Because a significant portion of initial licensing revenues are recorded at the time new systems are licensed, there can be significant fluctuations in revenue from period to period. Set forth below is a comparison of domestic and international initial license revenues for 1995, 1994 and 1993 expressed as a percentage of total revenues for each of the periods presented:
As a result of less than expected financial results for 1994 relating to the Company's on-site medical correspondence information services business, acquired in February 1993, the Company attempted to improve the results of the business by closing unprofitable offices and modifying the volume and type of services offered. These modifications resulted in an increase in staffing requirements and equipment expense; however, the anticipated increase in revenues did not occur, and the 1995 financial results of the business fell short of expectations. The Company performed a detailed assessment of the business and expects a continuing decline in revenues and cash flows. As a result, the Company determined that the expected future cash flows of this business did not support the carrying value of the related goodwill and identifiable intangible assets. Consequently, at October 1, 1995, the Company recorded impairment charges of $1.8 million to write-off the carrying value of the identifiable intangible assets ($1.1 million) and goodwill ($.7 million).
As part of a 1983 business acquisition, the Company acquired a billing and collection system (CABILS), which was originally utilized in specialty processing or the processing of assigned risk business for the Company's customers (principally those customers acquired in the business acquisition) and, later, evolved into the basis for a portion of the Company's full property and casualty total policy management processing for voluntary as well as assigned risk business. During 1995, several of the Company's customers of this business opted to either move some or all states served by them to LAD servicing carriers or to not renew their agreements for these services for other reasons. In addition, the Texas Plan implemented rate increases and a mandatory takeout plan which had the effect of further decreasing the number of policies served by the Company. During 1995, the Company decided to replace the software acquired in 1983. Based on a detailed business assessment performed by the Company, the anticipated discounted cash flows for this business for the period until the software replacement is completed do not support the carrying value of the software and related goodwill associated with this business. As a result, the Company recorded, at October 1, 1995, impairment charges of $2.8 million to write-off the carrying value of the software ($.4 million) and related goodwill ($2.4 million).
The Company, as of December 31, 1995, provided for $20.1 million in estimated litigation costs arising from proceedings to which the Company is a party. The costs provided for include, but are not limited to, legal fees paid or anticipated to be paid and other costs related to the Company's claims and defenses for these matters (see Item 3, Legal Proceedings, of Part I and Note 8 of Notes to Consolidated Financial Statements). In the first quarter of 1995, the Company recorded a credit of $1.7 million as a further adjustment to the estimated costs of settling its securities class action which were recorded in the fourth quarter of 1994 (see Note 8 of Notes to Consolidated Financial Statements).
The Company incurred operating losses of $19.7 and $77.1 million for 1994 and 1993, respectively. These losses were solely attributable to various special charges aggregating $71.9 and $98.8 million, respectively. As discussed above, special charges in 1994 relate to impairment and restructuring charges ($35.1 million), charges related to the write-off of purchased research and development costs arising out of the Company's acquisition of Creative in December 1994 ($2.6 million) and charges related to settling the Company's securities class action ($34.2 million). The special charges in 1993 of $98.8 million relate to impairment and restructuring charges of $80.7 million and $18.1 million related to the June 30, 1993 special charge discussed above (see Costs and Expenses).
During 1994, as part of the Company's repurchase of 3.2 million shares of its common stock and payments to settle its securities class action, the Company liquidated a portion of its marketable securities and had net positive cash flow from marketable securities sales/purchasing activity of $112.9 million. The Company did not repurchase any of its outstanding common shares during 1995, and had no significant sales/purchases of securities during this period beyond normal maturities and repurchases.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Policy Management Systems Corporation and subsidiaries as of December 31, 1995 and 1994 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles.
Purchased software with an aggregate carrying value of $1.5 million was written off as part of impairment and restructuring charges recorded during the year ended December 31, 1995 (see Note 12). Amortization charged to expense was $23.2, $19.8 and $22.4 million for the years ended December 31, 1995, 1994 and 1993, respectively.
December 31, 1995 1994 (In Thousands) Credit facility borrowings (net of unamortized deferred arrangement costs) $ 14,746 - Notes payable, due January 1996, interest at 8.25% 1,893 $ 8,896 16,639 8,896 Less: Current portion 1,766 4,734 Long-term debt $ 14,873 $ 4,162
The Company leased certain data processing and related equipment primarily under operating leases expiring through 1995. Rent expense under operating leases for such equipment was $4.9, $5.2 and $4.3 million for the years ended December 31, 1995, 1994 and 1993, respectively.
In addition to the litigation described above, there are also various other litigation proceedings and claims arising in the ordinary course of business. The Company believes it has meritorious defenses and is vigorously defending these matters.
The Company, as a result of its continued detailed business assessment, determined that there were no further services or investment alternatives that could bring these operations to profitability and that the cash losses related to the risk information services business would continue into the future. As a result, the Company decided to restructure its property and casualty information services business and cease providing certain data collection services, including property inspections, commercial audits and pre-employment checks. The Company decided to sell the pre-employment business and completely cease and abandon operations in property inspections and commercial audits. As a result, the Company recorded, at December 31, 1995, restructuring charges of $3.7 million for disposal and severance charges related to exiting these operations.
During 1994, the Company, as a result of new events occurring, changed its estimates and reduced its restructuring reserves associated with its health insurance systems business, established in June 1993, by $4.4 million, $2.6 million of which resulted from a change in the scheduled downsizing of the Company's health staff and a corresponding reduction in amounts established for severance and outplacement costs and $1.8 million of which resulted from a lease termination at amounts less than those established for the planned future abandonment of certain leased office facilities.
Contracts with governmental agencies involve a variety of special risks, including the risk of early termination by the governmental agency and changes associated with newly elected state administrations or newly appointed regulators.