This excerpt taken from the CRVL 10-K filed Jun 14, 2007.
General and Administrative Costs
During fiscal 2005, 2006 and 2007, approximately 62%, 59%, and 62%, respectively, of general and administrative costs consisted of corporate systems costs, which include the corporate systems support, implementation and training, rules engine development, national information technology (IT) strategy and planning, depreciation of the hardware costs in the Companys corporate offices and backup data center, the Companys national wide area network, and other systems related costs. The Company includes all IT related costs managed by the corporate office in general and administrative whereas the field IT related costs are included in the cost of revenue. The remaining general and administrative costs consist of national marketing, national sales support, corporate legal, corporate insurance, human resources, accounting, product management, new business development, and other general corporate expenses.
Change in General and Administrative Costs
Fiscal 2007 Compared to Fiscal 2006
General and administrative expense increased $5.8 million from $29.6 million in fiscal 2006 to $35.4 million in fiscal 2007. General and administrative expense increased as a percentage of revenue by 1.8% from 11.1% of revenue in fiscal 2006 to 12.9% of revenue in fiscal 2007. The Companys systems expenses increased $4.1 million,
or 24.1%, from fiscal 2006 to fiscal 2007. The increase was primarily related to increased expenditures in national IT infrastructure, planning, development, and programming costs. Given the importance the Company places on its proprietary software, it is possible that these costs may continue to increase. In addition, auditing and consulting fees attributable to the requirements of the Sarbanes-Oxley Act of 2002 increased by $1.5 million. This increase was partially offset by a decrease of $0.5 million in the Companys legal costs.
The increase in cost due to the development and maintenance of software products and the implementation and incorporation of new technologies to remain competitive could have a material impact on the Company in the future. Likewise, the Companys exposure to litigation, successful lawsuits and increasing costs of insurance could have material effects as well.
Fiscal 2006 Compared to Fiscal 2005
General and administrative expense increased $1.5 million from $28.1 million in fiscal 2005 to $29.6 million in fiscal 2006. General and administrative expense increased as a percentage of revenue by 1.4% from 9.7% of revenue in fiscal 2005 to 11.1% of revenue in fiscal 2006. The increase was primarily related to increased expenditures in auditing and consulting fees attributable to the requirements of the Sarbanes-Oxley Act of 2002. The Companys accounting and legal costs increased by $1.7 million. This increase was partially offset by a decrease of $0.6 million in the Companys marketing costs. System costs, included in general and administrative costs, fell as a percentage of general and administrative costs even though their expense, in absolute dollars, remained similar to fiscal year 2005.