America Online 2011 Annual Report Download - page 47

Table of Contents
AOL INC.
PART II—ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
increases were offset by decreases in billing expense of $11.3 million primarily due to the decline in domestic AOL-brand access subscribers, a decline of
$6.2 million due to a prior-year impairment and declines in internal content development costs of $4.3 million.
2010 vs. 2009
Costs of revenues decreased due to decreases in personnel and facilities costs, TAC costs, network-related costs and non-network related costs.
Personnel and facilities costs declined due to reduced headcount as a result of our 2009 restructuring initiatives. The declines related to our restructuring
initiatives were partially offset by an increase of $33.2 million related to the impact of hiring new employees in areas of strategic focus and an increase of
$23.4 million as we had lower capitalization of personnel costs in 2010 due to fewer product development projects qualifying for capitalization.
TAC decreased due to the decrease in advertising revenues, which drove a decline of $165.4 million primarily due to lower variable revenue share
payments to our publishing partners. In addition, there were declines from a significant product distribution agreement, whereby payments previously were
based on the number of personal computers shipped and payments are now based on a percentage of the advertising revenue we earn on the associated co-
branded website. As a result, TAC associated with this agreement declined by $94.1 million.
Network-related costs declined due to declines in depreciation expense on network equipment due to a higher percentage of in-service assets being fully
depreciated and declines in narrowband network and other network-related costs, partially due to terminated and renegotiated maintenance agreements and the
decline in domestic AOL-brand access subscribers. Costs of revenues also included a decrease in non-network depreciation and amortization assets.
The decreases discussed above were partially offset by increased content costs of $16.3 million mainly related to Patch.
General and Administrative
General and administrative expenses decreased for the year ended December 31, 2011 as compared to the year ended December 31, 2010 due to a
decline in personnel and facilities costs of $58.7 million mainly related to reduced corporate headcount as a result of 2010 strategic initiatives to align costs
with our structure, declines in depreciation and amortization expense of $10.7 million, declines in bad debt expense of $3.5 million, and declines in marketing
costs of $2.7 million. The decrease in general and administrative expenses for the year ended December 31, 2011 was offset by increases in acquisition-
related expenses of $9.9 million primarily due to the acquisitions of The Huffington Post and goviral and an increase of $8.5 million related to a legal
settlement in Q4 2011.
General and administrative expenses decreased for the year ended December 31, 2010 as compared to the year ended December 31, 2009. The decrease
was due to declines in external legal costs and other legal matters of $25.1 million, a decline related to the resolution of a French value-added tax matter in
2009 of $14.7 million and declines in bad debt expense of $14.5 million due to improved collections on aged balances including the impact of the decline in
subscribers. The decrease also included declines in personnel costs of $12.6 million related to reduced headcount, declines in depreciation and amortization
expenses of $6.6 million and a $5.2 million decline related to a business tax expense recorded in 2009. Personnel cost declines included a reduction
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