The results of operations in 1995 include special charges of $56.4 million (after taxes $39.9 million, or $2.06 per share). These charges principally related to the restructuring of the Company's data processing facilities and information services business, litigation costs, acquisition-related charges, impairment of certain intangible assets and software associated with acquired businesses and the gain on the sale of the Company's health services business.
Selling, general and administrative expenses for 1999 increased 11% compared to 1998. As a percentage of revenue, these expenses increased to 18% from 17% in 1998.
As a result of that assessment, the 1999 third quarter results include approximately $100.4 million of non-cash charges taken in the third quarter related to the write-off or write-down of software and acquisition intangibles. Approximately $94.3 million of that amount is included in Depreciation and amortization of property, equipment and capitalized software costs (see Note 6 to the consolidated financial statements), and approximately $6.1 million is included in Amortization of goodwill and other intangibles (see Note 5 to the consolidated financial statements).
Operating income, as a percentage of total revenues, excluding the effects of the special charges described above, was 10% for 1999, 17% for 1998 and 15% for 1997.
Investment income decreased in 1999 due to lower investable funds compared to 1998. Interest expense increased 224% for 1999 compared to 1998, principally due to higher levels of borrowed funds under the Company's credit agreements.
Gains and losses on dispositions of property and equipment are determined based on the difference between the cash plus the fair value of any assets received (in the case of nonmonetary transactions) less the net book value of the asset disposed of at the date of disposition.
As of December 31, 1999, the Company had the following credit facilities: a $200 million line of credit with a syndicate of financial institutions which had $155 million outstanding, a $70 million term loan with three of the financial institutions in the line of credit syndicate and a $5 million uncommitted bank line of credit which had $4 million outstanding. Because of the large net loss in the fourth quarter, the Company was in violation of one of the covenants of both the line of credit and the term loan. Amendments of the related agreements were executed in February and March 2000 that return the Company to compliance.
The Company is involved in litigation commenced in February 2000, in the District Court of Dallas County, Texas, by Chase Manhattan Mortgage Corporation ("Chase") related to the Company's mortgage loan origination products and services. The complaint alleges breach of contract, breach of warranty, misrepresentation, malpractice, misrepresentation and mismanagement and seeks a declaratory judgment and damages in excess of $20 million including amounts paid by Chase to the Company, internal costs, consulting fees, opportunity costs, reputational costs, attorneys fees and costs and punitive and exemplary damages. The Company has not yet responded to the Chase complaint, but believes that the allegations are without merit and are subject to various affirmative defenses and counterclaims.
At a hearing held on March 20, 2000, the court granted plaintiffs' motion to consolidate all six cases, appointed four members of the class as lead plaintiffs and approved their selection of lead counsel, directed that the complaints in all but the first-filed case be dismissed without prejudice, and directed plaintiffs to file an amended consolidated complaint within 45 days.
While the resolution of any of the above matters could have a material adverse effect on the results of operations in future periods, the Company does not expect these matters to have a material adverse effect on its consolidated financial position. The Company, however, is unable to predict the ultimate outcome or the potential financial impact of these matters.
The Company has three plans under which options to purchase shares of the Company's common stock have been granted to eligible employees and members of the Board of Directors of the Company and its subsidiaries. Options under the 1999 Stock Option Plan (the "1999 Plan") and the 1989 Stock Option Plan (the "1989 Plan") expire ten years after the grant date and options under the 1993 Long Term Incentive Plan for Executives (the "1993 Plan") expire in January 2003. During 1999, options were granted under the 1999 Plan only. During 1998, options were granted under the 1989 Plan and the 1993 Plan. During 1997, options were granted under the 1989 Plan only.
Currently, the Company's business is focused principally within the global property and casualty and life insurance and related financial services industries. Significant changes in the regulatory or market environment of these industries could impact demand for the Company's software products and services. Additionally, there is increasing competition for the Company's products and services, and there can be no assurance that the Company's current products and services will remain competitive, or that the Company's development efforts will produce products with the cost and performance characteristics necessary to remain competitive. Furthermore, the market for the Company's products and services is characterized by rapid changes in technology and the emergence of the Internet as a viable insurance distribution channel. The Company's success will depend on the level of market acceptance of the Company's products, technologies and enhancements, and its ability to introduce such products, technologies and enhancements to the market on a timely and cost effective basis, and maintain a labor force sufficiently skilled to compete in the current environment.
Concentration of credit risk with respect to trade accounts receivable is generally diversified due to the large number of entities comprising the Company's customer base across the insurance industry. The Company performs ongoing credit evaluations on certain of its customers' financial conditions, but generally does not require collateral to support customer receivables. The Company includes in its allowance for uncollectible accounts amounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.