## Research and Development 

Research and development expenses consist of personnel and outside consultancy costs required to conduct our product development efforts. Capitalized software development costs are amortized over the estimated remaining economic life of the relevant product, not to exceed three years. Research and development expenses for fiscal 2003 decreased 12.6% to $65.1 million from $74.5 million for fiscal 2002. This compared to an increase of 8.0% in fiscal 2002 from $68.9 million in fiscal 2001. Research and development expenses as a percentage of total revenues were 20.2%, 23.2%, and 21.1% in fiscal years 2003, 2002 and 2001, respectively. The decrease in costs between fiscal 2003 and 2002 are attributable to the effect of reductions in headcount reflected in the restructuring charges of May 2002 and October 2002, partially offset by the inclusion of costs associated with Hyprotech and increases in certain foreign-based research and development expenses where currencies strengthened as compared to the US dollar. The increase in costs between fiscal 2001 and 2002 was attributable to a full year of costs relating to the June 2001 acquisitions of certain technology divisions of CPU and the Houston Consulting Group, non-capitalizable costs incurred in association with the Accenture Strategic Alliance, a general increase in normal development activities and costs contributed by Hyprotech in June 2002. The increase in research and development expenses as a percentage of total revenues between fiscal 2001 and 2002 was primarily related to lower than anticipated revenues. 

We capitalized software development costs that amounted to 14.6%, 11.7% and 7.6% of our total research and development costs for fiscal years 2003, 2002 and 2001. This increase between fiscal 2002 and 2003 is due to product development activity related to the Accenture co-development alliance, as well as a smaller level of overall research and development spending. The increase between fiscal 2001 and 2002 was primarily related to internal costs and costs incurred by Accenture, as part of the Accenture Strategic Alliance. Specifically, 3.0% of the capitalized was associated from this activity with Accenture. 

## General and Administrative 

General and administrative expenses consist primarily of salaries of administrative, executive, financial and legal personnel, outside professional fees and amortization of identifiable intangibles. General and administrative expenses for fiscal 2003 increased 7.1% to $36.7 million from $34.3 million for fiscal 2002, as compared to an increase of 11.8% for fiscal 2002 from $30.6 million in fiscal 2001. General and administrative expenses as a percentage of total revenues were 11.4%, 10.7%, and 9.4% in fiscal years 2003, 2002, and 2001, respectively. The increase between fiscal 2002 and 2003 is due primarily to the full year of amortization of identifiable intangibles related to the May 2002 acquisition of Hyprotech, increases to our bad debt reserve, and the inclusion of general and administrative costs associated with Hyprotech, all offset by the effect of reductions in headcount reflected in the restructuring charges of May 2002 and October 2002. Fiscal 2001 includes $2.6 million associated with the amortization of goodwill, for which there is no corresponding charge in fiscal 2002, resulting in a comparative increase of $6.2 million or 22.2%. The increases between fiscal 2001 and 2002 were due primarily to the full year of amortization of intangibles related to the 2001 acquisitions of Icarus, CPU and the Houston Consulting Group, an increase to our bad debt reserve due to the current economic environment, an increase in certain non-recurring professional fees and costs related to the settlement of minor litigation. Amortization of intangible assets, including goodwill in fiscal 2001, was $5.2 million in fiscal 2002 and $6.1 million in fiscal 2001, respectively, a decrease of 14.8% in fiscal 2002 as compared to the prior year. General and administrative expenses contributed by Hyprotech were not significant in fiscal 2002. In October 2002, we determined that the goodwill should be tested for impairment as a result of lowered revenue expectations and the overall decline in our market value. This amounted to a $74.7 million aggregate impairment charge, recorded in the accompanying consolidated statement of operations. 

