Time Magazine 2010 Annual Report Download - page 52

increased to $4.789 billion in 2009 from $4.741 billion in 2008. Included in film costs are net pre-release theatrical
film valuation adjustments, which increased slightly to $85 million in 2009 from $84 million in 2008. In addition, in
2009, the Company recognized a net benefit of approximately $50 million related to adjustments to correct prior
period participation accruals, and, in 2008, the Company recognized approximately $53 million in participation
expense related to claims on films released in prior periods. Costs of revenues as a percentage of revenues was 71%
in 2009 compared to 72% in 2008.
The decrease in selling, general and administrative expenses was primarily the result of a $60 million decline in
employee costs mainly resulting from the operational reorganization of the New Line business in 2008 and Warner
Bros.’ restructuring activities in 2009, discussed below, as well as a $133 million decrease in distribution expenses
primarily associated with the declines in Home video and electronic delivery revenues.
As previously noted under “Significant Transactions and Other Items Affecting Comparability,” the 2009
results included a $33 million loss on the sale of Warner Bros.’ Italian cinema assets. In addition, beginning in the
first quarter of 2009, Warner Bros. commenced a significant restructuring, primarily consisting of headcount
reductions and the outsourcing of certain functions to an external service provider. The Filmed Entertainment
segment incurred restructuring charges of $105 million in 2009. The 2008 results included restructuring charges of
$142 million primarily related to involuntary employee terminations in connection with the operational
reorganization of the New Line business.
Operating Income increased primarily due to lower costs of revenues and selling, general and administrative
expenses and a decrease in amortization expense primarily relating to film library assets, partly offset by a decrease
in revenues and the negative impact of foreign exchange rates. Operating Income also included the effect of lower
than anticipated home video catalog returns of approximately $40 million, a $26 million benefit in connection with
the resolution of an international VAT matter and the $33 million loss on the sale of the Italian cinema assets.
Publishing. Revenues and Operating Income (Loss) of the Publishing segment for the years ended
December 31, 2009 and 2008 are as follows (millions):
2009 2008 % Change
Years Ended December 31,
Revenues:
Subscription ....................................... $ 1,324 $ 1,523 (13%)
Advertising ....................................... 1,878 2,419 (22%)
Content . . ........................................ 73 63 16%
Other ............................................ 461 603 (24%)
Total revenues ....................................... 3,736 4,608 (19%)
Costs of revenues
(a)
................................... (1,441) (1,813) (21%)
Selling, general and administrative
(a)
...................... (1,744) (1,840) (5%)
Asset impairments .................................... (33) (7,195) NM
Restructuring costs.................................... (99) (176) (44%)
Depreciation ........................................ (126) (133) (5%)
Amortization ........................................ (47) (75) (37%)
Operating Income (Loss) ............................... $ 246 $ (6,624) NM
(a)
Costs of revenues and selling, general and administrative expenses exclude depreciation.
Subscription revenues declined primarily due to softening domestic newsstand sales, which decreased
$47 million, and a decline of $35 million in domestic subscription sales, both due in part to the effect of the
current economic environment, as well as a $95 million decrease at IPC resulting primarily from the negative
impact of foreign exchange rates.
40
TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)