Selling, general and administrative expenses increased 14.9% for 1996 compared to 1995, almost entirely due to the Company's investment in its international sales force and infrastructure.
Revenues from professional and outsourcing services activities, as a function of total revenues, increased from 42.3% for 1994 to 48.4% for 1995 and 53.3% for 1996 (see Revenues). Excluding the effects of professional and outsourcing services revenues from the Company's health division (sold on June 30, 1995), professional and outsourcing revenues as a percentage of total revenues increased from 39.5% for 1994 to 47.7% for 1995.
During 1994, the Company's life insurance systems business benefited from an increase of $14.8 million in licensing revenues and $24.4 million in professional and outsourcing services, which includes the results of CYBERTEK. The Company's decision to develop new releases of certain of its life systems based on the business functions of CYBERTEK software and the process of integrating CYBERTEK functionality into certain components of the Company's Series III applications, had the effect of significantly reducing revenues and operating income from the life insurance services business in the short-term.
The information services businesses, which include property and casualty as well as life information services, produced a combined operating loss for 1994 of $18.6 million, primarily due to an aggregate operating loss of $21.8 million from the property and casualty information services segments. The Company took measures to evaluate and improve the property and casualty information services businesses. Nevertheless, the property and casualty information services business reported a 1995 operating loss of $11.4 million. As a result, the Company decided to cease providing certain property and casualty risk information services (see Note 12 of Notes to Consolidated Financial Statements). Despite growth in the Company's life information services businesses (see Revenues), aggregate information services revenues, which generally produce lower margins than professional and outsourcing services, as a percentage of total revenues has decreased from 39.2% for 1994, to 32.1% for 1995 and 27.2% for 1996.
During 1996, the Company made large cash expenditures relating to the October 1995 acquisition of micado ($6.4 million), the repurchase of 759,512 of the 1,519,024 shares of common stock held by GAP Coinvestment Partners and General Atlantic Investors 14 L.P. ($38.0 million) in March 1996 and the repurchase of 645,500 shares of the Company's outstanding common stock on the open market ($35.6 million) under its 2.5 million share repurchase authorization in March 1996. Consequently, the Company maintained a higher level of debt and a lower level of investable funds during 1996, resulting in an increase in interest expense of $1.7 million and a decrease in investment income of $.4 million.
In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"), was issued. FAS 128 is designed to improve the earnings per share information provided in financial statements by simplifying the existing computational guidelines, revising the disclosure requirements, and increasing the comparability of earnings per share data on an international basis. FAS 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods, earlier application is not permitted. The Company will adopt FAS 128 on its effective date. Proforma earnings per shares of the Company computed using FAS 128 is not different from earnings per share computed using existing standards and guidelines.
Based upon the allegations raised in a prior lawsuit with the California State Automobile Association ("CSAA") and the SLD lawsuit, the Company's insurer, St. Paul Mercury Insurance Company ("St. Paul"), commenced in June 1995 a declaratory judgment action in the United States District Court for the District of South Carolina against the Company to determine St. Paul's obligation for defense costs and to indemnify the Company for any payment related to these claims. The Company filed a counterclaim against St. Paul seeking to recover the Company's defense costs in the CSAA and SLD matters, coverage for damages, if any, awarded in those matters, and consequential and punitive damages.
A reconciliation of the difference between the actual income tax provision (benefit) and the expected provision (benefit), computed using the applicable statutory rate is as follows:
Year ended December 31, 1996 1995 1994 Provision for taxes at the statutory rate 35.0% 35.0% (35.0)%
Pro forma information regarding net income and earnings per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1996 and 1995, respectively: risk-free interest rates of 6.4% and 6.5%; volatility factors of the expected market price of the Company's common stock of 42.7% and 43.8%; and weighted-average expected life of the options of 5.0 and 5.0 years.