Time Magazine 2011 Annual Report Download - page 53

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)
The increase in Costs of revenues was driven by higher programming costs and higher other direct operating
costs. The increase in programming costs reflected higher originals and sports programming costs due in part to
international growth, partially offset by lower acquired films and syndicated series costs primarily due to a prior
year $104 million write-down to net realizable value relating to a program licensed by Turner from Warner Bros.
that the Company re-licensed to a third party. The increases in Costs of revenues also reflected higher other
direct operating costs of $156 million primarily related to international growth.
Selling, general and administrative expenses increased due primarily to higher marketing expenses of $137
million and increased costs of $48 million associated with the acquisition of HBO CE and other smaller
acquisitions, partially offset by a $58 million reserve reversal in connection with the resolution of litigation
relating to the 2004 sale of the Winter Sports Teams.
As previously noted under “Transactions and Other Items Affecting Comparability,” the 2010 results
included a $59 million Gain on operating assets that was recognized upon the Company’s acquisition of the
controlling interest in HBO CE, reflecting the excess of the fair value over the Company’s carrying costs of its
original investment in HBO CE. The 2009 results included a $52 million noncash impairment of intangible assets
related to Turner’s interest in a general entertainment network in India. In addition, the 2010 and 2009 results
included $6 million and $8 million, respectively, of Restructuring and severance costs, primarily related to
headcount reductions.
Operating Income increased primarily due to the increase in Revenues, the $59 million Gain on operating
assets relating to HBO CE, the $58 million reserve reversal in connection with the resolution of litigation related
to the sale of the Winter Sports Teams and the absence in 2010 of the $52 million noncash impairment of
intangible assets, partially offset by higher Costs of revenues and higher Selling, general and administrative
expenses.
Filmed Entertainment. Revenues and Operating Income of the Filmed Entertainment segment for the
years ended December 31, 2010 and 2009 are as follows (millions):
Year Ended December 31,
2010 2009 % Change
Revenues:
Subscription ......................................... $ 66 $ 44 50%
Advertising ......................................... 75 79 (5%)
Content ............................................. 11,359 10,766 6%
Other .............................................. 122 177 (31%)
Total revenues ......................................... 11,622 11,066 5%
Costs of revenues(a) ...................................... (8,429) (7,805) 8%
Selling, general and administrative(a) ........................ (1,684) (1,676) —
Gain (loss) on operating assets ............................ 11 (33) (133%)
Asset impairments ...................................... (9) — NM
Restructuring and severance costs .......................... (30) (105) (71%)
Depreciation ........................................... (186) (164) 13%
Amortization .......................................... (188) (199) (6%)
Operating Income ...................................... $ 1,107 $ 1,084 2%
(a) Costs of revenues and Selling, general and administrative expenses exclude depreciation.
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