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amounts allocated to land , buildings , equipment and fixtures are based on cost segregation studies performed by independent third parties or on the company 's analysis of story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements of lcfh and accompanying notes included in this annual report on form 10-k. in addition to historical information , the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include , but are not limited to , those discussed in our `` risk factors . '' overview we are a leading commercial real estate finance company with a proprietary loan origination platform and an established national footprint . as a non-bank operating company , we believe that we are well-positioned to benefit from the opportunities arising from the diminished supply of debt capital and the substantial demand for new financings in the commercial real estate sector . we believe our comprehensive , fully-integrated in-house infrastructure , access to a diverse array of committed financing sources and highly experienced management team of industry veterans will allow us to continue to prudently grow our business as we endeavor to capitalize on profitable opportunities in various market conditions . we conduct our business through three major business lines : commercial mortgage lending , investments in securities secured by first mortgage loans , and investments in selected net leased and other real estate assets . we apply a comprehensive best practices underwriting approach to every loan and investment that we make , rooted in management 's deep understanding of fundamental real estate values and proven expertise in these complementary business lines through multiple economic and credit cycles . our primary business strategy is originating conduit loans , which are first mortgage loans on stabilized , income-producing commercial real estate properties that are available for sale in cmbs securitizations . from our inception in october 2008 through december 30 , 2013 , we originated $ 5.9 billion of conduit loans , $ 5.2 billion of which were sold into 17 cmbs securitizations . according to market data provided by commercial mortgage alert , this makes us , by volume , the second largest non-bank contributor of loans to cmbs securitizations in the united states for in 2013. the securitization of conduit loans has been a consistently profitable business for us and enables us to reinvest our equity capital into new loan originations or allocate it to other investments . in addition to conduit loans , we originated $ 1.4 billion of balance sheet loans held for investment from inception through december 31 , 2013. during that timeframe , we also acquired $ 5.7 billion of investment grade-rated securities secured by first mortgage loans on commercial real estate and $ 785.5 million of selected net leased and other real estate assets . as of december 31 , 2013 , we had $ 3.5 billion in total assets and $ 1.2 billion in book equity capital . as of that date , our assets included $ 979.6 million of loans , $ 1.7 billion of securities , and $ 624.2 million of real estate . our primary sources of revenue include net interest income on our investments , which comprised 23.2 % and 38.6 % of our total net revenues and net income , respectively , for the year ended december 31 , 2013 , and income from sales of loans , net , which represents the income we earn from regular sales and securitizations of certain commercial mortgage loans , and which comprised 46.7 % and 77.7 % of our net revenues and net income , respectively , for the year ended december 31 , 2013. see `` —non-gaap financial measures '' for a definition of net revenues and a reconciliation to total net interest income after provision for loan losses and total other income . we also generate net rental revenues from certain of our real estate and fee income from our loan originations and the management of our institutional bridge loan partnership . 66 ladder was founded in october 2008 and we are currently capitalized by our management team and a group of leading global institutional investors , including affiliates of alberta investment management corp. , gi partners , ontario municipal employees retirement system and towerbrook capital partners . we have built our operating business to include 60 full-time industry professionals by hiring experienced personnel known to us in the commercial mortgage industry . doing so has allowed us to maintain consistency in our culture and operations and to focus on strong credit practices and disciplined growth . we have a diversified and flexible financing strategy supporting our business operations , including significant committed term financing from leading financial institutions . as of december 31 , 2013 , we had $ 2.2 billion of debt financing outstanding , including $ 989.0 million of financing from the fhlb ( with an additional $ 416.0 million of committed term financing available to us ) , $ 248.2 million committed secured term repurchase agreement financing outstanding ( with an additional $ 1.7 billion of committed secured term financing available to us ) , $ 291.1 million of third-party , non-recourse mortgage debt , $ 361.6 million of other securities financing , and $ 325.0 million of notes . as of december 31 , 2013 , our debt-to-equity ratio was 1.9:1.0 , as we employ leverage prudently to maximize financial flexibility . refer to note 16 to the consolidated financial statements for disclosure regarding events subsequent to december 31 , 2013. our businesses we invest primarily in loans , securities and other interests in u.s. commercial real estate , with a focus on senior secured assets . our mix of business segments is designed to provide us with the flexibility to opportunistically allocate capital in order to generate attractive risk-adjusted returns under varying market conditions . story_separator_special_tag these properties are leased on a net basis where the tenant is generally responsible for payment of real estate taxes , property , building and general liability insurance and property and building maintenance . sixteen of our properties are leased to a national pharmacy chain , and the remaining properties are leased to a national discount retailer , a regional sporting goods store , and a regional membership warehouse club . as of december 31 , 2013 , our net leased properties comprised a total of 1.4 million square feet , had a 100 % occupancy rate , had an average age since construction of 6.6 years and a weighted average remaining lease term of 18.7 years . in addition , as of december 31 , 2013 , we owned ( i ) a 13 story office building with a book value of $ 14.8 million through a joint venture with an operating partner , ( ii ) a portfolio of 14 office buildings with a book value of $ 129.5 million through a separate joint venture with an operating partner and , ( iii ) a 26-story office building in minnesota through a consolidated , majority owned joint venture with a book value of $ 50.1 million . further details regarding our portfolio of commercial real estate properties , including state of operation , can be found in the table on page 62. residential real estate . as of december 31 , 2013 , we owned 333 residential condominium units at veer towers in las vegas , nv with a book value of $ 93.0 million through a consolidated joint venture with an operating partner . the condominium units are included in our real estate business segment . the condominium units were 53 % leased and occupied as of december 31 , 2013. depending on market conditions for new leases and renewals in this residential inventory , we may provide tenants rent concessions or abatements . we intend to sell the entire inventory of units over time . we are only leasing the units currently under short-term leases ( less than 2-year terms ) to offset operating expenses during our sales process , and therefore , any rent concessions or abatements would have no material impact on our operations . in addition , during 2013 , we acquired a multifamily apartment building in miami , fl with a book value of $ 79.8 million . the apartment units were 92 % leased and occupied as of december 31 , 2013. other investments institutional bridge loan partnership . in 2011 , we established an institutional partnership with a canadian sovereign pension fund to invest in first mortgage bridge loans that met pre-defined criteria . our partner owns 90 % of the limited partnership interests and we own the remaining 10 % on a pari passu basis and act as general partner . we retain the discretion over which loans to propose to sell to the partnership , and our partner retains the discretion to accept or reject individual loans . as the general partner , we have engaged our advisory entity to manage the assets of the partnership and earn management fees and incentive fees from the partnership . in addition , we are entitled to retain origination fees of up to 1 % on loans that we sell to the partnership and on a case-by-case basis , as approved by our partner , may retain certain exit fees . as of december 31 , 2013 , the partnership owned $ 102.6 million of first mortgage bridge loan assets that were financed by $ 34.6 million of term debt . debt of the partnership is nonrecourse to the limited and general partners , except for customary nonrecourse carve-outs for certain actions and environmental liability . as of december 31 , 2013 , the book value of our investment in the institutional partnership was $ 7.1 million . unconsolidated joint venture . in connection with the origination of a loan in april 2012 , we received a 25 % equity kicker with the right to convert upon a capital event . on march 22 , 2013 , the loan was refinanced by us and we converted our equity kicker interest into a 25 % limited liability company membership interest in grace lake jv , llc . as of december 31 , 2013 , the llc owned an office building campus with a carrying value of $ 78.5 million that is financed by $ 77.7 million of long-term debt . debt of the llc is nonrecourse to the limited liability company members , except for 70 customary nonrecourse carve-outs for certain actions and environmental liability . as of december 31 , 2013 , the book value of our investment in the llc was $ 2.1 million . other asset management activities . as of december 31 , 2013 , we also managed two separate cmbs investment accounts for private investors with combined total assets of $ 3.8 million . as of october 2012 , we are no longer purchasing any new investments for these accounts , however , we will continue to manage the existing investments until their full prepayment or other disposition . business outlook we believe the commercial real estate finance market currently presents substantial opportunities for new origination , as it is characterized by stabilizing property values , a low interest rate environment , and a supply- demand imbalance for financing . over $ 1.6 trillion of commercial real estate debt is scheduled to mature over the next five years according to trepp , while at the same time traditional real estate lenders such as banks and insurance companies face significant new capital and regulatory requirements . april 2010 marked the first new-issue , multi-borrower cmbs securitization since june 2008. for 2010 as a whole , new cmbs issuances totaled $ 11.6 billion . in 2011 , new cmbs issuances totaled $ 32.7 billion , despite a slowdown in originations of commercial real estate mortgage loans during the second half of the year because of the uncertain economic climate created by the euro-area crisis .

factors impacting operating results there are a number of factors that influence our operating results in a meaningful way . the most significant factors include : ( 1 ) our competition ; ( 2 ) market and economic conditions ; ( 3 ) loan origination volume ; ( 4 ) profitability of securitizations ; ( 5 ) avoidance of credit losses ; ( 6 ) availability of debt and equity funding and the costs of that funding ; ( 7 ) the net interest margin on our investments ; and ( 8 ) effectiveness of our hedging and other risk management practices . jobs act on april 5 , 2012 , the jobs act was signed into law . the jobs act contains provisions that , among other things , reduce certain reporting requirements for qualifying public companies . section 107 of the jobs act also provides that an `` emerging growth company '' can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for complying with new or revised 71 accounting standards . in other words , an `` emerging growth company '' can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . however , we are choosing to `` opt out '' of such extended transition period , and as a result , we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies . section 107 of the jobs act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable . additionally , we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the jobs act . subject to certain conditions set forth in the jobs act , as an `` emerging growth company , '' we may choose to rely on certain exemptions .

the risk category story_separator_special_tag this discussion and analysis reflect our consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations . the information in this section has been derived from the consolidated financial statements , which appear elsewhere in this annual report . you should read the information in this section in conjunction with the other business and financial information provided in this annual report . overview our business consists primarily of making loans to real estate investors , businesses and consumers . we also invest in securities , which consist of federal home loan bank of pittsburgh stock , mortgage-backed securities issued by u.s. government-sponsored entities , corporate bonds , tax-exempt municipal bonds , and u.s. treasury notes . we also have a mortgage banking operation that generates one to four family residential mortgage loans through three mortgage loan originators and three correspondent mortgage banks . such residential mortgage loans are originated both for sale in the secondary market and for retention in our portfolio . however , the origination of loans for sale became a larger focus for us at the beginning of 2017. we continue to rely less on correspondent banks for loan originations , focusing instead on self-generated originations . we offer a variety of deposit accounts , including checking accounts , savings and money market accounts , and time deposits . we also utilize advances from the federal home loan bank of pittsburgh for liquidity and for asset/liability management purposes . we also offer various merchant services to businesses , consisting of multiple credit card processing solutions and other ancillary services such as internet banking . these services are offered through a third-party partner . our results of operations rely heavily on net interest income , which is the difference between interest earned on interest-earning assets and interest expense on interest-bearing liabilities . the results of operations are also affected by non-interest income , non-interest expenses , and the provision for loan losses . primary sources of non-interest income are gains on the sale of loans , earnings on bank-owned life insurance , and loan servicing fees . primary non-interest expenses are personnel costs , occupancy , professional fees , federal deposit insurance premiums , and data processing . our financial condition and results of operations may also be affected by general and local economic and competitive conditions , changes in market interest rates , governmental policies , and actions of financial regulatory authorities . business strategy our business strategy is to use our capital to both serve our community and maintain a profitable community savings bank . our goals have been to grow our core deposit base , effectively manage our cost of funds , and develop strong business relationships with our customers . our mortgage banking operations continue to generate gains on loan sales and servicing fee income . we continue to expand our base for non-interest income and have begun marketing our commercial loans as well . our current business strategy consists of the following : ● continue to grow our core deposit base . deposits have been and continue to be our primary source of funds for lending . historically , we relied on time deposits as a source of funds , we remain focused on increasing core deposits . we consider savings , checking , money market , and commercial deposits to be core deposits . core deposits are the funding source that is least costly and least sensitive to interest rate fluctuations . core deposits also help us maintain loan-to-deposit ratios at levels consistent with regulatory expectations . continuing to focus on relationship growth will increase our deposit portfolio with new and existing customers . we also continue to improve and invest in technologies , such as remote check capture and mobile & on-line banking that will help to attract core deposits . additionally , we will be offering new consumer checking and savings products that we expect to boost core deposits . ● increase income streams by developing and offering innovative products to help our customers ' meet their financial goals . we continue to strive to make the financial independence of our customers and our communities one of the pillars of our core values . we opened a consumer credit card product and will be opening up a business credit card product in 2020. we continue to market special cd & money market rates , and we continue to offer atm fee reimbursement along with all checking account products . while some of these offerings create a tangible cost , the intangible value to the bank and appreciation from our customers is incalculable . relationship banking is our goal and by providing more products to our customers , we broaden the available avenues for income growth . 26 ● manage credit risk to maintain a low level of non-performing assets . strong asset quality is a key to the long-term financial success of any bank . our credit risk management strategy focuses on well-defined credit and investment policies and procedures that we believe promote conservative lending and investment practices , conservative loan underwriting criteria and active credit monitoring . in 2019 we 've instituted practices to strengthen collection efforts to address levels of non-performing assets as well . ● manage interest rate risk . interest rate risk management is central to our budgeting , liquidity , and asset management . our focus has shifted to managing our commercial and consumer credit portfolios , with conservative lending growth , competitive interest rates , and reasonable closing costs . the commercial lending department continues to market saleable loans to the market in an effort to free up space for more competitive opportunities in terms of interest rate and credit quality . the consumer lending department continues to sell all eligible fixed rate residential mortgage loans into the secondary market , which helps mitigate and manage interest rate risk . story_separator_special_tag the fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties , other than in a forced or liquidation sale . we estimate the fair value of a financial instrument and any related asset impairment using a variety of valuation methods . where financial instruments are actively traded and have quoted market prices , quoted market prices are used for fair value . when the financial instruments are not actively traded , other observable market inputs , such as quoted prices of securities with similar characteristics , may be used , if available , to determine fair value . when observable market prices do not exist , we estimate fair value . these estimates are subjective in nature and imprecision in estimating these factors can impact the amount of revenue or loss recorded . a more detailed description of the fair values measured at each level of the fair value hierarchy and the methodology we utilize can be found in note 17 of the financial statements . investment securities . available for sale and held to maturity securities are reviewed quarterly for possible other-than-temporary impairment . the review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss , the length of time the fair value has been below cost , the expectation for that security 's performance , the creditworthiness of the issuer and our intent and ability to hold the security to recovery . a decline in value that is considered to be other-than-temporary is recorded as a loss within non-interest income in the statements of net income . at december 31 , 2019 , we believe the unrealized losses are primarily a result of increases in market yields from the time of purchase . in general , as market yields rise , the fair value of securities will decrease ; as market yields fall , the fair value of securities will increase . management generally views changes in fair value caused by changes in interest rates as temporary ; therefore , these securities have not been classified as other-than-temporarily impaired . management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance . furthermore , management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in value . 28 loan portfolio story_separator_special_tag text-align : left '' > 34 the following table sets forth activity in our allowance for loan losses for the years indicated . replace_table_token_14_th 35 allocation of allowance for loan losses . the following tables set forth the allowance for loan losses allocated by loan category . the allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories . december 31 , 2019 2018 2017 amount percent of allowance to total allowance percent of loans in category to total loans amount percent of allowance to total allowance percent of loans in category to total loans amount percent of allowance to total allowance percent of loans in category to total loans ( dollars in thousands ) one-to-four family mortgage loans $ 543 46 % 45 % $ 422 38 % 47 % $ 514 49 % 54 % commercial mortgage loans 444 38 36 394 35 37 383 37 35 commercial and industrial loans 171 14 15 264 23 12 81 8 8 consumer loans 25 2 4 45 4 4 63 6 3 total $ 1,183 100 % 100 % $ 1,125 100 % 100 % $ 1,041 100 % 100 % replace_table_token_15_th see notes 2 and 7 to the financial statements for a complete discussion of the allowance for loan losses . although we believe that we use the best information available to establish the allowance for loan losses , future adjustments to the allowance for loan losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations . furthermore , while we believe we have established our allowance for loan losses in conformity with u.s. gaap , there can be no assurance that regulators , in reviewing our loan portfolio , will not require us to increase our allowance for loan losses . in addition , because future events affecting borrowers and collateral can not be predicted with certainty , there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above . any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations . 36 securities portfolio the following table sets forth the amortized cost and estimated fair value of our securities portfolio at the dates indicated . replace_table_token_16_th at december 31 , 2019 , 2018 , and 2017 we had no investments in a single issuer ( other than securities issued by the u.s. government and government agency ) , which had an aggregate book value in excess of 10 % of our stockholders ' equity . securities portfolio maturities and yields . the following table sets forth the stated maturities and weighted average yields of investment securities at december 31 , 2019 , 2018 and 2017. weighted-average yields on tax-exempt securities are not presented on a tax equivalent basis . certain mortgage-backed securities have adjustable interest rates and will reprice annually within the various maturity ranges . these repricing schedules are not reflected in the table below . weighted average yield calculations on investment securities available for sale do not give effect to changes in fair value that are reflected as a component of equity .

general . loans are our primary interest-earning asset . at december 31 , 2019 , net loans represented 77.0 % of our total assets . loan portfolio analysis . the following table sets forth the composition of our loan portfolio by type of loan at the dates indicated . replace_table_token_4_th replace_table_token_5_th 29 loan maturity . the following tables set forth certain information at december 31 , 2019 and december 31 , 2018 regarding the dollar amount of loan principal repayments becoming due during the periods indicated . the tables do not include any estimate of prepayments that may significantly shorten the average loan life and may cause actual repayment experience to differ from that shown below . demand loans , which are loans having no stated repayment schedule or no stated maturity , are reported as due in one year or less . replace_table_token_6_th replace_table_token_7_th 30 the following tables sets forth the dollar amount of all loans at december 31 , 2019 that are due after december 31 , 2020 and have either fixed interest rates or floating or adjustable interest rates . the amounts shown below exclude third-party loan and other net origination costs and the discount on loans previously held for sale . replace_table_token_8_th loan originations , purchases and sales . the following table sets forth our loan origination , purchase and sale activity for the years indicated . replace_table_token_9_th 31 asset quality credit risk management . management of asset quality is accomplished by internal controls , monitoring and reporting of key risk indicators , and both internal and independent third-party loan reviews . the primary objective of our loan review process is to measure borrower performance and assess risk for the purpose of identifying loan weakness in order to minimize loan loss exposure . from the time of loan origination through final repayment , commercial real estate and commercial business loans are assigned a risk rating based on pre-determined criteria and levels of risk .

allowances allocated to or acquired by the duke energy registrants are held primarily for consumption . carrying amounts for emission allowances are based on the cost to acquire the allowances or , in the case of a business combination , on the fair value assigned in the allocation of the purchase price of the acquired business . emission allowances are expensed to fuel used in electric generation and purchased power on the consolidated statements of operations . 124 part ii duke energy corporation – duke energy carolinas , llc – story_separator_special_tag management 's discussion and analysis includes financial information prepared in accordance with generally accepted accounting principles ( gaap ) in the united states ( u.s. ) , as well as certain non-gaap financial measures such as adjusted earnings and adjusted earnings per share discussed below . generally , a non-gaap financial measure is a numerical measure of financial performance , financial position or cash flows that excludes ( or includes ) amounts that are included in ( or excluded from ) the most directly comparable measure calculated and presented in accordance with gaap . the non-gaap financial measures should be viewed as a supplement to , and not a substitute for , financial measures presented in accordance with gaap . non-gaap measures as presented herein may not be comparable to similarly titled measures used by other companies . the following combined management 's discussion and analysis of financial condition and results of operations is separately filed by duke energy corporation ( collectively with its subsidiaries , duke energy ) and its subsidiaries duke energy carolinas , llc ( duke energy carolinas ) , progress energy , inc. ( progress energy ) , duke energy progress , llc ( duke energy progress ) , duke energy florida , llc ( duke energy florida ) , duke energy ohio , inc. ( duke energy ohio ) and duke energy indiana , llc ( duke energy indiana ) . however , none of the registrants make any representation as to information related solely to duke energy or the subsidiary registrants of duke energy other than itself . subsequent to duke energy 's acquisition of piedmont natural gas company , inc. ( piedmont ) on october 3 , 2016 , piedmont is a wholly owned subsidiary of duke energy . the financial information for duke energy includes results of piedmont subsequent to october 3 , 2016. see note 2 to the consolidated financial statements , `` acquisitions and dispositions , '' for additional information regarding the acquisition . duke energy duke energy is an energy company headquartered in charlotte , north carolina . duke energy operates in the u.s. primarily through its wholly owned subsidiaries , duke energy carolinas , duke energy progress , duke energy florida , duke energy ohio , duke energy indiana and piedmont . when discussing duke energy 's consolidated financial information , it necessarily includes the results of the subsidiary registrants , which , along with duke energy , are collectively referred to as the duke energy registrants . management 's discussion and analysis should be read in conjunction with the consolidated financial statements and notes for the years ended december 31 , 2016 , 2015 and 2014 . executive overview acquisition of piedmont natural gas on october 3 , 2016 , duke energy completed the acquisition of piedmont , a north carolina corporation primarily engaged in regulated natural gas distribution to residential , commercial , industrial and power generation customers in portions of north carolina , south carolina and tennessee . piedmont is also invested in joint-venture , energy-related businesses , including regulated interstate natural gas transportation and storage and regulated intrastate natural gas transportation . the acquisition provides a foundation for duke energy to establish a broader , long-term strategic natural gas infrastructure platform to complement its existing natural gas pipeline investments and regulated natural gas business in the midwest . cost savings , efficiencies and other benefits are expected from combined operations . duke energy acquired all of piedmont 's outstanding common stock for a total cash purchase price of $ 5.0 billion and assumed piedmont 's existing long-term debt , which had an estimated fair value of approximately $ 2.0 billion at the time of the acquisition . the excess of the purchase price over the estimated fair value of piedmont 's assets and liabilities on the acquisition date was recorded as goodwill . the transaction resulted in incremental goodwill of approximately $ 3.4 billion . duke energy financed the transaction with a combination of debt , equity issuances and other cash sources . financings to fund the transaction included $ 3.75 billion of long-term debt issued in august 2016 , $ 750 million borrowed under a short-term loan facility ( term loan ) in september 2016 , as well as the issuance of 10.6 million shares of common stock in october 2016. the share issuance resulted in net cash proceeds of approximately $ 723 million . see note 6 to the consolidated financial statements , `` debt and credit facilities , '' for additional information related to the debt issuance and note 18 , `` common stock , '' for additional information related to the equity issuance . duke energy recorded pretax non-recurring transaction and integration costs associated with the acquisition of $ 439 million in 2016 , including interest expense of $ 234 million related to the acquisition financing . the interest expense primarily relates to losses on forward-starting interest rate swaps . the remaining charges include commitments made in conjunction with the transaction , such as charitable contributions and a one-time bill credit to piedmont customers , as well as professional fees and severance . duke energy also expects to incur system integration and other acquisition-related transition costs , primarily through 2018 , that are necessary to achieve certain anticipated cost savings , efficiencies and other benefits . see note 2 to the consolidated financial statements , `` acquisitions and dispositions , '' for additional information regarding the transaction . story_separator_special_tag the legislation also required the completion of dam improvement projects and the installation of water lines for residents within a half mile of coal ash sites in the state . work was completed on all required deadlines under the new legislation . cost management and efficiencies . duke energy has a demonstrated track record of driving efficiencies and productivity , including merger integration . these efficiencies will help in duke energy 's objective to keep overall customer rates below the national average , while moderating customer bill increases over time . in june 2016 , duke energy achieved the $ 687 million of guaranteed savings for customers in the carolinas from the 2012 merger with progress energy , a full year ahead of its original commitment . growth in the dividend . in 2016 , duke energy continued to grow the dividend payment to shareholders by approximately 4 percent . 2016 represented the 90 th consecutive year duke energy paid a cash dividend on its common stock . duke energy objectives – 2017 and beyond duke energy will continue to deliver exceptional value to customers , be an integral part of the communities in which it does business , and provide attractive returns to investors . duke energy is committed to lead the way to cleaner , smarter energy solutions that customers value through a strategy focused on : transformation of the customer experience to meet changing customer expectations through enhanced convenience , control and choice in energy supply and usage . modernization of the electric grid , including storm hardening , to ensure the system is better prepared for severe weather and to improve the system 's reliability and flexibility , as well as to provide better information and services for customers . generation of cleaner energy through an increased amount of natural gas , renewables generation and the continued safe and reliable operation of nuclear plants . expansion of natural gas infrastructure , from midstream gas pipelines to local distribution systems . operational excellence through engagement with employees and being an industry leader in safety performance and efficient operations . stakeholder engagement to ensure the regulatory rules in the states in which duke energy operates benefit customers and allow duke energy to recover its significant investments in a timely manner . primary objectives toward the implementation of this strategy include : growth initiatives . growth in the electric utilities and infrastructure business is expected to be supported by the investment of significant capital in the electric transmission and distribution grid , and in cleaner , more efficient generation . duke energy expects to invest approximately $ 30 billion in electric utilities and infrastructure growth projects over the next five years , continuing its efforts to generate cleaner energy . duke energy intends to work constructively with regulators to evaluate the current construct and seek modernized recovery solutions , such as riders , rate decoupling and multiyear rate plans , that benefit both customers and shareholders . investment projects at electric utilities and infrastructure currently underway that will support growth initiatives include : duke energy indiana 's $ 1.4 billion grid modernization plan , which was approved by the iurc in 2016 , is aimed at improving reliability , including fewer outages and quicker restoration . the plan allows for recovery of duke energy 's investment through a rider . as part of the settlement , duke energy also received approval to install ami meters , deferring the costs for future recovery in a rate case . significant investments in natural gas-fired combined cycle plants , including completing the $ 1.5 billion citrus country plant in florida , the $ 600 million lee facility in south carolina and the $ 1 billion investment in the western carolinas modernization project . these investments will allow duke energy to replace older , less efficient coal units early . duke energy expects to continue to advance other cleaner energy sources within its regulated electric jurisdictions , including hydro , wind , solar and combined heat-and-power projects , increasing the flexibility of the system and allowing duke energy to continue lowering carbon emissions . electric utilities and infrastructure will also invest significantly in modernizing the electric grid to provide greater flexibility , better reliability and power quality , as well as more valuable products and services for its customers . these significant investments will result in the need to file rate cases with regulators to update customer rates . duke energy will also focus on modernizing the regulatory constructs in its jurisdictions to minimize rate impacts to customers and recover costs in a more timely manner . duke energy expects to invest around $ 6 billion in its gas utilities and infrastructure business over the next five years . growth in gas utilities and infrastructure will be focused on the following : with the acquisition of piedmont , duke energy now operates gas distribution businesses across five states . the continued integration of piedmont , as well as additional investments in the gas local distribution company ( ldc ) system , will help maintain system integrity and expand gas distribution to new customers . duke energy will continue to grow its midstream pipeline business , underpinned by investments in the atlantic coast pipeline , sabal trail and constitution pipeline projects . these highly-contracted pipelines will bring much needed , low-cost gas supplies to the eastern u.s. , spurring economic growth and helping duke energy to grow its customer base in the southeast . 40 part ii for commercial renewables , duke energy will continue to pursue long-term , highly-contracted wind and solar projects that meet its return criteria . cost management . duke energy has a demonstrated track record of driving efficiencies and productivity into the business and continues to identify sustainable cost savings as an essential element in response to a transforming industry . execute on coal ash management strategy . duke energy will continue the company 's compliance strategy with the north carolina coal ash management act of 2014 ( coal ash act ) and resource conservation and recovery act .

results of operations replace_table_token_21_th the following table shows the percent changes in gwh sales of electricity and average number of electric customers for duke energy ohio . the below percentages for retail customer classes represent billed sales only . total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities and to public and private utilities and power marketers . amounts are not weather normalized . replace_table_token_22_th year ended december 31 , 2016 as compared to 2015 operating revenues . the variance was driven primarily by : a $ 61 million increase in rider revenues primarily due to increased rates and true-ups . partially offset by : a $ 25 million decrease in fuel revenues driven by lower electric fuel and natural gas prices and decreased natural gas sales volumes . operating expenses . the variance was driven by : a $ 38 million decrease in the cost of natural gas , primarily due to decreased volumes and lower natural gas prices . partially offset by : a $ 17 million increase in operations and maintenance expense primarily due to increased spending on energy efficiency programs , higher pjm transmission owner scheduling and reactive supply expenses , and increased costs related to distribution projects and inspection maintenance programs , partially offset by lower allocated corporate costs ; a $ 6 million increase in depreciation and amortization expense due to additional plant in service ; and a $ 4 million increase in property and other taxes due to higher property taxes . income tax expense . the variance was primarily due to a lower effective tax rate , partially offset by an increase in pretax income . the effective tax rate for the years ended december 31 , 2016 and 2015 were 28.9 percent and 35.2 percent , respectively . the decrease in the effective tax rate was primarily due to an immaterial out of period adjustment related to deferred tax balances associated with property , plant and equipment .

nomination process , director candidate selection and qualifications the nominating and corporate governance committee is responsible for identifying , screening and recommending candidates to the board for nomination to the board . the nominating and corporate governance committee may consider director candidates from numerous sources , including stockholders , directors and officers . all candidates are evaluated in the 119 same manner . the board is responsible for nominating directors for election by the stockholders and filling any vacancies on the board that may occur . qualifications and diversity . the board does not have a formal policy with respect to diversity on the board and does not narrowly define diversity to gender and race . we look at the breadth story_separator_special_tag company overview except as expressly stated , the financial condition and results of operations discussed throughout management 's discussion and analysis of financial condition and results of operations are those of metropcs communications , inc. and its consolidated subsidiaries , including metropcs wireless , inc. , or wireless , and unless the context indicates otherwise , references to “ metropcs , ” “ metropcs communications , ” “ our company , ” “ the company , ” “ we , ” “ our , ” “ ours ” and “ us ” refer to metropcs communications , inc. , a delaware corporation , and its wholly-owned subsidiaries . we are a wireless telecommunications carrier that currently offers wireless broadband mobile services primarily in selected major metropolitan areas in the united states , including the atlanta , boston , dallas/fort worth , detroit , las vegas , los angeles , miami , new york , orlando/jacksonville , philadelphia , sacramento , san francisco and tampa/sarasota metropolitan areas . as of december 31 , 2012 , we hold licenses for wireless spectrum suitable for wireless broadband mobile services covering a total population of 144 million people in and around many of the largest metropolitan areas in the united states . in addition , we have roaming agreements with other wireless broadband mobile carriers that allow us to offer our customers service in many areas when they are outside our service area . these roaming agreements , together with the area we serve with our own networks , allows our customers to receive service in an area covering over 280 million in total population under the metro usa ® brand . we provide our services using code division multiple access ( cdma ) networks using 1xrtt technology and evolution data optimized ( evdo ) and fourth generation long term evolution ( 4g lte ) . as a result of the significant growth we have experienced since we launched operations , our results of operations to date are not necessarily indicative of the results that can be expected in future periods . we expect that our number of customers will continue to increase over time , which will continue to contribute to increases in our revenues and operating expenses . we sell products and services to customers through our company-owned retail stores as well as indirectly through relationships with independent retailers and third party dealers . our service allows our customers to place unlimited local calls from within our local service area and to receive unlimited calls from any area while in our service area , for a flat-rate monthly service fee . since january 2010 , we have offered service under service plans which include all applicable taxes and regulatory fees and offering nationwide voice , text and web access services on an unlimited , no long-term contract , paid-in-advance , flat-rate basis beginning at $ 40 per month . for an additional $ 5 to $ 30 per month , our customers may select alternative service plans that offer additional features predominately on an unlimited basis . we also offer discounts to customers who purchase services for additional handsets on the same account . in january 2011 , we introduced new 4g lte service plans that allow customers to enjoy voice , text and web access services at fixed monthly rates starting as low as $ 40 per month . in 2012 , we introduced a nationwide 4g lte data , talk and text service plan for $ 25 per month , including all applicable taxes and regulatory fees . for additional usage fees , we also provide certain other value-added services . all of these plans require payment in advance for one month of service . if no payment is made in advance for the following month of service , service is suspended at the end of the month that was paid for by the customer and , if the customer does not pay within 30 days , the customer is terminated . we believe our service plans differentiate us from the more complex plans and long-term contract requirements of traditional wireless carriers . t-mobile transaction on october 3 , 2012 , we announced we had entered into a business combination agreement to combine our business with t-mobile , or the proposed transaction . upon completion of the proposed transaction , which we expect to occur in the first half of 2013 , metropcs and t-mobile will combine their respective businesses , will rename metropcs as t-mobile us , and will operate t-mobile and metropcs as separate customer units . the business combination agreement is structured as a recapitalization , in which metropcs will declare a reverse stock split , make a cash payment of $ 1.5 billion in the aggregate to our stockholders of record immediately following the reverse stock split and acquire all of t-mobile 's capital stock by issuing a subsidiary of deutsche telekom 74 % of metropcs ' common stock outstanding following the cash payment on a pro forma basis . upon completion of the combination , metropcs stockholders will own 26 % of the combined company . story_separator_special_tag write-downs for obsolescent and unmarketable inventory were not significant as of december 31 , 2011 and 2012. if actual market conditions are less favorable than those projected , additional inventory write-downs may be required . deferred income tax asset and other tax reserves we assess our deferred tax asset and record a valuation allowance , when necessary , to reduce our deferred tax asset to the amount that is more likely than not to be realized . we have considered future taxable income , reversal of existing taxable temporary differences , potential to carryback tax benefits and prudent and feasible tax planning strategies in assessing the need for the valuation allowance . should we determine that we would not be able to realize all or part of a deferred tax asset in the future , an adjustment to the deferred tax asset would be charged to earnings in the period we made that determination . we establish reserves when , despite our belief that our tax returns are fully supportable , we believe that certain positions may be challenged and ultimately modified . we adjust the reserves in light of changing facts and circumstances . our effective tax rate includes the impact of income tax related reserve positions and changes to income tax reserves that we consider appropriate . a number of years may elapse before a particular matter for which we have established a reserve is finally resolved . unfavorable settlement of any particular issue may require the use of cash or a reduction in our net operating loss carryforwards . favorable resolution would be recognized as a reduction to the effective rate in the year of resolution . tax reserves as of december 31 , 2012 were $ 8.0 million which are presented on the consolidated balance sheet in other long-term liabilities . property and equipment depreciation on property and equipment is applied using the straight-line method over the estimated useful lives of the assets once the assets are placed in service , which are five to ten years for network infrastructure assets , three to ten years for capitalized interest , up to fifteen years for capital leases , approximately one to eight years for office equipment , which includes software and computer equipment , approximately three to seven years for furniture and fixtures and five years for vehicles . leasehold improvements are amortized over the shorter of the remaining term of the lease and any renewal periods reasonably assured or the estimated useful life of the improvement . the estimated life of property and equipment is based on historical experience with similar assets , as well as taking into account anticipated technological or other changes . if technological changes were to occur more rapidly than anticipated or in a different form than anticipated , the useful lives assigned to these assets may need to be shortened , resulting in the recognition of increased depreciation expense in future periods . likewise , if the anticipated technological or other changes occur more slowly than anticipated , the life of the assets could be extended based on the life assigned to new assets added to property and equipment . this could result in a reduction of depreciation expense in future periods . we assess the impairment of long-lived assets whenever events or changes in circumstances indicate the carrying value may not be recoverable . factors we consider important that could trigger an impairment review include significant underperformance relative to historical or projected future operating results or significant changes in the manner of use of the assets or in the strategy for our overall business , or indications of a significant decrease in market price . the carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset . any required impairment loss would be measured as the amount by which the asset 's carrying value exceeds its fair value and would be recorded as a reduction in the carrying value of the related asset and charged to results of operations . in connection with the proposed transaction , an initial fair value assessment was performed by t-mobile on our property and equipment and we determined that an undiscounted cash flow recoverability analysis should be performed in accordance with asc 360 ( topic 360 , “ property , plant , and equipment ” ) . as a result of that analysis , we concluded that the carrying value of our property and equipment was recoverable and there was no impairment as of december 31 , 2012. the carrying value of property and equipment was approximately $ 4.3 billion as of december 31 , 2012. fair value measurements we follow the provisions of asc 820 ( topic 820 , “ fair value measurements and disclosures ” ) . asc 820 establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations . asc 820 requires us to maximize the use of observable inputs and minimize the use of unobservable inputs . if a financial instrument uses inputs 86 that fall in different levels of the hierarchy , the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation . intangible assets we operate wireless broadband mobile networks under licenses granted by the fcc for a particular geographic area on spectrum allocated by the fcc for terrestrial wireless broadband services . we hold personal communications services , or pcs , licenses , advanced wireless services , or aws , licenses , and 700 mhz licenses granted or acquired on various dates . the pcs licenses previously included , and the aws licenses currently include , the obligation and resulting costs to relocate existing fixed microwave users of our licensed spectrum if the use of such spectrum interferes with their systems and or reimburse other carriers ( according to fcc rules ) that relocated prior users if the relocation benefits our system .

results of operations year ended december 31 , 2012 compared to year ended december 31 , 2011 operating items set forth below is a summary of certain financial information for the periods indicated : replace_table_token_7_th ( 1 ) cost of service and selling , general and administrative expenses include stock-based compensation expense . for the year ended december 31 , 2012 , cost of service includes $ 3.0 million and selling , general and administrative expenses includes $ 35.0 million of stock-based compensation expense . for the year ended december 31 , 2011 , cost of service includes $ 3.5 million and selling , general and administrative expenses includes $ 38.3 million of stock-based compensation expense . service revenues . service revenues increased $ 111.6 million , or 3 % , to approximately $ 4.5 billion for the year ended december 31 , 2012 from approximately $ 4.4 billion for the year ended december 31 , 2011. the increase in service revenues is primarily attributable to higher average subscribers as well as a $ 0.06 increase in average revenue per customer during the year ended december 31 , 2012 compared to the year ended december 31 , 2011. equipment revenues . equipment revenues increased $ 142.3 million , or 34 % , to $ 561.5 million for the year ended december 31 , 2012 from $ 419.2 million for the year ended december 31 , 2011. the increase is primarily attributable to a $ 122.2 million increase in equipment revenues associated with a decrease in commissions paid to independent retailers due to a 91 lower volume of handsets sold as well as higher average price of handsets sold , accounting for a $ 177.9 million increase . these items were partially offset by a 37 % decrease in gross customer additions which led to a $ 132.2 million decrease , as well as a decrease in upgrade handset sales to existing customers , which led to a $ 24.7 million decrease .

1-800-flowers.com was also rated number one vs. competitors for customer satisfaction by stellaservice and named by the e-tailing group as one of only nine online retailers out of 100 benchmarked to meet the criteria for excellence in online customer service . 1-800-flowers.com has been honored in internet retailer 's `` hot 100 : america 's best retail web sites '' for 2011. the company 's bloomnet® international floral wire service ( www.mybloomnet.net ) provides a broad range of quality products and value-added services designed to help professional florists grow their businesses profitably . the 1-800-flowers.com `` gift shop '' also includes gourmet gifts such as popcorn and specialty treats from the popcorn factory® ( 1-800-541-2676 or www.thepopcornfactory.com ) ; cookies and baked gifts from cheryl's® ( 1-800-443-8124 or www.cheryls.com ) ; premium chocolates and confections from fannie may® confections brands ( www.fanniemay.com and www.harrylondon.com ) ; gift baskets and towers from 1-800-baskets.com® ( www.1800baskets.com ) ; delicious cut-fruit arrangements from fruitbouquets.com ( www.fruitbuquets.com ) ; wine gifts from winetasting.com® ( www.winetasting.com ) ; ultra- premium meats from stockyards.com ( www.stockyards.com ) ; as well as exquisite , customizable invitations and personal stationery from finestationery.com ( www.finestationery.com ) . the company 's celebrations® brand ( www.celebrations.com ) is a new premier online destination for fabulous party ideas and planning tips . 1-800-flowers.com , inc. is involved in a broad range of corporate social responsibility initiatives including continuous expansion and enhancement of its environmentally-friendly `` green '' programs as well as various philanthropic and charitable efforts . on september 6 , 2011 , the company , through the winetasting network subsidiary , completed the sale of certain assets of its non-strategic wine fulfillment services business in order to focus on its core direct-to-consumer wine business . during the fourth quarter of fiscal 2009 , the company made the strategic decision to divest its home & children 's gifts business segment to focus on its core consumer floral , bloomnet wire service and gourmet foods & gift baskets categories , and on january 25 , 2010 , completed the sale of this business . consequently , the company has classified the results of operations of its home & children 's gifts segment and its wine fulfillment services business , which had previously been included within its gourmet foods & gift baskets category , as discontinued operations for all periods presented . shares in 1-800-flowers.com , inc. are traded on the nasdaq global select market , ticker symbol : flws . 31 as a provider of gifts to consumers and wholesalers for resale to consumers , the company is subject to changes in consumer confidence and the economic conditions that impact our customers . demand for the company 's products is affected by the financial health of our customers , which is influenced by macro economic issues such as unemployment , fuel and energy costs , weakness in the housing market and unavailability of consumer credit . during the recent economic downturn , the demand for our products , and accordingly our financial results , compared to pre-recessionary levels , has been adversely affected by the reduction in consumer spending . during fiscal 2012 the company continued to recover from the effects of the recession which began in fiscal 2009 , building on last year 's improved financial performance . as a result of cost reductions and productivity improvements , marketing efficiency and merchandising innovation , the company has been able to make significant annual improvements in ebitda compared to the low point of the recession during fiscal 2010. a key tenet of the company 's strategy during this period was to stabilize the consumer floral operations and minimize business risk during the current recessionary period . in order to improve earnings during this recessionary period , the company took a more conservative view of the economy , and its expectations of demand , in order to minimize the risk of investing marketing and operating spend for revenue growth too early in the economic recovery cycle . this strategy was designed to protect earnings growth that was expected to be achieved through operational improvements and business resizing programs , including a rationalization of marketing spending , but driven by more effective campaigns , that focused on the company 's ability to `` wow '' our customers with differentiated , non-commoditized higher value products . while the economic recovery continues at a slow pace , with the possibility of a `` double-dip '' recession looming as a result of continued high un-employment , energy and commodity prices , the company believes that its sales `` bottomed-out '' in the first half of fiscal 2011 , as it then began to experience modest year-over-year revenue growth . tempered by the continued economic uncertainty , during fiscal 2013 , the company expects to grow revenues across all three of its business segments with consolidated revenue growth for the year anticipated to be in the mid-single-digit range . also , based on continued improvements in gross profit margin and operating leverage , the company anticipates achieving double-digit year-over-year increases in ebitda and eps . the company 's fiscal 2013 guidance is based on the positive trends—both top and bottom-line—that the company has seen over the past two years , balanced by the continued uncertainty in the global economy . the company plans to continue to focus on managing those aspects of the business where it can drive growth and enhanced results , including : merchandising and marketing initiatives featuring truly original products that have helped drive increased average order value and gross profit margins , efforts in manufacturing , sourcing and shipping that have helped absorb rising commodity and fuel costs and enhanced operating cost leverage , and investments in innovation for the future , including its industry leading efforts in social and mobile arenas , bloomnet and franchising programs in consumer floral and fannie may . the company believes these efforts , and others underway , will help continue the positive trends seen in the business as the company deepens its relationships with its customers , helping them deliver smiles , and build shareholder value . story_separator_special_tag excluding the impact of the acquisitions and new license agreements noted above , net of the impact of the fannie may store sales , and adjusting for the 53 rd week in fiscal 2011 , the company 's revenues increased by 5.2 % during the fiscal year ended july 1 , 2012. during the fiscal year ended july 3 , 2011 revenues increased by 2.8 % over the prior year period , as a result of growth across all categories , including the consumer floral category , reversing the trend after two years of revenue declines . e-commerce revenues ( combined online and telephonic ) increased by 6.1 % and 3.3 % during the years ended july 1 , 2012 and july 3 , 2011 , respectively . the company fulfilled approximately 8.3 million , 8.1 million and 8.4 million e-commerce orders during fiscal 2012 , 2011 and 2010 , respectively , while increasing the average order value to $ 62.45 in fiscal 2012 compared to $ 59.58 in fiscal 2011 and $ 55.71 in fiscal 2010. revenue growth was attributed to improved merchandising programs , including the development of innovative and original products such as the expanded line of a-dog-ables , designed to `` wow '' our customers ' gift recipients and our `` never settle for less '' marketing campaigns , which also enabled the company to reduce its promotional activities . other revenues , comprised of the company 's bloomnet wire service category , as well as the wholesale and retail channels of its consumer floral and gourmet food and gift baskets categories , increased by 8.0 % and 1.5 % during fiscal 2012 and fiscal 2011 , respectively , in comparison to the prior year periods primarily as a result of the aforementioned sales growth in the bloomnet wire service 36 business , as well as the contributions from flowerama , a floral franchise operation purchased in august 2011. additionally , during the second quarter of fiscal 2012 , the company completed a 62-store franchise agreement between fannie may and gb chocolates . the agreement includes development rights for 45 new stores to be opened over the next three years in several mid-west states as well as specific cities in florida and ohio , as well as the sale of 17 existing fannie may retail stores located in areas outside of its core chicago market . while the sale of these stores reduced our revenues in comparison to prior year periods , it provides a platform for our franchisor to successfully complete its fannie may development plan , while providing the company with future revenue streams through franchise and area development fees and product sales . the consumer floral category includes the operations of the 1-800-flowers brand which derives revenue from the sale of consumer floral products through its e-commerce sales channels ( telephonic and online sales ) and royalties from its franchise operations , as well as the operations of fine stationery , an e-commerce retailer of personalized stationery , invitations and announcements . net revenues during the fiscal years ended july 1 , 2012 and july 3 , 2011 increased by 7.9 % and 0.7 % over the respective prior year periods , due to a combination of increased order volumes and a higher average order value , driven by enhanced marketing and merchandising programs that encourage our customers to `` wow '' their gift recipients and `` never settle for less . '' fiscal 2012 also benefited from the better tuesday date placement of the valentine 's day holiday , compared to monday in fiscal 2011 , and sunday in fiscal 2010 , as well as the revenue contributions of several small acquisitions , including fine stationery in may 2011 and flowerama in august 2011 , offset in part by the impact of the 53 rd week in fiscal 2011. for the fiscal year ended july 1 , 2012 , revenue growth for the consumer floral category , excluding the impact of the above acquisitions and the 53 rd week in fiscal 2011 , was approximately 5.6 % . the bloomnet wire service category includes revenues from membership fees as well as other product and service offerings to florists . net revenues during the fiscal years ended july 1 , 2012 and july 3 , 2011 increased by 12.7 % and 18.4 % over the respective prior years , primarily as a result of increased shop-to-shop order volume and wholesale product sales . while this order volume positively impacts revenues , at the present time , the impact on gross margin and contribution margin is significantly less than bloomnet 's normal margin . however , bloomnet has begun to monetize this increased order volume through increasing membership , technology , services and product fees . the gourmet food & gift baskets category includes the operations of 1-800-baskets , cheryl 's ( which includes mrs. beasley 's ) , fannie may confections , the popcorn factory , winetasting.com , stockyards.com and designpac businesses . revenue is derived from the sale of gift baskets , cookies , baked gifts , premium chocolates and confections , gourmet popcorn , wine gifts and prime steaks and chops through its e-commerce sales channels ( telephonic and online sales ) and company-owned and operated retail stores under the cheryl 's and fannie may brand names , royalties from fannie may franchise operations , as well as wholesale operations . net revenue during the fiscal year ended july 1 , 2012 and july 3 , 2011 , increased by 3.2 % and 1.7 % , respectively , in comparison to the prior years .

quarterly results of operations the following table provides unaudited quarterly consolidated results of operations for each quarter of fiscal years 2012 and 2011. the company believes this unaudited information has been prepared substantially on the same basis as the annual audited consolidated financial statements and all necessary adjustments , consisting of only normal recurring adjustments , have been included in the amounts stated below to present fairly the company 's results of operations . the operating results for any quarter are not necessarily indicative of the operating results for any future period . replace_table_token_18_th the company 's quarterly results may experience seasonal fluctuations . due to the company 's expansion into non-floral products , the thanksgiving through christmas holiday season , which falls 43 within the company 's second fiscal quarter , generates the highest proportion of the company 's annual revenues . additionally , as the result of a number of major floral gifting occasions , including mother 's day and administrative professionals week , revenues also rise during the company 's fiscal fourth quarter . the easter holiday was in the company 's fourth quarter during fiscal 2011 and 2012 , but will fall in the third quarter of fiscal 2013. liquidity and capital resources at july 1 , 2012 , the company had working capital of $ 29.7 million , including cash and equivalents of $ 28.9 million , compared to working capital of $ 17.3 million , including cash and equivalents of $ 21.4 million , at july 3 , 2011. net cash provided by operating activities of $ 40.2 million for the fiscal year ended july 1 , 2012 was primarily related to net income , adjusted for the gain on the sale of the company 's wine fulfillment services business in september 2011 , non-cash charges for depreciation and amortization , deferred income taxes , and stock-based compensation , offset in part by increases in working capital , including inventory , accounts receivable and prepaid expenses due to expanded wholesale activities .

current and planned operations currently , the company has to travel to and from its only office in north dakota to the mid-west to bid and compete for sales . the company hopes to expand operations by opening a satellite office in the mid-western region whereby it could aggressively bid on projects easier and more efficiently . the company also plans to mitigate the uncertainty of the u.s. economy by increasing its customer base to include mid-sized grocery chains as well . the large national supermarket chains usually remodel their stores every four to six years . the company has noticed that national chains will more typically begin remodeling projects in the second half of the year , with completion before the holiday season . the majority of the company 's revenues are derived from super valu , inc or associated wholesale grocers which are two of many interior grocery store décor design companies . the duration of the contracts awarded can range anywhere from one week to one month , depending on how large the store is . it normally takes 21 to 30 days upon completion of projects to be paid in full . expanding the company 's market reach and physical presence is the key to its continued growth . because current adm staff is limited by geographic considerations when bidding for jobs , it is necessary to provide more staff in more regions . below is a list of planned district offices for the company and the geographical areas they will serve . through the company 's efforts to go public and enter the equities markets , the company is seeking to secure additional funds from outside investors to execute its planned expanded operations in the near future . the company has not entered into any agreements , verbal or written , with regards to securing additional funding necessary to finance planned future operations . moreover , there are no agreements in place with any officer of the company nor with outside entities to fund the company if it were to have a shortfall in capital . it is estimated that each of the company 's five targeted expansion areas will require approximately $ 200,000 each in startup capital for a total of $ 1,000,000 over a two-year rollout period . bismarck , north dakota will continue to remain the headquarters for the company . because approximately 80 % of the company 's current clients come from the kansas city area , this is the first area targeted for expansion . district location geographic area target date kansas city , mo missouri , kansas , oklahoma , arkansas march 1 , 2019 minneapolis , mn minnesota , iowa , wisconsin , northern illinois , and the up of michigan september 1 , 2019 denver , co colorado , wyoming , western nebraska , and western kansas march 1 , 2020 chicago , il illinois , indiana , michigan , and eastern wisconsin september 1 , 2020 spokane , wa washington , california , idaho , and montana march 1 , 2021 8 the company hopes this expansion will result in large revenue gains over the next three years . as each new location becomes self-sufficient , revenues will grow proportionately . in order to ensure each location is self-sufficient as quickly as possible , the company will implement an expansion plan company wide , including the following practices : ● a full technological update , which will include the installation of a computer network with its main server located in bismarck , north dakota . each outlying location will have a computer station so as to centralize each location . the headquarters will continue to be responsible for all accounting , billing , tracking , administrative , and management activities . each location will simply provide data inputs of current activity to keep data current at all times . comparison of the year ended december 31 , 2017 to the year ended december 31 , 2016 story_separator_special_tag text-align : center '' > revenue recognition the company recognizes revenue for our services in accordance with asc 605-10 , “ revenue recognition in financial statements. ” under these guidelines , revenue is recognized on transactions when all of the following exist : persuasive evidence of an arrangement did exist , delivery of service has occurred , the sales price to the buyer is fixed or determinable and collectability is reasonably assured . the company has one revenue stream of providing installation services to grocery decor design companies . stock-based compensation the company accounts for stock-based instruments issued to employees in accordance with asc topic 718. asc topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees . the company accounts for non-employee share-based awards in accordance with asc topic 505-50. the value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method . the company estimates the fair value of each stock option at the grant date by using the black-scholes option-pricing model . the company estimates the fair value of each stock option at the grant date by using the black-scholes option-pricing model . recently issued accounting pronouncements we have decided to take advantage of the exemptions provided to emerging growth companies under the jobs act and as a result our financial statements may not be comparable to companies that comply with public company effective dates . we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies , including not being required to comply with the auditor attestation requirements of section 404 of the sarbanes-oxley act , delay compliance with new or revised accounting standards that have different effective dates for public and private companies until they are made applicable to private story_separator_special_tag current and planned operations currently , the company has to travel to and from its only office in north dakota to the mid-west to bid and compete for sales . the company hopes to expand operations by opening a satellite office in the mid-western region whereby it could aggressively bid on projects easier and more efficiently . the company also plans to mitigate the uncertainty of the u.s. economy by increasing its customer base to include mid-sized grocery chains as well . the large national supermarket chains usually remodel their stores every four to six years . the company has noticed that national chains will more typically begin remodeling projects in the second half of the year , with completion before the holiday season . the majority of the company 's revenues are derived from super valu , inc or associated wholesale grocers which are two of many interior grocery store décor design companies . the duration of the contracts awarded can range anywhere from one week to one month , depending on how large the store is . it normally takes 21 to 30 days upon completion of projects to be paid in full . expanding the company 's market reach and physical presence is the key to its continued growth . because current adm staff is limited by geographic considerations when bidding for jobs , it is necessary to provide more staff in more regions . below is a list of planned district offices for the company and the geographical areas they will serve . through the company 's efforts to go public and enter the equities markets , the company is seeking to secure additional funds from outside investors to execute its planned expanded operations in the near future . the company has not entered into any agreements , verbal or written , with regards to securing additional funding necessary to finance planned future operations . moreover , there are no agreements in place with any officer of the company nor with outside entities to fund the company if it were to have a shortfall in capital . it is estimated that each of the company 's five targeted expansion areas will require approximately $ 200,000 each in startup capital for a total of $ 1,000,000 over a two-year rollout period . bismarck , north dakota will continue to remain the headquarters for the company . because approximately 80 % of the company 's current clients come from the kansas city area , this is the first area targeted for expansion . district location geographic area target date kansas city , mo missouri , kansas , oklahoma , arkansas march 1 , 2019 minneapolis , mn minnesota , iowa , wisconsin , northern illinois , and the up of michigan september 1 , 2019 denver , co colorado , wyoming , western nebraska , and western kansas march 1 , 2020 chicago , il illinois , indiana , michigan , and eastern wisconsin september 1 , 2020 spokane , wa washington , california , idaho , and montana march 1 , 2021 8 the company hopes this expansion will result in large revenue gains over the next three years . as each new location becomes self-sufficient , revenues will grow proportionately . in order to ensure each location is self-sufficient as quickly as possible , the company will implement an expansion plan company wide , including the following practices : ● a full technological update , which will include the installation of a computer network with its main server located in bismarck , north dakota . each outlying location will have a computer station so as to centralize each location . the headquarters will continue to be responsible for all accounting , billing , tracking , administrative , and management activities . each location will simply provide data inputs of current activity to keep data current at all times . comparison of the year ended december 31 , 2017 to the year ended december 31 , 2016 story_separator_special_tag text-align : center '' > revenue recognition the company recognizes revenue for our services in accordance with asc 605-10 , “ revenue recognition in financial statements. ” under these guidelines , revenue is recognized on transactions when all of the following exist : persuasive evidence of an arrangement did exist , delivery of service has occurred , the sales price to the buyer is fixed or determinable and collectability is reasonably assured . the company has one revenue stream of providing installation services to grocery decor design companies . stock-based compensation the company accounts for stock-based instruments issued to employees in accordance with asc topic 718. asc topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees . the company accounts for non-employee share-based awards in accordance with asc topic 505-50. the value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method . the company estimates the fair value of each stock option at the grant date by using the black-scholes option-pricing model . the company estimates the fair value of each stock option at the grant date by using the black-scholes option-pricing model . recently issued accounting pronouncements we have decided to take advantage of the exemptions provided to emerging growth companies under the jobs act and as a result our financial statements may not be comparable to companies that comply with public company effective dates . we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies , including not being required to comply with the auditor attestation requirements of section 404 of the sarbanes-oxley act , delay compliance with new or revised accounting standards that have different effective dates for public and private companies until they are made applicable to private

results of operations revenue for the year ended december 31 , 2017 , the company had revenues of $ 159,836 compared to $ 189,406 for the same period in 2016. the decrease in revenue of $ 29,570 , or 15.6 % , is primarily due to reduction in customers during the 4 th quarter of 2017. cost of revenues the cost of revenues for the year ended december 31 , 2017 was $ 27,156 compared to $ 53,290 for the same period in 2016. cost of revenues for 2017 was 17.0 % of revenue compared to 28.1 % of revenue for 2016. the primary cause of the decrease in the cost revenue was due to the decrease in revenues whereas the decrease in the percent of revenue was primarily due to increased efficiencies . general and administrative expenses the general and administrative expenses was $ 808,013 for the year ended december 31 , 2017 compared to $ 900,911 for the same period in 2016. the expenses decreased in 2017 primarily due to the decrease in consulting expenses in 2017. net loss the net loss for the year ended december 31 , 2017 was $ 688,165 compared to $ 771,946 for the same period in 2016. liquidity and capital resources general at december 31 , 2017 , we had cash of $ 9,356. we have historically met our cash needs through a combination of cash flows from operating activities and proceeds from loans and financing by our officers and directors . our cash requirements are generally for selling , general and administrative activities . we believe that our cash balance is not sufficient to finance our cash requirements for expected operational activities , capital improvements , and partial repayment of debt through the next 12 months .

the following is a schedule by years of the future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of december 31 , 2015 ( in thousands ) : replace_table_token_24_th ( b ) operating leases the company has certain facility leases with terms ranging between one and five years . lease expense is recognized on a straight-line basis . rental expense for operating leases during the years ended december 31 , 2015 , 2014 and 2013 , was $ 1.7 million , $ 1.2 million , and $ 766,000 respectively , including those with terms less than one year , and has been included in both research and development and general and administration in the consolidated statements of operations . f-12 newlink genetics corporation and subsidiaries notes to consolidated financial statements future minimum lease payments under the noncancelable operating leases ( with initial or remaining lease terms in excess of one year ) as of december 31 , 2015 are as follows ( in thousands ) : replace_table_token_25_th 4. long-term debt and conversion to royalty obligation march 2005 iowa department of economic development loan in march 2005 , the company entered into a $ 6.0 million forgivable loan agreement with the iowa department of economic development , or the ided . under the agreement , in the absence of default , there were no principal or interest payments due until the completion date for the project . the balance outstanding under the loan agreement was $ 6.0 million as of december 31 , 2011. this loan was converted story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included in part ii , item 8 of this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . as a result of many factors , such as those set forth under “ risk factors ” and elsewhere in this annual report on form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . you should not place undue reliance on these forward-looking statements , which apply only as of the date of this annual report on form 10-k. except as required by law , we assume no obligation to update these forward-looking statements publicly , or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements , even if new information becomes available in the future . you should read this annual report on form 10-k and the documents that we reference in this annual report on form 10-k completely . overview we are a biopharmaceutical company focused on discovering , developing and commercializing novel immunotherapeutic products to improve treatment options for patients with cancer . our portfolio includes biologic and small-molecule immuno-oncology product candidates intended to treat a wide range of oncology indications . our biologic product candidates are based on our proprietary hyperacute ® cellular immunotherapy technology , which is designed to stimulate the human immune system . algenpantucel-l is our most clinically advanced product candidate from this platform with two phase 3 clinical trials ongoing for patients with pancreatic cancer , one of which is expected to read out data during 2016. our additional hyperacute cellular immunotherapy product candidates in clinical development include tergenpumatucel-l and dorgenmeltucel-l for patients with advanced lung cancer and melanoma , respectively . additional product candidates are also under development for patients with other types of cancer . additionally , we have two small-molecule product candidates currently in clinical development , gdc-0919 and indoximod , which target key immune checkpoints . these product candidates are ido pathway inhibitors and focus on breaking the immune system 's tolerance to cancer . we believe that our immuno-oncology technologies have the potential to lead to multiple product candidates , targeting a wide range of oncology indications that could be used either alone or in combination with other therapies . our hyperacute cellular immunotherapy platform consists of novel biologic product candidates designed to stimulate the patient 's immune system to recognize and attack cancer cells . to date , our hyperacute cellular immunotherapy platform product candidates have been administered to more than 700 patients with cancer , either as a monotherapy or in combination with other treatments and have been generally well tolerated with limited grade 3/4 adverse events . hyperacute cellular immunotherapy product candidates are composed of human cancer cell lines that are tumor specific , but not patient specific . these cells have been modified to express alpha-gal , a carbohydrate for which humans have preexisting immunity . these alpha-gal-modified cancer cells are designed to stimulate an immune response against cancer cells . the objective of hyperacute cellular immunotherapy is to elicit an antitumor response by “ educating ” the immune system to attack a patient 's own cancer cells . hyperacute cellular immunotherapies do not require any tissue from individual patients and use intact whole cells rather than cell fragments or purified proteins . we believe these unique properties of our hyperacute cellular immunotherapy product candidates have the potential to result in the stimulation of a robust immune response in patients with cancer . our most advanced program , algenpantucel-l , which utilizes our hyperacute cellular immunotherapy technology , is being studied in two randomized phase 3 clinical trials . our first phase 3 clinical trial , impress ( immunotherapy for pancreatic resectable cancer survival study ) completed enrollment of 722 patients with surgically resected pancreatic cancer . the primary endpoint for our impress trial is overall survival . we expect to report primary impress results during 2016. our second phase 3 clinical trial , pillar ( pancreatic immunotherapy with algenpantucel-l for locally advanced non-resectable disease ) , has completed enrollment with over 300 patients . the primary endpoint for our pillar trial is overall survival . we initiated these trials based on encouraging phase 2 data that suggest potential to improve both disease-free and overall survival . story_separator_special_tag in addition to milestone payments from merck , the company was awarded contracts for development of the rvsv-zebov rom the biomedical research & development agency , or barda , and the defense threat reduction agency , or dtra , totaling $ 67.0 million during 2014 and 2015. in july 2015 , we announced that the international partnership studying the rvsv-zebov vaccine candidate in guinea released interim data suggesting that it is effective in the prevention of ebola disease in a large phase 3 clinical trial . according to the announcement , the interim results suggest that the vaccine candidate demonstrates efficacy within about 10 days 72 of administration to a person without the infection . the rvsv-zebov product candidate will continue to be studied in clinical trials . in february 2016 , we announced our initiative to develop a vaccine against the zika virus . we believe that the experience gained in the development of our ebola vaccine candidate will give us an advantage in this program . we had a net loss of $ 40.4 million for the year ended december 31 , 2015 . we expect our losses to increase over the next several years as we advance our product candidates through late-stage clinical trials , pursue regulatory approval of our product candidates , and expand our commercialization activities in anticipation of one or more of our product candidates receiving marketing approval . financial overview revenues we have never earned revenue from commercial sales of any of our product candidates . we generated revenues of $ 68.5 million for the year ended december 31 , 2015 . we had grant revenues of $ 32.4 million attributable to revenues earned for the performance of research and development under contracts and grants with the department of defense , or dod , and barda . we also earned license and collaboration revenues of $ 36.1 million which consisted of revenues recognized under the license and collaboration agreements with merck and genentech that we entered into during 2014 , and a milestone payment of $ 20.0 million from merck in february 2015. in the future , we may generate revenue from a variety of sources , including product sales if we develop products which are approved for sale , license fees , milestones , research and development and royalty payments in connection with strategic collaborations or government contracts , or licenses of our intellectual property . we expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees , research and development reimbursements , milestone and other payments we may receive under potential strategic collaborations , and the amount and timing of payments we may receive upon the sale of any products , if approved , to the extent any are successfully commercialized . we do not expect to generate revenue from product sales for several years , if ever . if we fail to complete the development of our product candidates in a timely manner or to obtain regulatory approval for them , our ability to generate future revenue , and our results of operations and financial position , would be materially adversely affected . research and development expenses research and development expenses consist of expenses incurred in connection with the discovery and development of our product candidates . these expenses consist primarily of : employee-related expenses , which include salaries , bonuses , benefits and share-based compensation ; the cost of acquiring and manufacturing clinical trial materials ; expenses incurred under agreements with contract research organizations , investigative sites and consultants that conduct our clinical trials and a substantial portion of our preclinical studies ; facilities , depreciation of fixed assets and other allocated expenses , which include direct and allocated expenses for rent and maintenance of research facilities and equipment ; license fees for and milestone payments related to in-licensed products and technology ; and costs associated with non-clinical activities and regulatory approvals . we expense research and development expenses as incurred . product candidates in late stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size , duration and complexity of later stage clinical trials . we plan to increase our research and development expenses for the foreseeable future as we seek to complete development of our most advanced product candidates , and to further advance our earlier-stage research and development projects . for the years ended december 31 , 2015 , 2014 and 2013 we incurred $ 71.4 million , $ 35.7 million , and $ 22.7 million , respectively , in research and development expenses . the following tables summarize our research and development expenses for the periods indicated : 73 replace_table_token_9_th replace_table_token_10_th at this time , we can not accurately estimate or know the nature , specific timing or costs necessary to complete clinical development activities for our product candidates . we are subject to the numerous risks and uncertainties associated with developing biopharmaceutical products including the uncertain cost and outcome of ongoing and planned clinical trials , the possibility that the fda or another regulatory authority may require us to conduct clinical or non-clinical testing in addition to trials that we have planned , rapid and significant technological changes , frequent new product and service introductions and enhancements , evolving industry standards in the life sciences industry and our future need for additional capital . in addition , we currently have limited clinical data concerning the safety and efficacy of our product candidates . a change in the outcome of any of these variables with respect to the development of any of our product candidates could result in a significant change in the costs and timing of our research and development expenses . general and administrative expenses general and administrative expenses consist principally of salaries and related costs for personnel in executive , finance , business development , information technology , legal and human resources functions .

results of operations comparison of the years ended december 31 , 2015 and 2014 revenues . revenues for the year ended december 31 , 2015 were $ 68.5 million , as compared to $ 172.6 million in 2014 , a decrease of $ 104.1 million . licensing and collaboration revenues decreased by $ 129.8 million in 2015. in 2014 , we received an upfront payment from genentech for $ 150.0 million and an upfront payment from merck for $ 30.0 million . our licensing and collaboration revenues decreased in 2015 as we did not receive similar upfront payments . licensing and collaboration revenues in 2015 are comprised primarily of a merck milestone payment received in february 2015 for $ 20.0 million and revenues recognized 78 in 2015 that were previously deferred as of december 31 , 2014. grant revenues increased by $ 25.7 million primarily due to revenues received under our barda government contract for our work with the ebola vaccine . research and development expenses . research and development expenses for the year ended december 31 , 2015 were $ 71.4 million , increasing from $ 35.7 million for the same period in 2014 . the $ 35.7 million increase was due to an $ 11.2 million increase in outside clinical and other expenses , a $ 11.4 million increase relating to contract manufacturing costs for our clinical trials and the ebola vaccine product candidate , a $ 4.0 million increase in supplies and equipment , and a $ 7.6 million increase in personnel-related expenses due to increased staffing levels and compensation increases . the remaining $ 1.5 million increase is due to increases in supplies and equipment-related expenses incurred for our clinical trial activities . general and administrative expenses .

-46- report of independent registered public accounting firm board of directors and stockholders atrion corporation we have audited atrion corporation 's internal control over financial reporting as of december 31 , 2011 , based on criteria established in internal control—integrated framework issued by the committee of sponsoring organizations of the treadway commission ( coso ) . atrion corporation 's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting , included in the accompanying management 's report on internal control over financial reporting . our responsibility is to express an opinion on atrion corporation 's internal control over financial reporting based on our audit . we conducted our audit in accordance with the standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects . our audit included obtaining an understanding of internal control over financial reporting , assessing the risk that a material weakness exists , testing and evaluating the design and operating effectiveness of internal control based on the assessed risk , and performing such other procedures as we considered necessary in the circumstances . we believe that our audit provides a reasonable basis for our opinion . a company 's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles . a company 's internal control over financial reporting includes those policies and procedures that ( 1 ) pertain to the maintenance of story_separator_special_tag overview we develop and manufacture products primarily for medical applications . we market components to other equipment manufacturers for incorporation in their products and sell finished devices to physicians , hospitals , clinics and other treatment centers . our medical products primarily serve the fluid delivery , cardiovascular , and ophthalmology markets . our other medical and non-medical products include instrumentation and disposables used in dialysis and valves and inflation devices used in marine and aviation safety products . in 2011 approximately 42 percent of our sales were outside the united states . our products are used in a wide variety of applications by numerous customers . we encounter competition in all of our markets and compete primarily on the basis of product quality , price , engineering , customer service and delivery time . -17- our strategy is to provide a broad selection of products in the areas of our expertise . research and development efforts are focused on improving current products and developing highly-engineered products that meet customer needs in niche markets that are large enough to provide meaningful increases in sales . proposed new products may be subject to regulatory clearance or approval prior to commercialization and the time period for introducing a new product to the marketplace can be unpredictable . we also focus on controlling costs by investing in modern manufacturing technologies and controlling purchasing processes . we have been successful in consistently generating cash from operations and have used that cash to reduce indebtedness , to fund capital expenditures , to make investment purchases , to repurchase stock and to pay dividends . our strategic objective is to further enhance our position in our served markets by : · focusing on customer needs ; · expanding existing product lines and developing new products ; · maintaining a culture of controlling cost ; and · preserving and fostering a collaborative , entrepreneurial management structure . for the year ended december 31 , 2011 , we reported revenues of $ 117.7 million , operating income of $ 38.2 million and net income of $ 26.0 million . story_separator_special_tag operations and for major capital projects or acquisitions , subject to certain limitations and restrictions . borrowings under the credit facility bear interest that is payable monthly at 30-day , 60-day or 90-day libor , as selected by us , plus one percent . from time to time prior to october 1 , 2016 and assuming an event of default is not then existing , we can convert outstanding advances under the revolving line of credit to term loans with a term of up to two years . we had no outstanding borrowings under our credit facility at december 31 , 2011 or at december 31 , 2010. the credit facility contains various restrictive covenants , none of which is expected to impact our liquidity or capital resources . at december 31 , 2011 , we were in compliance with all financial covenants . we believe that the bank providing the credit facility is highly-rated and that the entire $ 40.0 million under the credit facility is currently available to us . if that bank were unable to provide such funds , we believe that such inability would not impact our ability to fund operations . -19- at december 31 , 2011 , we had a total of $ 55.3 million in cash and cash equivalents , short-term investments and long-term investments , an increase of $ 13.6 million from december 31 , 2010. the principal contributor to this increase was the cash generated by operating activities , which was partially offset by payments for acquisitions of property , plant and equipment and the payment of dividends . cash flows provided by operations of $ 30.7 million in 2011 were primarily comprised of net income plus the net effect of non-cash expenses less net changes in working capital items . inventories were the primary contributors to the negative net change in working capital items . the change in inventories was primarily related to increased stocking levels necessary to mitigate a supplier risk , to assure uninterrupted deliveries and to ensure high customer service levels . story_separator_special_tag in making determinations of likely outcomes of litigation matters , we consider the evaluation of legal counsel knowledgeable about each matter , case law and other case-specific issues . we believe these accruals are adequate to cover the legal fees and expenses associated with litigating these matters . however , the time and cost required to litigate these matters as well as the outcomes of the proceedings may vary from what we have projected . -21- we maintain an allowance for doubtful accounts to reflect estimated losses resulting from the failure of customers to make required payments . on an ongoing basis , the collectability of accounts receivable is assessed based upon historical collection trends , current economic factors and the assessment of the collectability of specific accounts . we evaluate the collectability of specific accounts and determine when to grant credit to our customers using a combination of factors , including the age of the outstanding balances , evaluation of customers ' current and past financial condition , recent payment history , current economic environment , and discussions with our personnel and with the customers directly . accounts are written off when it is determined the receivable will not be collected . if circumstances change , our estimates of the collectability of amounts could be changed by a material amount . we are required to estimate our provision for income taxes and uncertain tax positions in each of the jurisdictions in which we operate . this process involves estimating our actual current tax exposure , including assessing the risks associated with tax audits , together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included within the balance sheet . we 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 , do not establish a valuation allowance . in the event that actual results differ from these estimates , the provision for income taxes could be materially impacted . we assess the impairment of our long-lived identifiable assets , excluding goodwill which is tested for impairment as explained below , whenever events or changes in circumstances indicate that the carrying value may not be recoverable . this review is based upon projections of anticipated future cash flows . although we believe that our estimates of future cash flows are reasonable , different assumptions regarding such cash flows or future changes in our business plan could materially affect our evaluations . no such changes are anticipated at this time . we assess goodwill for impairment pursuant to asc 350 , intangibles—goodwill and other , which requires that goodwill be assessed whenever events or changes in circumstances indicate that the carrying value may not be recoverable , or , at a minimum , on an annual basis by applying a fair value test . during 2009 , 2010 and 2011 , none of our critical accounting policy estimates required significant adjustments . we did not note any material events or changes in circumstances indicating that the carrying value of long-lived assets were not recoverable . quantitative and qualitative disclosures about market risks foreign exchange risk we are not exposed to material fluctuations in currency exchange rates because the payments from our international customers are received primarily in united states dollars . principal and interest rate risk our cash equivalents and short-term and long-term investments consist of money-market accounts and taxable high-grade corporate bonds . our investment policy is to seek to manage these assets to achieve the goal of preserving principal , maintaining adequate liquidity at all times , and maximizing returns subject to established investment guidelines . in general , the primary exposure to market risk is interest rate sensitivity . this means that a change in prevailing interest rates may cause the value of and the return on the investment to fluctuate . in recent years , there has been concern in the credit markets regarding the value of a variety of mortgage-backed securities and the resultant effect on various securities markets . we believe that our cash , cash equivalents , and investments do not have significant risk of default or illiquidity . however , our cash equivalents and investments may be subject to adverse changes in market value . -22- forward-looking statements statements in this management 's discussion and analysis and elsewhere in this form 10-k that are forward-looking are based upon current expectations , and actual results or future events may differ materially . therefore , the inclusion of such forward-looking information should not be regarded as a representation by us that our objectives or plans will be achieved . such statements include , but are not limited to , our expectations regarding our research and development expenditures in 2012 , our 2012 effective tax rate , our ability to obtain component parts in the event of a supply disruption , shipments in 2012 to a large customer which had excess inventory at the end of 2011 , earnings in 2012 , a return to double-digit annual growth in earnings per share in 2013 , our 2012 capital expenditures , funding future dividend payments with cash flows from operations , availability of equity and debt financing , our ability to meet our cash requirements for the foreseeable future , our ability to fund operations if the bank providing our credit facility were unable to lend funds to us , the impact on our consolidated financial statement of recently issued accounting standards when we adopt those standards , and increases in 2012 in cash , cash equivalents and investments . words such as “ expects , ” “ believes , ” “ anticipates , ” “ intends , ” “ should , ” “ plans , ” and variations of such words and similar expressions are intended to

results of operations our net income was $ 26.0 million , or $ 12.90 per basic and $ 12.82 per diluted share , in 2011 , compared to net income of $ 21.0 million , or $ 10.38 per basic and $ 10.32 per diluted share , in 2010 and net income of $ 16.8 million , or $ 8.51 per basic and $ 8.36 per diluted share , in 2009. the 2009 results included a $ 643,000 net of tax settlement charge , or $ 0.32 per diluted share , related to the termination of our defined benefit pension plans . revenues were $ 117.7 million in 2011 , compared with $ 108.6 million in 2010 and $ 100.6 million in 2009. the 8 percent revenue increases in 2011 over 2010 and in 2010 over 2009 were generally attributable to higher sales volumes . annual revenues by product lines were as follows ( in thousands ) : replace_table_token_3_th our cost of goods sold was $ 57.7 million in each of 2011 and 2010 and $ 55.3 million in 2009. increased sales volume , increased material costs , and increased manufacturing overhead costs were the primary contributors to the 4 percent increase in cost of goods sold for 2010 over 2009. gross profit in 2011 increased $ 9.1 million to $ 60.0 million , compared with $ 50.9 million in 2010 and $ 45.3 million in 2009. our gross profit was 51 percent of revenues in 2011 , 47 percent of revenues in 2010 and 45 percent of revenues in 2009. the increases in gross profit percentage in each of 2011 and 2010 from the prior year were primarily due to a favorable product mix , improvements in manufacturing efficiencies and the impact of cost-savings projects .

beneficial ownership is determined in accordance with the rules of the securities and exchange commission and generally includes voting or investment power with respect to securities . shares of common stock and options , warrants and convertible securities that are currently exercisable or convertible within 60 days of the date of this document into shares of free flow 's common stock are deemed to be outstanding and to be beneficially owned by the person holding the options , warrants or convertible securities for the purpose of computing the percentage ownership of the person , but are not treated as outstanding for the purpose of computing the percentage ownership of any other person . there are currently 100,000,000 common shares authorized of which 26,200,000 are outstanding at march 4 , 2017 the following sets forth information with respect to our common stock beneficially owned by each officer and director , and by all directors and officers as a group as of december 31 , 2016. replace_table_token_11_th ( 1 ) address is c/o free flow , inc. , 2301 woodland crossing dr. , suite # 155 , herndon , va 20171 . ( 2 ) mr. saleem is an officer , director and or beneficial shareholder of redfield holdings , ltd. redfield holdings , ltd. holds 19,995,000 shares of common stock . ( 3 ) each share of preferred share - series a stock carries voting rights equal to ten thousand ( 10,000 ) votes . redfield holdings , ltd. holds 10,000 shares of preferred shares - series a stock . mr. saleem is an officer , director and or beneficial shareholder of redfield holdings , ltd. as of december 31 , 2016 , 10,000 preferred shares - series a stock was issued and outstanding . 27 item 13. certain relationships and related transactions , and director independence other than the transactions discussed below , we have not entered into any transaction nor are there any proposed transactions in which any of our founders , directors , executive officers , shareholders or any members of the immediate family of any of the foregoing had or is to have a direct or indirect material interest . item 14. principal accounting fees and services east west accounting services , llc ( “ eastwest ” ) is the company 's principal auditing accountant firm . the company 's board of directors has considered whether the provisions of audit services are compatible with maintaining east west 's independence . the engagement of our independent registered public accounting firm was approved by our of our board directors prior to the start of the audit of our consolidated financial statements for the years ended december 31 , 2016. the following table represents aggregate fees billed to the company for the years ended december 31 , 2016 by east west accounting services , llc and anton & chia , cpa the former auditors ; 2015 by paritz & co. cpa ( the former auditors ) . replace_table_token_12_th all audit work was performed by the auditors ' full time employees . 28 part iv item 15. exhibits , financial statement schedules the following is a complete list of exhibits filed as part of this form 10k . exhibit number corresponds to the numbers in the exhibit table of item 601 of regulation s-k. replace_table_token_13_th * filed as exhibits with the company 's s-1 registration statement filed with the securities and exchange commission ( www.sec.gov ) , dated march 6 , 2012 . ( 1 ) pursuant to rule 406t of regulation s-t , this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the securities act of 1933 , is deemed not filed for purposes of section 18 of the securities exchange act of 1934 , and otherwise is not subject to liability under these sections . 29 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized free flow , inc. sabir saleem march 31 , 2017 sabir saleem ( chief executive officer/principal executive officer & principal accounting officer ) pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . sabir saleem march 31 , 2017 sabir saleem , director fernandino ferrara march 31 , 2017 fernandino ferrara , director 30 story_separator_special_tag managements ' discussion and analysis the following discussion should be read in conjunction with our audited consolidated financial statements and notes thereto included herein . this discussion contains forward-looking statements , such as statements relating to our financial condition , results of operations , plans , objectives , future performance and business operations . these statements relate to expectations concerning matters that are not historical facts . these forward-looking statements reflect our current views and expectations based largely upon the information currently available to us and are subject to inherent risks and uncertainties . although we believe our expectations are based on reasonable assumptions , they are not guarantees of future performance and there are a number of important factors that 6 could cause actual results to differ materially from those expressed or implied by such forward-looking statements . by making these forward-looking statements , we do not undertake to update them in any manner except as may be required by our disclosure obligations in filings we make with the securities and exchange commission under the federal securities laws . our actual results may differ materially from our forward-looking statements the independent registered public accounting firm 's report on the company 's financial statements as of december 31 , 2016 includes a `` going concern '' explanatory paragraph that describes substantial doubt about the company story_separator_special_tag beneficial ownership is determined in accordance with the rules of the securities and exchange commission and generally includes voting or investment power with respect to securities . shares of common stock and options , warrants and convertible securities that are currently exercisable or convertible within 60 days of the date of this document into shares of free flow 's common stock are deemed to be outstanding and to be beneficially owned by the person holding the options , warrants or convertible securities for the purpose of computing the percentage ownership of the person , but are not treated as outstanding for the purpose of computing the percentage ownership of any other person . there are currently 100,000,000 common shares authorized of which 26,200,000 are outstanding at march 4 , 2017 the following sets forth information with respect to our common stock beneficially owned by each officer and director , and by all directors and officers as a group as of december 31 , 2016. replace_table_token_11_th ( 1 ) address is c/o free flow , inc. , 2301 woodland crossing dr. , suite # 155 , herndon , va 20171 . ( 2 ) mr. saleem is an officer , director and or beneficial shareholder of redfield holdings , ltd. redfield holdings , ltd. holds 19,995,000 shares of common stock . ( 3 ) each share of preferred share - series a stock carries voting rights equal to ten thousand ( 10,000 ) votes . redfield holdings , ltd. holds 10,000 shares of preferred shares - series a stock . mr. saleem is an officer , director and or beneficial shareholder of redfield holdings , ltd. as of december 31 , 2016 , 10,000 preferred shares - series a stock was issued and outstanding . 27 item 13. certain relationships and related transactions , and director independence other than the transactions discussed below , we have not entered into any transaction nor are there any proposed transactions in which any of our founders , directors , executive officers , shareholders or any members of the immediate family of any of the foregoing had or is to have a direct or indirect material interest . item 14. principal accounting fees and services east west accounting services , llc ( “ eastwest ” ) is the company 's principal auditing accountant firm . the company 's board of directors has considered whether the provisions of audit services are compatible with maintaining east west 's independence . the engagement of our independent registered public accounting firm was approved by our of our board directors prior to the start of the audit of our consolidated financial statements for the years ended december 31 , 2016. the following table represents aggregate fees billed to the company for the years ended december 31 , 2016 by east west accounting services , llc and anton & chia , cpa the former auditors ; 2015 by paritz & co. cpa ( the former auditors ) . replace_table_token_12_th all audit work was performed by the auditors ' full time employees . 28 part iv item 15. exhibits , financial statement schedules the following is a complete list of exhibits filed as part of this form 10k . exhibit number corresponds to the numbers in the exhibit table of item 601 of regulation s-k. replace_table_token_13_th * filed as exhibits with the company 's s-1 registration statement filed with the securities and exchange commission ( www.sec.gov ) , dated march 6 , 2012 . ( 1 ) pursuant to rule 406t of regulation s-t , this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the securities act of 1933 , is deemed not filed for purposes of section 18 of the securities exchange act of 1934 , and otherwise is not subject to liability under these sections . 29 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized free flow , inc. sabir saleem march 31 , 2017 sabir saleem ( chief executive officer/principal executive officer & principal accounting officer ) pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . sabir saleem march 31 , 2017 sabir saleem , director fernandino ferrara march 31 , 2017 fernandino ferrara , director 30 story_separator_special_tag managements ' discussion and analysis the following discussion should be read in conjunction with our audited consolidated financial statements and notes thereto included herein . this discussion contains forward-looking statements , such as statements relating to our financial condition , results of operations , plans , objectives , future performance and business operations . these statements relate to expectations concerning matters that are not historical facts . these forward-looking statements reflect our current views and expectations based largely upon the information currently available to us and are subject to inherent risks and uncertainties . although we believe our expectations are based on reasonable assumptions , they are not guarantees of future performance and there are a number of important factors that 6 could cause actual results to differ materially from those expressed or implied by such forward-looking statements . by making these forward-looking statements , we do not undertake to update them in any manner except as may be required by our disclosure obligations in filings we make with the securities and exchange commission under the federal securities laws . our actual results may differ materially from our forward-looking statements the independent registered public accounting firm 's report on the company 's financial statements as of december 31 , 2016 includes a `` going concern '' explanatory paragraph that describes substantial doubt about the company

results of operations for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 during the year ended december 31 , 2016 , the company recognized $ 551,181 in gross revenues . during the year ended december 31 , 2015 , the company recognized no revenues . during the year ended december 31 , 2016 , the company incurred operational expenses of $ 315,153. during the year ended december 31 , 2015 , the company incurred operational expenses of $ 81,092. the increase of approximately $ 234,000 was primarily a result of an increase in salary and other operating expenses . during the year ended december 31 , 2016 , the company recognized a net profit of approximately $ 134,000 compared to a net loss of $ 417,325 during the year ended december 31 , 2015. liquidity the independent registered public accounting firm 's report on the company 's financial statements as of december 31 , 2016 and for each of the years in the two-year period then ended , including a “ going concern ” explanatory paragraph that raises substantial doubt about the company 's ability to continue as a going concern . at december 31 , 2016 , the company had total current assets of $ 274,357 consisting of $ 3,718 in cash , advance for prepaid expense for purchase of parts of $ 14,224 , inventory of $ 200,060 , pre-paid rent for the jk sales , facility of $ 48,600 and trade receivables of $ 7,755 from a number of customers . at december 31 , 2016 , total current liabilities were $ 203,930 consisting of $ 73,156 in accounts payable and notes payable to related party of $ 130,773. during the year ended december 31 , 2016 , the company used $ 132,412 in funds in its operational activities .

the company generally owns the land and building or secures long-term leases for both company-operated and conventional franchised restaurant sites . this maintains long-term occupancy rights , helps control related costs and assists in alignment with franchisees enabling restaurant performance levels that are among the highest in the industry . in certain circumstances , the company participates in the reinvestment for conventional franchised restaurants in an effort to accelerate implementation of certain initiatives . under mcdonald 's developmental license arrangement , licensees provide capital for the entire business , including the real estate interest , and the company generally has no capital invested . in addition , the company has an equity investment in a limited number of affiliates that invest in real estate and operate or franchise restaurants within a market . mcdonald 's is primarily a franchisor and believes franchising is paramount to delivering great-tasting food , locally-relevant customer experiences and driving profitability . franchising enables an individual to be his or her own employer and maintain control over all employment-related matters , marketing and pricing decisions , while also benefiting from the financial strength and global experience of mcdonald 's . however , directly operating restaurants is important to being a credible franchisor and provides company personnel with restaurant operations experience . in company-operated restaurants , and in collaboration with franchisees , mcdonald 's further develops and refines operating standards , marketing concepts and product and pricing strategies , so that only those that the company believes are most beneficial are introduced in the restaurants . mcdonald 's continually reviews its mix of company-operated and franchised restaurants to help optimize overall performance , with a goal to be approximately 95 % franchised over the long term . the company 's revenues consist of sales by company-operated restaurants and fees from restaurants operated by franchisees . revenues from conventional franchised restaurants include rent and royalties based on a percent of sales along with minimum rent payments , and initial fees . revenues from restaurants licensed to affiliates and developmental licensees include a royalty based on a percent of sales , and generally include initial fees . fees vary by type of site , amount of company investment , if any , and local business conditions . these fees , along with occupancy and operating rights , are stipulated in franchise/license agreements that generally have 20-year terms . the business is structured into the following segments that combine markets with similar characteristics and opportunities for growth , and reflect how management reviews and evaluates operating performance : u.s. - the company 's largest segment . international lead markets - established markets including australia , canada , france , germany , the u.k. and related markets . high growth markets - markets that the company believes have relatively higher restaurant expansion and franchising potential including china , italy , korea , the netherlands , poland , russia , spain , switzerland and related markets . foundational markets & corporate - the remaining markets in the mcdonald 's system , each of which the company believes have the potential to operate under a largely franchised model . corporate activities are also reported within this segment . for the year ended december 31 , 2016 , the u.s. , international lead markets and high growth markets accounted for 34 % , 29 % and 25 % of total revenues , respectively . in analyzing business trends , management reviews results on a constant currency basis and considers a variety of performance and financial measures which are considered to be non-gaap , including comparable sales and comparable guest count growth , systemwide sales growth , return on incremental invested capital ( `` roiic '' ) , free cash flow and free cash flow conversion rate , as described below . constant currency results exclude the effects of foreign currency translation and are calculated by translating current year results at prior year average exchange rates . management reviews and analyzes business results in constant currencies and bases most incentive compensation plans on these results because the company believes this better represents its underlying business trends . comparable sales and comparable guest counts are key performance indicators used within the retail industry and are indicative of the impact of the company 's initiatives as well as local economic and consumer trends . increases or decreases in comparable sales and comparable guest counts represent the percent change in sales and transactions , respectively , from the same period in the prior year for all restaurants , whether operated by the company or franchisees , in operation at least thirteen months , including those temporarily closed . some of the reasons restaurants may be temporarily closed include reimaging or remodeling , rebuilding , road construction and natural disasters . comparable sales exclude the impact of currency translation . comparable sales are driven by changes in guest counts and average check , which is affected by changes in pricing and product mix . typically , pricing has a greater impact on average check than product mix . the goal is to achieve a relatively balanced contribution from both guest counts and average check . systemwide sales include sales at all restaurants . while franchised sales are not recorded as revenues by the company , management believes the information is important in understanding the company 's financial performance because these sales are the basis on which the company calculates and records franchised revenues and are indicative of the financial health of the franchisee base . roiic is a measure reviewed by management over one-year and three-year time periods to evaluate the overall profitability of the markets , the effectiveness of capital deployed and the future allocation of capital . the return is calculated by dividing the change in operating income plus depreciation and amortization ( numerator ) by the cash used for investing activities ( denominator ) , primarily capital expenditures . the calculation uses a constant average mcdonald 's corporation 2016 annual report 13 foreign exchange rate over the periods included in the calculation . story_separator_special_tag operating margin , defined as operating income as a percent of total revenues , increased from 28.1 % in 2015 to 31.5 % in 2016. diluted earnings per share of $ 5.44 increased 13 % ( 16 % in constant currencies ) . cash provided by operations was $ 6.1 billion . capital expenditures of $ 1.8 billion were allocated mainly to reinvestment in existing restaurants and , to a lesser extent , to new restaurant openings . across the system , about 900 14 mcdonald 's corporation 2016 annual report restaurants were opened and over 1,700 existing locations were reimaged . free cash flow was $ 4.2 billion and the company 's free cash flow conversion rate was 90 % ( see reconciliation in exhibit 12 ) . one-year roiic was 62.7 % and three-year roiic was 5.1 % for the period ended december 31 , 2016 ( see reconciliation in exhibit 12 ) . the company increased its quarterly cash dividend per share by 6 % to $ 0.94 for the fourth quarter , equivalent to an annual dividend of $ 3.76 per share . the company returned $ 14.2 billion to shareholders through dividends and share repurchases for the year , achieving the company 's targeted return of $ 30 billion for the three-year period ended 2016. strategic direction building on the momentum established in 2016 , the company is beginning to shift focus from revitalizing the business to longer-term growth . the company will move with increased velocity to drive sustainable guest count growth , a reliable long-term measure of the company 's strength that is vital to growing the company 's sales and shareholder value . in order to drive guest count growth in an ever-changing customer environment , the company developed a customer-centric growth strategy for 2017 and beyond , informed by deep customer research across multiple markets . the company 's greatest opportunities are at the heart of the brand - in its food , value and customer experience - and within defined customer groups . this strategy is built on the following three pillars , which will position mcdonald 's as a modern and progressive burger company that `` makes delicious , feel good moments easy for everyone . '' retaining existing customers . the company will renew its focus on areas where the company already has a strong foothold in the ieo , including family occasions and food-led breakfast . regaining lost customers . the company plans to regain customers by recommitting to areas of historic strength , namely quality , convenience and value . converting casual to committed customers . the company will focus on building stronger relationships with customers so they visit more often , by elevating and leveraging the mccafé coffee brand and enhancing snack and treat offerings . the company will continue to build upon its investments in experience of the future ( `` eotf '' ) , which focuses on restaurant modernization and technology , in order to transform the restaurant service experience . the company is also accelerating its pursuit of the following two initiatives designed to further drive growth . digital . as the company accelerates its pace of converting restaurants to eotf , it is placing renewed emphasis on improving its existing service model ( i.e. , eat in , take out , or drive-thru ) and strengthening its relationships with customers through technology . by evolving the technology platform , the company will simplify how customers order , pay and are served through additional functionality on its global mobile app , self-order kiosks and technology-driven models that enable table service and curb-side pick-up . delivery . the company is accelerating its focus and investment on its delivery platform as a way to expand the convenience customers expect from mcdonald 's . the company is conducting various pilot tests in the u.s. , europe and asia and plans to scale quickly based on results of these pilots . areas of focus by segment u.s. while the u.s. has begun to build sales momentum , its greatest opportunity is guest count growth , by focusing on actions that collectively transform the customer experience . a focus on food taste and quality will remain a key priority , including offering the company 's best tasting burger . in 2017 , the u.s. is planning to introduce its signature crafted offering , a premium platform focused on authentic ingredients that allows customers to customize their sandwiches . in addition , the u.s. will remain focused on strengthening its customer-relevant value proposition . the u.s. expects to launch its mobile order and pay functionality as well as curbside pick-up across all traditional restaurants in the fourth quarter 2017. further , most of the system 's traditional restaurants are expected to be converted to eotf by 2020. in addition , the u.s. will continue to test its delivery platform . international lead markets the international lead markets are deepening their connection with customers and meeting their changing needs with meaningful enhancements in menu , accessibility and experience . the segment is focused on providing quality , great taste , value and choice across the entire menu . entry-level value programs appeal to teens and young adults , while other platforms provide budget-conscious customers affordable meal bundles . programs across the segment are energizing the core menu , and every market has successfully extended into premium chicken and beef with locally relevant offerings . all of this is supported by modernized cooking and service platforms that expand capacity and enable hotter , fresher products . the segment will also remain focused on enhancing and expanding the mccafé coffee brand and pastry offerings . the international lead markets continues to lead the mcdonald 's system in the development and deployment of eotf . high growth markets mcdonald 's high growth markets have leveraged learnings from the international lead markets to enhance the customer experience through design , digital , people , menu innovation and value .

consolidated operating results replace_table_token_4_th n/m not meaningful impact of foreign currency translation on reported results while changes in foreign currency exchange rates affect reported results , mcdonald 's mitigates exposures , where practical , by purchasing goods and services in local currencies , financing in local currencies and hedging certain foreign-denominated cash flows . foreign currency translation had a negative impact on consolidated operating results in each of the last three years . in 2016 , results were negatively impacted by the weaker british pound as well as many other currencies . in 2015 , results were negatively impacted by the weaker euro , australian dollar , russian ruble and most other currencies . in 2014 , results were negatively impacted by the weaker russian ruble , australian dollar and certain other currencies , partly offset by the stronger british pound . impact of foreign currency translation on reported results replace_table_token_5_th net income and diluted earnings per common share in 2016 , net income increased 3 % ( 6 % in constant currencies ) to $ 4.7 billion and diluted earnings per common share increased 13 % ( 16 % in constant currencies ) to $ 5.44 . foreign currency translation had a negative impact of $ 0.11 on diluted earnings per share . in 2015 , net income decreased 5 % ( increased 5 % in constant currencies ) to $ 4.5 billion and diluted earnings per common share was relatively flat ( increased 10 % in constant currencies ) at $ 4.80 . foreign currency translation had a negative impact of $ 0.50 on diluted earnings per share .

options generally vest monthly over a period of four years and unexercised options generally expire ten years from the date of grant . the authority of vermillion 's board of directors to grant new stock options and awards under the 2000 plan terminated in 2010. options to purchase 15,000 and 125,000 shares of common stock were exercised during the years ended december 31 , 2014 and 2013 , respectively . as of december 31 , 2013 , options to purchase 57,900 shares of common stock remained outstanding under the 2000 plan . no additional shares of common stock were reserved for future option grants under the 2000 plan . 2010 stock incentive plan under the 2010 plan , employees , directors and consultants of the company are eligible to receive awards . the 2010 plan is administered by the compensation committee of the vermillion board of directors . the 2010 plan permits the granting of a variety of awards , including stock options , share appreciation rights , restricted shares , restricted share units , unrestricted shares , deferred share units , performance and cash-settled awards , and dividend equivalent rights . the 2010 plan originally provided for issuance of up to 1,322,983 shares of vermillion common stock , subject to adjustment as provided in the 2010 plan . on december 12 , 2013 , the company 's stockholders approved an increase of 2,300,000 in the number of shares available for issuance under the 2010 plan for a total of 3,622,983 shares . unexercised options generally expire ten years from the date of grant . options to purchase 163,490 and 246,348 shares of common stock were exercised during the year ended december 31 , 2014 and 2013 , respectively . during the year ended december 31 , 2014 , the company issued to the vermillion board of directors 103,500 shares of restricted stock from the 2010 plan having a fair value of $ 320,000 as payment for services rendered in 2014. during the year ended december 31 , 2013 , the company issued to the vermillion board of directors 160,938 shares of restricted stock from the 2010 plan having a fair value of $ 334,000 as payment for services rendered in 2013. f- 14 the activity related to shares available for grant under the 2000 plan and the 2010 plan for the years ended december 31 , 2014 and 2013 was as follows : replace_table_token_13_th the stock option activity under the 2000 plan and 2010 plan for the years ended december 31 , 2014 and 2013 was as follows : replace_table_token_14_th the range of exercise prices for options outstanding and exercisable at december 31 , 2014 is as follows : f- 15 replace_table_token_15_th replace_table_token_16_th stock-based compensation employee stock-based story_separator_special_tag story_separator_special_tag name= '' _cp_text_1_243 '' > 125 - ii or other tests that quest diagnostics offers . in december 2013 , the cms made its final determination and authorized medicare contractors to set prices for maaa test cpt codes when they determine it is payable . cms also validated that an algorithm has unique value by specifying that the gap-fill process and not cross-walk should be used by contractors to price maaa tests . we expect ova1 to be priced using the gap-fill method . we will be engaged in that process in 2015 for pricing effective january 1 , 2016 . this decision also sets a precedent for recognizing the value of biomarker developed tests and recognizing tests on the value they bring to clinical decision-making and healthcare efficiencies . critical accounting policies and estimates our significant accounting policies are described in note 1 , basis for presentation and summary of significant accounting and reporting policies , of the notes to the consolidated financial statements included in this annual report on form 10-k. the consolidated financial statements are prepared in conformity with generally accepted accounting principles in the united states of america ( “ gaap ” ) . preparation of the financial statements requires us to make judgments , estimates , and assumptions that affect the amounts of assets and liabilities in the financial statements and revenues and expenses during the reporting periods ( and related disclosures ) . we believe the policies discussed below are the company 's critical accounting policies , as they include the more significant , subjective , and complex judgments and estimates made when preparing our consolidated financial statements revenue recognition product revenue . the company derives product revenues from sales of ova1 through quest diagnostics and aspira labs . product revenues are recognized for tests performed when the following revenue recognition criteria are met : ( 1 ) persuasive evidence that an arrangement exists ; ( 2 ) delivery has occurred or services have been rendered ; ( 3 ) the fee is fixed or determinable ; and ( 4 ) collectability is reasonably assured . as the company has not established sufficient payment history with the ins urance companies or private pay e rs for the tests performed at aspira labs , payment is not fixed or determinable and collectability is not reasonably assured , and we will defer recognizing revenues until those criteria are met , which typically coincides with the collection of cash . once we establish a reliable payment history , we plan to return to normal accrual revenue recognition based on our criteria discussed above . license revenue . under the terms of the secured line of credit with quest diagnostics , portions of the borrowed principal amounts may be forgiven upon our achievement of certain milestones relating to the development , regulatory approval and commercialization of certain diagnostic tests . we account ed for forgiveness of principal debt balances as license revenues over the term of the exclusive sales period that quest diagnostics receive d upon commercialization of an approved diagnostic test as we d id 30 not have a sufficient history of product sales that provided a reasonable basis for estimating future product sales . story_separator_special_tag the accounting standard is effective for annual periods ending after december 15 , 2016 and interim periods thereafter . early adoption is permitted . upon adoption , management will evaluate the company 's ability to continue as a going concern based on this guidance . in june 2014 , the fasb issued asu no . 2014-12 , “ accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period , ” ( asu 2014-12 ) . asu 2014-12 requires that a performance target that affects vesting , and that could be achieved after the requisite service period , be treated as a performance condition . as such , the performance target should not be reflected in estimating the grant date fair value of the award . this update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period ( s ) for which the requisite service has already been rendered . the amendments in asu 2014-12 are effective for annual periods and interim periods beginning after december 15 , 2015. early adoption is permitted . entities may apply the amendments in asu 2014-12 either : ( a ) prospectively to all awards granted or modified after the effective date ; or ( b ) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter . the adoption of this standard is not expected to have a material effect on our financial statements . in may 2014 , the fasb issued asu 2014-09 , “ revenue from contracts with customers , ” ( asu 2014-09 ) , which creates a new topic , accounting standards codification topic 606. the standard is principle-based and provides a five-step model to determine when and how revenue is recognized . the core principle of asu 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . the accounting standard is effective for annual and interim periods beginning after december 15 , 2016 , using either of the following transition methods : ( i ) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical ex p edients , or ( ii ) a retrospective approach with the cumulative effect of initially adopting asu 2014-09 recognized at the date of adoption . early adoption is not permitted . we are currently evaluating the impact and the method of adopting this standard . 32 results of operations – year ended december 31 , 201 4 as compared to year ended december 31 , 201 3 the selected summary financial and operating data of vermillion for the years ended december 31 , 201 4 and 201 3 were as follows : replace_table_token_2_th product revenue . product revenue was $ 2,067 ,000 for the year ended december 31 , 201 4 compared to $ 2,112 ,000 for the same period in 201 3 . we recognized product revenue for the year ended december 31 , 201 4 for the sale of ova1 through quest diagnostics . our total ova1 volume was 16,839 for 2014. this was comprised of 16,427 tests performed by quest diagnostics and 412 ova1 tests performed by aspira labs . there were approximately 17,004 ova1 tests performed during the year ended december 31 , 201 3 . product revenue for aspira labs tests are recognized on the cash basis and thus 2014 revenue was insignificant . we recognized $ 1,2 27 ,000 of deferred revenue in 201 4 upon receipt of an annual royalty report from quest diagnostics compared to $ 1,262 ,000 for 201 3 . the 201 4 annual royalty report of $ 1,2 27 ,000 was based upon 16 , 563 ova1 tests reported by quest diagnostics as resolved in 201 4 , or an average of $ 75 per test resolved . the resolved volume includes both reimbursed and unreimbursed tests for which the payment status was considered final by quest diagnostics as of december 31 , 201 4 . by comparison , the 201 3 annual royalty report of $ 1,262 ,000 was based upon 16,745 ova1 tests reported by quest diagnostics as resolved in 201 3 . the royalty report revenue is incremental to the fixed $ 50 per test recognized for each ova1 performed during the year . based upon the new agreement with quest diagnostics effective march 11 , 2015 , we expect to recognize revenue for ova1 test s performed by quest diagnostics in the period in which the test is performed . 33 cost of revenue . cost of product revenue for the year ended december 31 , 2014 increased $ 1,060,000 compared to the same period in 2013. cost of product revenue for the year ended december 31 , 2014 primarily consists of costs of aspira labs incurred after the lab began accepting test samples on june 23 , 2014 and includes approximately $ 250,000 of non-recurring lab start-up costs . we expect cost of revenue to increase in future periods as sample throughput increases and as we complete the aspira labs buildout . research and development expenses . research and development expenses represent costs incurred to develop our technology and carry out clinical studies , and include personnel-related expenses , regulatory costs , reagents and supplies used in research and development laboratory work , infrastructure expenses , contract services and other outside costs .

dition and results of operation s you should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes thereto , included on pages f-1 through f- 19 of this annual report on form 10-k , and “ risk factors ” , which are discussed in item 1a . the statements below contain forward-looking statements within the meaning of the private securities litigation reform act . see `` forward-looking statements '' on page 1 of this annual report on form 10-k. overview we are dedicated to the discovery , development and commercialization of novel high-value diagnostic and bio-analytical solutions that help physicians diagnose , treat and improve outcomes for women . our tests are intended to detect , characterize and stage disease , and to help guide decisions regarding patient treatment , which may include decisions to refer patients to specialists , to perform additional testing , or to assist in monitoring response to therapy . a distinctive feature of our approach is to combine multiple markers into a single , reportable index score that has higher diagnostic accuracy than its constituents . we concentrate on our development of novel diagnostic tests for gynecologic disease , with an initial focus on ovarian cancer . we also intend to address clinical questions related to early disease detection , treatment response , monitoring of disease progression , prognosis and others through collaborations with leading academic and research institutions . our lead product , ova1 , is a blood test designed to identify women who are at high risk of having a malignant ovarian tumor prior to surgery . the fda cleared ova1 in september 2009 , and we commercially launched ova1 in march 2010. we have completed development and validation work on a second-generation biomarker panel intended to maintain our product 's high sensitivity while improving specificity .

revenue derived from the transaction-based fee contracts are recognized when the underlying transaction is processed , which constitutes delivery story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( “md & a” ) covers : ( i ) the results of operations for the years ended december 31 , 2014 , 2013 and 2012 ; and ( ii ) the financial condition as of december 31 , 2014 and 2013. see note 1 of the notes to audited consolidated financial statements for additional information about the company and the basis of presentation of our financial statements . you should read the following discussion and analysis in conjunction with the financial statements and related notes appearing elsewhere herein . this md & a contains forward-looking statements that involve risks and uncertainties . our actual results may differ from those indicated in the forward-looking statements . see “forward-looking statements” for a discussion of the risks , uncertainties and assumptions associated with these statements . overview evertec is the leading full-service transaction processing business in latin america , providing a broad range of merchant acquiring , payment processing and business process management services . according to the july 2014 nilson report , we are the largest merchant acquirer in the caribbean and central america and one of the largest in latin america , based on total number of transactions . we serve 19 countries in the region from our base in puerto rico . we manage a system of electronic payment networks that process more than two billion transactions annually , and offer a comprehensive suite of services for core bank processing , cash processing and technology outsourcing . in addition , we own and operate the ath network , one of the leading personal identification number ( “pin” ) debit networks in latin america . we serve a diversified customer base of leading financial institutions , merchants , corporations and government agencies with “mission-critical” technology solutions that enable them to issue , process and accept transactions securely . we believe our business is well-positioned to continue to expand across the fast-growing latin american region . we are differentiated , in part , by our diversified business model , which enables us to provide our varied customer base with a broad range of transaction-processing services from a single source across numerous channels and geographic markets . we believe this single-source capability provides several competitive advantages that will enable us to continue to penetrate our existing customer base with complementary new services , win new customers , develop new sales channels and enter new markets . we believe these competitive advantages include : our ability to provide in one package a range of services that traditionally had to be sourced from different vendors ; our ability to serve customers with disparate operations in several geographies with a single integrated technology solution that enables them to manage their business as one enterprise ; and our ability to capture and analyze data across the transaction processing value chain and use that data to provide value-added services that are differentiated from those offered by pure-play vendors that serve only one portion of the transaction processing value chain ( such as only merchant acquiring or payment processing ) . our broad suite of services spans the entire transaction processing value chain and includes a range of front-end customer-facing solutions such as the electronic capture and authorization of transactions at the point-of-sale , as well as back-end support services such as the clearing and settlement of transactions and account reconciliation for card issuers . these include : ( i ) merchant acquiring services , which enable point of sales ( “pos” ) and e-commerce merchants to accept and process electronic methods of payment such as debit , credit , prepaid and electronic benefit transfer ( “ebt” ) cards ; ( ii ) payment processing services , which enable financial institutions and other issuers to manage , support and facilitate the processing for credit , debit , prepaid , automated teller machines ( “atm” ) and ebt card programs ; and ( iii ) business process management solutions , which provide “mission-critical” technology solutions such as core bank processing , as well as it outsourcing and cash 42 index to financial statements management services to financial institutions , corporations and governments . we provide these services through a highly scalable , end-to-end technology platform that we manage and operate in-house and that generates significant operating efficiencies that enable us to maximize profitability . we sell and distribute our services primarily through a proprietary direct sales force with strong customer relationships . we are also building a variety of indirect sales channels that enable us to leverage the distribution capabilities of partners in adjacent markets , including value-added resellers . and we continue to pursue joint ventures and merchant acquiring alliances . we benefit from an attractive business model , the hallmarks of which are recurring revenue , scalability , significant operating margins and low capital expenditure requirements . our revenue is recurring in nature because of the mission-critical and embedded nature of the services we provide , the high switching costs associated with these services and the multi-year contracts we negotiate with our customers . our business model enables us to continue to grow our business organically without significant additional capital expenditures . separation from and key relationship with popular prior to the merger on september 30 , 2010 , evertec group was 100 % owned by popular , the largest financial institution in the caribbean , and operated substantially as an independent entity within popular . after the consummation of the merger , popular retained an approximately 49 % indirect ownership interest in evertec group and is our largest customer . in connection with , and upon consummation of , the merger , evertec group entered into a 15-year master services agreement , and several related agreements with popular . story_separator_special_tag for multiple deliverable arrangements , we evaluate each distinct arrangement to determine if the elements or deliverables within the arrangement represent separate units of accounting pursuant to asc 605-25. if the deliverables are determined to be separate units of accounting , revenues are recognized as units of accounting are 44 index to financial statements delivered and the revenue recognition criteria are met . if the deliverables are not determined to be separate units of accounting , revenues for the delivered services are combined into one unit of accounting and recognized ( i ) over the life of the arrangement if all services are consistently delivered over such term , or if otherwise , ( ii ) at the time that all services and deliverables have been delivered . the selling price for each deliverable is based on vendor-specific objective evidence ( vsoe ) , if available ; on third-party evidence ( tpe ) if vsoe is not available ; or on management 's best estimate of selling price ( besp ) if neither vsoe nor tpe is available . we establish vsoe of selling price using the price charged when the same element is sold separately . we bifurcate or allocate the arrangement consideration to each of the deliverables based on the relative selling price of each unit of accounting . we have two main categories of revenues according to the type of transactions we enter into with our customers : ( a ) transaction-based fees and ( b ) fixed fees and time and material . transaction-based fees we provide services that generate transaction-based fees . typically transaction-based fees depend on factors such as number of accounts or transactions processed . these factors typically consist of a fee per transaction or item processed , a percentage of dollar volume processed , a fee per account on file , or some combination thereof . revenues derived from the transaction-based fee contracts is recognized when the underlying transaction is processed , which constitutes delivery of service . revenues from business contracts in our merchant acquiring segment comprise discounted fees charged to the merchants based on the sales amount of transactions processed . revenues include a discount fee , membership fees charged to merchants , debit network fees , and pos rental fees . pursuant to the guidance from asc 605-45-45 , “ revenue recognition—principal agent considerations , ” we record merchant acquiring revenues net of interchange and assessments charged by the credit and debit card network associations and we recognize such revenues at the time of the sale ( when a transaction is processed ) . payment processing comprises revenues related to providing financial institutions access to the ath network and other card networks , and related services . payment processing revenues also include revenues from card issuer processing services ( such as credit and debit card processing , authorization and settlement , and fraud monitoring and control to debit or credit card issuers ) ; payment processing services ( such as payment and billing products for merchants , businesses and financial institutions ) ; and ebt ( which mostly consists of services to the puerto rico government for the delivery of government benefits to participants ) . revenues in our payment processing segment are mostly comprised of fees per transaction processed or per account on file , or a combination of both ; this revenue is recognized at the time transactions are processed or on a monthly basis for accounts on file . business solutions revenues consist of transaction-based fees from business process management solutions including core bank processing , business process outsourcing , item and cash processing , and fulfillment . transaction-based fee revenues generated by our core bank processing services are derived from fees based on various factors such as the number of accounts on file ( e.g. , savings or checking accounts , loans , etc . ) , and the number of transactions processed or registered users ( e.g. , for online banking services ) . for services dependent on the number of transactions processed , revenues are recognized as the underlying transactions are processed . for services dependent on the number of users or accounts on file , revenues are recognized on a monthly basis based on the number of accounts on file each month . item and cash processing revenues are based on the number of items ( e.g . checks ) processed , and revenues are recognized when the underlying item is processed . fulfillment services include technical and operational resources for producing and distributing variable print documents such as statements , bills , checks and benefits summaries . fulfillment revenues are based on the number pages for printing services and number of envelopes processed for mailing services . revenues are recognized as services are delivered based on a fee per page printed or envelope mailed , as applicable . 45 index to financial statements fixed fees and time and material we also provide services that generate a fixed fee per month or fees based on time and expenses incurred . these services are mostly provided in our business solutions segment . revenues are generated from our core bank solutions , network hosting and management and it consulting services . in core bank solutions , we mostly provide access to applications and services such as back-up or recovery , hosting and maintenance that enable a bank to operate the related hosted services accessing our it infrastructure . these contracts generally contain multiple elements or deliverables evaluated by us . revenues are recognized according to the applicable guidance . revenues are derived from fixed fees charged for the use of hosted services and are recognized on a monthly basis as delivered .

results of operations the following tables set forth certain consolidated financial information for the years ended december 31 , 2014 , 2013 and 2012. these tables and the related discussion should be read in conjunction with the information contained in our audited consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k. certain prior period balances have been reclassified to conform to the current presentation format which did not have any impact on net income . comparison of the years ended december 31 , 2014 and 2013 the following tables present the components of our audited consolidated statements of income ( loss ) and comprehensive income ( loss ) by business segment and the change in those amounts for the years ended december 31 , 2014 and 2013. revenues replace_table_token_6_th total revenues for the year ended december 31 , 2014 were $ 361.1 million , an increase of $ 3.1 million or 1 % compared with 2013. merchant acquiring revenues increased $ 5.5 million or 7 % compared with 2013. the revenue growth was primarily the result of an increase in transaction volumes of 19.44 million . payment processing revenues grew $ 5.3 million or 5 % compared with 2013. revenue growth was driven mainly by an increase of $ 3.0 million in our card products business resulting from higher accounts on file due to new customer additions in our latin america operations and by an increase in ath and pos network and processing transactions . business solutions revenues decreased $ 7.7 million or 4 % compared with 2013. the decrease is almost entirely attributable to a decline in hardware and software sales of $ 10.3 million , partially offset by an increase in demand for core banking and other services of $ 2.7 million .

in some cases , you can identify forward-looking statements by terms such as “ may , ” “ will , ” “ should , ” “ expect , ” “ plan , ” “ intend , ” “ forecast , ” “ anticipate , ” “ believe , ” “ estimate , ” “ predict , ” “ potential , ” “ continue ” or the negative of these terms or other comparable terminology . the forward-looking statements contained in this form 10-k involve known and unknown risks , uncertainties and situations that may cause our or our industry 's actual results , level of activity , performance or achievements to be materially different from any future results , levels of activity , performance or achievements expressed or implied by these statements . these forward-looking statements are made in reliance upon the safe harbor provision of the private securities litigation reform act of 1995. these factors include those listed in part i , item 1a under the caption entitled “ risk factors ” in this form 10-k and those discussed elsewhere in this form 10-k. unless the context otherwise requires , references in this form 10-k to “ copart , ” the “ company , ” “ we , ” “ us , ” or “ our ” refer to copart , inc. we encourage investors to review these factors carefully together with the other matters referred to herein , as well as in the other documents we file with the securities and exchange commission ( the sec ) . we may from time to time make additional written and oral forward-looking statements , including statements contained in our filings with the sec . we do not undertake to update any forward-looking statement that may be made from time to time by or on behalf of us . all references to numbered notes are to specific notes to our consolidated financial statements included in this annual report on form 10-k and which descriptions are incorporated into the applicable response by reference . capitalized terms used , but not defined , in this management 's discussion and analysis of financial condition and results of operation ( “ md & a ” ) have the same meanings as in such notes . overview we are a leading provider of online auctions and vehicle remarketing services in the united states ( u.s. ) , canada , the united kingdom ( u.k. ) , brazil , the united arab emirates ( u.a.e . ) , oman , bahrain , ireland , spain and india . we also provide vehicle remarketing services in germany and spain . we provide vehicle sellers with a full range of services to process and sell vehicles primarily over the internet through our virtual bidding third generation internet auction-style sales technology , which we refer to as vb3 . vehicle sellers consist primarily of insurance companies , but also include banks and financial institutions , charities , car dealerships , fleet operators and vehicle rental companies . we sell the vehicles principally to licensed vehicle dismantlers , rebuilders , repair licensees , used vehicle dealers and exporters and , at certain locations , to the general public . the majority of the vehicles sold on behalf of insurance companies are either damaged vehicles deemed a total loss or not economically repairable by the insurance companies , or are recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made . we offer vehicle sellers a full range of services that expedite each stage of the vehicle sales process , minimize administrative and processing costs , and maximize the ultimate sales price . in the u.s. , canada , brazil , the u.a.e. , oman , bahrain , ireland , spain and india , we sell vehicles primarily as an agent and derive revenue primarily from fees paid by vehicle sellers and vehicle buyers as well as related fees for services , such as towing and storage . in the u.k. , we operate both on a principal basis , purchasing the salvage vehicles outright from the insurance companies and reselling the vehicles for our own account , and as an agent . in germany and spain , we derive revenue from sales listing fees for listing vehicles on behalf of many insurance companies . we monitor and analyze a number of key financial performance indicators in order to manage our business and evaluate our financial and operating performance . such indicators include : service and vehicle sales revenue : our revenue consists of sales transaction fees charged to vehicle sellers and vehicle buyers , transportation revenue , purchased vehicle revenue , and other remarketing services . revenues from sellers are generally generated either on a fixed fee contract basis , where our fees are fixed based on the sale of each vehicle regardless of the selling price of the vehicle or under our percentage incentive program ( pip ) , where our fees are generally based on a predetermined percentage of the vehicle sales price . under the consignment or fixed fee program , we generally charge an additional fee for title processing and special preparation . we may also charge additional fees for the cost of transporting the vehicle to our facility , storage of the vehicle , and other incidental costs not included in the consignment fee . under the consignment program , 31 only the fees associated with vehicle processing are recorded in revenue , not the actual sales price ( gross proceeds ) . sales transaction fees also include fees charged to vehicle buyers for purchasing vehicles , storage , loading , and annual registration . transportation revenue includes charges to sellers for towing vehicles under certain contracts and towing charges assessed to buyers for delivering vehicles . story_separator_special_tag 32 the following table sets forth facilities that we have acquired or opened from august 1 , 2013 through july 31 , 2016 : locations acquisition or greenfield date geographic service area seaford , delaware greenfield july 2014 united states dallas , texas greenfield march 2016 united states wilmer , texas greenfield april 2016 united states temple , texas greenfield april 2016 united states colorado springs , colorado greenfield may 2016 united states denver , colorado greenfield july 2016 united states cartersville , georgia greenfield july 2016 united states montreal , quebec acquisition november 2013 canada moncton , new brunswick greenfield july 2015 canada itaquaquecetuba , brazil ( são paulo ) greenfield january 2014 brazil algete , spain ( madrid ) greenfield july 2016 spain manama , bahrain greenfield may 2015 bahrain muscat , oman greenfield june 2015 oman sonepat , india ( new delhi ) greenfield october 2015 india castledermot , ireland greenfield april 2016 ireland the period-to-period comparability of our consolidated operating results and financial position is affected by business acquisitions , new openings , weather and product introductions during such periods . in particular , we have certain contracts inherited through our u.k. acquisitions that require us to act as a principal , purchasing vehicles from the insurance companies and reselling them for our own account . it has been our practice and remains our intention , where possible , to migrate these contracts to the agency model in future periods . changes in the amount of revenue derived in a period from principal transactions relative to total revenue will impact revenue growth and margin percentages . in addition to growth through business acquisitions , we seek to increase revenues and profitability by , among other things , ( i ) acquiring and developing additional vehicle storage facilities in key markets ; ( ii ) pursuing national and regional vehicle seller agreements ; ( iii ) increasing our service offerings to sellers and members ; and ( iv ) expanding the application of vb3 into new markets . in addition , we implement our pricing structure and auction procedures , and attempt to introduce cost efficiencies at each of our acquired facilities by implementing our operational procedures , integrating our management information systems , and redeploying personnel , when necessary . 33 story_separator_special_tag 2015 of $ 38.1 million , or 21.8 % as compared to fiscal 2014 came from ( i ) a decline in international of $ 30.4 million , which included the beneficial impact of $ 4.1 million due to changes in foreign currency exchange rates , primarily from the change in the british pound to u.s. dollar exchange rate , and ( ii ) a decline in the u.s. of $ 7.7 million . the decline in international resulted primarily from decreased volume in the u.k. from insurance sellers and lower average purchase prices , driven by decreased insurance volume and increased open market purchase activity from the general public . the decline in the u.s. was primarily the result of decreased open market purchase activity from the general public and lower average purchase prices . the following table presents a comparison of general and administrative expenses for fiscal 2016 , 2015 and 2014 : replace_table_token_10_th 36 general and administrative expenses . the decrease in general and administrative expenses for fiscal 2016 of $ 0.9 million , or 0.6 % as compared to fiscal 2015 came primarily from a decrease in the u.s. of $ 1.8 million , partially offset by an increase in international of $ 1.0 million as we continue to expand in these markets . the decrease in the u.s. of $ 5.6 million , excluding depreciation and amortization , resulted from decreased expenditures on technology development ; partially offset by the overall growth in labor costs and professional services associated with domestic expansion , increased stock-based payment compensation and increased depreciation and amortization expenses . the increases in depreciation and amortization expenses came primarily from depreciating certain technology assets placed into service in the u.s. the decrease in general and administrative expenses for fiscal 2015 of $ 25.6 million , or 15.5 % as compared to fiscal 2014 came primarily from a decrease in the u.s. of $ 23.4 million as a result of the integration of the salvage parent , inc. acquisition , the relocation of our technology department being completed in fiscal 2014 , decreased expenditures on technology development , a decrease in stock-based payment compensation and a decrease in depreciation and amortization expenses . included in fiscal 2014 was $ 7.5 million in lease termination , severance and relocation costs associated with the integration of the salvage parent , inc. acquisition , which was finalized in fiscal 2014 , and the relocation of our technology department from california to our dallas , texas corporate headquarters . the decrease in depreciation and amortization expenses came primarily from a decrease in the u.s. as a result of certain assets becoming fully amortized . the following table summarizes impairment , total other expenses and income taxes for fiscal 2016 , 2015 and 2014 : replace_table_token_11_th impairment . during fiscal 2014 , we terminated a contract with kpit ( formerly known as sparta consulting , inc. ) , whereby kpit was engaged to design and implement an sap-based replacement for our existing business operating software that , among other things , would address our international expansion needs . following a review of kpit 's work performed and an assessment of the cost to complete , deployment risk , and other factors , we ceased development of kpit 's software and internally developed a proprietary solution in its place . as a result in fiscal 2014 , we recognized a charge of $ 29.1 million resulting primarily from the impairment of costs previously capitalized in connection with the development of the software . other ( expense ) income .

results of operations the following table shows certain data from our consolidated statements of income expressed as a percentage of total service revenues and vehicle sales for fiscal 2016 , 2015 and 2014 : replace_table_token_5_th comparison of fiscal years ended july 31 , 2016 , 2015 and 2014 the following table presents a comparison of service revenues for fiscal 2016 , 2015 and 2014 : replace_table_token_6_th service revenues . the increase in service revenues for fiscal 2016 of $ 119.0 million , or 12.1 % as compared to fiscal 2015 came from ( i ) growth in the u.s. of $ 110.4 million and ( ii ) growth in international of $ 8.6 million . the growth in the u.s. was driven primarily by increased volume , partially offset by lower average auction selling prices , which we believe is due to lower commodity prices . the increase in volume in the u.s. was derived from ( i ) growth from existing suppliers , driven by what we believe was an increase in salvage frequency , and ( ii ) growth in the number of units sold from new and expanded contracts with insurance companies . excluding a detrimental impact of $ 11.8 million due to changes in foreign currency exchange rates , primarily from changes in the british pound and the brazilian real to u.s. dollar exchange rates , the growth in international of $ 20.4 million was driven primarily by increased volume in the u.k. as we increased our market share and a marginal increase in revenue per car . the increase in service revenues for fiscal 2015 of $ 27.0 million , or 2.8 % as compared to fiscal 2014 came from ( i ) growth in the u.s. of $ 17.6 million and ( ii ) growth in international of $ 9.4 million .

when real property is conveyed from one party to another , occasionally there is an undisclosed defect in the title or a mistake or omission in a prior deed , will or mortgage that may give a third party a legal claim against such property . if a covered claim is made against real property , title insurance provides indemnification against insured defects . there are two basic types of title insurance policies – one for the mortgage lender and one for the real property owner . a lender often requires the property owner to purchase a lender 's title insurance policy to protect its position as a holder of a mortgage loan , but the lender 's title insurance policy does not protect the property owner . the property owner has to purchase a separate owner 's title insurance policy to protect its investment . the company issues title insurance policies through its home and branch offices and through a network of agents . issuing agents are typically real estate attorneys , independent agents or subsidiaries of community and regional mortgage lending institutions , depending on local customs and regulations and the company 's marketing strategy in a particular territory . the ability to attract and retain issuing agents is a key determinant of the company 's growth in title insurance premiums written . revenues for the title insurance segment primarily result from purchases of new and existing residential and commercial real estate , refinance activity and certain other types of mortgage lending such as home equity lines of credit . title insurance premiums vary from state to state and are subject to extensive regulation . statutes generally provide that rates must not be excessive , inadequate or unfairly discriminatory . the process of implementing a rate change in most states involves pre-approval by the applicable state insurance regulator . volume is a factor in the company 's profitability due to fixed operating costs that are incurred by the company regardless of title insurance premium volume . the resulting operating leverage tends to amplify the impact of changes in volume on the company 's profitability . the company 's profitability also depends , in part , upon its ability to manage its investment portfolio to maximize investment returns and to minimize risks such as interest rate changes , defaults and impairments of assets . the company 's volume of title insurance premiums is affected by the overall level of residential and commercial real estate activity , which includes property sales , mortgage financing and mortgage refinancing . real estate activity , home sales and mortgage lending are cyclical in nature . real estate activity is affected by a number of factors , including the availability of mortgage credit , the cost of real estate , consumer confidence , employment and family income levels , and general united states economic conditions . interest rate volatility is also an important factor in the level of residential and commercial real estate activity . the company 's title insurance premiums in future periods are likely to fluctuate due to these and other factors which are beyond management 's control . services other than title insurance provided by operating divisions of the company are not reported separately , but rather are reported collectively in a category called “ all other. ” these other services include those offered by the company and by its wholly owned subsidiaries , investors title exchange corporation ( “ itec ” ) , investors title accommodation corporation ( “ itac ” ) , investors trust company ( “ investors trust ” ) and investors title management services , inc. ( “ itms ” ) . 19 the company 's exchange services division , consisting of the operations of itec and itac , provides customer services in connection with tax-deferred real property exchanges . itec acts as a qualified intermediary in tax-deferred exchanges of property held for productive use in a trade or business or for investment , and its income is derived from fees for handling exchange transactions and interest earned on client deposits held by the company . in its role as qualified intermediary , itec coordinates the exchange aspects of the real estate transaction , and its duties include drafting standard exchange documents , holding the exchange funds between the time the old property is sold and the new property is purchased , and accepting the formal identification of the replacement property within the required identification period . itac provides services as an exchange accommodation titleholder for accomplishing “ parking transactions ” as set forth in the safe harbor contained in internal revenue procedure 2000-37. these transactions include reverse exchanges when taxpayers decide to acquire replacement property before selling the relinquished property , or “ build to suit ” exchanges , when improvements must be made to the replacement property before the taxpayer acquires the improved replacement property . the services provided by the company 's exchange division , itec and itac , are pursuant to provisions in the internal revenue code . from time to time , these laws are subject to review and changes , which may negatively affect the demand for tax-deferred exchanges in general , and consequently , the revenues and profitability of the company 's exchange division . the company 's trust services division , investors trust , provides investment management and trust services to individuals , companies , banks and trusts . itms offers various consulting and management services to provide clients with the technical expertise to start and successfully operate a title insurance agency . business trends and recent conditions the housing market is heavily influenced by government policies and overall economic conditions . regulatory reform and initiatives by various governmental agencies , including the federal reserve 's monetary policy and other regulatory changes , could impact lending standards or the processes and procedures used by the company . the current real estate environment , including interest rates and general economic activity , typically influence the demand for real estate . story_separator_special_tag per the mba forecast , refinancing is expected to be lower in 2019 as mortgage interest rates climb to a projected 4.8 % in the fourth quarter of 2019 . historically , activity in real estate markets has varied over the course of market cycles by geographic region and in response to evolving economic factors . operating results can vary from year to year based on cyclical market conditions and do not necessarily indicate the company 's future operating results and cash flows . critical accounting estimates and policies this discussion and analysis of the company 's financial condition and results of operations is based upon the company 's accompanying consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the company 's management makes various estimates and judgments when applying policies affecting the preparation of the consolidated financial statements . actual results could differ from those estimates . significant accounting policies of the company are discussed in note 1 to the accompanying consolidated financial statements . following are the accounting estimates and policies considered critical to the company . reserve for claim losses the company 's reserve for claims is established using estimates of amounts required to settle claims for which notice has been received ( reported ) and the amount estimated to be required to satisfy incurred claims of policyholders which may be reported in the future ( incurred but not reported , or “ ibnr ” ) . the total reserve for all losses incurred but unpaid as of december 31 , 2018 is represented by the reserve for claims totaling $ 31.7 million in the accompanying consolidated balance sheets . of that total , approximately $ 3.0 million was reserved for specific claims which have been reported to the company , and approximately $ 28.7 million was reserved for ibnr claims . a provision for estimated future claims payments is recorded at the time the related policy revenue is recorded . the company records the claims provision as a percentage of net premiums written . this loss provision rate is set to provide for losses on current year policies . by their nature , title claims can often be complex , vary greatly in dollar amounts , vary in number due to economic and market conditions such as an increase in mortgage foreclosures , and involve uncertainties as to ultimate exposure . in addition , some claims may require a number of years to settle and determine the final liability for indemnity and loss adjustment expense . the payment experience may extend for more than 20 years after the issuance of a policy . events such as fraud , defalcation and multiple property defects can substantially and unexpectedly cause increases in estimates of losses . due to the length of time over which claim payments are made and regularly occurring changes in underlying economic and market conditions , these estimates are subject to variability . 21 management considers factors such as the company 's historical claims experience , case reserve estimates on reported claims , large claims , actuarial projections and other relevant factors in determining its loss provision rates and the aggregate recorded expected liability for claims . in establishing the reserve , actuarial projections are compared with recorded reserves to evaluate the adequacy of such recorded claims reserves and any necessary adjustments are then recorded in the current period 's income statement . as the most recent claims experience develops and new information becomes available , the loss reserve estimate related to prior periods will change to more accurately reflect updated and improved emerging data . the company reflects any adjustments to the reserve in the results of operations in the period in which new information ( principally claims experience ) becomes available . the company initially reserves for each known claim based upon an assessment of specific facts and updates the reserve amount as necessary over the course of administering each claim . loss ratios for earlier years tend to be more reliable than recent policy years , as those years are more fully developed . in making loss estimates , management determines a loss provision rate , which it then applies to net premiums written . the company assumes the reported liability for known claims and ibnr , in the aggregate , will be comparable to its historical claims experience unless factors , such as loss experience and charged premium rates , change significantly . also affecting the company 's assumptions are large losses related to fraud and defalcation , as these can cause significant variances in loss emergence patterns . management defines a large loss as one where incurred losses exceed $ 500,000. due to the small volume of large claims , the long-tail nature of title insurance claims and the inherent uncertainty in loss emergence patterns , large claim activity can vary significantly between policy years . the estimated development of large claims by policy year is therefore subject to significant changes as experience develops . the loss provision rate is set to provide for losses on current year policies and changes in prior year estimates . management also considers actuarial analyses in evaluating the claims reserve . the actuarial methods used to evaluate the reserve are loss development methods , bornhuetter-ferguson methods and cape cod methods , all of which are accepted actuarial methods for estimating ultimate losses and , therefore , loss reserves . in the loss development method , each policy year 's paid or incurred losses are projected to an ultimate level using loss development factors . in the bornhuetter-ferguson method , a type of expected loss method , losses for each policy year are estimated based on an expected loss ratio derived directly from a previous estimate of ultimate loss for each policy year plus an additional provision for losses that have not been reported or paid as of the evaluation date .

results of operations the following table presents certain income statement data for the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_2_th 24 insurance revenues insurance revenues include net premiums written and other title-related income that includes escrow and settlement fees . non-title services revenue , investment-related revenues and other revenues are discussed separately below . the following is a summary of the company 's total revenue broken out between the title insurance segment and all other revenues with intersegment eliminations netted with each segment ; therefore , the individual segment amounts will not agree to note 12 in the accompanying consolidated financial statements . replace_table_token_3_th net premiums written net premiums written decreased 1.7 % in 2018 to $ 138.1 million , compared with $ 140.5 million in 2017 , and increased 14.7 % in 2017 , compared with $ 122.5 million in 2016 . the decrease in 2018 compared with 2017 was primarily due to a decline in refinance activity , partially offset by an increase in purchase activity and higher real estate values . the increase in 2017 compared with 2016 was primarily due to higher levels of home sales in our core markets , a continuation of the multi-year trend of increases in the underlying values of real estate , and business from newly-signed agents , partially offset by a decrease in the level of refinance activity . title insurance companies typically issue title insurance policies directly through home and branch offices or through title agencies . following is a breakdown of premiums generated by branch and agency operations for the years ended december 31 : replace_table_token_4_th home and branch office net premiums : in the company 's home and branch operations , the company issues the insurance policy and retains the entire premium , as no commissions are paid in connection with these policies .