America Online 2009 Annual Report Download - page 51

Table of Contents
Other revenues decreased 14% for both of the years ended December 31, 2009 and December 31, 2008, as compared to the prior years, due to declines
in the revenues associated with the transition support services agreements with the purchasers of our European access service businesses (which ended in
2008). These agreements contributed $23 million and $51 million in revenue for the years ended December 31, 2008 and December 31, 2007, respectively.
The decline in revenue from these agreements was partially offset by increases in mobile e-mail and instant messaging revenues of $6 million and $14 million
for the years ended December 31, 2009 and December 31, 2008, as compared to the years ended December 31, 2008 and December 31, 2007, respectively.
GEOGRAPHICAL CONCENTRATION OF REVENUES
For all of the periods presented herein, a significant majority of our revenues have been generated in the United States. In 2009, 2008 and 2007, 88%,
87% and 88%, respectively, of our revenues were generated in the United States. Substantially all of the non-United States revenues in 2009, 2008 and 2007
were generated by our European operations (primarily in the United Kingdom, France and Germany). We expect the significant majority of our revenues to
continue to be generated in the United States for the foreseeable future. See "Note 1: Description of Business, Basis of Presentation and Summary of
Significant Accounting Policies" in our accompanying consolidated financial statements for further discussion of our geographical concentrations.
OPERATING COSTS AND EXPENSES
The following table presents our operating costs and expenses for the periods presented (in millions):
Years Ended December 31,
2009 2008
% Change
from 2008
to 2009 2007
% Change
from 2007
to 2008
Costs of revenues $ 1,898.5 $ 2,278.4 (17)% $ 2,652.6 (14)%
Selling, general and administrative 538.0 644.8 (17)% 964.2 (33)%
Amortization of intangible assets 144.7 166.2 (13)% 95.9 73%
Amounts related to securities litigation and government investigations, net of recoveries 27.9 20.8 34% 171.4 (88)%
Restructuring costs 190.3 16.6 NM 125.4 (87)%
Goodwill impairment charge — 2,207.0 (100)% — NM
Gain on disposal of assets and consolidated businesses, net — (0.3) (100)% (682.6) (100)%
NM = not meaningful
The following categories of costs are generally included in costs of revenues: network-related costs, traffic acquisition costs (TAC), product
development costs and other costs of revenues. For the year ended December 31, 2009, the largest component of costs of revenues was TAC. TAC consists of
costs incurred through arrangements in which we acquire third-party online advertising inventory for resale and arrangements whereby partners distribute our
free products or services or otherwise direct traffic to AOL Properties. TAC arrangements have a number of different economic structures, the most common
of which are: payments based on a cost-per-thousand impressions or based on a percentage of the ultimate advertising revenues generated from the advertising
inventory acquired for resale, payments for direct traffic delivered to AOL Properties priced on a per click basis (e.g., search engine marketing fees) and
payments to partners in exchange for distributing our products to their users (e.g., agreements with computer manufacturers to distribute our toolbar or a co-
branded web portal on computers shipped to end users). These arrangements can be on a fixed-fee basis (which often carry reciprocal performance guarantees
by the counterparty), on a variable basis or, in some cases, a combination of the two. Network-related costs include narrowband access costs, hardware and
software maintenance expense, high-speed data circuits, personnel and related overhead costs incurred in supporting the network and depreciation of network-
related assets. Product development costs include software maintenance costs, research and development costs and other expenses incurred in the
development of software and user-facing Internet offerings, including personnel and related overhead support costs. Other costs of revenues include content
royalties and customer service costs, which include outsourced
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