SEC Filings

10-Q
TIME WARNER INC. filed this Form 10-Q on 08/02/2017
Entire Document
 


Table of Contents

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

 

The components of Costs of revenues for the Home Box Office segment are as follows (millions):

 

                                                                                                                                                     
     Three Months Ended June 30,    Six Months Ended June 30,
     2017   2016     % Change      2017   2016     % Change  

Programming costs:

             

Originals and sports

   $ 249     $ 282       (12)%      $ 512     $ 588       (13)%  

Acquired films and
syndicated series

     262       243       8%        551       502       10%  
  

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

Total programming costs

     511       525       (3)%        1,063       1,090       (2)%  

Other direct operating
costs

     176       183       (4)%        383       401       (4)%  
  

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

Costs of revenues (a)

   $ 687      $ 708        (3)%      $ 1,446      $ 1,491        (3)%  
  

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

(a)

Costs of revenues exclude depreciation.

The decrease in originals and sports programming costs for the three months ended June 30, 2017 was primarily due to lower original programming charges and the timing of original programming, partially offset by the impact of the change in the estimate of the utilization period of Home Box Office’s original programming described below. The decrease in originals and sports programming costs for the six months ended June 30, 2017 was primarily due to lower original programming charges. The increase in acquired films and syndicated series programming costs for the three and six months ended June 30, 2017 was primarily related to higher acquired programming costs for HBO’s domestic and international businesses. The Company expects that programming costs for the second half of 2017 will increase as compared to the second half of 2016 principally due to the timing of original programming.

During the second quarter of 2016, the Home Box Office segment revised its estimate of the period over which its original programming is utilized by its subscribers. The updated estimate gives consideration to Home Box Office’s original programming history and was driven by consumer viewing patterns, which are influenced by the increased availability of and on-demand access to Home Box Office’s content across a wide variety of devices and services, including HBO’s OTT service, which launched in April 2015. As a result, in determining amortization under the film forecast computation method, the weighted average subscriber utilization period for the majority of Home Box Office’s original programming was increased by approximately five months. The impact of this change was a reduction in amortization expense of approximately $95 million recognized in the three months ended June 30, 2016, of which approximately $50 million represented the impact to the three months ended March 31, 2016.

For the three months ended June 30, 2017, Selling, general and administrative expenses increased primarily due to costs related to the AT&T merger of $13 million. For the six months ended June 30, 2017, Selling, general and administrative expenses decreased primarily due to lower employee-related costs, partially offset by $24 million of costs related to the AT&T merger. In addition, the six months ended June 30, 2016 included $9 million of expenses related to Home Box Office’s withdrawal from a multiemployer benefit plan.

Refer to “Transactions and Other Items Affecting Comparability” for a discussion of costs related to the AT&T merger for the three and six months ended June 30, 2017, which affected the comparability of the Home Box Office segment’s results.

The results for the three and six months ended June 30, 2016 included $37 million and $41 million, respectively, of Restructuring and severance costs principally related to executive severance costs.

The increase in Operating Income for the three months ended June 30, 2017 was primarily due to lower Restructuring and severance costs and lower Costs of Revenues. The increase in Operating Income for the six months ended June 30, 2017 was primarily due to higher Revenues, lower Costs of revenues and lower Restructuring and severance costs.

 

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