America Online 2014 Annual Report Download - page 59

AOL INC.
PART II—ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operating Costs and Expenses
The following table presents our operating costs and expenses for the periods presented (in millions):
Years Ended December 31,
2014 2013
Change
from 2013
to 2014
% Change
from 2013
to 2014 2012
Change
from 2012
to 2013
% Change
from 2012
to 2013
Costs of revenues .............. $ 1,920.5 $ 1,706.2 $ 214.3 13% $ 1,587.2 $ 119.0 7%
General and administrative ....... 318.4 322.0 (3.6) (1)% 413.2 (91.2) (22)%
Amortization of intangible
assets ...................... 65.6 45.1 20.5 45% 38.2 6.9 18%
Restructuring costs ............. 22.0 41.3 (19.3) (47)% 10.1 31.2 NM
Goodwill impairment charge ..... — 17.5 (17.5) (100)% — 17.5 NM
Income from licensing of
intellectual property .......... — — — NM (96.0) 96.0 (100)%
(Gain) loss on disposal of assets,
net ........................ (4.8) (2.5) (2.3) (92)% (962.9) 960.4 NM
NM = not meaningful
The following table represents our operating costs and expenses as a percentage of revenues for the periods
presented:
Years Ended December 31,
2014 2013 2012
Operating costs and expenses:
Costs of revenues .................................................... 76% 74% 72%
General and administrative ............................................ 12% 14% 19%
Amortization of intangible assets ........................................ 3% 2% 2%
Restructuring costs ................................................... 1% 1% — %
Goodwill impairment charge ........................................... — % 1% — %
Income from licensing of intellectual property ............................. — % — % (4)%
(Gain) loss on disposal of assets, net ..................................... — % — % (44)%
Operating costs and expenses ...................................... 92% 92% 45%
Costs of Revenues
The following categories of costs are generally included in costs of revenues: personnel and facilities costs,
TAC, network-related costs, non-network depreciation and amortization, content costs and other costs of
revenues. TAC consists of costs incurred through arrangements in which we acquire third-party online
advertising inventory for resale and arrangements whereby partners 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 and payments for direct traffic delivered to AOL Properties priced
on a per click basis (e.g., search engine marketing fees). These arrangements are primarily on a variable basis;
however, the arrangements can also be on a fixed-fee basis, which often carry reciprocal performance guarantees
by the counterparty, or a combination of fixed and variable fees. Other costs of revenues include outsourced ad
serving expenses (including rich media), outsourced customer service costs, costs associated with customer
billing and collections and certain asset impairments.
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