and liabilities in 2014 was due to an increase in accounts receivable of $ 7.2 million primarily due to the addition of the industrial filtration segment . prepaid expenses and other assets and taxes receivable increased $ 6.4 million in 2014 , partially offset by a decrease in inventory $ 4.5 million in 2014 , due to lower inventory days on hand from improvements within the industrial filtration business . further offsetting the increase in operating assets and liabilities in 2014 was a $ 3.3 million increase in accrued payroll and other compensation mainly due to higher accruals related to the company 's incentive bonus program and health benefits . net cash provided by operating activities in 2013 was $ 30.3 million compared with $ 34.4 million in 2012. this decrease was primarily due to an increase in operating assets and liabilities of $ 4.7 million in 2013 , compared to a decrease in operating assets and liabilities of $ 3.0 million in 2012 , for a change of $ 7.7 million , partially offset by improvement in net income of $ 2.3 million .

with respect to most of our client assets under management , we utilize a “ value ” investment style focused on achieving superior long-term , risk-adjusted returns by investing in companies with high levels of free cash flow , improving returns on equity and strengthening balance sheets that are well positioned for growth but whose value is not fully recognized in the marketplace . this investment approach is designed to preserve capital during unfavorable periods and provide superior real returns over the long term . our investment teams have significant industry experience . our investment team members have average investment experience of seventeen years . we have focused on building a foundation in terms of personnel and infrastructure to support a potentially much larger business . we have also developed investment strategies that we believe will be desirable within our target institutional , wealth management and mutual fund markets . the cost of developing new products and growing the organization as a whole has resulted in our incurring expenses that , in some cases , do not currently have significant offsetting revenues . while we continue to evolve our products , we believe that the appropriate foundation and products are in place such that investors will recognize the value in these products , thereby generating new revenue streams for westwood . 2018 highlights the following items are highlights for the year ended december 31 , 2018 : assets under management as of december 31 , 2018 were $ 16.6 billion , a 31 % decrease compared to december 31 , 2017 . quarterly average assets under management decreased 8 % to $ 21.4 billion for 2018 compared to 2017 , which contributed to the 9 % decrease in total revenue from 2017. our largecap value , emerging markets plus , smidcap , smidcap plus , emerging markets , and emerging markets smidcap strategies exhibited strong performance . our smallcap strategy was selected as a subadvisor to the morningstar u.s. equity fund . the effective tax rate decreased to 26.6 % for 2018 compared to 41.0 % for 2017 related to the tax reform act enacted in december 2017. in october 2018 , our board approved a 6 % increase in our quarterly dividend to $ 0.72 per share for an annual rate of $ 2.88 per share , which results in a dividend yield of 8.5 % using the year-end stock price of $ 34.00 per share . we repurchased 108,289 shares of our common stock for an aggregate purchase price of $ 4.0 million . our financial position remains strong with liquid cash and short-term investments of $ 118.2 million and no debt as of december 31 , 2018 . we closed the sale of our omaha-based wealth management operations , received net proceeds of $ 10.0 million and recognized a $ 0.5 million gain on sale . 25 revenues we derive our revenues from investment advisory fees , trust fees and other revenues . our advisory fees are generated by westwood management and westwood international advisors , which manage client accounts under investment advisory and subadvisory agreements . advisory fees are calculated based on a percentage of assets under management and are paid in accordance with the terms of the agreements . advisory fees are paid quarterly in advance based on assets under management on the last day of the preceding quarter , quarterly in arrears based on assets under management on the last day of the quarter just ended , or are based on a daily or monthly analysis of assets under management for the stated period . we recognize advisory fee revenues as services are rendered . a limited number of our clients have a contractual performance-based fee component in their contracts , which generates additional revenues if we outperform a specified index over a specific period of time . we record revenue for performance-based fees at the end of the measurement period . since our advance paying clients ' billing periods coincide with the calendar quarter to which such payments relate , revenue is recognized within the quarter , and our consolidated financial statements contain no deferred advisory fee revenues . our trust fees are generated by westwood trust pursuant to trust or custodial agreements . trust fees are separately negotiated with each client and are generally based on a percentage of assets under management . westwood trust also provides trust services to a small number of clients on a fixed fee basis . trust fees are primarily either paid quarterly in arrears based on a daily average of assets under management for the quarter , or monthly based on the month-end assets under management . since billing periods for most of westwood trust 's clients coincide with the calendar quarter , revenue is fully recognized within the quarter and our consolidated financial statements do not contain a significant amount of deferred revenue . our other revenues generally consist of interest and investment income . although we generally invest most of our cash in u.s. treasury securities , we also invest in equity and fixed income instruments and money market funds , including seed money for new investment strategies . employee compensation and benefits employee compensation and benefits costs generally consist of salaries , incentive compensation , equity-based compensation expense and benefits . sales and marketing sales and marketing costs relate to our marketing efforts , including travel and entertainment , direct marketing and advertising costs . westwood mutual funds westwood mutual funds expenses relate to our marketing , distribution and administration of the westwood funds ® . information technology information technology expenses are generally costs associated with proprietary investment research tools , maintenance and support , computing hardware , software licenses , telecommunications and other related costs . professional services professional services expenses generally consist of costs associated with subadvisory fees , audit , legal and other professional services . story_separator_special_tag as the company and its representatives do not have representation on the westwood funds® or the private equity independent boards of directors , which direct the activities that most significantly impact the entities ' economic performance , we determined that the westwood funds® and the private equity were not vies . therefore , the ucits fund , westwood funds® and private equity should be analyzed under the voe consolidation method . based on our analysis of our investments in these entities for the periods ending december 31 , 2018 and 2017 , we have not consolidated the ctfs , private equity funds or llcs under the vie method or the ucits fund , westwood funds® or private equity under the voe method , and therefore the financial results of these entities are not included in the company 's consolidated financial results . we have included the disclosures related to vies and voes in note 12 “ variable interest entities ” to our consolidated financial statements included in part ii . item 8 “ financial statements and supplementary data . ” business combinations in allocating the purchase price of a business combination , the company records all assets acquired and liabilities assumed at fair value with the excess of the purchase price over the aggregate fair values recorded as goodwill . asc 820 , fair 35 value measurements and disclosures , defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . the purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values as of the date of acquisition . to the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed such excess is allocated to goodwill . the company determines the estimated fair values after review and consideration of relevant information , including discounted cash flows , quoted market prices and estimates made by management . the fair value assigned to identifiable intangible assets acquired is based on estimates and assumptions made by management at the time of the acquisition . the company adjusts the preliminary purchase price allocation , as necessary , during the measurement period of up to one year after the acquisition closing date as it obtains more information as to the facts and circumstances existing as of the acquisition date . acquisition-related costs are recognized separately from the acquisition purchase price and are expensed as incurred . goodwill goodwill is not amortized but is tested for impairment , at least annually . we assess the recoverability of the carrying amount of goodwill either qualitatively or quantitatively as of july 1 of each fiscal year or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable . when assessing the recoverability of goodwill , we may first assess qualitative factors . if an initial qualitative assessment indicates that it is more likely than not that the carrying amount exceeds fair value , a quantitative analysis may be required . we may also elect to skip the qualitative assessment and proceed directly to the quantitative analysis . recoverability of the carrying value of goodwill is measured at the reporting unit level . we have identified two reporting units , which are consistent with our reporting segments . in performing a quantitative analysis , we measure the recoverability of goodwill for our reporting units using a combination of the income approach and the market multiple approach . the income approach is based on the long-term projected future cash flows of the reporting units . we discount the estimated cash flows to present value using a weighted average cost of capital that considers factors such as market assumptions , the timing of cash flows and the risks inherent in such cash flows . the key assumptions used in the market multiple valuation require significant management judgment , including the determination of our peer group and the valuation multiples of such peer group . if the carrying value exceeds the fair value , an impairment loss is measured by reducing the goodwill to the fair market value . we completed our annual impairment assessments during 2018 , 2017 and 2016 and concluded that no impairment losses were required . intangible assets our definite-lived intangible assets represent the acquisition date fair value of the intangible assets acquired , net of amortization . the values of these assets are comprised mostly of client relationships but also include valuations of trade names and non-compete agreements . in valuing these assets , we made significant estimates regarding the useful life , growth rates and potential attrition of the assets acquired . we periodically review our intangible assets for events or circumstances that would indicate impairment . if we determine the carrying value exceeds fair value , we would record an impairment to remove the amount that exceeded fair value . we completed our annual impairment assessments during 2018 , 2017 and 2016 and concluded that no impairment losses were required . stock-based compensation we have granted restricted stock to employees and non-employee directors . we calculate compensation cost for restricted stock grants by using the fair market value of our common stock at the date of grant , the number of shares issued and an adjustment for restrictions on dividends . we amortize compensation cost on a straight-line basis over the applicable service period . we adjust our compensation cost for forfeitures as they occur . we grant performance-based share awards to certain employees , the vesting of which is subject to the employee 's continuing employment and the company 's achievement of certain performance goals . we assess actual performance versus the predetermined performance goals and record compensation costs once we conclude that it is probable that we will meet the performance

liquidity and capital resources replace_table_token_11_th we had cash and short-term investments of $ 118.2 million and $ 105.6 million as of december 31 , 2018 and 2017 , respectively . cash and cash equivalents includes approximately $ 33 million of undistributed income from westwood international advisors for both periods ending december 31 , 2018 and 2017 . in accordance with the one-time mandatory deemed repatriation required under tax legislation signed into law in december 2017 , we paid $ 1.8 million in income taxes related to this undistributed income . if these funds were needed for our u.s. operations , we would be required to accrue and pay incremental canadian withholding taxes to repatriate a portion of these funds . our current intent is to permanently reinvest the funds subject to withholding taxes outside of the u.s. , and our current forecasts do not demonstrate a need to repatriate them to fund our u.s. operations . at december 31 , 2018 and 2017 , working capital aggregated $ 114.0 million and $ 106.6 million , respectively . as required by the finance code , westwood trust is subject to a minimum capital requirement of $ 4.0 million . at december 31 , 32 2018 , westwood trust had approximately $ 18.6 million in excess of its minimum capital requirement . we had no debt at december 31 , 2018 or december 31 , 2017 . replace_table_token_12_th historically we have funded our operations and cash requirements with cash generated from operating activities . we may also use cash from operations to pay dividends to our stockholders . as of december 31 , 2018 and 2017 , we had no debt . the changes in net cash provided by operating activities generally reflect the changes in earnings plus the effects of non-cash items and changes in working capital . changes in working capital , especially accounts receivable and accounts payable , generally result from timing differences between collection of fees billed and payment of operating expenses .

million , compared to $ 228.3 million in 2011. in 2012 , our net income after deducting the noncontrolling interest was $ 87.2 million , compared to $ 162.7 million in 2011. diluted net income per share attributable to sohu.com inc was $ 2.03 in 2012 , compared to $ 3.93 in 2011. for the details of our business and business restructuring , please see item 1 business overview . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations relates to our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “u.s . gaap” ) . the preparation of these financial statements requires us 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 on-going basis , we evaluate our estimates based 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 . actual results may differ from these estimates under different assumptions or conditions . identified below are the accounting policies that reflect our more significant estimates and judgments , and those that we believe are the most critical to fully understanding and evaluating our consolidated financial statements . basis of consolidation and recognition of noncontrolling interest the consolidated financial statements include the accounts of sohu and its wholly-owned and majority-owned subsidiaries and the consolidated variable interest entities ( “vies” ) . all intercompany transactions are eliminated . we have adopted the guidance of accounting for vies , which requires vies to be consolidated by the primary beneficiary of the entity . for the consolidated vies , our management made evaluations of the relationships between us and our vies and the economic benefit flow of contractual arrangements with the vies . in connection with such evaluation , management also took into account the fact that , as a result of such contractual arrangements , the sohu group controls the shareholders ' voting interests in these vies . as a result of such evaluation , management concluded that the sohu group is the primary beneficiary of its consolidated vies . we have one vie that is not consolidated by us since we are not the primary beneficiary . noncontrolling interests are recognized to reflect the portion of the equity of majority-owned subsidiaries and vies which is not attributable , directly or indirectly , to the controlling shareholder . currently , the noncontrolling interests in our consolidated financial statements primarily consist of noncontrolling interests for changyou and sogou . noncontrolling interest for changyou to reflect the economic interest in changyou held by shareholders other than sohu ( “noncontrolling shareholders” ) , changyou 's net income attributable to these noncontrolling shareholders is recorded as noncontrolling interest in sohu 's consolidated statements of comprehensive income , based on their share of the economic interests in changyou . changyou 's cumulative results of operations attributable to these noncontrolling shareholders , along with changes in shareholders ' equity , adjustment for share-based compensation expense in relation to those share-based awards which are unvested and vested but not yet settled and adjustment for changes in sohu 's ownership in changyou from sohu 's purchase of changyou adss representing class a ordinary shares , are recorded as noncontrolling interest in sohu 's consolidated balance sheets . 82 noncontrolling interest for sogou to reflect the economic interest in sogou held by shareholders other than sohu ( “noncontrolling shareholders” ) , sogou 's net income /loss attributable to these noncontrolling shareholders is recorded as noncontrolling interest in sohu 's consolidated statements of comprehensive income . sogou 's cumulative results of operations attributable to these noncontrolling shareholders , along with changes in shareholders ' equity / ( deficit ) and adjustment for share-based compensation expense in relation to those share-based awards which are unvested and vested but not yet settled and noncontrolling shareholders ' investments in series a preferred shares are accounted for as a noncontrolling interest classified as permanent equity in sohu 's consolidated balance sheets , as redemption of the noncontrolling interest is solely within the control of sohu . these treatments are based on the terms governing investment by the noncontrolling shareholders in the series a preferred shares of sogou ( the “sogou series a terms” ) , the terms of sogou 's restructuring , and sohu 's purchase of sogou series a preferred shares from alibaba . by virtue of these terms , as sogou has been losing money since its restructuring , the net losses have been and will be allocated in the following order : ( i ) net losses were allocated to ordinary shareholders until their basis in sogou decreased to zero ; ( ii ) additional net losses will be allocated to holders of sogou series a preferred shares until their basis in sogou decreases to zero ; and ( iii ) further net losses will be allocated between ordinary shareholders and holders of sogou series a preferred shares based on their shareholding percentage in sogou . any subsequent net income from sogou will be allocated in the following order : ( i ) net income will be allocated between ordinary shareholders and holders of sogou series a preferred shares based on their shareholding percentage in sogou until their basis in sogou increases to zero ; ( ii ) additional net income will be allocated to holders of sogou series a preferred shares to bring their basis back ; ( iii ) further net income will be allocated to ordinary shareholders to bring their basis back ; and ( iv ) further net income will be allocated between ordinary shareholders and holders of sogou series a preferred story_separator_special_tag if at the end of each reporting period , an operator has not yet issued such billing confirmations , we estimate the amount of collectable wireless service fees and recognize revenue . when we later receive billing confirmations , we record a true-up accounting adjustment . for the three months ended december 31 , 2012 , 66 % of our estimated wireless revenues were confirmed by billing confirmations received from the china mobile network operators . generally , ( i ) within 15 to 120 days after the end of each month , we receive billing confirmations from the operators and ( ii ) within 30 to 180 days after delivering billing confirmations , each operator remits the wireless service fees , net of its service fees , to us . others revenues others revenues are primarily generated from sub-licensing of licensed video content operated by sohu , ivas provided by sogou with respect to web games developed by third-party developers , and cinema advertising services provided by changyou . revenues from sub-licensing of licensed video content for licensed video content purchased on an exclusive basis with payment in cash , we have rights to sub-license to other platforms . revenues from sub-licensing of licensed video content are recognized when the content is available for immediate and unconditional delivery under an existing sub-licensing arrangement , the sub-license period has begun and the sub-licensing fee is fixed or determinable and collection of the sub-licensing fee is reasonably assured . revenues from ivas sogou offers web games developed by third-party developers and generate revenues from the provision of ivas , including promotion , access maintenance and payment services , to third-party developers . the web games can be accessed and played by end users free of charge , but the end users may choose to purchase in-game merchandise to enhance their game playing experience . we sign revenue-sharing agreements with third-party developers . under these revenue-sharing agreements , we collect payments from the end users for items sold , keep a pre-agreed percentage of the proceeds and remit the balance to the third-party developers . revenues from ivas are recognized on a net basis , when our obligations under the agreements and all other revenue recognition criteria have been met . 86 revenues from cinema advertisements for cinema advertising revenues , a contract is signed with the advertiser to establish a fixed price and specify advertising services to be provided . based on the contracts , changyou provides advertisement placements in advertising slots to be shown in theatres before the screening of movies . revenues from cinema advertising are recognized when all the recognition criteria are met . depending on the terms of a customer contract , fees for services performed can be recognized according to two principal methods , consisting of the proportional performance method and the straight-line method . under the proportional performance method , fees are generally recognized based on a percentage of the advertising slots actually delivered where the fee is earned on a per-advertising slot placement basis . under the straight-line method , fees are recognized on a straight-line basis over the contract period when the fee is not paid based on the number of advertising slots actually delivered . cost of revenues cost of online advertising revenues cost of online advertising revenues includes cost of revenues from brand advertising services as well as cost of search and others services . cost of brand advertising revenues cost of brand advertising revenues mainly consists of content and license costs ( including amortization of licensed video content and impairment of purchased video content ) , bandwidth leasing costs , depreciation expenses , and salary and benefits expenses . cost of search and others revenues cost of search and others revenues mainly consists of traffic acquisition costs , bandwidth leasing costs , depreciation expenses , and salary and benefits expenses . traffic acquisition costs represent payments made to sogou website alliance members . we pay sogou website alliance members based either on revenue-sharing arrangements or on a pre-agreed unit price . under the revenue-sharing arrangements , we pay a percentage of pay-for-click revenues generated from clicks by users of the website alliance members ' properties . cost of online game revenues cost of online game revenues mainly consists of salary and benefits expenses , bandwidth leasing charges , depreciation expenses , revenue-based royalty payments to game developers , business tax and vat arising from transactions between changyou 's subsidiaries and its vies . cost of wireless revenues cost of wireless revenues mainly consists of revenue-sharing payments , which include payments to third party wireless service alliances and content providers , collection charges and transmission fees paid to china mobile network operators , bandwidth leasing costs and depreciation expenses . cost of revenues for other services cost of revenues for other services mainly consists of payments to theatres and film production companies for pre-film screening advertisement slots , charges for impairment of intangible assets and amortization of sub-licensing cost . product development expenses product development expenses mainly consist of personnel-related expenses incurred for enhancement and maintenance of our websites , and costs associated with new product development and maintenance , as well as enhancement of existing products and services . during the years ended december 31 , 2012 , 2011 and 2010 , no product development expenses were capitalized . sales and marketing expenses sales and marketing expenses mainly consist of advertising and promotional expenditures , salary and benefits expenses , travel expenses , and facility expenses . general and administrative expenses general and administrative expenses mainly consist of salary and benefits expenses , professional service fees , travel expenses , and facility expenses . 87 share-based compensation expense sohu , changyou , sogou , fox video limited ( “sohu video” ) and 7road all have incentive plans for the granting of share-based awards , including common stock /ordinary shares , share options , restricted shares and restricted share units ,

liquidity and capital resources replace_table_token_11_th we had cash and short-term investments of $ 118.2 million and $ 105.6 million as of december 31 , 2018 and 2017 , respectively . cash and cash equivalents includes approximately $ 33 million of undistributed income from westwood international advisors for both periods ending december 31 , 2018 and 2017 . in accordance with the one-time mandatory deemed repatriation required under tax legislation signed into law in december 2017 , we paid $ 1.8 million in income taxes related to this undistributed income . if these funds were needed for our u.s. operations , we would be required to accrue and pay incremental canadian withholding taxes to repatriate a portion of these funds . our current intent is to permanently reinvest the funds subject to withholding taxes outside of the u.s. , and our current forecasts do not demonstrate a need to repatriate them to fund our u.s. operations . at december 31 , 2018 and 2017 , working capital aggregated $ 114.0 million and $ 106.6 million , respectively . as required by the finance code , westwood trust is subject to a minimum capital requirement of $ 4.0 million . at december 31 , 32 2018 , westwood trust had approximately $ 18.6 million in excess of its minimum capital requirement . we had no debt at december 31 , 2018 or december 31 , 2017 . replace_table_token_12_th historically we have funded our operations and cash requirements with cash generated from operating activities . we may also use cash from operations to pay dividends to our stockholders . as of december 31 , 2018 and 2017 , we had no debt . the changes in net cash provided by operating activities generally reflect the changes in earnings plus the effects of non-cash items and changes in working capital . changes in working capital , especially accounts receivable and accounts payable , generally result from timing differences between collection of fees billed and payment of operating expenses .

million , compared to $ 228.3 million in 2011. in 2012 , our net income after deducting the noncontrolling interest was $ 87.2 million , compared to $ 162.7 million in 2011. diluted net income per share attributable to sohu.com inc was $ 2.03 in 2012 , compared to $ 3.93 in 2011. for the details of our business and business restructuring , please see item 1 business overview . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations relates to our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “u.s . gaap” ) . the preparation of these financial statements requires us 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 on-going basis , we evaluate our estimates based 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 . actual results may differ from these estimates under different assumptions or conditions . identified below are the accounting policies that reflect our more significant estimates and judgments , and those that we believe are the most critical to fully understanding and evaluating our consolidated financial statements . basis of consolidation and recognition of noncontrolling interest the consolidated financial statements include the accounts of sohu and its wholly-owned and majority-owned subsidiaries and the consolidated variable interest entities ( “vies” ) . all intercompany transactions are eliminated . we have adopted the guidance of accounting for vies , which requires vies to be consolidated by the primary beneficiary of the entity . for the consolidated vies , our management made evaluations of the relationships between us and our vies and the economic benefit flow of contractual arrangements with the vies . in connection with such evaluation , management also took into account the fact that , as a result of such contractual arrangements , the sohu group controls the shareholders ' voting interests in these vies . as a result of such evaluation , management concluded that the sohu group is the primary beneficiary of its consolidated vies . we have one vie that is not consolidated by us since we are not the primary beneficiary . noncontrolling interests are recognized to reflect the portion of the equity of majority-owned subsidiaries and vies which is not attributable , directly or indirectly , to the controlling shareholder . currently , the noncontrolling interests in our consolidated financial statements primarily consist of noncontrolling interests for changyou and sogou . noncontrolling interest for changyou to reflect the economic interest in changyou held by shareholders other than sohu ( “noncontrolling shareholders” ) , changyou 's net income attributable to these noncontrolling shareholders is recorded as noncontrolling interest in sohu 's consolidated statements of comprehensive income , based on their share of the economic interests in changyou . changyou 's cumulative results of operations attributable to these noncontrolling shareholders , along with changes in shareholders ' equity , adjustment for share-based compensation expense in relation to those share-based awards which are unvested and vested but not yet settled and adjustment for changes in sohu 's ownership in changyou from sohu 's purchase of changyou adss representing class a ordinary shares , are recorded as noncontrolling interest in sohu 's consolidated balance sheets . 82 noncontrolling interest for sogou to reflect the economic interest in sogou held by shareholders other than sohu ( “noncontrolling shareholders” ) , sogou 's net income /loss attributable to these noncontrolling shareholders is recorded as noncontrolling interest in sohu 's consolidated statements of comprehensive income . sogou 's cumulative results of operations attributable to these noncontrolling shareholders , along with changes in shareholders ' equity / ( deficit ) and adjustment for share-based compensation expense in relation to those share-based awards which are unvested and vested but not yet settled and noncontrolling shareholders ' investments in series a preferred shares are accounted for as a noncontrolling interest classified as permanent equity in sohu 's consolidated balance sheets , as redemption of the noncontrolling interest is solely within the control of sohu . these treatments are based on the terms governing investment by the noncontrolling shareholders in the series a preferred shares of sogou ( the “sogou series a terms” ) , the terms of sogou 's restructuring , and sohu 's purchase of sogou series a preferred shares from alibaba . by virtue of these terms , as sogou has been losing money since its restructuring , the net losses have been and will be allocated in the following order : ( i ) net losses were allocated to ordinary shareholders until their basis in sogou decreased to zero ; ( ii ) additional net losses will be allocated to holders of sogou series a preferred shares until their basis in sogou decreases to zero ; and ( iii ) further net losses will be allocated between ordinary shareholders and holders of sogou series a preferred shares based on their shareholding percentage in sogou . any subsequent net income from sogou will be allocated in the following order : ( i ) net income will be allocated between ordinary shareholders and holders of sogou series a preferred shares based on their shareholding percentage in sogou until their basis in sogou increases to zero ; ( ii ) additional net income will be allocated to holders of sogou series a preferred shares to bring their basis back ; ( iii ) further net income will be allocated to ordinary shareholders to bring their basis back ; and ( iv ) further net income will be allocated between ordinary shareholders and holders of sogou series a preferred story_separator_special_tag if at the end of each reporting period , an operator has not yet issued such billing confirmations , we estimate the amount of collectable wireless service fees and recognize revenue . when we later receive billing confirmations , we record a true-up accounting adjustment . for the three months ended december 31 , 2012 , 66 % of our estimated wireless revenues were confirmed by billing confirmations received from the china mobile network operators . generally , ( i ) within 15 to 120 days after the end of each month , we receive billing confirmations from the operators and ( ii ) within 30 to 180 days after delivering billing confirmations , each operator remits the wireless service fees , net of its service fees , to us . others revenues others revenues are primarily generated from sub-licensing of licensed video content operated by sohu , ivas provided by sogou with respect to web games developed by third-party developers , and cinema advertising services provided by changyou . revenues from sub-licensing of licensed video content for licensed video content purchased on an exclusive basis with payment in cash , we have rights to sub-license to other platforms . revenues from sub-licensing of licensed video content are recognized when the content is available for immediate and unconditional delivery under an existing sub-licensing arrangement , the sub-license period has begun and the sub-licensing fee is fixed or determinable and collection of the sub-licensing fee is reasonably assured . revenues from ivas sogou offers web games developed by third-party developers and generate revenues from the provision of ivas , including promotion , access maintenance and payment services , to third-party developers . the web games can be accessed and played by end users free of charge , but the end users may choose to purchase in-game merchandise to enhance their game playing experience . we sign revenue-sharing agreements with third-party developers . under these revenue-sharing agreements , we collect payments from the end users for items sold , keep a pre-agreed percentage of the proceeds and remit the balance to the third-party developers . revenues from ivas are recognized on a net basis , when our obligations under the agreements and all other revenue recognition criteria have been met . 86 revenues from cinema advertisements for cinema advertising revenues , a contract is signed with the advertiser to establish a fixed price and specify advertising services to be provided . based on the contracts , changyou provides advertisement placements in advertising slots to be shown in theatres before the screening of movies . revenues from cinema advertising are recognized when all the recognition criteria are met . depending on the terms of a customer contract , fees for services performed can be recognized according to two principal methods , consisting of the proportional performance method and the straight-line method . under the proportional performance method , fees are generally recognized based on a percentage of the advertising slots actually delivered where the fee is earned on a per-advertising slot placement basis . under the straight-line method , fees are recognized on a straight-line basis over the contract period when the fee is not paid based on the number of advertising slots actually delivered . cost of revenues cost of online advertising revenues cost of online advertising revenues includes cost of revenues from brand advertising services as well as cost of search and others services . cost of brand advertising revenues cost of brand advertising revenues mainly consists of content and license costs ( including amortization of licensed video content and impairment of purchased video content ) , bandwidth leasing costs , depreciation expenses , and salary and benefits expenses . cost of search and others revenues cost of search and others revenues mainly consists of traffic acquisition costs , bandwidth leasing costs , depreciation expenses , and salary and benefits expenses . traffic acquisition costs represent payments made to sogou website alliance members . we pay sogou website alliance members based either on revenue-sharing arrangements or on a pre-agreed unit price . under the revenue-sharing arrangements , we pay a percentage of pay-for-click revenues generated from clicks by users of the website alliance members ' properties . cost of online game revenues cost of online game revenues mainly consists of salary and benefits expenses , bandwidth leasing charges , depreciation expenses , revenue-based royalty payments to game developers , business tax and vat arising from transactions between changyou 's subsidiaries and its vies . cost of wireless revenues cost of wireless revenues mainly consists of revenue-sharing payments , which include payments to third party wireless service alliances and content providers , collection charges and transmission fees paid to china mobile network operators , bandwidth leasing costs and depreciation expenses . cost of revenues for other services cost of revenues for other services mainly consists of payments to theatres and film production companies for pre-film screening advertisement slots , charges for impairment of intangible assets and amortization of sub-licensing cost . product development expenses product development expenses mainly consist of personnel-related expenses incurred for enhancement and maintenance of our websites , and costs associated with new product development and maintenance , as well as enhancement of existing products and services . during the years ended december 31 , 2012 , 2011 and 2010 , no product development expenses were capitalized . sales and marketing expenses sales and marketing expenses mainly consist of advertising and promotional expenditures , salary and benefits expenses , travel expenses , and facility expenses . general and administrative expenses general and administrative expenses mainly consist of salary and benefits expenses , professional service fees , travel expenses , and facility expenses . 87 share-based compensation expense sohu , changyou , sogou , fox video limited ( “sohu video” ) and 7road all have incentive plans for the granting of share-based awards , including common stock /ordinary shares , share options , restricted shares and restricted share units ,

liquidity and capital resources resources analysis our principal sources of liquidity are cash and cash equivalents , short-term investments , investments in debt securities , as well as the cash flows generated from our operations . cash equivalents primarily comprise time deposits . as of december 31 , 2012 , we had cash and cash equivalents , short-term investments and investments in debt securities of approximately $ 968.0 million . in addition , as of december 31 , 2012 we had , through changyou , bridge loans from offshore banks in the principal amount of $ 239 million . these bridge loans are secured by rmb deposits in onshore branches of those banks in the total amount of $ 247 million . as of december 31 , 2011 , we had cash and cash equivalents , short-term investments , and investment in debt securities of approximately $ 830 million . as of december 31 , 2010 , we had cash and cash equivalents and investment in debt securities of approximately $ 754 million . on august 29 , 2011 , our board of directors authorized a combined share purchase program of up to $ 100 million of the outstanding shares of our common stock , and or outstanding adss of changyou over a one-year period from september 1 , 2011 to august 31 , 2012. as of the expiration of the program on august 31 , 2012 , we had repurchased 500,000 shares of our common stock , and we also had purchased 750,000 changyou adss , representing 1,500,000 class a ordinary shares , for consideration of $ 25.7 million . the total consideration paid under the combined share purchase program was $ 54.9 million . in november 2009 , we entered into an agreement to purchase a beijing office building to serve as our headquarters . the purchase price is approximately $ 128 million , of which $ 125 million had been paid as of december 31 , 2012. in december 2011 , we also entered into an agreement for technological infrastructure and fitting-out work for this office building .

the initial base period included $ 4.7 million over two years and covered preclinical research and continued development of cytori 's celution® system to improve cell processing . the additional contract options , if fully executed , could cover our clinical development through fda approval under a device-based pma regulatory pathway . the cost-plus-fixed-fee contract is valued at up to $ 106 million , with a guaranteed two-year base period of approximately $ 4.7 million . we submitted reports to barda in late 2013 detailing the completion of the objectives in the initial contract . an in-process review meeting in the first half of 2014 confirmed completion of the proof of concept phase . in august and december , 2014 , barda awarded to us contract options of $ 14 million . the options allow for continuation of research , regulatory , clinical , and other activities required for approval and completion of a pilot clinical trial using cytori cell therapy ( dcct-10 ) for the treatment of thermal burns combined with radiation injury . the award for conducting the pilot trial , approximately $ 8 million , would follow fda approval of the trial protocol and associated documentation . once the pilot trial is analyzed , the final phase would include research , regulatory , and clinical activities necessary to achieve regulatory clearances to optimize a treatment for combined injury involving thermal burn and radiation exposure . a pivotal clinical trial of the use of the cytori cell therapy ( dcct-10 ) for thermal burn injury will be the primary basis of an fda approval . the total award is intended to support all clinical , preclinical , regulatory , and technology development activities needed to complete the fda approval process for use in thermal burn injury under a device-based pma regulatory pathway . results of operations product revenues product revenues consisted of revenues primarily from our celution® and stemsource® cell banks . the following table summarizes the components for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_3_th a majority of our product revenue in 2014 was derived from japan . with two new regenerative medicine laws in japan going into effect in november 2014 that removed regulatory uncertainties and provided a clear path for us to offer cytori cell therapy in japan , we expect continued demand from researchers at academic hospitals seeking to perform investigator-initiated and funded studies . we experienced a decrease in product revenue during the year ended december 31 , 2014 as compared to the same period in 2013 , primarily due to decreased activities with our licensee and distributor lorem vascular , who purchased the initial stocking order of approximately $ 1.8m in late 2013 that did not recur in 2014 , decreased revenue in europe of $ 0.7 million , offset by increased revenues in japan of approximately $ 1.0 million . revenue deferred in the years ended december 31 , 2014 , and 2013 was $ 1.4 million , and $ 3.6 million , respectively . there was no comparable revenue deferral in the year ended december 31 , 2012. the future : we expect to continue to generate product revenues from a mix of celution® and stemsource® system and consumables sales . we will sell the products to a diverse group of customers in europe , asia and north america , who may apply the products towards reconstructive surgery , soft tissue repair , research , aesthetics , and cell and tissue banking as approved in each country . additionally , as a result of class i device clearance for celution® and a number of our other products in japan , we anticipate selling these products to researchers at academic hospitals seeking to perform investigator-initiated and funded studies using cytori 's cell therapy . as a result of the sale of our puregraft® product line discussed in note 5 of the consolidated condensed financial statements , we do not expect significant revenues from that product line in the foreseeable future . 30 cost of product revenues cost of product revenues relate primarily to celution® system products and stemsource® cell banks and includes material , manufacturing labor , and overhead costs . the following table summarizes the components of our cost of revenues for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_4_th cost of product revenues as a percentage of product revenues was 59 % , 48 % and 46 % for the years ended december 31 , 2014 , 2013 and 2012 , respectively . fluctuation in this percentage is to be expected due to the product mix , distributor and direct sales mix , geographic mix and allocation of overhead . in 2014 , we also experienced the impact of the weakness of the japanese yen , which resulted in a decrease to our gross profit margin . the future : we expect to continue to see variation in our gross profit margin as the product mix comprising revenues fluctuates . development revenues the following table summarizes the components of our development revenues for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_5_th during the year ended december 31 , 2014 , we incurred $ 2,461,000 in qualified expenditures , and recognized a total of $ 2,645,000 in revenues , which included allowable fees as well as cost reimbursements . during the year ended december 31 , 2013 , we incurred $ 3,053,000 in qualified expenditures , and recognized a total of $ 3,257,000 in revenues , which included allowable fees as well as cost reimbursements . during the year ended december 31 , 2012 , we incurred $ 331,000 in qualified expenditures , and recognized a total of $ 355,000 in revenues , which included allowable fees as well as cost reimbursements . story_separator_special_tag · in may 2014 , we entered into subscription agreements with certain institutional investors pursuant to which we sold a total of 4,048,584 units , with each unit consisting of one share of common stock and one warrant to purchase one share of common stock at a purchase price of $ 2.47 per unit , in a registered direct offering . each warrant had an exercise price of $ 3.00 per share , was exercisable immediately after issuance and expires five years from the date of issuance . the transaction was completed on june 4 , 2014 raising approximately $ 10,000,000 in gross proceeds before deducting any offering expenses or fees payable by us . under the terms of our placement agent agreement , we granted wbb securities , llc warrants to purchase 202,429 shares of common stock . the placement agent warrants have the same terms as the warrants issued to the purchasers in the offering , except that such warrants have an exercise price of $ 3.09 . 37 · in september 2014 , we and 13 holders of warrants dated june 4 , 2014 to purchase a total of 4,032,389 shares of our common stock agreed to amend the warrants in order to reduce the exercise price from $ 3.00 per share to $ 1.00 per share and change the expiration date from june 4 , 2019 to september 10 , 2014. we received proceeds of approximately $ 4,066,000 from the exercise of the warrants . in addition , pursuant to the terms of the amendment , upon each holder 's exercise of all warrants for cash prior to the amended expiration date , we issued additional warrants for the same number of common shares to the holders . the additional warrants have an exercise price of $ 2.00 per share , and are exercisable on the date that is six months and one day from the date of issuance and expire five years from the date of issuance . for those investors participating in the october 2014 issuance of series a 3.6 % convertible preferred stock , we agreed to reduce the exercise price of 3,384,601 warrants from $ 2.00 per share to $ 0.5771 per share , conditioned upon shareholder approval which was obtained in january 2015 . · in september 2014 , we entered into a 2 nd amendment to the loan agreement with the lenders pursuant to the amended loan agreement , under which we were provided a conditional waiver of principal payments subject to meeting certain capital raise requirements , which we achieved in october . the waiver of principal payments continues from november 1 , 2014 through april 1 , 2015 and thereafter we are required to make payments of principal and accrued interest in equal monthly installments of $ 1.0 million , sufficient to amortize the term loans through the maturity date . · in october , 2014 , we entered into a securities purchase agreement with certain institutional investors pursuant to which we sold a total of 13,500 units for a purchase price of $ 1,000 per unit , with each unit consisting of one share of our series a 3.6 % convertible preferred stock , which is convertible into shares of our common stock with a conversion price of $ 0.52 , and warrants to purchase up to a number of shares of common stock equal to 100 % of the conversion shares under the shares of preferred stock , in a registered direct offering . each warrant has an exercise price of $ 0.5771 per share , is exercisable six months after the date of issuance and expires five years from the date on which it is initially exercisable . the preferred stock and the warrants were immediately separable and were issued separately . as of december 31 , 2014 , 8,189 units had been converted into 15,747,000 shares of common stock . the following summarizes our contractual obligations and other commitments at december 31 , 2014 , and the effect such obligations could have on our liquidity and cash flow in future periods : replace_table_token_14_th * we have various payment options which could result in the acceleration or deferral of the joint venture purchase obligation . see note 4 to the consolidated condensed financial statements for discussion of our acquisition of olympus ' interest in the joint venture . net cash used in or provided by operating , investing and financing activities for the years ended december 31 , 2014 , 2013 and 2012 is summarized as follows : replace_table_token_15_th 38 operating activities operating activities , inclusive of research and development , sales and marketing , and general and administrative efforts , offset in part by product sales , generated a $ 37,368,000 net loss for the year ended december 31 , 2014. the operating cash impact of this loss was $ 30,330,000 , after adjusting for non-cash share-based compensation , other adjustments for material non-cash activities , such as depreciation , amortization , change in fair value of warrants , and changes in working capital due to timing of product shipments ( accounts receivable ) and payment of liabilities . overall , our operational cash use decreased as compared to same period in 2013 , due primarily to an increase in cash collections from accounts receivable , offset by increased in payments of accounts payable and accrued liabilities . operating activities , inclusive of research and development , sales and marketing , and general and administrative efforts , offset in part by product sales , generated a $ 26,177,000 net loss for the year ended december 31 , 2013. the operating cash impact of this loss was $ 34,563,000 , after adjusting for non-cash share-based compensation , other adjustments for material non-cash activities , such as depreciation , amortization , change in fair value of option liabilities and warrants , gain on sale of assets and acquisition of joint venture , and changes in working

liquidity and capital resources resources analysis our principal sources of liquidity are cash and cash equivalents , short-term investments , investments in debt securities , as well as the cash flows generated from our operations . cash equivalents primarily comprise time deposits . as of december 31 , 2012 , we had cash and cash equivalents , short-term investments and investments in debt securities of approximately $ 968.0 million . in addition , as of december 31 , 2012 we had , through changyou , bridge loans from offshore banks in the principal amount of $ 239 million . these bridge loans are secured by rmb deposits in onshore branches of those banks in the total amount of $ 247 million . as of december 31 , 2011 , we had cash and cash equivalents , short-term investments , and investment in debt securities of approximately $ 830 million . as of december 31 , 2010 , we had cash and cash equivalents and investment in debt securities of approximately $ 754 million . on august 29 , 2011 , our board of directors authorized a combined share purchase program of up to $ 100 million of the outstanding shares of our common stock , and or outstanding adss of changyou over a one-year period from september 1 , 2011 to august 31 , 2012. as of the expiration of the program on august 31 , 2012 , we had repurchased 500,000 shares of our common stock , and we also had purchased 750,000 changyou adss , representing 1,500,000 class a ordinary shares , for consideration of $ 25.7 million . the total consideration paid under the combined share purchase program was $ 54.9 million . in november 2009 , we entered into an agreement to purchase a beijing office building to serve as our headquarters . the purchase price is approximately $ 128 million , of which $ 125 million had been paid as of december 31 , 2012. in december 2011 , we also entered into an agreement for technological infrastructure and fitting-out work for this office building .

the initial base period included $ 4.7 million over two years and covered preclinical research and continued development of cytori 's celution® system to improve cell processing . the additional contract options , if fully executed , could cover our clinical development through fda approval under a device-based pma regulatory pathway . the cost-plus-fixed-fee contract is valued at up to $ 106 million , with a guaranteed two-year base period of approximately $ 4.7 million . we submitted reports to barda in late 2013 detailing the completion of the objectives in the initial contract . an in-process review meeting in the first half of 2014 confirmed completion of the proof of concept phase . in august and december , 2014 , barda awarded to us contract options of $ 14 million . the options allow for continuation of research , regulatory , clinical , and other activities required for approval and completion of a pilot clinical trial using cytori cell therapy ( dcct-10 ) for the treatment of thermal burns combined with radiation injury . the award for conducting the pilot trial , approximately $ 8 million , would follow fda approval of the trial protocol and associated documentation . once the pilot trial is analyzed , the final phase would include research , regulatory , and clinical activities necessary to achieve regulatory clearances to optimize a treatment for combined injury involving thermal burn and radiation exposure . a pivotal clinical trial of the use of the cytori cell therapy ( dcct-10 ) for thermal burn injury will be the primary basis of an fda approval . the total award is intended to support all clinical , preclinical , regulatory , and technology development activities needed to complete the fda approval process for use in thermal burn injury under a device-based pma regulatory pathway . results of operations product revenues product revenues consisted of revenues primarily from our celution® and stemsource® cell banks . the following table summarizes the components for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_3_th a majority of our product revenue in 2014 was derived from japan . with two new regenerative medicine laws in japan going into effect in november 2014 that removed regulatory uncertainties and provided a clear path for us to offer cytori cell therapy in japan , we expect continued demand from researchers at academic hospitals seeking to perform investigator-initiated and funded studies . we experienced a decrease in product revenue during the year ended december 31 , 2014 as compared to the same period in 2013 , primarily due to decreased activities with our licensee and distributor lorem vascular , who purchased the initial stocking order of approximately $ 1.8m in late 2013 that did not recur in 2014 , decreased revenue in europe of $ 0.7 million , offset by increased revenues in japan of approximately $ 1.0 million . revenue deferred in the years ended december 31 , 2014 , and 2013 was $ 1.4 million , and $ 3.6 million , respectively . there was no comparable revenue deferral in the year ended december 31 , 2012. the future : we expect to continue to generate product revenues from a mix of celution® and stemsource® system and consumables sales . we will sell the products to a diverse group of customers in europe , asia and north america , who may apply the products towards reconstructive surgery , soft tissue repair , research , aesthetics , and cell and tissue banking as approved in each country . additionally , as a result of class i device clearance for celution® and a number of our other products in japan , we anticipate selling these products to researchers at academic hospitals seeking to perform investigator-initiated and funded studies using cytori 's cell therapy . as a result of the sale of our puregraft® product line discussed in note 5 of the consolidated condensed financial statements , we do not expect significant revenues from that product line in the foreseeable future . 30 cost of product revenues cost of product revenues relate primarily to celution® system products and stemsource® cell banks and includes material , manufacturing labor , and overhead costs . the following table summarizes the components of our cost of revenues for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_4_th cost of product revenues as a percentage of product revenues was 59 % , 48 % and 46 % for the years ended december 31 , 2014 , 2013 and 2012 , respectively . fluctuation in this percentage is to be expected due to the product mix , distributor and direct sales mix , geographic mix and allocation of overhead . in 2014 , we also experienced the impact of the weakness of the japanese yen , which resulted in a decrease to our gross profit margin . the future : we expect to continue to see variation in our gross profit margin as the product mix comprising revenues fluctuates . development revenues the following table summarizes the components of our development revenues for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_5_th during the year ended december 31 , 2014 , we incurred $ 2,461,000 in qualified expenditures , and recognized a total of $ 2,645,000 in revenues , which included allowable fees as well as cost reimbursements . during the year ended december 31 , 2013 , we incurred $ 3,053,000 in qualified expenditures , and recognized a total of $ 3,257,000 in revenues , which included allowable fees as well as cost reimbursements . during the year ended december 31 , 2012 , we incurred $ 331,000 in qualified expenditures , and recognized a total of $ 355,000 in revenues , which included allowable fees as well as cost reimbursements . story_separator_special_tag · in may 2014 , we entered into subscription agreements with certain institutional investors pursuant to which we sold a total of 4,048,584 units , with each unit consisting of one share of common stock and one warrant to purchase one share of common stock at a purchase price of $ 2.47 per unit , in a registered direct offering . each warrant had an exercise price of $ 3.00 per share , was exercisable immediately after issuance and expires five years from the date of issuance . the transaction was completed on june 4 , 2014 raising approximately $ 10,000,000 in gross proceeds before deducting any offering expenses or fees payable by us . under the terms of our placement agent agreement , we granted wbb securities , llc warrants to purchase 202,429 shares of common stock . the placement agent warrants have the same terms as the warrants issued to the purchasers in the offering , except that such warrants have an exercise price of $ 3.09 . 37 · in september 2014 , we and 13 holders of warrants dated june 4 , 2014 to purchase a total of 4,032,389 shares of our common stock agreed to amend the warrants in order to reduce the exercise price from $ 3.00 per share to $ 1.00 per share and change the expiration date from june 4 , 2019 to september 10 , 2014. we received proceeds of approximately $ 4,066,000 from the exercise of the warrants . in addition , pursuant to the terms of the amendment , upon each holder 's exercise of all warrants for cash prior to the amended expiration date , we issued additional warrants for the same number of common shares to the holders . the additional warrants have an exercise price of $ 2.00 per share , and are exercisable on the date that is six months and one day from the date of issuance and expire five years from the date of issuance . for those investors participating in the october 2014 issuance of series a 3.6 % convertible preferred stock , we agreed to reduce the exercise price of 3,384,601 warrants from $ 2.00 per share to $ 0.5771 per share , conditioned upon shareholder approval which was obtained in january 2015 . · in september 2014 , we entered into a 2 nd amendment to the loan agreement with the lenders pursuant to the amended loan agreement , under which we were provided a conditional waiver of principal payments subject to meeting certain capital raise requirements , which we achieved in october . the waiver of principal payments continues from november 1 , 2014 through april 1 , 2015 and thereafter we are required to make payments of principal and accrued interest in equal monthly installments of $ 1.0 million , sufficient to amortize the term loans through the maturity date . · in october , 2014 , we entered into a securities purchase agreement with certain institutional investors pursuant to which we sold a total of 13,500 units for a purchase price of $ 1,000 per unit , with each unit consisting of one share of our series a 3.6 % convertible preferred stock , which is convertible into shares of our common stock with a conversion price of $ 0.52 , and warrants to purchase up to a number of shares of common stock equal to 100 % of the conversion shares under the shares of preferred stock , in a registered direct offering . each warrant has an exercise price of $ 0.5771 per share , is exercisable six months after the date of issuance and expires five years from the date on which it is initially exercisable . the preferred stock and the warrants were immediately separable and were issued separately . as of december 31 , 2014 , 8,189 units had been converted into 15,747,000 shares of common stock . the following summarizes our contractual obligations and other commitments at december 31 , 2014 , and the effect such obligations could have on our liquidity and cash flow in future periods : replace_table_token_14_th * we have various payment options which could result in the acceleration or deferral of the joint venture purchase obligation . see note 4 to the consolidated condensed financial statements for discussion of our acquisition of olympus ' interest in the joint venture . net cash used in or provided by operating , investing and financing activities for the years ended december 31 , 2014 , 2013 and 2012 is summarized as follows : replace_table_token_15_th 38 operating activities operating activities , inclusive of research and development , sales and marketing , and general and administrative efforts , offset in part by product sales , generated a $ 37,368,000 net loss for the year ended december 31 , 2014. the operating cash impact of this loss was $ 30,330,000 , after adjusting for non-cash share-based compensation , other adjustments for material non-cash activities , such as depreciation , amortization , change in fair value of warrants , and changes in working capital due to timing of product shipments ( accounts receivable ) and payment of liabilities . overall , our operational cash use decreased as compared to same period in 2013 , due primarily to an increase in cash collections from accounts receivable , offset by increased in payments of accounts payable and accrued liabilities . operating activities , inclusive of research and development , sales and marketing , and general and administrative efforts , offset in part by product sales , generated a $ 26,177,000 net loss for the year ended december 31 , 2013. the operating cash impact of this loss was $ 34,563,000 , after adjusting for non-cash share-based compensation , other adjustments for material non-cash activities , such as depreciation , amortization , change in fair value of option liabilities and warrants , gain on sale of assets and acquisition of joint venture , and changes in working

liquidity and capital resources short-term and long-term liquidity the following is a summary of our key liquidity measures at december 31 , 2014 and 2013 : replace_table_token_13_th we incurred net losses of $ 37,368,000 , $ 26,177,000 and $ 32,279,000 for the years ended december 31 , 2014 , 2013 and 2012 , respectively . we have an accumulated deficit of $ 338,273,000 as of december 31 , 2014. additionally , we have used net cash of $ 30,330,000 , $ 34,563,000 and $ 32,193,000 to fund our operating activities for years ended december 31 , 2014 , 2013 and 2012 , respectively . at december 31 , 2014 , the current portion of long-term debt obligations is $ 7.4 million and the joint venture purchase obligation is $ 3.0 million . the combination of these facts and the balance of cash and cash equivalents at december 31 , 2014 raises substantial doubt as to the company 's ability to continue as a going concern . to date , these operating losses have been funded primarily from outside sources of invested capital and gross profits . we have had , and we will likely continue to have , an ongoing need to raise additional cash from outside sources to fund our future operations . however , our ability to raise capital was adversely affected once fda put a hold on our athena trials in mid-2014 , which had an adverse impact to stock price performance and our corresponding ability to restructure our debt . if we are unsuccessful in our efforts to raise outside capital in the near term , we will be required to significantly reduce our research , development , and administrative operations , including reduction of our employee base , in order to offset the lack of available funding . we are pursuing financing opportunities in both the private and public debt and equity markets as well as through strategic corporate partnerships . we have an established history of raising capital through these platforms , and we are currently involved in negotiations with multiple parties . our efforts in 2014 to raise capital took longer than we initially anticipated .

the evaluation takes into consideration such factors as changes in the nature and size of the loan and lease portfolio , overall portfolio quality , specific problem loans and leases , and current economic conditions which may affect the borrowers ' ability to pay . the evaluation also analyzes historical losses by loan and lease category , and considers the resulting loss rates when determining the reserves on current loan and lease total amounts . loss estimates for specified problem loans and leases are also detailed . all of the factors considered in the analysis of the adequacy of the allowance for loan and lease losses may be subject to change . to the extent actual outcomes differ from management estimates , additional provisions for loan and lease losses may be required that would adversely impact earnings in future periods . loans and leases are considered impaired when , based on current information and events , it is probable that lakeland will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement , including scheduled principal and interest payments . impairment is measured based on the present value of expected cash flows discounted at the loan 's effective interest rate , except that as a practical expedient , a creditor may measure impairment based on a loan 's observable market price , or the fair value of the collateral if the loan is collateral-dependent . regardless of the measurement method , a creditor must measure impairment based on the fair value of the collateral when the creditor determines that foreclosure is probable . most of lakeland 's impaired loans are collateral-dependent . lakeland groups impaired commercial loans under $ 250,000 into a homogeneous pool and collectively evaluates them . interest received on impaired loans and leases may be recorded as interest income . however , if management is not reasonably certain that an impaired loan and lease will be repaid in full , or if a specific time frame to resolve full collection can not yet be reasonably determined , all payments received are recorded as reductions of principal . fair value measurements and fair value of financial instruments . fair values of financial instruments are volatile and may be influenced by a number of factors , including market interest rates , prepayment speeds , discount rates , credit ratings and yield curves . fair values for investment securities are based on quoted market prices , where available . if quoted market prices are not available , fair values are based on the quoted prices of similar instruments or an estimate of fair value by using a range of fair value estimates in the market place as a result of the illiquid market specific to the type of security . when the fair value of a security is below its amortized cost , and depending on the length of time the condition exists and the extent the fair value is below amortized cost , additional analysis is performed to determine whether an other-than-temporary impairment condition exists . available-for-sale and held-to-maturity securities are analyzed quarterly for possible other-than-temporary impairment . the analysis considers ( i ) the length of time and the extent to which the fair value has been less than cost , ( ii ) the financial condition and near-term prospects of the issuer , and ( iii ) the intent and ability of the company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value . often , the information available to conduct these assessments is limited and rapidly changing , making estimates of fair value subject to judgment . if actual information or conditions are different than estimated , the extent of the impairment of the security may be different than previously estimated , which could have a material effect on the company 's results of operations and financial condition . income taxes . the company accounts for income taxes under the asset and liability method of accounting for income taxes . deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse . deferred tax expense is the result of changes in deferred tax assets and liabilities . the principal types of differences between assets and liabilities for financial statement and tax return purposes are allowance for loan and lease losses , core deposit intangible , deferred loan costs and deferred compensation . the company evaluates tax positions that may be uncertain using a recognition threshold of more-likely-than-not , and a measurement attribute for all tax positions taken or expected to be taken on a tax return , in order -27- for those tax positions to be recognized in the financial statements . additional information regarding the company 's uncertain tax positions is set forth in note 9 to the notes to the audited consolidated financial statements contained herein . goodwill and other identifiable intangible assets . the company reviews goodwill for impairment annually as of november 30 or when circumstances indicate a potential for impairment at the reporting unit level . u.s. gaap requires at least an annual review of the fair value of a reporting unit that has goodwill in order to determine if it is more likely than not ( that is , a likelihood of more than 50 % ) that the fair value of a reporting unit is less than its carrying amount , including goodwill . if this qualitative test determines it is unlikely ( less than 50 % probability ) the carrying value of the reporting unit is less than its fair value , then the company does not have to perform a step one impairment test . story_separator_special_tag in 2012 , the company 's efficiency ratio on a tax equivalent basis was 58.33 % compared to 56.87 % in 2011 as a result of an increase in adjusted expenses and decline in revenue . the efficiency ratio was 56.4 % in 2010. replace_table_token_7_th income taxes the company 's effective income tax rate was 31.7 % , 30.5 % and 34.5 % , in the years ended december 31 , 2012 , 2011 and 2010 , respectively . the effective tax rate increased from 30.5 % in 2011 to 31.7 % in 2012 as a result of increased earnings and because of a reduction of tax advantaged items as a percent of pre-tax income . tax advantaged items include interest income on tax-exempt securities and income on bank owned life insurance . the company 's lower effective tax rate of 30.5 % in 2011 compared to 2010 was driven by increased tax benefits attributable to the real estate investment trust ( “reit” ) subsidiary established in december 2010. financial condition total assets increased from $ 2.83 billion on december 31 , 2011 to $ 2.92 billion on december 31 , 2012 , an increase of $ 92.8 million , or 3 % . total assets at year-end 2011 increased $ 33.3 million or 1 % from year-end 2010. loans and leases lakeland primarily serves northern new jersey and the surrounding areas . its equipment finance division serves a broader market with a primary focus on the northeast . all of its borrowers are u.s. residents or entities . gross loans and leases totaling $ 2.15 billion as of december 31 , 2012 , increased $ 105.9 million or 5 % compared to 2011. the increase in gross loans and leases is due primarily to increases in commercial loans secured by real estate and residential mortgages , which was partially offset by a decrease in real estate construction loans . commercial loans secured by real estate increased from $ 1.01 billion in 2011 to $ 1.13 billion -33- in 2012 , an increase of $ 112.2 million , or 11 % . residential mortgages at $ 423.3 million increased $ 17.0 million or 4 % compared to 2011. real estate construction loans , which include commercial construction loans , at $ 46.3 million decreased $ 32.9 million or 42 % . total loans and leases at $ 2.04 billion as of december , 31 2011 increased $ 29.0 million , or 1 % compared to december 31 , 2010 primarily due to increases in commercial loans secured by real estate and commercial and industrial loans , which increased $ 42.7 million and $ 15.7 million , respectively , partially offset by a $ 38.3 million decline in leases , including leases held for sale . the following table sets forth the classification of lakeland 's gross loans and leases by major category as of december 31 for each of the last five years : replace_table_token_8_th at december 31 , 2012 , there were no concentrations of loans or leases exceeding 10 % of total loans and leases outstanding other than loans that are secured by real estate . loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other related conditions . the following table sets forth maturities and sensitivity to changes in interest rates in commercial loans in the company 's loan portfolio at december 31 , 2012 : replace_table_token_9_th risk elements commercial loans and leases are placed on a non-accrual status with all accrued interest and unpaid interest reversed if ( a ) because of the deterioration in the financial position of the borrower they are maintained on a cash basis ( which means payments are applied when and as received rather than on a regularly scheduled basis ) , ( b ) payment in full of interest or principal is not expected , or ( c ) principal and interest have been in default for a -34- period of 90 days or more unless the obligation is both well-secured and in process of collection . residential mortgage loans are placed on non-accrual status at the time principal and interest have been in default for a period of 90 days or more , except where there exists sufficient collateral to cover the defaulted principal and interest payments , and management 's knowledge of the specific circumstances warrant continued accrual . consumer loans are generally placed on non-accrual status and reviewed for charge-off when principal and interest payments are four months in arrears unless the obligations are well-secured and in the process of collection . interest thereafter on such charged-off consumer loans is taken into income when received only after full recovery of principal . as a general rule , a non-accrual asset may be restored to accrual status when none of its principal or interest is due and unpaid , satisfactory payments have been received for a sustained period ( usually six months ) , or when it otherwise becomes well-secured and in the process of collection . the following schedule sets forth certain information regarding lakeland 's non-accrual ( including troubled debt restructurings that are on non-accrual ) and past due loans and leases and other real estate owned and other repossessed assets as of december 31 , for each of the last five years : replace_table_token_10_th non-accrual loans and leases decreased to $ 28.0 million on december 31 , 2012 from $ 49.0 million at december 31 , 2011. non-performing assets decreased in all categories . commercial secured by real estate ; commercial , industrial and other ; construction real estate and residential mortgages decreased $ 6.1 million , $ 3.1 million , $ 8.4 million and $ 2.9 million , respectively . commercial loan non-accruals included 5 loan relationships between $ 500,000 and $ 1.0 million totaling $ 3.4 million , and 5

liquidity and capital resources short-term and long-term liquidity the following is a summary of our key liquidity measures at december 31 , 2014 and 2013 : replace_table_token_13_th we incurred net losses of $ 37,368,000 , $ 26,177,000 and $ 32,279,000 for the years ended december 31 , 2014 , 2013 and 2012 , respectively . we have an accumulated deficit of $ 338,273,000 as of december 31 , 2014. additionally , we have used net cash of $ 30,330,000 , $ 34,563,000 and $ 32,193,000 to fund our operating activities for years ended december 31 , 2014 , 2013 and 2012 , respectively . at december 31 , 2014 , the current portion of long-term debt obligations is $ 7.4 million and the joint venture purchase obligation is $ 3.0 million . the combination of these facts and the balance of cash and cash equivalents at december 31 , 2014 raises substantial doubt as to the company 's ability to continue as a going concern . to date , these operating losses have been funded primarily from outside sources of invested capital and gross profits . we have had , and we will likely continue to have , an ongoing need to raise additional cash from outside sources to fund our future operations . however , our ability to raise capital was adversely affected once fda put a hold on our athena trials in mid-2014 , which had an adverse impact to stock price performance and our corresponding ability to restructure our debt . if we are unsuccessful in our efforts to raise outside capital in the near term , we will be required to significantly reduce our research , development , and administrative operations , including reduction of our employee base , in order to offset the lack of available funding . we are pursuing financing opportunities in both the private and public debt and equity markets as well as through strategic corporate partnerships . we have an established history of raising capital through these platforms , and we are currently involved in negotiations with multiple parties . our efforts in 2014 to raise capital took longer than we initially anticipated .

the evaluation takes into consideration such factors as changes in the nature and size of the loan and lease portfolio , overall portfolio quality , specific problem loans and leases , and current economic conditions which may affect the borrowers ' ability to pay . the evaluation also analyzes historical losses by loan and lease category , and considers the resulting loss rates when determining the reserves on current loan and lease total amounts . loss estimates for specified problem loans and leases are also detailed . all of the factors considered in the analysis of the adequacy of the allowance for loan and lease losses may be subject to change . to the extent actual outcomes differ from management estimates , additional provisions for loan and lease losses may be required that would adversely impact earnings in future periods . loans and leases are considered impaired when , based on current information and events , it is probable that lakeland will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement , including scheduled principal and interest payments . impairment is measured based on the present value of expected cash flows discounted at the loan 's effective interest rate , except that as a practical expedient , a creditor may measure impairment based on a loan 's observable market price , or the fair value of the collateral if the loan is collateral-dependent . regardless of the measurement method , a creditor must measure impairment based on the fair value of the collateral when the creditor determines that foreclosure is probable . most of lakeland 's impaired loans are collateral-dependent . lakeland groups impaired commercial loans under $ 250,000 into a homogeneous pool and collectively evaluates them . interest received on impaired loans and leases may be recorded as interest income . however , if management is not reasonably certain that an impaired loan and lease will be repaid in full , or if a specific time frame to resolve full collection can not yet be reasonably determined , all payments received are recorded as reductions of principal . fair value measurements and fair value of financial instruments . fair values of financial instruments are volatile and may be influenced by a number of factors , including market interest rates , prepayment speeds , discount rates , credit ratings and yield curves . fair values for investment securities are based on quoted market prices , where available . if quoted market prices are not available , fair values are based on the quoted prices of similar instruments or an estimate of fair value by using a range of fair value estimates in the market place as a result of the illiquid market specific to the type of security . when the fair value of a security is below its amortized cost , and depending on the length of time the condition exists and the extent the fair value is below amortized cost , additional analysis is performed to determine whether an other-than-temporary impairment condition exists . available-for-sale and held-to-maturity securities are analyzed quarterly for possible other-than-temporary impairment . the analysis considers ( i ) the length of time and the extent to which the fair value has been less than cost , ( ii ) the financial condition and near-term prospects of the issuer , and ( iii ) the intent and ability of the company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value . often , the information available to conduct these assessments is limited and rapidly changing , making estimates of fair value subject to judgment . if actual information or conditions are different than estimated , the extent of the impairment of the security may be different than previously estimated , which could have a material effect on the company 's results of operations and financial condition . income taxes . the company accounts for income taxes under the asset and liability method of accounting for income taxes . deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse . deferred tax expense is the result of changes in deferred tax assets and liabilities . the principal types of differences between assets and liabilities for financial statement and tax return purposes are allowance for loan and lease losses , core deposit intangible , deferred loan costs and deferred compensation . the company evaluates tax positions that may be uncertain using a recognition threshold of more-likely-than-not , and a measurement attribute for all tax positions taken or expected to be taken on a tax return , in order -27- for those tax positions to be recognized in the financial statements . additional information regarding the company 's uncertain tax positions is set forth in note 9 to the notes to the audited consolidated financial statements contained herein . goodwill and other identifiable intangible assets . the company reviews goodwill for impairment annually as of november 30 or when circumstances indicate a potential for impairment at the reporting unit level . u.s. gaap requires at least an annual review of the fair value of a reporting unit that has goodwill in order to determine if it is more likely than not ( that is , a likelihood of more than 50 % ) that the fair value of a reporting unit is less than its carrying amount , including goodwill . if this qualitative test determines it is unlikely ( less than 50 % probability ) the carrying value of the reporting unit is less than its fair value , then the company does not have to perform a step one impairment test . story_separator_special_tag in 2012 , the company 's efficiency ratio on a tax equivalent basis was 58.33 % compared to 56.87 % in 2011 as a result of an increase in adjusted expenses and decline in revenue . the efficiency ratio was 56.4 % in 2010. replace_table_token_7_th income taxes the company 's effective income tax rate was 31.7 % , 30.5 % and 34.5 % , in the years ended december 31 , 2012 , 2011 and 2010 , respectively . the effective tax rate increased from 30.5 % in 2011 to 31.7 % in 2012 as a result of increased earnings and because of a reduction of tax advantaged items as a percent of pre-tax income . tax advantaged items include interest income on tax-exempt securities and income on bank owned life insurance . the company 's lower effective tax rate of 30.5 % in 2011 compared to 2010 was driven by increased tax benefits attributable to the real estate investment trust ( “reit” ) subsidiary established in december 2010. financial condition total assets increased from $ 2.83 billion on december 31 , 2011 to $ 2.92 billion on december 31 , 2012 , an increase of $ 92.8 million , or 3 % . total assets at year-end 2011 increased $ 33.3 million or 1 % from year-end 2010. loans and leases lakeland primarily serves northern new jersey and the surrounding areas . its equipment finance division serves a broader market with a primary focus on the northeast . all of its borrowers are u.s. residents or entities . gross loans and leases totaling $ 2.15 billion as of december 31 , 2012 , increased $ 105.9 million or 5 % compared to 2011. the increase in gross loans and leases is due primarily to increases in commercial loans secured by real estate and residential mortgages , which was partially offset by a decrease in real estate construction loans . commercial loans secured by real estate increased from $ 1.01 billion in 2011 to $ 1.13 billion -33- in 2012 , an increase of $ 112.2 million , or 11 % . residential mortgages at $ 423.3 million increased $ 17.0 million or 4 % compared to 2011. real estate construction loans , which include commercial construction loans , at $ 46.3 million decreased $ 32.9 million or 42 % . total loans and leases at $ 2.04 billion as of december , 31 2011 increased $ 29.0 million , or 1 % compared to december 31 , 2010 primarily due to increases in commercial loans secured by real estate and commercial and industrial loans , which increased $ 42.7 million and $ 15.7 million , respectively , partially offset by a $ 38.3 million decline in leases , including leases held for sale . the following table sets forth the classification of lakeland 's gross loans and leases by major category as of december 31 for each of the last five years : replace_table_token_8_th at december 31 , 2012 , there were no concentrations of loans or leases exceeding 10 % of total loans and leases outstanding other than loans that are secured by real estate . loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other related conditions . the following table sets forth maturities and sensitivity to changes in interest rates in commercial loans in the company 's loan portfolio at december 31 , 2012 : replace_table_token_9_th risk elements commercial loans and leases are placed on a non-accrual status with all accrued interest and unpaid interest reversed if ( a ) because of the deterioration in the financial position of the borrower they are maintained on a cash basis ( which means payments are applied when and as received rather than on a regularly scheduled basis ) , ( b ) payment in full of interest or principal is not expected , or ( c ) principal and interest have been in default for a -34- period of 90 days or more unless the obligation is both well-secured and in process of collection . residential mortgage loans are placed on non-accrual status at the time principal and interest have been in default for a period of 90 days or more , except where there exists sufficient collateral to cover the defaulted principal and interest payments , and management 's knowledge of the specific circumstances warrant continued accrual . consumer loans are generally placed on non-accrual status and reviewed for charge-off when principal and interest payments are four months in arrears unless the obligations are well-secured and in the process of collection . interest thereafter on such charged-off consumer loans is taken into income when received only after full recovery of principal . as a general rule , a non-accrual asset may be restored to accrual status when none of its principal or interest is due and unpaid , satisfactory payments have been received for a sustained period ( usually six months ) , or when it otherwise becomes well-secured and in the process of collection . the following schedule sets forth certain information regarding lakeland 's non-accrual ( including troubled debt restructurings that are on non-accrual ) and past due loans and leases and other real estate owned and other repossessed assets as of december 31 , for each of the last five years : replace_table_token_10_th non-accrual loans and leases decreased to $ 28.0 million on december 31 , 2012 from $ 49.0 million at december 31 , 2011. non-performing assets decreased in all categories . commercial secured by real estate ; commercial , industrial and other ; construction real estate and residential mortgages decreased $ 6.1 million , $ 3.1 million , $ 8.4 million and $ 2.9 million , respectively . commercial loan non-accruals included 5 loan relationships between $ 500,000 and $ 1.0 million totaling $ 3.4 million , and 5

capital resources stockholders ' equity increased from $ 259.8 million on december 31 , 2011 to $ 280.9 million on december 31 , 2012. the increase in stockholders ' equity from december 31 , 2011 to december 31 , 2012 was primarily due to $ 21.7 million in net income and the company 's sale of an aggregate of 2,667,253 shares of common stock at $ 9.65 per share , which resulted in net proceeds of $ 25.0 million . partially offsetting net income and the sale of common stock was the $ 19.0 million redemption of preferred stock , the warrant repurchase totaling $ 2.8 million and payment of dividends on common and preferred stock of $ 5.9 million . for more information on the redemption of preferred stock , please see note 7 in notes to the consolidated financial statements in this annual report on form 10-k. -44- book value per common share ( total common stockholders ' equity divided by the number of shares outstanding ) increased from $ 8.99 on december 31 , 2011 to $ 9.45 on december 31 , 2012 primarily as a result of net income and the company 's sale of common stock as previously mentioned . book value per common share was $ 8.40 on december 31 , 2010. tangible book value per share increased from $ 5.75 on december 31 , 2011 to $ 6.52 on december 31 , 2012. for more information see “non-gaap financial measures.” the fdic 's risk-based capital policy statement imposes a minimum capital standard on insured banks . the minimum ratio of risk-based capital to risk-weighted assets ( including certain off-balance sheet items , such as standby letters of credit ) is 8 % . at least half of the total capital is to be comprised of common stock equity and qualifying perpetual preferred stock , less goodwill ( “tier i capital” ) . the remainder ( “tier ii capital” ) may consist of mandatory convertible debt securities , qualifying subordinated debt , other preferred stock and a portion of the allowance for loan and lease losses .

however , during the 10 weeks off-treatment from week 14 to week 24 , there was an increase in subjects in the brincidofovir arm who met the primary endpoint through cmv infection , death , or missing data compared to the control arm , such that at week 24 there was no benefit demonstrated for bcv treatment . in the suppress trial , diarrhea in brincidofovir-treated patients was more frequent and often presumed to be gut graft-versus-host-disease ( gvhd ) and treated with corticosteroids , rather than temporarily interrupting study drug according to the safety monitoring and management plan ( smmp ) . among patients who were managed according to the smmp , significantly fewer cmv infections and lower mortality were observed . there was an eight-fold increase in the use of corticosteroids through week 14 in the brincidofovir arm ( median cumulative 26 mg/kg prednisone equivalent ) compared to the placebo arm ( median cumulative 3 mg/kg prednisone equivalent ) . the use of corticosteroids and other immunosuppressive therapies for the treatment of gvhd is known to increase the risk of infections , including cmv infections that occur when patients discontinue antiviral therapy . the rate of cmv infections thus was higher in the brincidofovir arm between weeks 14 and 24 ( 22 percent versus 11 percent on placebo ) , when patients were no longer on study drug . of note , among patients who either underwent t-cell depletion or received alemtuzumab/atg ( approaches that decrease the risk of gvhd ) , those who were randomized to receive brincidofovir showed a lower incidence of cmv when compared to placebo , at a rate consistent with what was observed in the phase 2 study of brincidofovir in the hct setting . among the secondary efficacy endpoints , brincidofovir was not shown to have a positive effect on bkv hemorrhagic cystitis , though preliminary analysis of bk reactivation over the first eight weeks of randomized therapy showed a trend towards lower incidence of bk viremia on the bcv arm when compared to the placebo arm ( 12 % vs. 20 % , fisher 's exact p=0.08 ) . there were 50 no statistically significant differences in all-cause mortality in the trial ( 15.5 percent in the brincidofovir arm , 10.1 percent in the placebo arm , p=0.12 ) ; the numerical differences appear to be driven by higher use of corticosteroids and other immunosuppressive therapies in the subjects who received brincidofovir . from a safety perspective , the most common adverse events reported for subjects randomized to brincidofovir were acute gvhd ( presumed on the basis of symptoms or with biopsy ) , gastrointestinal ( gi ) events ( predominantly diarrhea ) , and liver enzyme abnormalities . although the rate of reported gut gvhd in the phase 2 study of brincidofovir was higher than that in the placebo cohort , the excess was driven by the over diagnosis of gvhd based on diarrhea alone . incorporation of the smmp in the final cohort of the phase 2 study of brincidofovir 100 mg twice-weekly allowed 90 percent of subjects to successfully resume brincidofovir dosing . as seen in phase 2 , there was no evidence of bone marrow toxicity , kidney toxicity , or viral resistance to brincidofovir observed in the suppress trial . interim results from advise in august of 2015 , we completed enrollment of the phase 3 advise trial , which is evaluating brincidofovir for the treatment of adv infections in pediatric and adult patients . patients who have undergone allogeneic hct are at especially high risk for developing adv disease due to profound and persistent immunodeficiency . in this susceptible population , the development of adv infection associated with viremia is much more prevalent , severe , and rapidly fatal without treatment . in the medical literature , mortality rates of up to 50-80 % are reported for allogeneic hct recipients with disseminated disease . in december 2015 , we provided an update of the on-going analysis of data from the advise study . at the time of the report , for the full cohort b population of hct recipients with disseminated adenovirus infection , all-cause mortality at day 90 remained less than 40 % . full analyses including ae and relapse rates will be reported in 2016. we will continue to prepare data from the advise trial and the historical matched controls to review with the fda and foreign regulators to determine the regulatory pathway for the treatment of adenovirus . we tentatively expect meetings with the fda and foreign regulators to review data from the advise trial in the second half of 2016. until we have agreement with fda and or foreign regulators for the regulatory pathway for brincidofovir for the treatment of adenovirus infection , we can not provide details on the timeline for a new drug application or foreign equivalent , but anticipate that treatment of adenovirus infection is likely to be the first potential indication in a brincidofovir submission . cmv in kidney transplant recipients in october 2015 , we initiated dosing in our phase 3 sustain and surpass trials of brincidofovir for prevention of cmv disease in kidney transplant recipients . sustain was designed to demonstrate the safety and efficacy of brincidofovir for the prevention of cmv disease in kidney transplant recipients at high risk of cmv disease . it was a blinded , non-inferiority study of brincidofovir versus valganciclovir in kidney transplant recipients who have not been previously infected with cmv ( cmv seronegative recipient , or “ r- “ ) and who therefore have no immunity to cmv , but who received a kidney from a cmv seropositive donor ( d+ ) . surpass was a blinded study of brincidofovir versus valganciclovir in kidney transplant recipients who are cmv seropositive ( `` r+ `` ) . story_separator_special_tag we believe that our accounting policies relating to revenue recognition , research and development prepaids and accruals , investments and share-based compensation are the most critical to understanding and evaluating our reported financial results . we have identified these policies as critical because they both are important to the presentation of our financial condition and results of operations and require us to make judgments and estimates on matters that are inherently uncertain and may change in future periods . for more information regarding these policies , you should refer to note 1 to our audited consolidated financial statements included in this annual report . revenue recognition we derive our revenues from two sources : contracts and grants , and collaborations and licensing . contract and grant revenue is revenue generated pursuant to federal contracts and other awarded grants . collaboration and licensing revenue is revenue related to license and collaboration agreements . we recognize revenue in accordance with the criteria outlined in the securities and exchange commission ( sec ) 's topic 13 and accounting standards codification ( asc ) 605-25 and by the financial accounting standards board . following these accounting pronouncements , revenue is recognized when all four of the following criteria are met : ( i ) persuasive evidence of an arrangement exists ; ( ii ) delivery of the products and or services has occurred and risk of loss has passed ; ( iii ) the selling price is fixed or determinable ; and ( iv ) collectability is reasonably assured . for arrangements that involve the delivery of more than one element , each product , service and or right to use assets is evaluated to determine whether it qualifies as a separate unit of accounting . this determination is based on whether the deliverable has “ stand-alone value ” to the customer . the consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling prices of each deliverable . the consideration allocated to each unit of accounting is recognized as the related goods and services are delivered , limited to the consideration that is not contingent upon future deliverables . if the arrangement constitutes a single unit of accounting , the revenue recognition policy must be determined for the entire arrangement and the consideration received is recognized over the period of inception through the date the last deliverable within the single unit of accounting is expected to be delivered . revisions to the estimated period of recognition are reflected in revenue prospectively . 55 non-refundable upfront fees are recorded as deferred revenue and recognized into revenue as license fees from collaborations on a straight-line basis over the estimated period of our substantive performance obligations . if we do not have substantive performance obligations , we recognize non-refundable upfront fees into revenue through the date the deliverable is satisfied . analyzing the arrangement to identify deliverables requires the use of judgment , and each deliverable may be an obligation to deliver services , a right or license to use an asset , or another performance obligation . milestone payments are recognized when earned , provided that ( i ) the milestone event is substantive , ( ii ) there is no ongoing performance obligation related to the achievement of the milestone earned , and ( iii ) it would result in additional payments . milestone payments are considered substantive if all of the following conditions are met : the milestone payment is non-refundable ; achievement of the milestone was not reasonably assured at the inception of the arrangement ; substantive effort is involved to achieve the milestone ; and the amount of the milestone appears reasonable in relation to the effort expended , the other milestones in the arrangement and the related risk associated with the achievement of the milestone . contingent based event payments we may receive under a license or collaboration agreement will be recognized when received . from our inception through december 31 , 2015 , we have not generated any revenue from product sales . for the same period , we have generated $ 83.4 million in grant and contract revenue . we recognize revenue under government grants and contracts as qualifying research activities are conducted based on invoices received from company vendors . any amounts received in advance of performance are recorded as deferred revenue until earned . in july 2012 , we entered into a collaboration and licensing agreement with merck , sharp & dohme corporation ( merck ) . the agreement provided for various types of payments , including a $ 17.5 million non-refundable upfront license fee , contingent event-based milestone payments and future royalties on net product sales . we recognized the upfront license fee payment from merck as revenue for the year ended december 31 , 2012 , as our remaining performance obligations under the contract were not considered substantive . the contingent event-based payments pursuant to our agreement with merck did not meet the definition of a milestone as achievement of the triggering event for such payments was based on the performance of merck and not our performance . therefore the milestone method was not applied to any such payments . we did not recognize any revenue under this agreement for the years ended december 31 , 2014 and 2013. the license agreement with merck was terminated in may 2014. on december 17 , 2014 , we entered into a collaboration and license agreement with contravir pharmaceuticals . in exchange for the license to cmx157 rights , we received an upfront payment consisting of 120,000 shares of contravir series b convertible preferred stock with a stated value of $ 1.2 million . in addition , we are eligible to receive up to approximately $ 20 million in clinical , regulatory and initial commercial milestones in the united states and europe , as well as royalties and additional milestones based on commercial sales in those territories

capital resources stockholders ' equity increased from $ 259.8 million on december 31 , 2011 to $ 280.9 million on december 31 , 2012. the increase in stockholders ' equity from december 31 , 2011 to december 31 , 2012 was primarily due to $ 21.7 million in net income and the company 's sale of an aggregate of 2,667,253 shares of common stock at $ 9.65 per share , which resulted in net proceeds of $ 25.0 million . partially offsetting net income and the sale of common stock was the $ 19.0 million redemption of preferred stock , the warrant repurchase totaling $ 2.8 million and payment of dividends on common and preferred stock of $ 5.9 million . for more information on the redemption of preferred stock , please see note 7 in notes to the consolidated financial statements in this annual report on form 10-k. -44- book value per common share ( total common stockholders ' equity divided by the number of shares outstanding ) increased from $ 8.99 on december 31 , 2011 to $ 9.45 on december 31 , 2012 primarily as a result of net income and the company 's sale of common stock as previously mentioned . book value per common share was $ 8.40 on december 31 , 2010. tangible book value per share increased from $ 5.75 on december 31 , 2011 to $ 6.52 on december 31 , 2012. for more information see “non-gaap financial measures.” the fdic 's risk-based capital policy statement imposes a minimum capital standard on insured banks . the minimum ratio of risk-based capital to risk-weighted assets ( including certain off-balance sheet items , such as standby letters of credit ) is 8 % . at least half of the total capital is to be comprised of common stock equity and qualifying perpetual preferred stock , less goodwill ( “tier i capital” ) . the remainder ( “tier ii capital” ) may consist of mandatory convertible debt securities , qualifying subordinated debt , other preferred stock and a portion of the allowance for loan and lease losses .

however , during the 10 weeks off-treatment from week 14 to week 24 , there was an increase in subjects in the brincidofovir arm who met the primary endpoint through cmv infection , death , or missing data compared to the control arm , such that at week 24 there was no benefit demonstrated for bcv treatment . in the suppress trial , diarrhea in brincidofovir-treated patients was more frequent and often presumed to be gut graft-versus-host-disease ( gvhd ) and treated with corticosteroids , rather than temporarily interrupting study drug according to the safety monitoring and management plan ( smmp ) . among patients who were managed according to the smmp , significantly fewer cmv infections and lower mortality were observed . there was an eight-fold increase in the use of corticosteroids through week 14 in the brincidofovir arm ( median cumulative 26 mg/kg prednisone equivalent ) compared to the placebo arm ( median cumulative 3 mg/kg prednisone equivalent ) . the use of corticosteroids and other immunosuppressive therapies for the treatment of gvhd is known to increase the risk of infections , including cmv infections that occur when patients discontinue antiviral therapy . the rate of cmv infections thus was higher in the brincidofovir arm between weeks 14 and 24 ( 22 percent versus 11 percent on placebo ) , when patients were no longer on study drug . of note , among patients who either underwent t-cell depletion or received alemtuzumab/atg ( approaches that decrease the risk of gvhd ) , those who were randomized to receive brincidofovir showed a lower incidence of cmv when compared to placebo , at a rate consistent with what was observed in the phase 2 study of brincidofovir in the hct setting . among the secondary efficacy endpoints , brincidofovir was not shown to have a positive effect on bkv hemorrhagic cystitis , though preliminary analysis of bk reactivation over the first eight weeks of randomized therapy showed a trend towards lower incidence of bk viremia on the bcv arm when compared to the placebo arm ( 12 % vs. 20 % , fisher 's exact p=0.08 ) . there were 50 no statistically significant differences in all-cause mortality in the trial ( 15.5 percent in the brincidofovir arm , 10.1 percent in the placebo arm , p=0.12 ) ; the numerical differences appear to be driven by higher use of corticosteroids and other immunosuppressive therapies in the subjects who received brincidofovir . from a safety perspective , the most common adverse events reported for subjects randomized to brincidofovir were acute gvhd ( presumed on the basis of symptoms or with biopsy ) , gastrointestinal ( gi ) events ( predominantly diarrhea ) , and liver enzyme abnormalities . although the rate of reported gut gvhd in the phase 2 study of brincidofovir was higher than that in the placebo cohort , the excess was driven by the over diagnosis of gvhd based on diarrhea alone . incorporation of the smmp in the final cohort of the phase 2 study of brincidofovir 100 mg twice-weekly allowed 90 percent of subjects to successfully resume brincidofovir dosing . as seen in phase 2 , there was no evidence of bone marrow toxicity , kidney toxicity , or viral resistance to brincidofovir observed in the suppress trial . interim results from advise in august of 2015 , we completed enrollment of the phase 3 advise trial , which is evaluating brincidofovir for the treatment of adv infections in pediatric and adult patients . patients who have undergone allogeneic hct are at especially high risk for developing adv disease due to profound and persistent immunodeficiency . in this susceptible population , the development of adv infection associated with viremia is much more prevalent , severe , and rapidly fatal without treatment . in the medical literature , mortality rates of up to 50-80 % are reported for allogeneic hct recipients with disseminated disease . in december 2015 , we provided an update of the on-going analysis of data from the advise study . at the time of the report , for the full cohort b population of hct recipients with disseminated adenovirus infection , all-cause mortality at day 90 remained less than 40 % . full analyses including ae and relapse rates will be reported in 2016. we will continue to prepare data from the advise trial and the historical matched controls to review with the fda and foreign regulators to determine the regulatory pathway for the treatment of adenovirus . we tentatively expect meetings with the fda and foreign regulators to review data from the advise trial in the second half of 2016. until we have agreement with fda and or foreign regulators for the regulatory pathway for brincidofovir for the treatment of adenovirus infection , we can not provide details on the timeline for a new drug application or foreign equivalent , but anticipate that treatment of adenovirus infection is likely to be the first potential indication in a brincidofovir submission . cmv in kidney transplant recipients in october 2015 , we initiated dosing in our phase 3 sustain and surpass trials of brincidofovir for prevention of cmv disease in kidney transplant recipients . sustain was designed to demonstrate the safety and efficacy of brincidofovir for the prevention of cmv disease in kidney transplant recipients at high risk of cmv disease . it was a blinded , non-inferiority study of brincidofovir versus valganciclovir in kidney transplant recipients who have not been previously infected with cmv ( cmv seronegative recipient , or “ r- “ ) and who therefore have no immunity to cmv , but who received a kidney from a cmv seropositive donor ( d+ ) . surpass was a blinded study of brincidofovir versus valganciclovir in kidney transplant recipients who are cmv seropositive ( `` r+ `` ) . story_separator_special_tag we believe that our accounting policies relating to revenue recognition , research and development prepaids and accruals , investments and share-based compensation are the most critical to understanding and evaluating our reported financial results . we have identified these policies as critical because they both are important to the presentation of our financial condition and results of operations and require us to make judgments and estimates on matters that are inherently uncertain and may change in future periods . for more information regarding these policies , you should refer to note 1 to our audited consolidated financial statements included in this annual report . revenue recognition we derive our revenues from two sources : contracts and grants , and collaborations and licensing . contract and grant revenue is revenue generated pursuant to federal contracts and other awarded grants . collaboration and licensing revenue is revenue related to license and collaboration agreements . we recognize revenue in accordance with the criteria outlined in the securities and exchange commission ( sec ) 's topic 13 and accounting standards codification ( asc ) 605-25 and by the financial accounting standards board . following these accounting pronouncements , revenue is recognized when all four of the following criteria are met : ( i ) persuasive evidence of an arrangement exists ; ( ii ) delivery of the products and or services has occurred and risk of loss has passed ; ( iii ) the selling price is fixed or determinable ; and ( iv ) collectability is reasonably assured . for arrangements that involve the delivery of more than one element , each product , service and or right to use assets is evaluated to determine whether it qualifies as a separate unit of accounting . this determination is based on whether the deliverable has “ stand-alone value ” to the customer . the consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling prices of each deliverable . the consideration allocated to each unit of accounting is recognized as the related goods and services are delivered , limited to the consideration that is not contingent upon future deliverables . if the arrangement constitutes a single unit of accounting , the revenue recognition policy must be determined for the entire arrangement and the consideration received is recognized over the period of inception through the date the last deliverable within the single unit of accounting is expected to be delivered . revisions to the estimated period of recognition are reflected in revenue prospectively . 55 non-refundable upfront fees are recorded as deferred revenue and recognized into revenue as license fees from collaborations on a straight-line basis over the estimated period of our substantive performance obligations . if we do not have substantive performance obligations , we recognize non-refundable upfront fees into revenue through the date the deliverable is satisfied . analyzing the arrangement to identify deliverables requires the use of judgment , and each deliverable may be an obligation to deliver services , a right or license to use an asset , or another performance obligation . milestone payments are recognized when earned , provided that ( i ) the milestone event is substantive , ( ii ) there is no ongoing performance obligation related to the achievement of the milestone earned , and ( iii ) it would result in additional payments . milestone payments are considered substantive if all of the following conditions are met : the milestone payment is non-refundable ; achievement of the milestone was not reasonably assured at the inception of the arrangement ; substantive effort is involved to achieve the milestone ; and the amount of the milestone appears reasonable in relation to the effort expended , the other milestones in the arrangement and the related risk associated with the achievement of the milestone . contingent based event payments we may receive under a license or collaboration agreement will be recognized when received . from our inception through december 31 , 2015 , we have not generated any revenue from product sales . for the same period , we have generated $ 83.4 million in grant and contract revenue . we recognize revenue under government grants and contracts as qualifying research activities are conducted based on invoices received from company vendors . any amounts received in advance of performance are recorded as deferred revenue until earned . in july 2012 , we entered into a collaboration and licensing agreement with merck , sharp & dohme corporation ( merck ) . the agreement provided for various types of payments , including a $ 17.5 million non-refundable upfront license fee , contingent event-based milestone payments and future royalties on net product sales . we recognized the upfront license fee payment from merck as revenue for the year ended december 31 , 2012 , as our remaining performance obligations under the contract were not considered substantive . the contingent event-based payments pursuant to our agreement with merck did not meet the definition of a milestone as achievement of the triggering event for such payments was based on the performance of merck and not our performance . therefore the milestone method was not applied to any such payments . we did not recognize any revenue under this agreement for the years ended december 31 , 2014 and 2013. the license agreement with merck was terminated in may 2014. on december 17 , 2014 , we entered into a collaboration and license agreement with contravir pharmaceuticals . in exchange for the license to cmx157 rights , we received an upfront payment consisting of 120,000 shares of contravir series b convertible preferred stock with a stated value of $ 1.2 million . in addition , we are eligible to receive up to approximately $ 20 million in clinical , regulatory and initial commercial milestones in the united states and europe , as well as royalties and additional milestones based on commercial sales in those territories

cash flows the following table sets forth the significant sources and uses of cash for the periods ( in thousands ) : replace_table_token_9_th operating activities net cash used in operating activities of $ 99.9 million for the year ended december 31 , 2015 was primarily the result of our $ 117.4 million net loss , offset by the add-back of non-cash expenses of $ 13.0 million for stock based compensation and $ 1.6 million of amortization of discounts on investments . the change in operating assets and liabilities includes an increase in accounts payable and accrued liabilities of $ 7.7 million primarily related to increased research and development activities for our phase 3 suppress clinical trial , offset by an increase in prepaid expenses and other assets of $ 3.2 million and an increase of $ 2.4 million in accounts receivable due to an increase in reimbursable expenses related to our contract with barda . net cash used in operating activities of $ 47.1 million for the year ended december 31 , 2014 was primarily the result of our $ 59.3 million net loss , offset by the add-back of non-cash expenses of $ 4.4 million for stock based compensation and $ 1.2 million of 63 amortization of discounts on investments . the change in operating assets and liabilities includes an increase in accounts payable and accrued liabilities of $ 6.2 million primarily related to increased research and development activities for our phase 3 suppress clinical trial , and a decrease of $ 0.1 million in accounts receivable due to a decrease in reimbursable expenses related to our contract with barda , offset by an increase in prepaid expenses and other assets of $ 0.1 million . net cash used in operating activities of $ 25.6 million during the year ended december 31 , 2013 was primarily the result of our $ 36.4 million net loss , offset by the add-back of non-cash expenses of $ 6.6 million related to the revaluation of our warrant liability and $ 3.1 million for stock based compensation .

management believes the most complex and sensitive judgments , because of their significance to the consolidated financial statements , result primarily from the need to make estimates about the effects of matters that are inherently uncertain . management bases its estimates on historical experience , current market and economic conditions and other assumptions that management believes are reasonable . the results of these estimates form the basis for judgments about the carrying value of assets and liabilities where the values are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . there have been no significant changes from the methodology applied by management for critical accounting estimates previously disclosed in our annual report on form 10-k for the fiscal year ended december 31 , 2016 . for goodwill , we perform an impairment assessment at the reporting unit level on an annual basis as of the end of our october month end or more frequently if circumstances warrant . in fiscal year 2017 when we performed our analysis , the fair value of each of our reporting units exceeded the respective carrying amount , and no goodwill impairments were recorded . the fair values utilized for our 2017 goodwill assessment exceeded the carrying amounts by more than 20 % for our energy , aerospace , and power , process , & industrial reporting units , respectively . the growth rate assumptions utilized were consistent with growth rates within the markets that we serve . if our results significantly vary from our estimates , related projections , or business assumptions in the future due to change in industry or market conditions , we may be required to record impairment charges . 20 results of operations 2017 compared with 2016 consolidated operations replace_table_token_4_th net revenues in 2017 were $ 661.7 million , an increase of $ 71.5 million from 2016 primarily driven by our october 2016 acquisition of critical flow solutions ( `` cfs `` ) ( $ 43.1 million ) and december 2017 acquisition of fluid handling ( $ 36.5 million ) , partially offset by an operating decline in our energy segment ( as described in detail below ) . segment results the chief operating decision maker ( `` codm `` ) is the function that allocates the resources of the enterprise and assesses the performance of the company 's reportable operating segments . circor has determined that the codm is solely comprised of its ceo , as the ceo has the ultimate responsibility for circor strategic decision-making and resource allocation . our codm evaluates segment operating performance using segment operating income . segment operating income is defined as gaap operating income excluding intangible amortization and amortization of fair value step-ups of inventory and fixed assets from acquisitions completed subsequent to december 31 , 2011 , the impact of restructuring related inventory write-offs , impairment charges and special charges or gains . the company also refers to this measure as adjusted operating income . the company uses this measure because it helps management understand and evaluate the segments ' core operating results and facilitate comparison of performance for determining incentive compensation achievement . for information regarding our segment determination refer to note 17 , “ business segment and geographical information . `` 21 ( in thousands ) 2017 2016 change net revenues energy $ 347,578 $ 322,046 $ 25,532 advanced flow solutions 277,637 268,213 9,424 fluid handling 36,495 — 36,495 consolidated net revenues $ 661,710 $ 590,259 $ 71,451 operating income energy - segment operating income $ 30,748 $ 34,619 $ ( 3,871 ) afs - segment operating income 37,230 33,463 3,767 fluid handling - segment operating income 5,460 — 5,460 corporate expenses ( 21,744 ) ( 25,672 ) 3,928 subtotal 51,694 42,410 9,284 restructuring charges , net 7,989 8,975 ( 986 ) special charges , net 6,063 8,196 ( 2,133 ) special and restructuring charges , net ( 1 ) 14,052 17,171 ( 3,119 ) restructuring related inventory charges ( 1 ) — 2,846 ( 2,846 ) amortization of inventory step-up 4,300 1,366 2,934 impairment charges — 208 ( 208 ) acquisition amortization 12,542 9,901 2,641 acquisition depreciation 233 — 233 restructuring and other costs 17,075 14,321 2,754 consolidated operating income $ 20,567 $ 10,918 $ 9,649 consolidated operating margin 3.1 % 1.8 % ( 1 ) see note 4 `` special and restructuring charges , net `` of the consolidated financial statements , for additional details . energy segment replace_table_token_5_th energy segment net revenues increased $ 25.5 million , or 8 % , in 2017 compared to 2016 . the increase was primarily driven by our october 2016 acquisition of cfs ( +13 % ) and our north american short-cycle business ( +12 % ) , partially offset by declines in our large international projects business ( -20 % ) . segment operating income decreased $ 3.9 million , or 11 % , to $ 30.7 million for 2017 compared to $ 34.6 million in 2016 . the decrease in segment operating income was primarily due to the significant revenue decline in the large international projects business ( -58 % ) , partially offset by increased shipment volumes within our north american short-cycle business ( +28 % ) and our cfs business in the downstream refining market ( +24 % ) . energy segment orders increased $ 118.9 million , or 44 % , to $ 389.4 million for 2017 compared to $ 270.5 million in 2016 , primarily due to cfs ( +25 % ) , our north american short-cycle business ( +23 % ) due to improved demand and higher production activity in the u.s. shale plays , partially offset by lower orders in our large international projects business ( -4 % ) due to a significant reduction in capital expenditures for exploration and production by the major oil companies resulting in fewer projects . story_separator_special_tag these restructuring charges and other special charges are described in further detail in note 4 , `` special and restructuring charges , net `` , of the consolidated financial statements . in relation to our 2016 and 2015 acquisitions of cfs and schroedahl , respectively , we incurred $ 9.9 million of intangible asset amortization related to these acquisitions . this amortization is recorded within selling , general , and administrative expenses ( $ 9.3 million ) or cost of revenues ( $ 0.6 million ) depending upon the nature of the underlying intangible asset . in addition , we recorded $ 1.4 million of amortization expense related to the step-up in fair value of the inventory acquired as part of our cfs acquisition . this expense is included in cost of revenues . also during 2016 , we also recorded a $ 0.2 million impairment charge for a china patent deemed to no longer have economic value . the impairment charge is included in the impairment charge line on our consolidated statement of income ( loss ) . in 2015 , the company recorded $ 23.7 million of special and restructuring charges , net . in our statement of operations , these charges are recorded in costs of revenue ( $ 9.4 million ) and special and restructuring charges , net ( $ 14.4 million ) . these costs are primarily related to our simplification and restructuring efforts . the amount recorded in costs of revenues relates to inventory charges associated with the exit of non-strategic product lines . in addition , we incurred $ 3.2 million of brazil restatement charges . these restructuring charges and other special charges are described in further detail in note 4 , “ special and restructuring charges , net ” , of the consolidated financial statements . in relation to our schroedahl acquisition we recorded $ 6.8 million of intangible asset amortization during 2015. this amortization is recorded within selling , general , and administrative expenses . also during 2015 , we recorded $ 2.5 million of plant , property , and equipment and intangible impairments related to our brazil business . these impairment charges are included in the impairment charge line on our consolidated statement of operations . interest expense , net interest expense increased $ 0.5 million to $ 3.3 million for 2016. this change in interest expense was primarily due to higher outstanding debt balances during the period as a result of the cfs acquisition . other ( income ) expense , net other income , net , was $ 2.1 million for 2016 compared to other expense , net of ( $ 0.9 million ) in 2015. the difference of $ 3.0 million was primarily due to the impact of foreign currency fluctuations . comprehensive ( loss ) income comprehensive loss was reduced from a comprehensive loss of $ 22.2 million for the year-ended december 31 , 2015 to a comprehensive loss of $ 0.2 million for the year-ended december 31 , 2016 , primarily driven by an increase of $ 16.9 million in favorable foreign currency balance sheet remeasurements . these favorable foreign currency balance sheet remeasurements were driven by the brazilian real ( $ 9.9 million ) and euro ( $ 6.3 million ) . as of december 31 , 2016 , we had a cumulative currency translation adjustment of $ 17.3 million regarding our brazil entity . ( benefit from ) provision for income taxes the effective tax rate was -4 % for 2016 compared to 56 % for 2015. the primary drivers for the lower tax rate in 2016 included the tax benefit associated with the repatriation of foreign earnings which we completed in 2016 ( -27 % ) , reduced foreign losses in 2016 with no tax benefit ( -27 % ) , mix of lower taxed foreign earnings to u.s. earnings ( -18 % ) , and other items in 2016 including the prior year impact of a foreign audit settlement ( -14 % ) . this was partially offset by the establishment of a valuation allowance for certain state net operating loss carryforwards ( +26 % ) . 29 story_separator_special_tag liabilities was 2.0:1 at december 31 , 2017 compared to 3.1:1 at december 31 , 2016 . as of december 31 , 2017 , cash and cash equivalents totaled $ 110.4 million , of which $ 65.3 million is payable back to colfax . these cash and cash equivalent balances are substantially all held in foreign bank accounts . this compares to $ 58.3 million of cash and cash equivalents as of december 31 , 2016 substantially all of which was also held in foreign bank accounts . the cash and cash equivalents located at our foreign subsidiaries may not be repatriated to the united states or other jurisdictions without significant tax implications . on a provisional basis , the company does not expect to owe the one-time transition tax liability , based on foreign tax pools that are in excess of u.s. tax rates . we believe that our u.s. based subsidiaries , in the aggregate , will generate positive operating cash flows and in addition we may utilize our new credit agreement for u.s. based cash needs . in 2018 , we expect to generate positive cash flow from operating activities sufficient to support our capital expenditures and service our debt . based on our expected cash flows from operations and contractually available borrowings under our credit facility , we expect to have sufficient liquidity to fund working capital needs and future growth over at least the next twelve months from date of filing the 2017 financial statements . on february 28 , 2018 , we announced the suspension of our nominal dividend , as part of our capital deployment strategy . cash flow activities for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 during the year ended december 31 , 2016

cash flows the following table sets forth the significant sources and uses of cash for the periods ( in thousands ) : replace_table_token_9_th operating activities net cash used in operating activities of $ 99.9 million for the year ended december 31 , 2015 was primarily the result of our $ 117.4 million net loss , offset by the add-back of non-cash expenses of $ 13.0 million for stock based compensation and $ 1.6 million of amortization of discounts on investments . the change in operating assets and liabilities includes an increase in accounts payable and accrued liabilities of $ 7.7 million primarily related to increased research and development activities for our phase 3 suppress clinical trial , offset by an increase in prepaid expenses and other assets of $ 3.2 million and an increase of $ 2.4 million in accounts receivable due to an increase in reimbursable expenses related to our contract with barda . net cash used in operating activities of $ 47.1 million for the year ended december 31 , 2014 was primarily the result of our $ 59.3 million net loss , offset by the add-back of non-cash expenses of $ 4.4 million for stock based compensation and $ 1.2 million of 63 amortization of discounts on investments . the change in operating assets and liabilities includes an increase in accounts payable and accrued liabilities of $ 6.2 million primarily related to increased research and development activities for our phase 3 suppress clinical trial , and a decrease of $ 0.1 million in accounts receivable due to a decrease in reimbursable expenses related to our contract with barda , offset by an increase in prepaid expenses and other assets of $ 0.1 million . net cash used in operating activities of $ 25.6 million during the year ended december 31 , 2013 was primarily the result of our $ 36.4 million net loss , offset by the add-back of non-cash expenses of $ 6.6 million related to the revaluation of our warrant liability and $ 3.1 million for stock based compensation .

management believes the most complex and sensitive judgments , because of their significance to the consolidated financial statements , result primarily from the need to make estimates about the effects of matters that are inherently uncertain . management bases its estimates on historical experience , current market and economic conditions and other assumptions that management believes are reasonable . the results of these estimates form the basis for judgments about the carrying value of assets and liabilities where the values are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . there have been no significant changes from the methodology applied by management for critical accounting estimates previously disclosed in our annual report on form 10-k for the fiscal year ended december 31 , 2016 . for goodwill , we perform an impairment assessment at the reporting unit level on an annual basis as of the end of our october month end or more frequently if circumstances warrant . in fiscal year 2017 when we performed our analysis , the fair value of each of our reporting units exceeded the respective carrying amount , and no goodwill impairments were recorded . the fair values utilized for our 2017 goodwill assessment exceeded the carrying amounts by more than 20 % for our energy , aerospace , and power , process , & industrial reporting units , respectively . the growth rate assumptions utilized were consistent with growth rates within the markets that we serve . if our results significantly vary from our estimates , related projections , or business assumptions in the future due to change in industry or market conditions , we may be required to record impairment charges . 20 results of operations 2017 compared with 2016 consolidated operations replace_table_token_4_th net revenues in 2017 were $ 661.7 million , an increase of $ 71.5 million from 2016 primarily driven by our october 2016 acquisition of critical flow solutions ( `` cfs `` ) ( $ 43.1 million ) and december 2017 acquisition of fluid handling ( $ 36.5 million ) , partially offset by an operating decline in our energy segment ( as described in detail below ) . segment results the chief operating decision maker ( `` codm `` ) is the function that allocates the resources of the enterprise and assesses the performance of the company 's reportable operating segments . circor has determined that the codm is solely comprised of its ceo , as the ceo has the ultimate responsibility for circor strategic decision-making and resource allocation . our codm evaluates segment operating performance using segment operating income . segment operating income is defined as gaap operating income excluding intangible amortization and amortization of fair value step-ups of inventory and fixed assets from acquisitions completed subsequent to december 31 , 2011 , the impact of restructuring related inventory write-offs , impairment charges and special charges or gains . the company also refers to this measure as adjusted operating income . the company uses this measure because it helps management understand and evaluate the segments ' core operating results and facilitate comparison of performance for determining incentive compensation achievement . for information regarding our segment determination refer to note 17 , “ business segment and geographical information . `` 21 ( in thousands ) 2017 2016 change net revenues energy $ 347,578 $ 322,046 $ 25,532 advanced flow solutions 277,637 268,213 9,424 fluid handling 36,495 — 36,495 consolidated net revenues $ 661,710 $ 590,259 $ 71,451 operating income energy - segment operating income $ 30,748 $ 34,619 $ ( 3,871 ) afs - segment operating income 37,230 33,463 3,767 fluid handling - segment operating income 5,460 — 5,460 corporate expenses ( 21,744 ) ( 25,672 ) 3,928 subtotal 51,694 42,410 9,284 restructuring charges , net 7,989 8,975 ( 986 ) special charges , net 6,063 8,196 ( 2,133 ) special and restructuring charges , net ( 1 ) 14,052 17,171 ( 3,119 ) restructuring related inventory charges ( 1 ) — 2,846 ( 2,846 ) amortization of inventory step-up 4,300 1,366 2,934 impairment charges — 208 ( 208 ) acquisition amortization 12,542 9,901 2,641 acquisition depreciation 233 — 233 restructuring and other costs 17,075 14,321 2,754 consolidated operating income $ 20,567 $ 10,918 $ 9,649 consolidated operating margin 3.1 % 1.8 % ( 1 ) see note 4 `` special and restructuring charges , net `` of the consolidated financial statements , for additional details . energy segment replace_table_token_5_th energy segment net revenues increased $ 25.5 million , or 8 % , in 2017 compared to 2016 . the increase was primarily driven by our october 2016 acquisition of cfs ( +13 % ) and our north american short-cycle business ( +12 % ) , partially offset by declines in our large international projects business ( -20 % ) . segment operating income decreased $ 3.9 million , or 11 % , to $ 30.7 million for 2017 compared to $ 34.6 million in 2016 . the decrease in segment operating income was primarily due to the significant revenue decline in the large international projects business ( -58 % ) , partially offset by increased shipment volumes within our north american short-cycle business ( +28 % ) and our cfs business in the downstream refining market ( +24 % ) . energy segment orders increased $ 118.9 million , or 44 % , to $ 389.4 million for 2017 compared to $ 270.5 million in 2016 , primarily due to cfs ( +25 % ) , our north american short-cycle business ( +23 % ) due to improved demand and higher production activity in the u.s. shale plays , partially offset by lower orders in our large international projects business ( -4 % ) due to a significant reduction in capital expenditures for exploration and production by the major oil companies resulting in fewer projects . story_separator_special_tag these restructuring charges and other special charges are described in further detail in note 4 , `` special and restructuring charges , net `` , of the consolidated financial statements . in relation to our 2016 and 2015 acquisitions of cfs and schroedahl , respectively , we incurred $ 9.9 million of intangible asset amortization related to these acquisitions . this amortization is recorded within selling , general , and administrative expenses ( $ 9.3 million ) or cost of revenues ( $ 0.6 million ) depending upon the nature of the underlying intangible asset . in addition , we recorded $ 1.4 million of amortization expense related to the step-up in fair value of the inventory acquired as part of our cfs acquisition . this expense is included in cost of revenues . also during 2016 , we also recorded a $ 0.2 million impairment charge for a china patent deemed to no longer have economic value . the impairment charge is included in the impairment charge line on our consolidated statement of income ( loss ) . in 2015 , the company recorded $ 23.7 million of special and restructuring charges , net . in our statement of operations , these charges are recorded in costs of revenue ( $ 9.4 million ) and special and restructuring charges , net ( $ 14.4 million ) . these costs are primarily related to our simplification and restructuring efforts . the amount recorded in costs of revenues relates to inventory charges associated with the exit of non-strategic product lines . in addition , we incurred $ 3.2 million of brazil restatement charges . these restructuring charges and other special charges are described in further detail in note 4 , “ special and restructuring charges , net ” , of the consolidated financial statements . in relation to our schroedahl acquisition we recorded $ 6.8 million of intangible asset amortization during 2015. this amortization is recorded within selling , general , and administrative expenses . also during 2015 , we recorded $ 2.5 million of plant , property , and equipment and intangible impairments related to our brazil business . these impairment charges are included in the impairment charge line on our consolidated statement of operations . interest expense , net interest expense increased $ 0.5 million to $ 3.3 million for 2016. this change in interest expense was primarily due to higher outstanding debt balances during the period as a result of the cfs acquisition . other ( income ) expense , net other income , net , was $ 2.1 million for 2016 compared to other expense , net of ( $ 0.9 million ) in 2015. the difference of $ 3.0 million was primarily due to the impact of foreign currency fluctuations . comprehensive ( loss ) income comprehensive loss was reduced from a comprehensive loss of $ 22.2 million for the year-ended december 31 , 2015 to a comprehensive loss of $ 0.2 million for the year-ended december 31 , 2016 , primarily driven by an increase of $ 16.9 million in favorable foreign currency balance sheet remeasurements . these favorable foreign currency balance sheet remeasurements were driven by the brazilian real ( $ 9.9 million ) and euro ( $ 6.3 million ) . as of december 31 , 2016 , we had a cumulative currency translation adjustment of $ 17.3 million regarding our brazil entity . ( benefit from ) provision for income taxes the effective tax rate was -4 % for 2016 compared to 56 % for 2015. the primary drivers for the lower tax rate in 2016 included the tax benefit associated with the repatriation of foreign earnings which we completed in 2016 ( -27 % ) , reduced foreign losses in 2016 with no tax benefit ( -27 % ) , mix of lower taxed foreign earnings to u.s. earnings ( -18 % ) , and other items in 2016 including the prior year impact of a foreign audit settlement ( -14 % ) . this was partially offset by the establishment of a valuation allowance for certain state net operating loss carryforwards ( +26 % ) . 29 story_separator_special_tag liabilities was 2.0:1 at december 31 , 2017 compared to 3.1:1 at december 31 , 2016 . as of december 31 , 2017 , cash and cash equivalents totaled $ 110.4 million , of which $ 65.3 million is payable back to colfax . these cash and cash equivalent balances are substantially all held in foreign bank accounts . this compares to $ 58.3 million of cash and cash equivalents as of december 31 , 2016 substantially all of which was also held in foreign bank accounts . the cash and cash equivalents located at our foreign subsidiaries may not be repatriated to the united states or other jurisdictions without significant tax implications . on a provisional basis , the company does not expect to owe the one-time transition tax liability , based on foreign tax pools that are in excess of u.s. tax rates . we believe that our u.s. based subsidiaries , in the aggregate , will generate positive operating cash flows and in addition we may utilize our new credit agreement for u.s. based cash needs . in 2018 , we expect to generate positive cash flow from operating activities sufficient to support our capital expenditures and service our debt . based on our expected cash flows from operations and contractually available borrowings under our credit facility , we expect to have sufficient liquidity to fund working capital needs and future growth over at least the next twelve months from date of filing the 2017 financial statements . on february 28 , 2018 , we announced the suspension of our nominal dividend , as part of our capital deployment strategy . cash flow activities for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 during the year ended december 31 , 2016

liquidity and capital resources our liquidity needs arise primarily from capital investment in machinery , equipment and the improvement of facilities , funding working capital requirements to support business growth initiatives , acquisitions , dividend payments , and debt service costs . we have historically generated cash from operations and remain in a strong financial position , with resources available for reinvestment in existing businesses , strategic acquisitions and managing our capital structure on a short and long-term basis . we completed the acquisition of fh on december 11 , 2017. the total consideration paid to acquire fh consisted of $ 542 million in cash , 3,283,424 unregistered shares of our common stock and the assumption of net pension and post-retirement liabilities of fh . we financed the cash consideration through a combination of committed debt financing and cash on hand . refer to note 3 , “ business acquisitions , ” of the consolidated financial statements for details . as a result of the transaction we incurred significant debt , including secured indebtedness , as described below . the following table summarizes our cash flow activities for the year-ended indicated ( in thousands ) : 2017 2016 2015 cash flow provided by ( used in ) : operating activities $ 9,637 $ 59,399 $ 27,142 investing activities ( 502,124 ) ( 210,481 ) ( 87,726 ) financing activities 535,568 158,764 2,251 effect of exchange rate changes on cash and cash equivalents 8,996 ( 3,944 ) ( 8,498 ) increase ( decrease ) in cash and cash equivalents ( 1 ) $ 52,077 $ 3,738 $ ( 66,831 ) ( 1 ) pursuant to the terms of the fh purchase agreement , $ 64.5 million of the cash balance as of december 31 , 2017 is due back to colfax corporation ( “ colfax ” ) , which has been reflected as a current liability within the balance sheet .

by the words “ believes , ” “ project , ” “ expects , ” “ anticipates , ” “ estimates , ” “ intends , ” “ strategy , ” “ plan , ” “ may , ” “ will , ” “ would , ” “ will be , ” “ will continue , ” “ will likely result , ” and similar expressions . we intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the private securities litigation reform act of 1995 , and are including this statement for purposes of complying with those safe-harbor provisions . forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements . our ability to predict results or the actual effect of future plans or strategies is inherently uncertain . factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include , but are not limited to : changes in economic conditions , legislative/regulatory changes , availability of capital , interest rates , competition , and generally accepted accounting principles . these risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements . we undertake no obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise . further information concerning our business , including additional factors that could materially affect our financial results , is included herein and in our other filings with the sec . results of operations for the years ended august 31 , 2019 and 2018 revenues we generated $ 433,567 in revenues from continued operations during the year ended august 31 , 2019 , as compared with $ 250,112 in revenues from continued operations for the same period ended august 31 , 2018. forty-five percent and 100 % of revenue was generated from one customer during the years ended august 31 , 2019 and 2018 , respectively . our cost of revenues was $ 174,533 for the year ended august 31 , 2019 , as compared with $ 150,022 for the same period ended august 31 , 2018. we had gross profit of $ 259,034 for the year ended august 31 , 2019 , as compared with a gross profit of $ 100,090 for the year ended august 31 , 2018. we expect to continue to achieve steadily increasing revenues within the coming months . however , as we are a start-up , we have limited operating history to rely upon and we can not guarantee that our business plan will be successful . operating expenses we incurred operating expenses in the amount of $ 702,088 for the year ended august 31 , 2019 , compared with operating expenses of $ 977,328 for the year ended august 31 , 2018. our operating expenses for the year ended august 31 , 2019 mainly consisted of general and administrative expenses of $ 525,109 , and related party - salaries and wages of $ 176,979. our operating expenses for the year ended august 31 , 2018 mainly consisted of general and administrative expenses of $ 897,587 , and related party - salaries and wages of $ 79,741. we anticipate our operating expenses will increase as we undertake our plan of operations , including increased costs associated with marketing , personnel , and other general and administrative expenses , along with increased professional fees associated with sec compliance as our business grows more complex and more expensive to maintain . income from discontinued operations on november 16 , 2017 , the company sold the copyright and all other rights in a film named “ gong fu nv pai ” copyright and the mobile application ( amoney ) assets to an unrelated party for $ 253,000 cash . the sales of intangible assets qualified as a discontinued operation of the company and accordingly , the company has excluded results of the operations from its consolidated statements of operations to present this revenue and expenses from these intangible assets in discontinued operations . 15 the following table shows the results of operations of mobile application and copyright for year ended august 31 , 2019 and 2018 which are included in the gain from discontinued operations : years ended august 31 , 2019 2018 revenue $ — $ 49,920 cost of revenue — 11,912 income tax provision — — gain from discontinued operations $ — $ 38,008 net ( loss ) income we incurred a net loss in the amount of $ 404,635 for the year ended august 31 , 2019 , as compared with a net loss of $ 1,111,950 for the year ended august 31 , 2018. story_separator_special_tag companies , the amendments are effective for fiscal years beginning after december 15 , 2019 , and interim periods within fiscal years beginning after december 15 , 2020. early adoption is permitted , but no earlier than a company 's adoption date of topic 606 , revenue from contracts with customers . the company does not currently expect the adoption of the amendment to have a material impact on its consolidated financial position and results of operations . in july 2018 , the fsab issued asu 2018-10 asc topic 842 : “ codification improvements to leases ” the amendments are to address stakeholders ' questions about how to apply certain aspects of the new guidance in accounting standards codification ( asc ) 842 , leases . the clarifications address the rate implicit in the lease , impairment of the net investment in the lease , lessee reassessment of lease classification , lessor reassessment of lease term and purchase options , variable payments that depend on an index or rate and certain transition adjustments . the amendments in asc topic 842 are effective for egc for fiscal years beginning story_separator_special_tag by the words “ believes , ” “ project , ” “ expects , ” “ anticipates , ” “ estimates , ” “ intends , ” “ strategy , ” “ plan , ” “ may , ” “ will , ” “ would , ” “ will be , ” “ will continue , ” “ will likely result , ” and similar expressions . we intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the private securities litigation reform act of 1995 , and are including this statement for purposes of complying with those safe-harbor provisions . forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements . our ability to predict results or the actual effect of future plans or strategies is inherently uncertain . factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include , but are not limited to : changes in economic conditions , legislative/regulatory changes , availability of capital , interest rates , competition , and generally accepted accounting principles . these risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements . we undertake no obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise . further information concerning our business , including additional factors that could materially affect our financial results , is included herein and in our other filings with the sec . results of operations for the years ended august 31 , 2019 and 2018 revenues we generated $ 433,567 in revenues from continued operations during the year ended august 31 , 2019 , as compared with $ 250,112 in revenues from continued operations for the same period ended august 31 , 2018. forty-five percent and 100 % of revenue was generated from one customer during the years ended august 31 , 2019 and 2018 , respectively . our cost of revenues was $ 174,533 for the year ended august 31 , 2019 , as compared with $ 150,022 for the same period ended august 31 , 2018. we had gross profit of $ 259,034 for the year ended august 31 , 2019 , as compared with a gross profit of $ 100,090 for the year ended august 31 , 2018. we expect to continue to achieve steadily increasing revenues within the coming months . however , as we are a start-up , we have limited operating history to rely upon and we can not guarantee that our business plan will be successful . operating expenses we incurred operating expenses in the amount of $ 702,088 for the year ended august 31 , 2019 , compared with operating expenses of $ 977,328 for the year ended august 31 , 2018. our operating expenses for the year ended august 31 , 2019 mainly consisted of general and administrative expenses of $ 525,109 , and related party - salaries and wages of $ 176,979. our operating expenses for the year ended august 31 , 2018 mainly consisted of general and administrative expenses of $ 897,587 , and related party - salaries and wages of $ 79,741. we anticipate our operating expenses will increase as we undertake our plan of operations , including increased costs associated with marketing , personnel , and other general and administrative expenses , along with increased professional fees associated with sec compliance as our business grows more complex and more expensive to maintain . income from discontinued operations on november 16 , 2017 , the company sold the copyright and all other rights in a film named “ gong fu nv pai ” copyright and the mobile application ( amoney ) assets to an unrelated party for $ 253,000 cash . the sales of intangible assets qualified as a discontinued operation of the company and accordingly , the company has excluded results of the operations from its consolidated statements of operations to present this revenue and expenses from these intangible assets in discontinued operations . 15 the following table shows the results of operations of mobile application and copyright for year ended august 31 , 2019 and 2018 which are included in the gain from discontinued operations : years ended august 31 , 2019 2018 revenue $ — $ 49,920 cost of revenue — 11,912 income tax provision — — gain from discontinued operations $ — $ 38,008 net ( loss ) income we incurred a net loss in the amount of $ 404,635 for the year ended august 31 , 2019 , as compared with a net loss of $ 1,111,950 for the year ended august 31 , 2018. story_separator_special_tag companies , the amendments are effective for fiscal years beginning after december 15 , 2019 , and interim periods within fiscal years beginning after december 15 , 2020. early adoption is permitted , but no earlier than a company 's adoption date of topic 606 , revenue from contracts with customers . the company does not currently expect the adoption of the amendment to have a material impact on its consolidated financial position and results of operations . in july 2018 , the fsab issued asu 2018-10 asc topic 842 : “ codification improvements to leases ” the amendments are to address stakeholders ' questions about how to apply certain aspects of the new guidance in accounting standards codification ( asc ) 842 , leases . the clarifications address the rate implicit in the lease , impairment of the net investment in the lease , lessee reassessment of lease classification , lessor reassessment of lease term and purchase options , variable payments that depend on an index or rate and certain transition adjustments . the amendments in asc topic 842 are effective for egc for fiscal years beginning

liquidity and capital resources our liquidity needs arise primarily from capital investment in machinery , equipment and the improvement of facilities , funding working capital requirements to support business growth initiatives , acquisitions , dividend payments , and debt service costs . we have historically generated cash from operations and remain in a strong financial position , with resources available for reinvestment in existing businesses , strategic acquisitions and managing our capital structure on a short and long-term basis . we completed the acquisition of fh on december 11 , 2017. the total consideration paid to acquire fh consisted of $ 542 million in cash , 3,283,424 unregistered shares of our common stock and the assumption of net pension and post-retirement liabilities of fh . we financed the cash consideration through a combination of committed debt financing and cash on hand . refer to note 3 , “ business acquisitions , ” of the consolidated financial statements for details . as a result of the transaction we incurred significant debt , including secured indebtedness , as described below . the following table summarizes our cash flow activities for the year-ended indicated ( in thousands ) : 2017 2016 2015 cash flow provided by ( used in ) : operating activities $ 9,637 $ 59,399 $ 27,142 investing activities ( 502,124 ) ( 210,481 ) ( 87,726 ) financing activities 535,568 158,764 2,251 effect of exchange rate changes on cash and cash equivalents 8,996 ( 3,944 ) ( 8,498 ) increase ( decrease ) in cash and cash equivalents ( 1 ) $ 52,077 $ 3,738 $ ( 66,831 ) ( 1 ) pursuant to the terms of the fh purchase agreement , $ 64.5 million of the cash balance as of december 31 , 2017 is due back to colfax corporation ( “ colfax ” ) , which has been reflected as a current liability within the balance sheet .

by the words “ believes , ” “ project , ” “ expects , ” “ anticipates , ” “ estimates , ” “ intends , ” “ strategy , ” “ plan , ” “ may , ” “ will , ” “ would , ” “ will be , ” “ will continue , ” “ will likely result , ” and similar expressions . we intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the private securities litigation reform act of 1995 , and are including this statement for purposes of complying with those safe-harbor provisions . forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements . our ability to predict results or the actual effect of future plans or strategies is inherently uncertain . factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include , but are not limited to : changes in economic conditions , legislative/regulatory changes , availability of capital , interest rates , competition , and generally accepted accounting principles . these risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements . we undertake no obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise . further information concerning our business , including additional factors that could materially affect our financial results , is included herein and in our other filings with the sec . results of operations for the years ended august 31 , 2019 and 2018 revenues we generated $ 433,567 in revenues from continued operations during the year ended august 31 , 2019 , as compared with $ 250,112 in revenues from continued operations for the same period ended august 31 , 2018. forty-five percent and 100 % of revenue was generated from one customer during the years ended august 31 , 2019 and 2018 , respectively . our cost of revenues was $ 174,533 for the year ended august 31 , 2019 , as compared with $ 150,022 for the same period ended august 31 , 2018. we had gross profit of $ 259,034 for the year ended august 31 , 2019 , as compared with a gross profit of $ 100,090 for the year ended august 31 , 2018. we expect to continue to achieve steadily increasing revenues within the coming months . however , as we are a start-up , we have limited operating history to rely upon and we can not guarantee that our business plan will be successful . operating expenses we incurred operating expenses in the amount of $ 702,088 for the year ended august 31 , 2019 , compared with operating expenses of $ 977,328 for the year ended august 31 , 2018. our operating expenses for the year ended august 31 , 2019 mainly consisted of general and administrative expenses of $ 525,109 , and related party - salaries and wages of $ 176,979. our operating expenses for the year ended august 31 , 2018 mainly consisted of general and administrative expenses of $ 897,587 , and related party - salaries and wages of $ 79,741. we anticipate our operating expenses will increase as we undertake our plan of operations , including increased costs associated with marketing , personnel , and other general and administrative expenses , along with increased professional fees associated with sec compliance as our business grows more complex and more expensive to maintain . income from discontinued operations on november 16 , 2017 , the company sold the copyright and all other rights in a film named “ gong fu nv pai ” copyright and the mobile application ( amoney ) assets to an unrelated party for $ 253,000 cash . the sales of intangible assets qualified as a discontinued operation of the company and accordingly , the company has excluded results of the operations from its consolidated statements of operations to present this revenue and expenses from these intangible assets in discontinued operations . 15 the following table shows the results of operations of mobile application and copyright for year ended august 31 , 2019 and 2018 which are included in the gain from discontinued operations : years ended august 31 , 2019 2018 revenue $ — $ 49,920 cost of revenue — 11,912 income tax provision — — gain from discontinued operations $ — $ 38,008 net ( loss ) income we incurred a net loss in the amount of $ 404,635 for the year ended august 31 , 2019 , as compared with a net loss of $ 1,111,950 for the year ended august 31 , 2018. story_separator_special_tag companies , the amendments are effective for fiscal years beginning after december 15 , 2019 , and interim periods within fiscal years beginning after december 15 , 2020. early adoption is permitted , but no earlier than a company 's adoption date of topic 606 , revenue from contracts with customers . the company does not currently expect the adoption of the amendment to have a material impact on its consolidated financial position and results of operations . in july 2018 , the fsab issued asu 2018-10 asc topic 842 : “ codification improvements to leases ” the amendments are to address stakeholders ' questions about how to apply certain aspects of the new guidance in accounting standards codification ( asc ) 842 , leases . the clarifications address the rate implicit in the lease , impairment of the net investment in the lease , lessee reassessment of lease classification , lessor reassessment of lease term and purchase options , variable payments that depend on an index or rate and certain transition adjustments . the amendments in asc topic 842 are effective for egc for fiscal years beginning story_separator_special_tag by the words “ believes , ” “ project , ” “ expects , ” “ anticipates , ” “ estimates , ” “ intends , ” “ strategy , ” “ plan , ” “ may , ” “ will , ” “ would , ” “ will be , ” “ will continue , ” “ will likely result , ” and similar expressions . we intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the private securities litigation reform act of 1995 , and are including this statement for purposes of complying with those safe-harbor provisions . forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements . our ability to predict results or the actual effect of future plans or strategies is inherently uncertain . factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include , but are not limited to : changes in economic conditions , legislative/regulatory changes , availability of capital , interest rates , competition , and generally accepted accounting principles . these risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements . we undertake no obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise . further information concerning our business , including additional factors that could materially affect our financial results , is included herein and in our other filings with the sec . results of operations for the years ended august 31 , 2019 and 2018 revenues we generated $ 433,567 in revenues from continued operations during the year ended august 31 , 2019 , as compared with $ 250,112 in revenues from continued operations for the same period ended august 31 , 2018. forty-five percent and 100 % of revenue was generated from one customer during the years ended august 31 , 2019 and 2018 , respectively . our cost of revenues was $ 174,533 for the year ended august 31 , 2019 , as compared with $ 150,022 for the same period ended august 31 , 2018. we had gross profit of $ 259,034 for the year ended august 31 , 2019 , as compared with a gross profit of $ 100,090 for the year ended august 31 , 2018. we expect to continue to achieve steadily increasing revenues within the coming months . however , as we are a start-up , we have limited operating history to rely upon and we can not guarantee that our business plan will be successful . operating expenses we incurred operating expenses in the amount of $ 702,088 for the year ended august 31 , 2019 , compared with operating expenses of $ 977,328 for the year ended august 31 , 2018. our operating expenses for the year ended august 31 , 2019 mainly consisted of general and administrative expenses of $ 525,109 , and related party - salaries and wages of $ 176,979. our operating expenses for the year ended august 31 , 2018 mainly consisted of general and administrative expenses of $ 897,587 , and related party - salaries and wages of $ 79,741. we anticipate our operating expenses will increase as we undertake our plan of operations , including increased costs associated with marketing , personnel , and other general and administrative expenses , along with increased professional fees associated with sec compliance as our business grows more complex and more expensive to maintain . income from discontinued operations on november 16 , 2017 , the company sold the copyright and all other rights in a film named “ gong fu nv pai ” copyright and the mobile application ( amoney ) assets to an unrelated party for $ 253,000 cash . the sales of intangible assets qualified as a discontinued operation of the company and accordingly , the company has excluded results of the operations from its consolidated statements of operations to present this revenue and expenses from these intangible assets in discontinued operations . 15 the following table shows the results of operations of mobile application and copyright for year ended august 31 , 2019 and 2018 which are included in the gain from discontinued operations : years ended august 31 , 2019 2018 revenue $ — $ 49,920 cost of revenue — 11,912 income tax provision — — gain from discontinued operations $ — $ 38,008 net ( loss ) income we incurred a net loss in the amount of $ 404,635 for the year ended august 31 , 2019 , as compared with a net loss of $ 1,111,950 for the year ended august 31 , 2018. story_separator_special_tag companies , the amendments are effective for fiscal years beginning after december 15 , 2019 , and interim periods within fiscal years beginning after december 15 , 2020. early adoption is permitted , but no earlier than a company 's adoption date of topic 606 , revenue from contracts with customers . the company does not currently expect the adoption of the amendment to have a material impact on its consolidated financial position and results of operations . in july 2018 , the fsab issued asu 2018-10 asc topic 842 : “ codification improvements to leases ” the amendments are to address stakeholders ' questions about how to apply certain aspects of the new guidance in accounting standards codification ( asc ) 842 , leases . the clarifications address the rate implicit in the lease , impairment of the net investment in the lease , lessee reassessment of lease classification , lessor reassessment of lease term and purchase options , variable payments that depend on an index or rate and certain transition adjustments . the amendments in asc topic 842 are effective for egc for fiscal years beginning

liquidity and capital resources as of august 31 , 2019 , we had $ 3,992,779 in current assets consisting of cash , prepaid expenses , accounts receivable , related party receivable , note receivable , interest receivable and receivable on asset disposal . our total current liabilities as of august 31 , 2019 were $ 345,122. as a result , we have working capital of $ 3,647,657 as of august 31 , 2019. operating activities used $ 811,102 in cash for the year ended august 31 , 2019 , as compared with $ 866,887 in cash provided for the year ended august 31 , 2018. our negative operating cash flow in 2019 was mainly the result of a change in asset disposal of $ 1,280,000 and our net loss of $ 404,635 from continuing operations . our negative operating cash flow in 2018 was mainly the result of our net loss of $ 1,157,238 from continuing operations . investing activities used $ 1,234,350 in cash for the year ended august 31 , 2019 , as compared with $ 227,000 used for the year ended august 31 , 2018. our negative investing cash flow for the year ended august 31 , 2019 is mainly the result of a note receivable in the amount of $ 1,047,040. our negative investing cash flow for the year ended august 31 , 2018 is the result of our purchase of intangible assets for our cryptocurrency business and our investment in icrowdu , offset by the sale of the copyright and all other rights in a film named “ gong fu nv pai ” copyright and the mobile application ( amoney ) assets to an unrelated party . financing activities provided $ 3,400,000 in cash for the year ended august 31 , 2019 , as compared with $ 1,156,924 for the year ended august 31 , 2018. our positive operating cash flow for both periods was mainly proceeds from the sale of our common stock . there can be no assurance that we will be successful in raising additional funding . if we are not able to secure additional funding , the implementation of our business plan will be impaired .

following a year of internal management of marketing , sales and trade distribution functions , we believe the company is well-positioned for a strong , multi-channel sales and marketing campaign in 2021 and beyond . in addition to ed products , petros is committed to identifying and developing other pharmaceuticals to advance men 's health . in march 2020 , petros acquired an exclusive global license ( the “ hybrid license ” ) for the development and commercialization of h100 from hybrid medical llc ( “ hybrid ” ) . h100 is a novel and patented topical formulation candidate for the treatment of acute peyronie 's disease . peyronie 's disease is a condition that occurs upon penile tissue disruption often caused by sexual activity or injury , healing into collagen-based scars that may ultimately harden and cause penile deformity . impact of covid-19 in january 2020 , the world health organization ( “ who ” ) announced a global health emergency because of a new strain of coronavirus originating in wuhan , china ( the “ covid-19 outbreak ” ) and the risks to the international community . in march 2020 , the who classified the covid-19 outbreak as a pandemic , based on the rapid increase in exposure globally . as a result of the covid-19 pandemic , which continues to rapidly evolve , “ shelter in place ” orders and other public health guidance measures were implemented across much of the united states , europe and asia , including in the locations of the company 's offices , key vendors and partners . the pandemic has significantly impacted the economic conditions in the u.s. and globally as federal , state and local governments react to the public health crisis , creating significant uncertainties in the economy . at this time , the future trajectory of the covid-19 outbreak remains uncertain , both in the united states and in other markets . while the company anticipates that the currently available vaccines will be widely distributed in the future , the timing and efficacy of such vaccines are uncertain . the company can not reasonably estimate the length or severity of the impact that the covid-19 outbreak will have on its financial results , and the company may experience a material adverse impact on its sales , results of operations , and cash flows in fiscal 2021. during 2020 , government regulations and the voluntary business practices of the company and prescribing physicians have prevented in-person visits by sales representatives to physicians ' offices . the company has taken steps to mitigate the negative impact on its businesses of such restrictions . in march 2020 , the company reduced our sales representative head count to reflect the lack of in-person visits . the company has maintained a core sales team which continues to contact physicians via telephone and videoconference as well as continuing to have webinars provided by the company 's key opinion leaders to other physicians and pharmacists . the company anticipates rehiring and or assigning representatives to cover sales territories as states reopen and physician access resumes new normal levels . in response to the spread of sars-cov-2 and covid-19 , in march 2020 , the company closed its administrative offices and as of december 31 , 2020 , they remain closed , with the company 's employees continuing their work outside of the company 's offices . the company has selectively resumed in-person interactions by its customer-facing personnel in compliance with local and state restrictions . the company also continues to engage with customers virtually as the company seeks to continue to support healthcare professionals and patient care . however , the company 's ability to engage in personal interactions with physicians and customers remains limited , and it is unknown when the company 's offices will reopen , and these interactions will be fully resumed . 28 nature of operations and basis of presentation petros pharmaceuticals , inc. ( “ petros ” or the “ company ” ) was organized as a delaware corporation on may 14 , 2020 for the purpose of effecting the transactions contemplated by that certain agreement and plan of merger , dated as of may 17 , 2020 ( the “ original merger agreement ” ) , by and between petros , neurotrope , inc. , a nevada corporation ( “ neurotrope ” ) , pm merger sub 1 , llc , a delaware limited liability company and a wholly-owned subsidiary of petros ( “ merger sub 1 ” ) , pn merger sub 2 , inc. , a delaware corporation and a wholly-owned subsidiary of petros ( “ merger sub 2 ” ) , and metuchen pharmaceuticals llc , a delaware limited liability company ( “ metuchen ” ) . on july 23 , 2020 , the parties to the merger agreement entered into the first amendment to the agreement and plan of merger and reorganization ( the “ first merger agreement amendment ” ) and on september 30 , 2020 , the parties to the original merger agreement entered into the second amendment to the agreement and plan of merger and reorganization ( the “ second merger agreement amendment ” and , together with the original merger agreement and the first merger agreement amendment , the “ merger agreement ” ) . the merger agreement provided for ( 1 ) the merger of merger sub 1 , with and into metuchen , with metuchen surviving as a wholly-owned subsidiary of petros ( the “ metuchen merger ” ) and ( 2 ) the merger of merger sub 2 with and into neurotrope , with neurotrope surviving as a wholly-owned subsidiary of petros ( the “ neurotrope merger ” and together with the metuchen merger , the “ mergers ” ) . story_separator_special_tag 32 years ended december 31 , 2020 and december 31 , 2019 the following table sets forth a summary of our statements of operations for the years ended december 31 , 2020 and 2019 : replace_table_token_0_th net sales net sales for the year ended december 31 , 2020 were $ 9,559,469 , composed of $ 6,357,498 of net sales from prescription medicines and net sales of $ 3,201,971 from medical devices . net sales for the year ended december 31 , 2019 were $ 15,577,166 , composed of $ 11,110,660 of net sales from prescription medicines and net sales of $ 4,466,506 from medical devices . for the year ended december 31 , 2020 , gross sales to customers representing 10 % or more of the company 's total gross sales included one customer that represented approximately 85 % of total gross sales . for the year ended december 31 , 2019 , gross sales from customers representing 10 % or more of the company 's total gross sales included one customer that represented approximately 86 % of total gross sales . prescription medicines sales consist of sales of stendra® in the u.s. for the treatment of male ed . stendra® is primarily sold directly to the one customer described above and resold through three main wholesalers , which collectively accounted for approximately 85 % of stendra® net sales for the year ended december 31 , 2020. individually , sales to the three main wholesalers either from the one customer described above or directly , accounted for 42 % , 30 % , and 28 % of stendra® net sales for the year ended december 31 , 2020. medical device sales consist of domestic and international sales of men 's health products for the treatment of ed . the men 's health products do not require a prescription and include vacuum erection devices ( “ veds ” ) , preboost , venoseal , penile injections ( rx ) , and urinary tract infection tests . timm medical discontinued various co-promotion activities in 2019 and is currently selling only veds and venoseal . the veds represent almost 100 % of sales . 33 net sales were 6,017,697 , or 39 % lower during year ended december 31 , 2020 than in the same period in 2019 consisting of a $ 4,753,162 decrease in the net sales of stendra® and a $ 1,264,535 decrease in medical device sales . the decrease in net sales in stendra® was substantially due to lower wholesaler demand to reduce inventory held by wholesalers for the potential effects of covid-19 . the decrease in net sales for our medical devices segment was attributable to the discontinuation of co-promotion activities and lower sales of certain products . cost of sales cost of sales for the year ended december 31 , 2020 were $ 4,046,466 , composed of $ 3,083,417 of cost of sales for our prescription medicines segment and $ 963,049 for our medical devices segment . cost of sales for the year ended december 31 , 2019 were $ 7,427,111 composed of $ 6,057,977 of cost of sales for our prescription medicines segment and $ 1,369,134 for our medical devices segment . cost of sales for the prescription medicine segment for the year ended december 31 , 2020 consisted of 57 % inventory obsolescence reserves , 27 % third-party product cost of sales , 10 % royalty expenses , and 6 % third-party logistics provider order fulfillment and shipping costs . cost of sales for the medical device segment for the year ended december 31 , 2020 consisted of 71 % raw materials , 22 % production labor and 7 % other cost of sales . cost of sales decreased by $ 3,380,645 or 46 % during the year ended december 31 , 2020 compared to the same period 2019. for the years ended december 31 , 2020 and 2019 , cost of sales as a percentage of net sales were 42 % and 48 % , respectively . the decrease in cost of sales as a percentage of net sales was a result of less write-offs for inventory obsolescence , decreased sales order fulfillment costs ( on a per unit basis ) , and decreased shipping expenses by the company 's third-party logistics provider during the year ended december 31 , 2020 due to reduced sales volume . gross profit gross profit for the year ended december 31 , 2020 was $ 5,513,003 or 58 % , composed of $ 3,274,081 of gross profit from prescription medicines and $ 2,238,922 from medical devices . gross profit for the year ended december 31 , 2019 was $ 8,150,055 or 52 % , composed of $ 5,052,683 of gross profit from prescription medicines and $ 3,097,372 from medical devices . the decrease in gross profit was driven by the factors noted above . operating expenses selling , general and administrative selling , general and administrative expenses for the year ended december 31 , 2020 were $ 15,674,968 , composed of $ 8,784,716 of selling , general and administrative expenses of our prescription medicines segment , $ 2,024,448 of selling , general and administrative expenses of our medical devices segment and $ 4,865,804 of general corporate expenses . selling , general and administrative expenses for the year ended december 31 , 2019 were $ 19,727,223 , composed of $ 13,873,200 of selling , general and administrative expenses of our prescription medicines segment , $ 2,735,390 of selling , general and administrative expenses of our medical devices segment and $ 3,118,633 of general corporate expenses . selling , general and administrative expenses for both segments include selling , marketing and regulatory expenses . unallocated general corporate expenses include costs that were not specific to a particular segment but are general to the group , including expenses incurred for administrative and accounting staff , general liability and other insurance , professional fees and other similar corporate expenses . 34 selling ,

liquidity and capital resources as of august 31 , 2019 , we had $ 3,992,779 in current assets consisting of cash , prepaid expenses , accounts receivable , related party receivable , note receivable , interest receivable and receivable on asset disposal . our total current liabilities as of august 31 , 2019 were $ 345,122. as a result , we have working capital of $ 3,647,657 as of august 31 , 2019. operating activities used $ 811,102 in cash for the year ended august 31 , 2019 , as compared with $ 866,887 in cash provided for the year ended august 31 , 2018. our negative operating cash flow in 2019 was mainly the result of a change in asset disposal of $ 1,280,000 and our net loss of $ 404,635 from continuing operations . our negative operating cash flow in 2018 was mainly the result of our net loss of $ 1,157,238 from continuing operations . investing activities used $ 1,234,350 in cash for the year ended august 31 , 2019 , as compared with $ 227,000 used for the year ended august 31 , 2018. our negative investing cash flow for the year ended august 31 , 2019 is mainly the result of a note receivable in the amount of $ 1,047,040. our negative investing cash flow for the year ended august 31 , 2018 is the result of our purchase of intangible assets for our cryptocurrency business and our investment in icrowdu , offset by the sale of the copyright and all other rights in a film named “ gong fu nv pai ” copyright and the mobile application ( amoney ) assets to an unrelated party . financing activities provided $ 3,400,000 in cash for the year ended august 31 , 2019 , as compared with $ 1,156,924 for the year ended august 31 , 2018. our positive operating cash flow for both periods was mainly proceeds from the sale of our common stock . there can be no assurance that we will be successful in raising additional funding . if we are not able to secure additional funding , the implementation of our business plan will be impaired .