The selected financial data of INSpire presented below as of December 31, 1999, 1998, 1997, 1996 and 1995, and for the years ended December 31, 1999, 1998, 1997 and 1996 and the period April 28, 1995 through December 31, 1995 have been derived from the audited financial statements of INSpire. The selected financial data should be read in conjunction with "
INSpire's revenues historically are derived principally from (i) outsourcing services and (ii) software and software services. Revenues from outsourcing services are derived from policy administration services, claims administration services and IT services. Revenues from software and software services are derived from contracts that grant customers a license to use INSpire's software products and contracts that provide for installation, customization, enhancement, conversion and maintenance services. Other revenues principally represent hardware sold in connection with software installations. In December 1999, INSpire decided to discontinue efforts toward licensing software systems and to focus its efforts on providing outsourcing services. The Company will continue, however, to satisfy all contractual obligations to existing software installations as well as provide technical support to existing software customers as needed on a time-and-materials basis.
decrease of $7.1 million or 21%. The decrease in software and software services revenues is primarily attributable to fewer in-process installations of WPC and other software productivity tools, resulting in lower license fees and software services revenues.
Unusual operating expenses. Unusual operating expenses totaled $31.5 million for the year ended December 31, 1999 compared to $500,000 for the year ended December 31, 1998.
In the normal course of business, INSpire provides software, software services and outsourcing services in advance of receiving payment for such products and services. Customers are invoiced in accordance with the terms of their contracts with the Company. During the quarter ended September 30, 1999, management took
action relative to specific software installation contracts that had significant past due balances and ceased further work, pending resolution of the balances due under the terms of the contracts. The Company recognized $11.0 million of bad debts expense during 1999. INSpire is vigorously pursuing collection of these accounts.
Severance costs of $1.7 million incurred during 1999 represent expenses associated with staff reductions and executive resignations, primarily as a result of the Company's decision in December 1999 to discontinue efforts toward licensing new software systems.
Other income. Other income, consisting principally of investment income, decreased to $1.4 million for the year ended December 31, 1999 from $2.7 million for the year ended December 31, 1998. The decrease of $1.3 million, or 48%, is due to a decrease in cash equivalents and investments primarily as a result of cash used in the Arrowhead Acquisition, the Robert Plan Acquisition and the Island Acquisition.
Net income (loss). Net loss was $19.7 million, or $1.04 per diluted share ($1.04 per basic share), for the year ended December 31, 1999 compared to net income of $11.6 million, or $.58 per diluted share ($.65 per basic share), for the year ended December 31, 1998. Excluding the impact on net income resulting from the $31.5 million nonrecurring operating expenses discussed above, and the tax effects thereof, net income for the year ended December 31, 1999 would have been $4.0 million or $.20 per diluted share ($.21 per basic share). Excluding the impact on net income resulting from the $500,000 write-off of purchased research and development associated with the Paragon Acquisition, net income for the year ended December 31, 1998 would have been $12.1 million, or $.61 per diluted share ($.68 per basic share).
Unusual operating expenses. In connection with the Paragon Acquisition, $500,000 was assigned to in-process research and development and was charged to operations in April 1998. In the purchase price allocation of the SDS Acquisition, $3.0 million was assigned to in-process research and development. This amount was charged to operations in March 1997. In addition, $3.9 million was charged to operations as deferred compensation associated with stock options granted to executive officers during 1997.
Net income (loss). Net income was $11.6 million, or $.58 per diluted share ($.65 per basic share), for the year ended December 31, 1998 compared to a net income of $1.7 million, or $.13 per diluted share ($.14 per basic share), for the year ended December 31, 1997. Excluding the impact on net income resulting from the $500,000 write-off of purchased research and development associated with the Paragon Acquisition, net income would have been $12.1 million, or $.61 per diluted share ($.68 per basic share), for the year ended December 31, 1998. In 1997, excluding the impact on net income resulting from the charge to operations of $3.9 million of deferred compensation associated with stock options granted to executive officers, the write-off of purchased research and development of $3.0 million recorded in connection with the SDS Acquisition, and the gain on the sale of AQS of $1.6 million, and the tax effects thereof, net income would have been $5.1 million, or $.39 per diluted share ($.42 per basic share).
In December 1997, INSpire entered into a contract with Sul America to provide a license for WPC and other software products, and software services for the implementation of such products. In conjunction with this contract, INSpire was required to arrange a surety to provide Sul America with a performance bond in the amount of $3.7 million, the proceeds of which could be used in the event that the Company did not fulfill its obligations under the contract. The contract was segregated into three phases of deliverables, two of which have been accepted and paid for in the amount of $2.5 million by Sul America. In August 1999, Sul America terminated its contract with the Company, and demanded payment under the performance bond. Under its agreement to indemnify the surety against losses under the performance bond allegedly caused by INSpire's default, the Company arranged an irrevocable standby letter of credit in October 1999 with Bank of America, N.A. in the amount of $3.7 million. On December 21, 1999, INSpire filed a lawsuit in the 8th Civil Court of Rio de Janeiro (INSpire Insurance Solutions, Inc. vs. Sul America Seguros S.A. and INA Seguradora S.A. (99.001.175.210-6)) requesting a preliminary injunction, which was granted in January 2000, restricting the surety from paying $3.7 million to Sul America until a final decision is rendered in the ordinary lawsuit to be filed. INSpire intends to pursue collection of its outstanding receivable balance of $1.2 million from Sul America, and defend itself against Sul America's claims that the Company failed to comply with the terms of the contract. The ultimate outcome of this matter cannot presently be determined.
Prior to its IPO in August 1997 and its follow-on public offering in March 1998, INSpire funded its operations through cash generated from operations, as well as borrowings and capital contributions from Millers Insurance.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 is effective for the Company's fiscal year ending December 31, 1999. SOP 98-5 requires costs of start-up activities and organization costs to be expensed as incurred. The adoption of SOP 98-5 did not have a material effect on the Company's consolidated financial statements.