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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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RESULTS OF OPERATIONS
Operating Expenses
| (Dollars in millions) |
FISCAL
2002 |
% TOTAL NET
REVENUE |
FISCAL
2003 |
% TOTAL NET
REVENUE |
FISCAL
2004 |
% TOTAL NET
REVENUE |
2002-2003
% CHANGE |
2003-2004
% CHANGE |
|
Customer service and technical support |
$ |
164.9 |
|
|
13 |
% |
$ |
178.9 |
|
|
11 |
% |
$ |
195.1 |
|
|
10 |
% |
|
8 |
% |
|
9 |
% |
 |
Selling and marketing |
|
263.7 |
|
|
20 |
% |
|
324.4 |
|
|
20 |
% |
|
369.1 |
|
|
20 |
% |
|
23 |
% |
|
14 |
% |
|
Research and development |
|
198.5 |
|
|
15 |
% |
|
255.8 |
|
|
15 |
% |
|
281.1 |
|
|
15 |
% |
|
29 |
% |
|
10 |
% |
|
General and administrative |
|
109.1 |
|
|
8 |
% |
|
148.9 |
|
|
9 |
% |
|
183.1 |
|
|
10 |
% |
|
36 |
% |
|
23 |
% |
|
|
|
Total core operating expenses |
|
736.2 |
|
|
56 |
% |
|
908.0 |
|
|
55 |
% |
|
1,028.4 |
|
|
55 |
% |
|
23 |
% |
|
13 |
% |
|
Charge for purchased
research and development |
|
2.2 |
|
|
- |
|
|
8.9 |
|
|
1 |
% |
|
- |
|
|
- |
|
|
305 |
% |
|
- |
|
|
Charge for vacant facilities |
|
13.2 |
|
|
1 |
% |
|
(1.1 |
) |
|
- |
|
|
0.7 |
|
|
- |
|
|
NM |
|
|
NM |
|
|
Acquisition-related charges |
|
159.4 |
|
|
12 |
% |
|
33.9 |
|
|
2 |
% |
|
24.5 |
|
|
1 |
% |
|
-79 |
% |
|
-28 |
% |
|
Loss on impairment of goodwill and
purchased intangible assets |
|
27.3 |
|
|
2 |
% |
|
- |
|
|
- |
|
|
18.7 |
|
|
1 |
% |
|
-100 |
% |
|
- |
|
|
Loss on impairment of long-lived asset |
|
27.0 |
|
|
2 |
% |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
-100 |
% |
|
- |
|
|
|
|
Total operating expenses |
$ |
965.3 |
|
|
73 |
% |
$ |
949.7 |
|
|
58 |
% |
$ |
1,072.3 |
|
|
57 |
% |
|
-2 |
% |
|
13 |
% |
|
|
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Overview of OperatingExpenses
We define core operating expenses as the controllable costs of running our business. Total core operating expenses increased in fiscal 2004 compared with fiscal 2003 and in fiscal 2003 compared with fiscal 2002. Individually and in the aggregate, core operating expenses as a percentage of total net revenue were generally consistent in these periods. Operating expenses that changed by more than 1% of total net revenue from fiscal 2002 to fiscal 2004 are discussed below.
Customer Service and Technical Support
Customer service and technical support expenses declined as a percentage of total net revenue in fiscal 2004 compared with fiscal 2003 and in fiscal 2003 compared with fiscal 2002. We continued to increase our efficiency in these periods by improving our utilization of internal customer service
representatives and by outsourcing some of our seasonal call center capabilities. We also increased the proportion of customer service and technical
support we provide through less expensive methods such as Web sites, online chat, e-mail and other electronic means. These benefits were partially offset by higher demand for customer service and technical support due to the increased number of our offerings.
General and Administrative
General and administrative expenses increased as a percentage of total net revenue in fiscal 2004 compared with fiscal 2003 and in fiscal 2003
compared with fiscal 2002 due to increased spending for infrastructure and new information systems.
Acquisition-Related Charges
Fiscal 2004 and 2003 acquisition-related charges declined significantly compared with fiscal 2002. Fiscal 2002 acquisition-related charges included
the amortization of goodwill. Due to our adoption of SFAS 142, fiscal 2004 and fiscal 2003 acquisition-related charges did not include the amortization
of goodwill.
Loss on Impairment of Goodwill and Purchased Intangible Assets
During the fourth quarter of fiscal 2004, events and circumstances indicated impairment of goodwill that we recorded in connection with our acquisition of Intuit Public Sector Solutions. IPSS became part of our Intuit-Branded Small Business segment. The primary indicator of impairment was the fact that actual sales levels did not meet initial projections. Based on our analysis, in the fourth quarter of fiscal 2004 we recorded a charge of $18.7 million to reduce the carrying value of the goodwill to $10.9 million. In August 2004 management formally approved a plan to sell IPSS. See Note 4 to the financial statements.
The fiscal 2002 loss on impairment of goodwill and purchased intangible assets related to certain Internet-based businesses in our Intuit-Branded Small Business and Other Businesses segments. Indicators of impairment included a steep decline in demand for online advertising reflecting the industry-wide decline in Internet advertising spending and our decision to eliminate the use of certain technology purchased from one of the businesses. Based on our analyses, in the second quarter of fiscal 2002 we recorded charges totaling $27.3 million to reduce the carrying value of the goodwill and purchased intangible assets associated with these businesses to zero. See Note 4 to the financial statements.
Loss on Impairment of Long-Lived Asset
In connection with the sale of our Quicken Bill Manager business in May 2001, we acquired a $27.0 million long-term asset related to future consideration
from the buyer. During fiscal 2002, events and circumstances indicated impairment of this asset and we recorded a charge of $27.0 million to reduce its
carrying value to zero. See Note 10 to the financial statements.
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