NETFLIX INC, 10-K filed on 2/1/2013
Annual Report
Document And Entity Information (USD $)
12 Months Ended
Dec. 31, 2012
Jan. 31, 2013
Jun. 30, 2012
Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2011 
 
 
Document Fiscal Year Focus
2011 
 
 
Document Fiscal Period Focus
FY 
 
 
Entity Registrant Name
NETFLIX INC 
 
 
Entity Central Index Key
0001065280 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
55,993,477 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 3,278,134,336 
Consolidated Statements Of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Income Statement [Abstract]
 
 
 
Revenues
$ 3,609,282 
$ 3,204,577 
$ 2,162,625 
Cost of revenues
2,625,866 
2,039,901 
1,357,355 
Marketing
484,729 
402,638 
293,839 
Technology and development
329,008 
259,033 
163,329 
General and administrative
119,687 
126,937 
64,461 
Operating income
49,992 
376,068 
283,641 
Other income (expense):
 
 
 
Interest expense
(19,986)
(20,025)
(19,629)
Interest and other income (expense)
474 
3,479 
3,684 
Income before income taxes
30,480 
359,522 
267,696 
Provision for income taxes
13,328 
133,396 
106,843 
Net income
$ 17,152 
$ 226,126 
$ 160,853 
Earnings per share:
 
 
 
Basic (in dollars per share)
$ 0.31 
$ 4.28 
$ 3.06 
Diluted (in dollars per share)
$ 0.29 
$ 4.16 
$ 2.96 
Weighted-average common shares outstanding:
 
 
 
Basic (in shares)
55,521 
52,847 
52,529 
Diluted (in shares)
58,904 
54,369 
54,304 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Statement of Other Comprehensive Income [Abstract]
 
 
 
Net income
$ 17,152 
$ 226,126 
$ 160,853 
Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustments
1,357 
24 
0 
Change in unrealized gains on available-for-sale securities
1,394 
(111)
798 
Other comprehensive income (loss) before tax
2,751 
(87)
798 
Income tax expense related to items of other comprehensive income
(538)
43 
(321)
Other comprehensive income (loss), net of tax
2,213 
(44)
477 
Comprehensive income
$ 19,365 
$ 226,082 
$ 161,330 
Consolidated Statements Of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Cash flows from operating activities:
 
 
 
Net income
$ 17,152 
$ 226,126 
$ 160,853 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Additions to streaming content library
(2,515,506)
(2,320,732)
(406,210)
Change in streaming content liabilities
762,089 
1,463,955 
168,231 
Amortization of streaming content library
1,591,218 
699,128 
158,100 
Amortization of DVD content library
65,396 
96,744 
142,496 
Depreciation and amortization of property, equipment and intangibles
45,469 
43,747 
38,099 
Stock-based compensation expense
73,948 
61,582 
27,996 
Excess tax benefits from stock-based compensation
(4,543)
(45,784)
(62,214)
Other non-cash items
(8,392)
(4,050)
(9,128)
Deferred taxes
(30,071)
(18,597)
(962)
Changes in operating assets and liabilities:
 
 
 
Prepaid content
(3,922)
6,211 
(35,476)
Other current assets
(1,510)
(4,775)
(18,027)
Accounts payable
(3,764)
23,968 
19,214 
Accrued expenses
9,806 
65,560 
65,698 
Deferred revenue
20,676 
21,613 
27,086 
Other non-current assets and liabilities
4,719 
3,016 
645 
Net cash provided by operating activities
22,765 
317,712 
276,401 
Cash flows from investing activities:
 
 
 
Acquisition of DVD content library
(48,275)
(85,154)
(123,901)
Purchases of property and equipment
(41,457)
(49,682)
(33,837)
Purchases of short-term investments
(477,321)
(223,750)
(107,362)
Proceeds from sale of short-term investments
282,953 
50,993 
120,857 
Proceeds from maturities of short-term investments
29,365 
38,105 
15,818 
Other assets
8,816 
3,674 
12,344 
Net cash used in investing activities
(245,919)
(265,814)
(116,081)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock
4,124 
19,614 
49,776 
Proceeds from public offering of common stock, net of issuance costs
(464)
199,947 
0 
Proceeds from issuance of debt, net of issuance costs
(295)
198,060 
0 
Repurchases of common stock
0 
(199,666)
(210,259)
Excess tax benefits from stock-based compensation
4,543 
45,784 
62,214 
Principal payments of lease financing obligations
(2,319)
(2,083)
(1,776)
Net cash provided by (used in) financing activities
5,589 
261,656 
(100,045)
Effect of exchange rate changes on cash and cash equivalents
(197)
0 
0 
Net increase (decrease) in cash and cash equivalents
(217,762)
313,554 
60,275 
Cash and cash equivalents, beginning of year
508,053 
194,499 
134,224 
Cash and cash equivalents, end of year
290,291 
508,053 
194,499 
Supplemental disclosure:
 
 
 
Income taxes paid
28,853 
79,069 
56,218 
Interest paid
$ 19,009 
$ 19,395 
$ 20,101 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Current assets:
 
 
Cash and cash equivalents
$ 290,291 
$ 508,053 
Short-term investments
457,787 
289,758 
Current content library, net
1,368,162 
919,709 
Prepaid content
59,929 
56,007 
Other current assets
64,622 
57,330 
Total current assets
2,240,791 
1,830,857 
Non-current content library, net
1,506,008 
1,046,934 
Property and equipment, net
131,681 
136,353 
Other non-current assets
89,410 
55,052 
Total assets
3,967,890 
3,069,196 
Current liabilities:
 
 
Current content liabilities
1,366,847 
935,036 
Accounts payable
86,468 
86,992 
Accrued expenses
53,139 
54,231 
Deferred revenue
169,472 
148,796 
Total current liabilities
1,675,926 
1,225,055 
Non-current content liabilities
1,076,622 
739,628 
Long-term debt
200,000 
200,000 
Long-term debt due to related party
200,000 
200,000 
Other non-current liabilities
70,669 
61,703 
Total liabilities
3,223,217 
2,426,386 
Commitments and contingencies (Note 5)
   
   
Stockholders’ equity:
 
 
Preferred stock, $0.001 par value; 10,000,000 shares authorized at December 31, 2012 and 2011; no shares issued and outstanding at December 31, 2012 and 2011
0 
0 
Common stock, $0.001 par value; 160,000,000 shares authorized at December 31, 2012 and 2011; 55,587,167 and 55,398,615 issued and outstanding at December 31, 2012 and 2011, respectively
56 
55 
Additional paid-in capital
301,616 
219,119 
Accumulated other comprehensive income
2,919 
706 
Retained earnings
440,082 
422,930 
Total stockholders’ equity
744,673 
642,810 
Total liabilities and stockholders’ equity
$ 3,967,890 
$ 3,069,196 
Consolidated Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2012
Dec. 31, 2011
Statement of Financial Position [Abstract]
 
 
Preferred stock, par value
$ 0.001 
$ 0.001 
Preferred stock, shares authorized
10,000,000 
10,000,000 
Preferred stock, shares issued
0 
0 
Preferred stock, shares outstanding
0 
0 
Common stock, par value
$ 0.001 
$ 0.001 
Common stock, shares authorized
160,000,000 
160,000,000 
Common stock, shares issued
55,398,615 
55,398,615 
Common stock, shares outstanding
55,398,615 
55,398,615 
Consolidated Statements Of Stockholders' Equity (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Accumulated Other Comprehensive Income [Member]
Retained Earnings [Member]
Beginning Balance at Dec. 31, 2009
$ 199,143 
$ 53 
$ 0 
$ 273 
$ 198,817 
Beginning Balance (in shares) at Dec. 31, 2009
 
53,440,073 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
Net income
160,853 
 
 
 
160,853 
Other comprehensive income
477 
 
 
477 
 
Comprehensive income
161,330 
 
 
 
 
Issuance of common stock upon exercise of options
47,082 
2 
47,080 
 
 
Issuance of common stock upon exercise of options (in shares)
1,902,073 
1,902,073 
 
 
 
Issuance of common stock under employee stock purchase plan
2,694 
 
2,694 
 
 
Issuance of common stock under employee stock purchase plan (in shares)
 
46,112 
 
 
 
Repurchases of common stock and retirement of outstanding treasury stock
(210,259)
(2)
(88,326)
 
(121,931)
Repurchases of common stock and retirement of outstanding treasury stock (in shares)
(2,606,000)
(2,606,309)
 
 
 
Stock-based compensation expense
27,996 
 
27,996 
 
 
Excess stock option income tax benefits
62,178 
 
62,178 
 
 
Ending Balance at Dec. 31, 2010
290,164 
53 
51,622 
750 
237,739 
Ending Balance (in shares) at Dec. 31, 2010
 
52,781,949 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
Net income
226,126 
 
 
 
226,126 
Other comprehensive income
(44)
 
 
(44)
 
Comprehensive income
226,082 
 
 
 
 
Issuance of common stock upon exercise of options
19,614 
0 
19,614 
 
 
Issuance of common stock upon exercise of options (in shares)
659,370 
659,370 
 
 
 
Issuance of common stock, net of costs
199,486 
3 
199,483 
 
 
Issuance of common stock, net of costs (in shares)
 
2,857,143 
 
 
 
Repurchases of common stock and retirement of outstanding treasury stock
(199,666)
(1)
(158,730)
 
(40,935)
Repurchases of common stock and retirement of outstanding treasury stock (in shares)
(900,000)
(899,847)
 
 
 
Stock-based compensation expense
61,582 
 
61,582 
 
 
Excess stock option income tax benefits
45,548 
 
45,548 
 
 
Ending Balance at Dec. 31, 2011
642,810 
55 
219,119 
706 
422,930 
Ending Balance (in shares) at Dec. 31, 2011
 
55,398,615 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
Net income
17,152 
 
 
 
17,152 
Other comprehensive income
2,213 
 
 
2,213 
 
Comprehensive income
19,365 
 
 
 
 
Issuance of common stock upon exercise of options
4,124 
1 
4,123 
 
 
Issuance of common stock upon exercise of options (in shares)
188,552 
188,552 
 
 
 
Stock-based compensation expense
73,948 
 
73,948 
 
 
Excess stock option income tax benefits
4,426 
 
4,426 
 
 
Ending Balance at Dec. 31, 2012
$ 744,673 
$ 56 
$ 301,616 
$ 2,919 
$ 440,082 
Ending Balance (in shares) at Dec. 31, 2012
 
55,587,167 
 
 
 
Organization And Summary Of Significant Accounting Policies
Organization And Summary Of Significant Accounting Policies
Organization and Summary of Significant Accounting Policies
Description of Business
Netflix, Inc. (the “Company”) was incorporated on August 29, 1997 and began operations on April 14, 1998. The Company is the world’s leading Internet television network with more than 33 million members in over 40 countries enjoying one billion hours of TV shows and movies per month. In the United States, subscribers can receive DVDs delivered quickly to their homes.
The Company is organized into three operating segments, Domestic streaming, International streaming and Domestic DVD. Substantially all of the Company’s revenues are generated in the United States, and substantially all of the Company’s long-lived tangible assets are held in the United States. The Company’s revenues are derived from monthly subscription fees.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated.
Reclassification
Certain prior period amounts have been reclassified to conform to the current presentation. Specifically content liabilities are now presented separately from all other accounts payable and accrued liabilities on both the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows. Additionally, the amount for Legal settlement as presented in prior periods is now included in the General and Administrative line on the Consolidated Statements of Operations. These reclassifications did not impact any prior amounts of reported total assets, total liabilities, stockholders’ equity, results of operations or cash flows.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include the amortization policy for the content library; the recognition and measurement of income tax assets and liabilities; and the valuation of stock-based compensation. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results may differ from these estimates.
Cash Equivalents and Short-term Investments
The Company considers investments in instruments purchased with an original maturity of 90 days or less to be cash equivalents. The Company classifies short-term investments, which consist of marketable securities with original maturities in excess of 90 days as available-for-sale. Short-term investments are reported at fair value with unrealized gains and losses included in “Accumulated other comprehensive income” within stockholders’ equity in the Consolidated Balance Sheets. The amortization of premiums and discounts on the investments, realized gains and losses, and declines in value judged to be other-than-temporary on available-for-sale securities are included in “Interest and other income (expense)” in the Consolidated Statements of Operations. The Company uses the specific identification method to determine cost in calculating realized gains and losses upon the sale of short-term investments.
Short-term investments are reviewed periodically to identify possible other-than-temporary impairment. When evaluating the investments, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, the Company’s intent to sell, or whether it would be more likely than not that the Company would be required to sell the investments before the recovery of their amortized cost basis.
Content Library
The Company obtains content through streaming content license agreements, DVD direct purchases and DVD revenue sharing agreements with various content providers.
The Company obtains content distribution rights in order to stream TV shows, movies and original programming to subscribers’ TVs, computers and mobile devices. Streaming content is generally licensed for a fixed fee for the term of the license agreement which may have multiple windows of availability. The license agreement may or may not be recognized in content library.
When the streaming license fee is known or reasonably determinable for a specific title and the specific title is first available for streaming to subscribers, the title is recognized on the Consolidated Balance Sheets as “Current content library, net” for the portion available for streaming within one year and as “Non-current content library, net” for the remaining portion. New titles recognized in the content library are classified in the line item “Additions to streaming content library” within net cash provided by operating activities on the Consolidated Statements of Cash Flows. The streaming content library is reported at the lower of unamortized cost or estimated net realizable value. The Company amortizes the content library on a straight-line basis over each title's contractual window of availability, which typically ranges from six months to five years.

The amortization of the streaming content library is classified in “Cost of revenues” on the Consolidated Statements of Operations and in the line item “Amortization of streaming content library” within net cash provided by operating activities on the Consolidated Statements of Cash Flows. Costs related to subtitles, dubbing, and closed captioning are capitalized in “Current content library, net” on the Consolidated Balance Sheets and amortized over the window of availability. Payment terms for these license fees may extend over the term of the license window, which typically ranges from six months to five years. For the titles recognized in content library, the license fees due but not paid are classified on the Consolidated Balance Sheets as "Current content liabilities” for the amounts due within one year and as “Non-current content liabilities” for the amounts due beyond one year. Changes in these liabilities are classified in the line item “Change in streaming content liabilities” within net cash provided by operating activities on the Consolidated Statements of Cash Flows. The Company records the streaming content library assets and their related liability on the Consolidated Balance Sheets at the gross amount of the liability. Payments for the titles not yet available for streaming are not yet recognized in the content library but in prepaid content. Minimum commitments for the titles not yet available for streaming are not yet recognized in the content library and are included in Note 5 to the consolidated financial statements.
When the streaming license fee is not known or reasonably determinable for a specific title, the title does not meet the criteria for asset recognition in the content library. Titles do not meet the criteria for asset recognition in the content library because the underlying license agreement does not specify the number of titles or the license fee per title or the windows of availability per title, so that the license fee is not known or reasonably determinable for a specific title. Typical payment terms for these agreements, which can range from three to five years, require the Company to make equal fixed payments at the beginning of each quarter of the license term. To the extent that cumulative payments exceed cumulative amortization, prepaid content is recorded on the Consolidated Balance Sheets. The Company amortizes the license fees on a straight-line basis over the term of each license agreement. The amortization is classified in “Cost of revenues” on the Consolidated Statements of Operations and in the line item “Net income” within net cash provided by operating activities on the Consolidated Statements of Cash Flows. Changes in prepaid content are classified within net cash provided by operating activities in the line item “Prepaid content” on the Consolidated Statements of Cash Flows. Commitments for licenses that do not meet the criteria for asset recognition in the content library are included in Note 5 to the consolidated financial statements.
Streaming content licenses (including both those that are recorded in the streaming content library and those that do not meet the criteria for asset recognition) are reviewed in aggregate at the geographic region level for impairment when an event or change in circumstances indicates a change in the expected usefulness of the content. The level of geographic aggregation is determined based on the streaming content rights which are generally specific to a geographic region inclusive of several countries (such as Latin America). An impairment would be recorded as necessary to adjust the streaming content library to the lower of unamortized cost or estimated net realizable value. No material write down from unamortized cost to a lower net realizable value was recorded in any of the periods presented
The Company acquires DVD content for the purpose of renting such content to its subscribers and earning subscription rental revenues, and, as such, the Company considers its direct purchase DVD library to be a productive asset. Accordingly, the Company classifies its DVD library in “Non-current content library, net” on the Consolidated Balance Sheets. The acquisition of DVD content library, net of changes in related liabilities, is classified in the line item “Acquisition of DVD content library” within cash used in investing activities on the Consolidated Statements of Cash Flows because the DVD content library is considered a productive asset. Other companies in the in-home entertainment video industry classify these cash flows as operating activities. The Company amortizes its direct purchase DVDs, less estimated salvage value, on a “sum-of-the-months” accelerated basis over their estimated useful lives. The useful life of the new release DVDs and back-catalog DVDs is estimated to be one year and three years, respectively. The amortization of the DVD content library is classified in “Cost of revenues” on the Consolidated Statements of Operations and on the line item “Amortization of DVD content library” within net cash provided by operating activities on the Consolidated Statements of Cash Flows. The Company also obtains DVD content through revenue sharing agreements with studios and other content providers. Revenue sharing obligations incurred based on utilization are classified in “Cost of revenues” on the Consolidated Statements of Operations and in the line item “Net income” within net cash provided by operating activities on the Consolidated Statements of Cash Flows. The terms of some revenue sharing agreements obligate the Company to make a low initial payment for certain titles, representing a minimum contractual obligation under the agreement. The low initial payment is in exchange for a commitment to share a percentage of its subscription revenues or to pay a fee, based on utilization, for a defined period of time. The initial payment may be in the form of an upfront non-refundable payment which is classified in content library or in the form of a prepayment of future revenue sharing obligations which is classified as prepaid content.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the shorter of the estimated useful lives of the respective assets, generally up to 30 years, or the lease term for leasehold improvements, if applicable. Leased buildings are capitalized and included in property and equipment when the Company was involved in the construction funding and did not meet the “sale-leaseback” criteria.
Impairment of Long-Lived Assets
Long-lived assets such as DVD content library, property and equipment and intangible assets subject to depreciation and amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of an asset group exceeds fair value of the asset group. There were no events or changes in circumstances that would indicate that the carrying amount of an asset group may not be recoverable in any of the years presented.
Revenue Recognition
Subscription revenues are recognized ratably over each subscriber’s monthly subscription period. Revenues are presented net of the taxes that are collected from customers and remitted to governmental authorities. Deferred revenue consists of subscriptions revenues billed to subscribers that have not been recognized and gift subscriptions that have not been redeemed.
Marketing
Marketing expenses consist primarily of advertising expenses and also include payments made to the Company’s affiliates and consumer electronics partners and payroll related expenses. Advertising expenses include promotional activities such as television and online advertising, as well as allocated costs of revenues relating to free trial periods. Advertising costs are expensed as incurred. Advertising expense totaled approximately $377.2 million, $299.1 million and $212.4 million in 2012, 2011 and 2010, respectively.
Income Taxes
The Company records a tax provision for the anticipated tax consequences of the reported results of operations using the asset and liability method. Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which future realization is uncertain. There was no significant valuation allowance as of December 31, 2012 or 2011.
The Company did not recognize certain tax benefits from uncertain tax positions within the provision for income taxes. The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. See Note 8 to the consolidated financial statements for further information regarding income taxes.
Foreign Currency
The Company translates the assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. Revenues and expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are recognized in cumulative translation adjustment included in accumulated other comprehensive income in stockholders’ equity. The cumulative translation adjustment as of December 31, 2012 was $1.4 million. There was no material cumulative translation adjustments as of December 31, 2011 or 2010. The amount of income tax allocated to cumulative translation adjustments is immaterial for each of the years ended December 31, 2012, 2011, and 2010.
For transactions that are not denominated in the functional currency, the Company remeasures monetary assets and liabilities at exchange rates in effect at the end of each period. Gains and losses from these remeasurements are recognized in interest and other income (expense). Foreign currency transactions resulted in losses of $4.0 million for the year ended December 31, 2012. The gains (losses) from foreign currency transactions were immaterial for each of the years ended December 31, 2011 and 2010. The effect of exchange rate changes on cash and cash equivalents were immaterial for each of the years ended December 31, 2012, 2011, and 2010.
Earnings Per Share
Basic earnings per share is computed using the weighted-average number of outstanding shares of common stock during the period. Diluted earnings per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential common shares outstanding during the period. Potential common shares consist of shares issuable upon the assumed conversion of the Company’s Convertible Notes, incremental shares issuable upon the assumed exercise of stock options, and for 2010, shares that were purchasable pursuant to the Company’s employee stock purchase plan (“ESPP”). The Company’s ESPP was suspended in 2011 and there were no offerings in 2011 or 2012. The computation of earnings per share is as follows:
 
 
Year ended December 31,
 
2012
 
2011
 
2010
 
(in thousands, except per share data)
Basic earnings per share:
 
 
 
 
 
Net income
$
17,152

 
$
226,126

 
$
160,853

Shares used in computation:
 
 
 
 
 
Weighted-average common shares outstanding
55,521

 
52,847

 
52,529

Basic earnings per share
$
0.31

 
$
4.28

 
$
3.06

Diluted earnings per share:
 
 
 
 
 
Net income
$
17,152

 
$
226,126

 
$
160,853

Convertible Notes interest expense, net of tax
195

 
17

 
—

Numerator for diluted earnings per share
17,347

 
226,143

 
160,853

Shares used in computation:
 
 
 
 
 
Weighted-average common shares outstanding
55,521

 
52,847

 
52,529

Convertible notes shares
2,331

 
217

 
—

Employee stock options and employee stock purchase plan shares
1,052

 
1,305

 
1,775

Weighted-average number of shares
58,904

 
54,369

 
54,304

Diluted earnings per share
$
0.29

 
$
4.16

 
$
2.96


Employee stock options with exercise prices greater than the average market price of the common stock were excluded from the diluted calculation as their inclusion would have been anti-dilutive. The following table summarizes the potential common shares excluded from the diluted calculation:
 
 
Year ended December 31,
 
2012
 
2011
 
2010
 
(in thousands)
Employee stock options
1,207

 
225

 
14


Stock-Based Compensation
The Company grants stock options to its employees on a monthly basis. The Company has elected to grant all options as fully vested non-qualified stock options. As a result of immediate vesting, stock-based compensation expense is fully recognized on the grant date, and no estimate is required for post-vesting option forfeitures. See Note 7 to the consolidated financial statements for further information regarding stock-based compensation.
Stock Repurchases
To facilitate a stock repurchase program, shares are repurchased by the Company in the open market and are accounted for when the transaction is settled. Shares held for future issuance are classified as Treasury stock. Shares formally or constructively retired are deducted from common stock for par value and from additional paid-in capital for the excess over par value. If additional paid in capital has been exhausted, the excess over par value is deducted from Retained earnings. Direct costs incurred to acquire the shares are included in the total cost of the shares.
Short-Term Investments
Short-Term Investments
Short-term Investments
The Company’s investment policy is consistent with the definition of available-for-sale securities. The Company does not buy and hold securities principally for the purpose of selling them in the near future. The Company’s policy is focused on the preservation of capital, liquidity and return. From time to time, the Company may sell certain securities but the objectives are generally not to generate profits on short-term differences in price. The following table summarizes, by major security type, the Company’s assets that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.
 
 
December 31, 2012
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(in thousands)
Cash
$
284,661

 
$
—

 
$
—

 
$
284,661

Level 1 securities:
 
 
 
 
 
 
 
Money market funds
10,500

 
—

 
—

 
10,500

Level 2 securities:
 
 
 
 
 
 
 
Corporate debt securities
150,322

 
1,605

 
(32
)
 
151,895

Government and agency securities
166,643

 
285

 
—

 
166,928

Asset and mortgage-backed securities
138,340

 
750

 
(125
)
 
138,965

Total (1)
$
750,466

 
$
2,640

 
$
(157
)
 
$
752,949


 
December 31, 2011
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(in thousands)
Cash
$
388,941

 
$
—

 
$
—

 
$
388,941

Level 1 securities:
 
 
 
 
 
 
 
Money market funds
123,608

 
—

 
—

 
123,608

Level 2 securities:
 
 
 
 
 
 
 
Corporate debt securities
112,264

 
603

 
(214
)
 
112,653

Government and agency securities
175,464

 
694

 
(56
)
 
176,102

Asset and mortgage-backed securities
941

 
62

 
—

 
1,003

Total (2)
$
801,218

 
$
1,359

 
$
(270
)
 
$
802,307


 
(1)
Includes $290.3 million that is included in cash and cash equivalents, $457.8 million included in short-term investments and $4.8 million of restricted cash that is included in other non-current assets related to workers compensation deposits.
(2)
Includes $508.1 million included in cash and cash equivalents, $289.8 million included in short-term investments and $4.5 million of restricted cash that is included in other current assets and other non-current assets.
Fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. The hierarchy level assigned to each security in the Company’s available-for-sale portfolio and cash equivalents is based on its assessment of the transparency and reliability of the inputs used in the valuation of such instrument at the measurement date. The fair value of available-for-sale securities and cash equivalents included in the Level 1 category is based on quoted prices that are readily and regularly available in an active market. The fair value of available-for-sale securities included in the Level 2 category is based on observable inputs, such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. These values were obtained from an independent pricing service and were evaluated using pricing models that vary by asset class and may incorporate available trade, bid and other market information and price quotes from well-established independent pricing vendors and broker-dealers. The Company’s procedures include controls to ensure that appropriate fair values are recorded, such as comparing prices obtained from multiple independent sources. See Note 4 to the consolidated financial statements for further information regarding the fair value of the Company’s senior convertible notes and senior notes.
Because the Company does not intend to sell the investments that are in an unrealized loss position and it is not likely that the Company will be required to sell any investments before recovery of their amortized cost basis, the Company does not consider those investments with an unrealized loss to be other-than-temporarily impaired at December 31, 2012. There were no material other-than-temporary impairments or credit losses related to available-for-sale securities in 2012, 2011 or 2010.
There were no material gross realized gains or losses from the sale of available-for-sale investments for the years ended December 31, 2012, 2011 and 2010. Realized gains and losses and interest income are included in interest and other income.
The estimated fair value of short-term investments by contractual maturity as of December 31, 2012 is as follows:
 
 
 
(in thousands)
Due within one year
 
$
94,739

Due after one year and through 5 years
 
312,096

Due after 5 years and through 10 years
 
6,679

Due after 10 years
 
44,273

Total short-term investments
 
$
457,787

Balance Sheet Components
Balance Sheet Components
Balance Sheet Components
Content Library
Content library consisted of the following:
 
 
As of December 31,
 
2012
 
2011
 
(in thousands)
Total content library, gross
$
5,001,524

 
$
3,151,439

Accumulated amortization
(2,127,354
)
 
(1,184,796
)
Total content library, net
2,874,170

 
1,966,643

Current content library, net
1,368,162

 
919,709

Non-current content library, net
$
1,506,008

 
$
1,046,934



Content Liabilities
Content liabilities consisted of the following:
 
 
As of December 31,
 
2012
 
2011
 
(in thousands)
Current content liabilities
$
1,366,847

 
$
935,036

Non-current content liabilities
1,076,622

 
739,628

Total content liabilities
$
2,443,469

 
$
1,674,664


The Company typically enters into multi-year licenses with various content providers that may result in an increase in the streaming content library and a corresponding increase in the streaming content liabilities. The payment terms for these streaming license fees may extend over the term of the license agreement, which typically ranges from six months to five years.
Property and Equipment, Net
Property and equipment and accumulated depreciation consisted of the following:
 
 
 
As of December 31,
 
 
2012
 
2011
 
 
(in thousands)
Computer equipment
 
3 years
 
$
84,193

 
$
67,090

Operations and other equipment
 
5 years
 
100,207

 
100,306

Software
 
3 years
 
39,073

 
35,356

Furniture and fixtures
 
3 years
 
18,208

 
17,310

Building
 
30 years
 
40,681

 
40,681

Leasehold improvements
 
Over life of lease
 
45,393

 
44,473

Capital work-in-progress
 
8,282

 
822

Property and equipment, gross
 
336,037

 
306,038

Less: Accumulated depreciation
 
(204,356
)
 
(169,685
)
Property and equipment, net
 
$
131,681

 
$
136,353


    
Property and equipment, gross increased $30.0 million or 10% due primarily to increased investments in our streaming content delivery network ("Open Connect").
Long-Term Debt
Long-Term Debt
Long-term Debt
Senior Convertible Notes
In November 2011, the Company issued $200.0 million aggregate principal amount of zero coupon senior convertible notes due on December 1, 2018 (the “Convertible Notes”) in a private placement offering to TCV VII, L.P., TCV VII(A), L.P., and TCV Member Fund, L.P. A general partner of these funds also serves on the Company’s Board of Directors, and as such, the issuance of the notes is considered a related party transaction. The net proceeds to the Company were approximately $197.8 million. Debt issuance costs of $2.2 million (of which $0.3 million was paid in the year ended December 31, 2012) were recorded in “Other non-current assets” on the Consolidated Balance Sheets and are amortized over the term of the notes as interest expense. The Convertible Notes are the Company’s general, unsecured obligations and are effectively subordinated to all of the Company’s existing and future secured debt, to the extent of the assets securing such debt, and are structurally subordinated to all liabilities of the Company’s subsidiaries, including trade payables. The Convertible Notes do not bear interest, except in specified circumstances. The initial conversion rate for the Convertible Notes is 11.6553 shares of the Company’s common stock, par value $0.001 per share, per $1,000 principal amount of notes. This is equivalent to an initial conversion price of approximately $85.80 per share of common stock. Holders may surrender their notes for conversion at any time prior to the close of business day immediately preceding the maturity date of the notes. The Convertible Notes are repayable in whole or in part upon the occurrence of a change of control, at the option of the holders, at a purchase price in cash equal to 120% of the principal amount. At any time following May 28, 2012, the Company may elect to cause the conversion of the Convertible Notes into shares of the Company’s common stock when specified conditions are satisfied, including that the daily volume weighted average price of the Company’s common stock is equal or greater than $111.54 for at least 50 trading days during a 65 trading day period prior to the conversion date.
The Company determined that the embedded conversion option in the Convertible Notes does not require separate accounting treatment as a derivative instrument because it is both indexed to the Company’s own stock and would be classified in stockholder’s equity if freestanding. Additionally, the Convertible Notes do not require or permit any portion of the obligation to be settled in cash and accordingly the liability and equity (conversion option) components are not required to be accounted for separately.
The Convertible Notes include, among other terms and conditions, limitations on the Company’s ability to pay cash dividends or to repurchase shares of its common stock, subject to specified exceptions. At December 31, 2012, the Company was in compliance with these covenants.
Based on quoted market prices of the Company’s publicly traded debt (a Level 3 input for this financial instrument), the fair value of the Convertible Notes as of December 31, 2012 and 2011 was approximately $212.5 million and $206.5 million, respectively.
Senior Notes
In November 2009, the Company issued $200.0 million aggregate principal amount of 8.50% senior notes due November 15, 2017 (the “8.50% Notes”). The net proceeds to the Company were approximately $193.9 million. Debt issuance costs of $6.1 million were recorded in “Other non-current assets” on the Consolidated Balance Sheets and are amortized over the term of the notes as interest expense. The notes were issued at par and are senior unsecured obligations of the Company. Interest is payable semi-annually at a rate of 8.50% per annum on May 15 and November 15 of each year, commencing on May 15, 2010. The 8.50% Notes are repayable in whole or in part upon the occurrence of a change of control, at the option of the holders, at a purchase price in cash equal to 101% of the principal plus accrued interest. The Company may redeem the 8.50% Notes prior to November 15, 2013 in whole or in part at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium which as of December 31, 2012 would have been approximately $25 million. On or after November 15, 2013, the Company may redeem the 8.50% Notes in whole or in part at specified prices ranging from 104.25% to 100% of the principal plus accrued interest.
The 8.50% Notes include, among other terms and conditions, limitations on the Company’s ability to create, incur, assume or be liable for indebtedness (other than specified types of permitted indebtedness); dispose of assets outside the ordinary course (subject to specified exceptions); acquire, merge or consolidate with or into another person or entity (other than specified types of permitted acquisitions); create, incur or allow any lien on any of its property or assign any right to receive income (except for specified permitted liens); make investments (other than specified types of investments); or pay dividends, make distributions, or purchase or redeem the Company’s equity interests (each subject to specified exceptions). At December 31, 2012 and 2011, the Company was in compliance with these covenants.
Based on quoted market prices in less active markets (Level 2), the fair value of the 8.50% Notes was approximately $212.5 million and $206.5 million as of December 31, 2012 and 2011, respectively.
Commitments And Contingencies
Commitments And Contingencies
Commitments and Contingencies
Lease obligations
The Company leases facilities under non-cancelable operating leases with various expiration dates through 2018. Several lease agreements contain rent escalation clauses or rent holidays. For purposes of recognizing minimum rental expenses on a straight-line basis over the terms of the leases, the Company uses the date of initial possession to begin amortization, which is generally when the Company enters the space and begins to make improvements in preparation for intended use. For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial occupancy, the Company records minimum rental expenses on a straight-line basis over the terms of the leases in the Consolidated Statements of Operations. The Company has the option to extend or renew most of its leases which may increase the future minimum lease commitments.
Because the terms of the Company’s original facilities lease agreements for its current Los Gatos, California headquarters site required the Company’s involvement in the construction funding of the buildings, the Company is the “deemed owner” (for accounting purposes only) of these buildings. Accordingly, the Company recorded an asset of $40.7 million, representing the total costs of the buildings and improvements, including the costs paid by the lessor (the legal owner of the buildings), with corresponding liabilities. Upon completion of construction of each building, the Company did not meet the sale-leaseback criteria for de-recognition of the building assets and liabilities. Therefore the leases are accounted for as financing obligations.
In the first quarter of 2010, the Company extended the facilities leases for the current Los Gatos buildings for an additional five year term after the remaining term of the original lease, thus increasing the future minimum payments under lease financing obligations by approximately $14 million. The leases continue to be accounted for as financing obligations and no gain or loss was recorded as a result of the lease financing modification. At December 31, 2012, the lease financing obligation balance was $31.8 million, of which $1.2 million and $30.6 million were recorded in “Accrued expenses” and “Other non-current liabilities,” respectively, on the Consolidated Balance Sheets. The remaining future minimum payments under the lease financing obligation are $15.1 million. The lease financing obligation balance at the end of the extended lease term will be approximately $25.8 million which approximates the net book value of the buildings to be relinquished to the lessor.
In the fourth quarter of 2012, the Company entered into a facilities lease agreement to expand its Los Gatos headquarters to a nearby site. The ten year lease term will commence after the construction of the buildings is complete. Future minimum lease payments associated with this lease are $63.4 million as of December 31, 2012 and are included below.
Future minimum payments under lease financing obligations and non-cancelable operating leases as of December 31, 2012 are as follows:
 
Year Ending December 31,
Future
Minimum
Payments
 
(in thousands)
2013
$
24,016

2014
16,651

2015
17,393

2016
17,718

2017
13,839

Thereafter
49,741

Total minimum payments
$
139,358


Rent expense associated with the operating leases was $29.7 million, $16.9 million and $14.9 million for the years ended December 31, 2012, 2011 and 2010, respectively. Rent expense for the year ended December 31, 2012 increased primarily due to certain short-term facilities leases to house the Company's content delivery network equipment. 
Streaming Content
The Company had $5.6 billion and $4.8 billion of obligations at December 31, 2012 and December 31, 2011, respectively, including agreements to license streaming content that represent current or long-term liabilities or that are not reflected on the Consolidated Balance Sheets because they do not meet content library asset recognition criteria. The license agreements that are not reflected on the Consolidated Balance Sheets do not meet content library asset recognition criteria because either the fee is not known or reasonably determinable for a specific title or it is known but the title is not yet available for streaming to subscribers.
For those agreements with variable terms, the Company does not estimate what the total obligation may be beyond any minimum quantities and/or pricing as of the reporting date. For those agreements that include renewal provisions that are solely at the option of the content provider, the Company includes the commitments associated with the renewal period to the extent such commitments are fixed or a minimum amount is specified.
The Company has entered into certain license agreements that include an unspecified or a maximum number of titles that the Company may or may not receive in the future and/or that include pricing contingent upon certain variables, such as theatrical exhibition receipts for the title. As of the reporting date, it is unknown whether the Company will receive access to these titles or what the ultimate price per title will be. Accordingly, such amounts are not reflected in the commitments described below. However such amounts are expected to be significant and the expected timing of payments could range from less than one year to more than five years.

The expected timing of payments for these agreements to acquire and license streaming content that represent current or long-term liabilities as well as obligations not reflected on the Consolidated Balance Sheets is as follows:

 
As of
 
 
December 31, 2012
 
December 31, 2011
 
 
(in thousands)
 
Less than one year
$
2,299,562

 
$
1,713,445

(1)
Due after one year and through 3 years
2,715,294

 
2,384,373

 
Due after 3 years and through 5 years
540,346

 
650,480

 
Due after 5 years
78,483

 
74,696

 
Total streaming content obligations
$
5,633,685

 
$
4,822,994

 


(1)
Prior period amounts have been presented to conform to the current period presentation which includes the streaming portion of "Current content liabilities" reflected on the Consolidated Balance Sheets. Note that total streaming content obligations remain unchanged with this presentation. Specifically, payments for streaming content obligations expected to be made in less than one year as of December 31, 2011, as shown above, include $0.9 billion of "Current content liabilities" reflected on the Consolidated Balance Sheets.

The Company has licenses with certain performing rights organizations (“PROs”), and is currently involved in negotiations with other PROs, that hold certain rights to music "publicly performed" in connection with streaming content into various territories. For the latter, the Company accrues for estimated royalties that are expected to be due to PROs and adjusts these accruals based on any changes in estimates. These amounts are included in the Company's streaming content obligations. If the Company is unable to reach mutually acceptable terms with the PROs, it could become involved in litigation and /or could be enjoined from delivering certain musical compositions, which could adversely impact the Company. Additionally, pending and ongoing litigation between certain PROs and other third parties in various territories could impact the Company's negotiations with PROs. While the Company anticipates finalizing these negotiations, the outcome of these negotiations is uncertain. The results of any negotiation may be materially different from management’s estimates.
Legal Proceedings
From time to time, in the normal course of its operations, the Company is a party to litigation matters and claims, including claims relating to employee relations, business practices and patent infringement. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and the Company's view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as incurred. The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Company's operations or its financial position, liquidity or results of operations.

On December 5, 2012, the Company and its Chief Executive Officer Reed Hastings each received a “Wells Notice” from the Staff of the Securities and Exchange Commission (“SEC”) indicating its intent to recommend to the SEC that it institute a cease and desist proceeding and/or bring a civil injunctive action against the Company and Mr. Hastings for violations of Regulation Fair Disclosure, Section 13(a) of the Securities Exchange Act and Rules 13a-11 and 13a-15 thereunder. 
On January 13, 2012, the first of three purported shareholder class action lawsuits was filed in the United States District Court for the Northern District of California against the Company and certain of its officers and directors. Two additional purported shareholder class action lawsuits were filed in the same court on January 27, 2012 and February 29, 2012, respectively, alleging substantially similar claims. These lawsuits have been consolidated and the Court has selected lead plaintiffs. Lead plaintiffs filed a consolidated complaint on June 26, 2012. The consolidated complaint alleges violations of the federal securities laws and seeks unspecified compensatory damages and other relief on behalf of a class of purchasers of the Company's common stock between October 20, 2010 and October 24, 2011. The complaint alleges among other things, that the Company issued materially false and misleading statements regarding the Company's business practices and violated accounting rules concerning segment reporting, which led to artificially inflated stock prices. On February 4, 2013, the Company filed a demurrer to the consolidated complaint and a motion to stay the litigation. Management has determined a potential loss is reasonably possible however, based on its current knowledge, management does not believe that the amount of such possible loss or a range of potential loss is reasonably estimable.
On November 23, 2011, the first of six purported shareholder derivative suits was filed in the Superior Court of California, Santa Clara County, against the Company and certain of its officers and directors. Five additional purported shareholder derivative suits were subsequently filed: two in the Superior Court of California, Santa Clara County on February 9, 2012 and May 2, 2012; and three in the United States District Court for the Northern District of California on February 13, 2012, February 24, 2012 and April 2, 2012. The purported shareholder derivative suits filed in the Northern District of California have been voluntarily dismissed. On July 5, 2012, the purported shareholder derivative suits filed in Santa Clara County were consolidated and lead counsel was appointed. The lawsuits were subsequently consolidated and the Court selected lead plaintiffs.  Lead plaintiffs filed a consolidated complaint on June 26, 2012. The consolidated complaint alleges violations of the federal securities laws and seeks unspecified compensatory damages and other relief on behalf of a class of purchasers of the Company's common stock between October 20, 2010 and October 24, 2011.  The consolidated complaint alleges, among other things, that the Company issued materially false and misleading statements regarding the Company's business practices and violated accounting rules concerning segment reporting, which led to artificially inflated stock prices.  Defendants filed a motion to dismiss the consolidated complaint on August 27, 2012.  That motion is pending. Management has determined a potential loss is reasonably possible however, based on its current knowledge, management does not believe that the amount of such possible loss or a range of potential loss is reasonably estimable.
The Company is involved in other litigation matters not listed above but does not consider the matters to be material either individually or in the aggregate at this time. The Company's view of the matters not listed may change in the future as the litigation and events related thereto unfold.
Guarantees-Indemnification Obligations
Guarantees-Indemnification Obligations
Guarantees—Indemnification Obligations
In the ordinary course of business, the Company has entered into contractual arrangements under which it has agreed to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements and out of intellectual property infringement claims made by third parties. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract.
The Company’s obligations under these agreements may be limited in terms of time or amount, and in some instances, the Company may have recourse against third-parties for certain payments. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers that will require it, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The terms of such obligations vary.
It is not possible to make a reasonable estimate of the maximum potential amount of future payments under these or similar agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. No amount has been accrued in the accompanying financial statements with respect to these indemnification guarantees.
Stockholders' Equity
Stockholders' Equity
Stockholders’ Equity
On November 2, 2012, the Board of Directors (the “Board”) of the Company authorized and declared a dividend distribution of one right (a “Right”) for each outstanding share of common stock, par value $0.001 per share (the “Common Shares”), of the Company to stockholders of record at the close of business on November 12, 2012 (the “Record Date”). Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Participating Preferred Stock, par value $0.001 per share (the “Preferred Shares”), of the Company at an exercise price of $350 per one one-thousandth of a Preferred Share, subject to adjustment (the “Exercise Price”). The Rights become exercisable in the event any person or group acquires 10% (or 20% in the case of certain institutional investors who report their holdings on Schedule 13G) or more of the Common Shares without the approval of the Board, and until such time are inseparable from and trade with the Company's common stock. The Rights have a de minimus fair value. The Rights Agreement expires November 5, 2015.
On November 28, 2011, the Company issued 2.9 million shares of common stock upon the closing of a public offering for $200 million net of issuance costs of $0.5 million.
Preferred Stock
In 2012, the Company designated 1,000,000 shares of its preferred stock with par value of $0.001 per share as Series A Participating Preferred Stock. The remaining 9,000,000 shares of preferred stock with par value of $0.001 remain undesignated. None of the preferred shares were issued and outstanding at December 31, 2012 and 2011.
Voting Rights
The holders of each share of common stock shall be entitled to one vote per share on all matters to be voted upon by the Company’s stockholders.
Stock Option Plans
In June 2011, the Company adopted the 2011 Stock Plan. The 2011 Stock Plan provides for the grant of incentive stock options to employees and for the grant of non-statutory stock options, stock appreciation rights, restricted stock and restricted stock units to employees, directors and consultants. As of December 31, 2012, 4.0 million shares were reserved for future grants under the 2011 Stock Plan.
In February 2002, the Company adopted the 2002 Stock Plan, which was amended and restated in May 2006. The 2002 Stock Plan provided for the grant of incentive stock options to employees and for the grant of non-statutory stock options and stock purchase rights to employees, directors and consultants. In the first quarter of 2012, 1.2 million shares reserved for future grants under the 2002 Stock Plan expired.
A summary of the activities related to the Company’s stock option plans is as follows:
 
 
Shares Available
for Grant
 
Options Outstanding
 
Weighted- Average Remaining Contractual Term (in Years)
 
Aggregate
Intrinsic Value
(in Thousands)
 
Number of
Shares
 
Weighted- Average Exercise Price
 
Balances as of December 31, 2009
2,591,267

 
4,241,438

 
$
22.74

 
 
 
 
Granted
(552,765
)
 
552,765

 
99.58

 
 
 
 
Exercised
—

 
(1,902,073
)
 
24.75

 
 
 
 
Balances as of December 31, 2010
2,038,502

 
2,892,130

 
36.11

 
 
 
 
Authorized
5,700,000

 
—

 
—

 
 
 
 
Granted
(724,994
)
 
724,994

 
154.09

 
 
 
 
Exercised
—

 
(659,370
)
 
29.11

 
 
 
 
Balances as of December 31, 2011
7,013,508

 
2,957,754

 
66.59

 
 
 
 
Granted
(1,803,798
)
 
1,803,798

 
73.94

 
 
 
 
Exercised
—

 
(188,552
)
 
21.85

 
 
 
 
Canceled
48

 
(48
)
 
35.95

 
 
 
 
Expired
(1,160,721
)
 
—

 


 
 
 
 
Balances as of December 31, 2012
4,049,037

 
4,572,952

 
71.33

 
7.05
 
$
163,975

Vested and exercisable at
December 31, 2012
 
 
4,572,952

 
71.33

 
7.05
 
$
163,975


The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of 2012 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2012. This amount changes based on the fair market value of the Company’s common stock. Total intrinsic value of options exercised for the years ended December 31, 2012, 2011 and 2010 was $14.7 million, $128.1 million and $176.0 million, respectively.
Cash received from option exercises for the years ended December 31, 2012, 2011 and 2010 was $4.1 million, $19.6 million and $47.1 million, respectively.
Employee Stock Purchase Plan
In February 2002, the Company adopted the 2002 ESPP under which employees purchased common stock of the Company through accumulated payroll deductions. The purchase price of the common stock acquired by the employees participating in the ESPP is 85% of the closing price on either the first day of the offering period or the last day of the purchase period, whichever was lower. Under the ESPP, the offering and purchase periods took place concurrently in consecutive six month increments. Therefore, the look-back for determining the purchase price was six months. Employees could invest up to 15% of their gross compensation through payroll deductions. In no event was an employee permitted to purchase more than 8,334 shares of common stock during any six-month purchase period.
As of December 31, 2012, there were 2,785,721 shares available for future issuance under the 2002 Employee Stock Purchase Plan. The Company’s ESPP was suspended in 2011 and there were no offerings in 2011 or 2012.
During the year ended December 31, 2010 employees purchased approximately 46,112 shares at an average price of $58.41 per share. Cash received from purchases under the ESPP for the year ended December 31, 2010 was $2.7 million.
Stock-Based Compensation
Vested stock options granted before June 30, 2004 can be exercised up to three months following termination of employment. Vested stock options granted after June 30, 2004 and before January 1, 2007 can be exercised up to one year following termination of employment. Vested stock options granted after January 2007 will remain exercisable for the full ten years contractual term regardless of employment status. The following table summarizes the assumptions used to value option grants using the lattice-binomial model:
 
 
 
Year Ended December 31,
 
 
2012
 
2011
 
2010
Dividend yield
 
—
%
 
—
%
 
—
%
Expected volatility
 
55 % - 65%

 
51% – 65%

 
46% – 54%

Risk-free interest rate
 
1.61% - 2.01%

 
2.05% – 3.42%

 
2.65% – 3.67%

Suboptimal exercise factor
 
2.26 - 3.65

 
2.17 – 3.64

 
1.78 – 3.28



The Company bifurcates its option grants into two employee groupings (executive and non-executive) based on exercise behavior and considers several factors in determining the estimate of expected term for each group, including the historical option exercise behavior, the terms and vesting periods of the options granted.
The assumptions used in the Black-Scholes option pricing model to value the shares under the ESPP in 2010 was a 0% dividend yield, 45% expected volatility, 0.24% risk-free interest rate, and 0.5 expected life in years.
 
The Company estimates expected volatility based on a blend of historical volatility of the Company’s common stock and implied volatility of tradable forward call options to purchase shares of its common stock. The Company believes that implied volatility of publicly traded options in its common stock is expected to be more reflective of market conditions and, therefore, can reasonably be expected to be a better indicator of expected volatility than historical volatility of its common stock. The Company includes historical volatility in its computation due to low trade volume of its tradable forward call options in certain periods, there by precluding sole reliance on implied volatility.
In valuing shares issued under the Company’s employee stock option plans, the Company bases the risk-free interest rate on U.S. Treasury zero-coupon issues with terms similar to the contractual term of the options. In valuing shares issued under the Company’s ESPP, the Company bases the risk-free interest rate on U.S. Treasury zero-coupon issues with terms similar to the expected term of the shares. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. The Company does not use a post-vesting termination rate as options are fully vested upon grant date. The weighted-average fair value of employee stock options granted during 2012, 2011 and 2010 was $41.00, $84.94 and $49.31 per share, respectively. The weighted-average fair value of shares granted under the ESPP during 2010 was $21.27 per share.
Stock-based compensation expense related to stock option plans and employee stock purchases was $73.9 million, $61.6 million and $28.0 million for the years ended December 31, 2012, 2011 and 2010, respectively. The total income tax benefit recognized in the income statement related to stock option plans and employee stock purchases was $28.5 million, $22.8 million and $11.2 million for 2012, 2011 and 2010, respectively.
Stock Repurchase Program
The following table presents a summary of the Company’s stock repurchases:
 
 
Year ended December 31,
 
2011
 
2010
 
(in thousands, except per share data)
Total number of shares repurchased
900

 
2,606

Dollar amount of shares repurchased
$
199,666

 
$
210,259

Average price paid per share
$
221.88

 
$
80.67

Range of price paid per share
$160.11 – $248.78

 
$60.23 – $126.01


Under the stock repurchase plan announced on June 11, 2010, the Company was authorized to repurchase up to $300 million of its common stock through the end of 2012. As of December 31, 2012, the Company has repurchased $259.0 million of its common stock under this plan. As of December 31, 2012, the plan has expired and the remaining $41.0 million was unused.
Income Taxes
Income Taxes
Income Taxes
Income before provision for income taxes was as follows:
 
Year Ended December 31,
 
2012
 
2011
 
2010
 
(in thousands)
United States
$
27,885

 
$
359,786

 
$
267,696

Foreign
2,595

 
(264
)
 
—

Income before income taxes
$
30,480

 
$
359,522

 
$
267,696


The components of provision for income taxes for all periods presented were as follows:
 
 
Year Ended December 31,
 
2012
 
2011
 
2010
 
(in thousands)
Current tax provision:
 
 
 
 
 
Federal
$
34,387

 
$
123,406

 
$
86,002

State
7,850

 
28,657

 
21,803

Foreign
1,162

 
(70
)
 
—

Total current
43,399

 
151,993

 
107,805

Deferred tax provision:
 
 
 
 
 
Federal
(26,903
)
 
(14,008
)
 
(1,615
)
State
(3,168
)
 
(4,589
)
 
653

Total deferred
(30,071
)
 
(18,597
)
 
(962
)
Provision for income taxes
$
13,328

 
$
133,396

 
$
106,843



U.S. income taxes and foreign withholding taxes associated with the repatriation of earnings of foreign subsidiaries were not provided for on a cumulative total of $1.6 million of undistributed earnings for certain foreign subsidiaries as of December 31, 2012. The Company intends to reinvest these earnings indefinitely in its foreign subsidiaries. If these earnings were distributed to the United States in the form of dividends or otherwise, the Company would be subject to additional U.S. income taxes net of available foreign tax credits associated with these earnings. The amount of unrecognized deferred income tax liability related to these earnings is immaterial.
Income tax benefits attributable to the exercise of employee stock options at $4.4 million, $45.5 million and $62.2 million for the years ended December 31, 2012, 2011 and 2010, respectively, were recorded directly to additional paid-in-capital.
A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate to income before income taxes is as follows:
 
 
Year Ended December 31,
 
2012
 
2011
 
2010
 
(in thousands)
Expected tax expense at U.S. federal statutory rate of 35%
$
10,667

 
$
125,833

 
$
93,694

State income taxes, net of Federal income tax effect
2,914

 
15,042

 
15,349

R&D tax credit
(1,803
)
 
(8,365
)
 
(3,207
)
Other
1,550

 
886

 
1,007

Provision for income taxes
$
13,328

 
$
133,396

 
$
106,843


The tax effects of temporary differences and tax carryforwards that give rise to significant portions of the deferred tax assets are presented below:
 
 
As of December 31,
 
2012
 
2011
 
(in thousands)
Deferred tax assets (liabilities):
 
 
 
Stock-based compensation
$
66,827

 
$
39,337

Accruals and reserves
11,155

 
9,193

Depreciation
(18,356
)
 
(17,381
)
R&D credits
8,480

 
6,335

Other
(244
)
 
844

Deferred tax assets
$
67,862

 
$
38,328


Deferred tax assets include $11.0 million and $10.0 million classified as “Other current assets” and $56.9 million and $28.3 million classified as “Other non-current assets” in the Consolidated Balance Sheets as of December 31, 2012 and 2011, respectively. In evaluating its ability to realize the net deferred tax assets, the Company considered all available positive and negative evidence, including its past operating results and the forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. As of December 31, 2012 and 2011, it was considered more likely than not that all deferred tax assets would be realized, and no significant valuation allowance was recorded.
On January 2, 2013, the American Taxpayer Relief Act of 2012 (H.R. 8) was signed into law which retroactively extends the Federal research and development credit from January 1, 2012 through December 31, 2013. As a result, the Company will recognize the retroactive benefit of the Federal research and development credit of approximately $3.1 million as a discrete item in the first quarter of 2013, the period in which the legislation, including the reinstatement, was enacted.
The Company classifies unrecognized tax benefits that are not expected to result in payment or receipt of cash within one year as “Other non-current liabilities” in the Consolidated Balance Sheets. As of December 31, 2012, the total amount of gross unrecognized tax benefits was $43.3 million, of which $35.7 million, if recognized, would favorably impact the Company’s effective tax rate. The aggregate changes in the Company’s total gross amount of unrecognized tax benefits are summarized as follows (in thousands):
 
Balance as of December 31, 2010
$
20,677

Decreases related to tax positions taken during prior periods
(46
)
Increases related to tax positions taken during the current period
10,739

Decreases related to expiration of statute of limitations
(3,237
)
Balance as of December 31, 2011
$
28,133

Increases related to tax positions taken during prior periods
8,487

Decreases related to tax positions taken during prior periods
(320
)
Increases related to tax positions taken during the current period
7,037

Balance as of December 31, 2012
$
43,337


The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes. As of December 31, 2012 and December 31, 2011, the total amount of gross interest and penalties accrued was $3.1 million and $2.4 million, respectively, which is classified as “Other non-current liabilities” in the Consolidated Balance Sheets. Interest and penalties included in our provision for income taxes were not material in all the periods presented.
The Company files U.S. federal, state and foreign tax returns. The Company is currently under examination by the IRS for the years 2008 through 2011. The Company is also currently under examination by the state of California for the years 2006 and 2007. The years 1997 through 2005, as well as 2008 through 2011, remain subject to examination by the state of California.
Given the potential outcome of the current examinations as well as the impact of the current examinations on the potential expiration of the statute of limitations, it is reasonably possible that the balance of unrecognized tax benefits could significantly change within the next twelve months. However, at this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.
Employee Benefit Plan
Employee Benefit Plan
Employee Benefit Plan
The Company maintains a 401(k) savings plan covering substantially all of its employees. Eligible employees may contribute up to 60% of their annual salary through payroll deductions, but not more than the statutory limits set by the Internal Revenue Service. The Company matches employee contributions at the discretion of the Board. During 2012, 2011 and 2010, the Company’s matching contributions totaled $5.2 million, $4.0 million and $2.8 million, respectively.
Segment Information
Segment Information
Segment Information
Beginning in the fourth quarter of 2011, the Company has three operating segments: Domestic streaming, International streaming and Domestic DVD. Segment information is presented along the same lines that the Company’s chief operating decision maker reviews the operating results in assessing performance and allocating resources. The Company’s chief operating decision maker reviews revenue and contribution profit for each of the reportable segments. Contribution profit (loss) is defined as revenues less cost of revenues and marketing expenses.
Revenues and the related credit card fees are attributed to the operating segment based on the nature of the underlying subscription (DVD or streaming) and the geographic region from which the subscription originates. Cost of revenues are primarily attributed to the operating segment based on the amounts directly incurred by the segment to obtain content and deliver it to the specific region. Allocations of certain corporate costs related to customer service are included in the total cost of revenues within each operating segment. Marketing is primarily comprised of advertising expenses which are generally included in the segment in which the expenditures are directly incurred. Marketing also includes an allocation of the cost of revenues incurred by that segment related to free trials.
There are no internal revenue transactions between the Company’s reporting segments. As of December 31, 2012, the Company had $4.0 million in long-lived tangible assets located internationally and $127.7 million in long-lived tangible assets located in the United States. As of December 31, 2011, all of the Company’s long-lived tangible assets were held in the United States. The Domestic and International streaming segments derive revenue from monthly subscription services consisting solely of streaming content. The Domestic DVD segment derives revenue from monthly subscription services consisting solely of DVD-by-mail.
Between the fourth quarter of 2010 and the third quarter of 2011, the Company had two operating segments: Domestic and International. During this time, the Company’s domestic streaming content and DVD-by-mail operations were combined. Subscribers in the United States were able to receive both streaming content and DVDs under a single hybrid plan. Accordingly, revenues were generated and marketing expenses were incurred in connection with the subscription offerings as a whole. Therefore, it is impracticable to allocate revenues or marketing expenses or present discrete segment information for the Domestic streaming and Domestic DVD segments for periods prior to the fourth quarter of 2011.
In the third quarter of 2011, the Company made certain changes to its domestic pricing and plan structure which require subscribers who wish to receive both DVDs-by-mail and streaming content to have two separate subscription plans. Following this change, beginning in the fourth quarter of 2011, the Company was able to generate discrete financial information for its Domestic DVD and Domestic streaming operations and began reporting this information to the chief operating decision maker for review.
Prior to the fourth quarter of 2010, the Company had a single segment as international operations had not yet commenced.
The following table represents segment information for the year ended December 31, 2012:
 
 
As of/Year ended December 31, 2012
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total subscriptions at end of period (1)
27,146

 
6,121

 
8,224

 
—

Revenues
$
2,184,868

 
$
287,542

 
$
1,136,872

 
$
3,609,282

Cost of revenues
1,558,864

 
475,570

 
591,432

 
2,625,866

Marketing
276,072

 
201,283

 
7,374

 
484,729

Contribution profit (loss)
$
349,932

 
$
(389,311
)
 
$
538,066

 
$
498,687

Other operating expenses
 
 
 
 
 
 
448,695

Operating income
 
 
 
 
 
 
49,992

Other income (expense)
 
 
 
 
 
 
(19,512
)
Provision for income taxes
 
 
 
 
 
 
13,328

Net income
 
 
 
 
 
 
$
17,152



 
As of/Year ended December 31, 2012
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total content library, net
$
2,317,070

 
$
527,235

 
$
29,865

 
$
2,874,170

Amortization of content library
1,152,446

 
438,772

 
65,396

 
1,656,614


The following table represents the Company's segment information for the fourth quarter of 2011:
 
As of/Three Months ended December 31, 2011
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total subscriptions at end of period (1)
21,671

 
1,858

 
11,165

 
—

Revenues
$
476,334

 
$
28,988

 
$
370,253

 
$
875,575

Cost of revenues
345,026

 
55,909

 
174,220

 
575,155

Marketing
79,198

 
32,822

 
2,268

 
114,288

Contribution profit (loss)
$
52,110

 
$
(59,743
)
 
$
193,765

 
$
186,132

Other operating expenses
 
 
 
 
 
 
124,260

Operating income
 
 
 
 
 
 
61,872

Other income (expense)
 
 
 
 
 
 
(5,037
)
Provision for income taxes
 
 
 
 
 
 
21,616

Net income
 
 
 
 
 
 
$
35,219


The following tables represents the Company’s segment information for the years ended December 31, 2011 and 2010 based on the Company’s segment reporting prior to the fourth quarter of 2011:
 
 
As of/Year ended December 31, 2011
 
Domestic
 
International
 
Consolidated
 
(in thousands)
Total unique subscribers at end of period (1) (2)
24,395

 
1,858

 
26,253

Revenues
$
3,121,727

 
$
82,850

 
$
3,204,577

Cost of revenues
1,932,419

 
107,482

 
2,039,901

Marketing
$
324,121

 
$
78,517

 
402,638

Contribution profit (loss)
$
865,187

 
$
(103,149
)
 
$
762,038

Other operating expenses
 
 
 
 
385,970

Operating income
 
 
 
 
376,068

Other income (expense)
 
 
 
 
(16,546
)
Provision for income taxes
 
 
 
 
133,396

Net income
 
 
 
 
$
226,126




 
As of/Year ended December 31, 2010
 
Domestic
 
International
 
Consolidated
 
(in thousands)
Total unique subscribers at end of period (1) (2)
19,501

 
509

 
20,010

Revenues
$
2,159,008

 
$
3,617

 
$
2,162,625

Cost of revenues
1,350,542

 
6,813

 
1,357,355

Marketing
$
284,917

 
$
8,922

 
293,839

Contribution profit (loss)
$
523,549

 
$
(12,118
)
 
$
511,431

Other operating expenses
 
 
 
 
227,790

Operating income
 
 
 
 
283,641

Other income (expense)
 
 
 
 
(15,945
)
Provision for income taxes
 
 
 
 
106,843

Net income
 
 
 
 
$
160,853



(1)
A subscription is defined as the right to receive either the Netflix streaming service or Netflix DVD service. In connection with the Company's subscription services, the Company offers free-trial memberships to new and certain rejoining members. A method of payment is required to be provided even during the free-trial period for the membership to be defined as a subscription and included in the above metrics. Total unique subscribers and total subscriptions include those subscribers who are on a free-trial. A subscription would cease to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations become effective at the end of the monthly subscription period, while involuntary cancellation of the service, as a result of a failed method of payment, becomes effective immediately.

(2)
For purposes of determining the number of unique subscribers, domestic subscribers who have elected both a DVD and a streaming subscription plan are considered a single unique subscriber.
Subsequent Event
Subsequent Event
Subsequent Event

On January 29, 2013, the Company announced the pricing of an offering of $500 million aggregate principal amount of 5.375% senior notes due 2021 (the "5.375% Notes). The notes are expected to be issued at par on February 1, 2013 and are senior unsecured obligations of the Company. Interest is payable semi-annually at a rate of 5.375% per annum on February 1 and August 1 of each year, commencing on August 1, 2013. The 5.375% Notes are repayable in whole or in part upon the occurrence of a change of control, at the option of the holders, at a purchase price in cash equal to 101% of the principal plus accrued interest. The Company may redeem the 5.375% Notes prior to maturity in whole or in part at a redemption price of 100% of the principal plus an applicable premium as of, and accrued and unpaid interest, if any, to the applicable redemption date.

The 5.375% Notes include, among other terms and conditions, limitations on the Company's ability to create, incur or allow certain liens; enter into sale and lease-back transactions; create, assume, incur or guarantee additional indebtedness of the Company's subsidiaries; and consolidate or merge with, or convey, transfer or lease all or substantially all of the Company's and its subsidiaries assets, to another person.
Selected Quarterly Financial Data
Selected Quarterly Financial Data
Selected Quarterly Financial Data (Unaudited)
 
 
December 31
 
September 30
 
June 30
 
March 31
 
(in thousands, except for per share data)
2012
 
Total revenues
$
945,239

 
$
905,089

 
$
889,163

 
$
869,791

Gross profit
249,372

 
242,451

 
245,735

 
245,858

Net income (loss)
7,897

 
7,675

 
6,164

 
(4,584
)
Earnings (loss) per share:
 
 
 
 
 
 
 
Basic
$
0.14

 
$
0.14

 
$
0.11

 
$
(0.08
)
Diluted
0.13

 
0.13

 
0.11

 
(0.08
)
2011
 
 
 
 
 
 
 
Total revenues
$
875,575

 
$
821,839

 
$
788,610

 
$
718,553

Gross profit
300,420

 
285,222

 
298,632

 
280,402

Net income (1)
35,219

 
62,460

 
68,214

 
60,233

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.66

 
$
1.19

 
$
1.30

 
$
1.14

Diluted
0.64

 
1.16

 
1.26

 
1.11

 
(1)
Net income for the three months ended December 31, 2011 includes $9.0 million of expense related to a legal settlement and $9.5 million of expense related to termination benefits associated with the Company’s retraction of plans to separate and rebrand the DVD-by-mail service.
Organization And Summary Of Significant Accounting Policies (Policy)
Description of Business 
Description of Business
Netflix, Inc. (the “Company”) was incorporated on August 29, 1997 and began operations on April 14, 1998. The Company is the world’s leading Internet television network with more than 33 million members in over 40 countries enjoying one billion hours of TV shows and movies per month. In the United States, subscribers can receive DVDs delivered quickly to their homes.
The Company is organized into three operating segments, Domestic streaming, International streaming and Domestic DVD. Substantially all of the Company’s revenues are generated in the United States, and substantially all of the Company’s long-lived tangible assets are held in the United States. The Company’s revenues are derived from monthly subscription fees.
Basis Of Presentation 
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated.
Reclassification 
Reclassification
Certain prior period amounts have been reclassified to conform to the current presentation. Specifically content liabilities are now presented separately from all other accounts payable and accrued liabilities on both the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows. Additionally, the amount for Legal settlement as presented in prior periods is now included in the General and Administrative line on the Consolidated Statements of Operations. These reclassifications did not impact any prior amounts of reported total assets, total liabilities, stockholders’ equity, results of operations or cash flows.
Use of Estimates 
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include the amortization policy for the content library; the recognition and measurement of income tax assets and liabilities; and the valuation of stock-based compensation. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results may differ from these estimates.
Cash Equivalents and Short-Term Investments 
Cash Equivalents and Short-term Investments
The Company considers investments in instruments purchased with an original maturity of 90 days or less to be cash equivalents. The Company classifies short-term investments, which consist of marketable securities with original maturities in excess of 90 days as available-for-sale. Short-term investments are reported at fair value with unrealized gains and losses included in “Accumulated other comprehensive income” within stockholders’ equity in the Consolidated Balance Sheets. The amortization of premiums and discounts on the investments, realized gains and losses, and declines in value judged to be other-than-temporary on available-for-sale securities are included in “Interest and other income (expense)” in the Consolidated Statements of Operations. The Company uses the specific identification method to determine cost in calculating realized gains and losses upon the sale of short-term investments.
Short-term investments are reviewed periodically to identify possible other-than-temporary impairment. When evaluating the investments, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, the Company’s intent to sell, or whether it would be more likely than not that the Company would be required to sell the investments before the recovery of their amortized cost basis.
Content Library 
Content Library
The Company obtains content through streaming content license agreements, DVD direct purchases and DVD revenue sharing agreements with various content providers.
The Company obtains content distribution rights in order to stream TV shows, movies and original programming to subscribers’ TVs, computers and mobile devices. Streaming content is generally licensed for a fixed fee for the term of the license agreement which may have multiple windows of availability. The license agreement may or may not be recognized in content library.
When the streaming license fee is known or reasonably determinable for a specific title and the specific title is first available for streaming to subscribers, the title is recognized on the Consolidated Balance Sheets as “Current content library, net” for the portion available for streaming within one year and as “Non-current content library, net” for the remaining portion. New titles recognized in the content library are classified in the line item “Additions to streaming content library” within net cash provided by operating activities on the Consolidated Statements of Cash Flows. The streaming content library is reported at the lower of unamortized cost or estimated net realizable value. The Company amortizes the content library on a straight-line basis over each title's contractual window of availability, which typically ranges from six months to five years.

The amortization of the streaming content library is classified in “Cost of revenues” on the Consolidated Statements of Operations and in the line item “Amortization of streaming content library” within net cash provided by operating activities on the Consolidated Statements of Cash Flows. Costs related to subtitles, dubbing, and closed captioning are capitalized in “Current content library, net” on the Consolidated Balance Sheets and amortized over the window of availability. Payment terms for these license fees may extend over the term of the license window, which typically ranges from six months to five years. For the titles recognized in content library, the license fees due but not paid are classified on the Consolidated Balance Sheets as "Current content liabilities” for the amounts due within one year and as “Non-current content liabilities” for the amounts due beyond one year. Changes in these liabilities are classified in the line item “Change in streaming content liabilities” within net cash provided by operating activities on the Consolidated Statements of Cash Flows. The Company records the streaming content library assets and their related liability on the Consolidated Balance Sheets at the gross amount of the liability. Payments for the titles not yet available for streaming are not yet recognized in the content library but in prepaid content. Minimum commitments for the titles not yet available for streaming are not yet recognized in the content library and are included in Note 5 to the consolidated financial statements.
When the streaming license fee is not known or reasonably determinable for a specific title, the title does not meet the criteria for asset recognition in the content library. Titles do not meet the criteria for asset recognition in the content library because the underlying license agreement does not specify the number of titles or the license fee per title or the windows of availability per title, so that the license fee is not known or reasonably determinable for a specific title. Typical payment terms for these agreements, which can range from three to five years, require the Company to make equal fixed payments at the beginning of each quarter of the license term. To the extent that cumulative payments exceed cumulative amortization, prepaid content is recorded on the Consolidated Balance Sheets. The Company amortizes the license fees on a straight-line basis over the term of each license agreement. The amortization is classified in “Cost of revenues” on the Consolidated Statements of Operations and in the line item “Net income” within net cash provided by operating activities on the Consolidated Statements of Cash Flows. Changes in prepaid content are classified within net cash provided by operating activities in the line item “Prepaid content” on the Consolidated Statements of Cash Flows. Commitments for licenses that do not meet the criteria for asset recognition in the content library are included in Note 5 to the consolidated financial statements.
Streaming content licenses (including both those that are recorded in the streaming content library and those that do not meet the criteria for asset recognition) are reviewed in aggregate at the geographic region level for impairment when an event or change in circumstances indicates a change in the expected usefulness of the content. The level of geographic aggregation is determined based on the streaming content rights which are generally specific to a geographic region inclusive of several countries (such as Latin America). An impairment would be recorded as necessary to adjust the streaming content library to the lower of unamortized cost or estimated net realizable value. No material write down from unamortized cost to a lower net realizable value was recorded in any of the periods presented
The Company acquires DVD content for the purpose of renting such content to its subscribers and earning subscription rental revenues, and, as such, the Company considers its direct purchase DVD library to be a productive asset. Accordingly, the Company classifies its DVD library in “Non-current content library, net” on the Consolidated Balance Sheets. The acquisition of DVD content library, net of changes in related liabilities, is classified in the line item “Acquisition of DVD content library” within cash used in investing activities on the Consolidated Statements of Cash Flows because the DVD content library is considered a productive asset. Other companies in the in-home entertainment video industry classify these cash flows as operating activities. The Company amortizes its direct purchase DVDs, less estimated salvage value, on a “sum-of-the-months” accelerated basis over their estimated useful lives. The useful life of the new release DVDs and back-catalog DVDs is estimated to be one year and three years, respectively. The amortization of the DVD content library is classified in “Cost of revenues” on the Consolidated Statements of Operations and on the line item “Amortization of DVD content library” within net cash provided by operating activities on the Consolidated Statements of Cash Flows. The Company also obtains DVD content through revenue sharing agreements with studios and other content providers. Revenue sharing obligations incurred based on utilization are classified in “Cost of revenues” on the Consolidated Statements of Operations and in the line item “Net income” within net cash provided by operating activities on the Consolidated Statements of Cash Flows. The terms of some revenue sharing agreements obligate the Company to make a low initial payment for certain titles, representing a minimum contractual obligation under the agreement. The low initial payment is in exchange for a commitment to share a percentage of its subscription revenues or to pay a fee, based on utilization, for a defined period of time. The initial payment may be in the form of an upfront non-refundable payment which is classified in content library or in the form of a prepayment of future revenue sharing obligations which is classified as prepaid content.
Property and Equipment 
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the shorter of the estimated useful lives of the respective assets, generally up to 30 years, or the lease term for leasehold improvements, if applicable. Leased buildings are capitalized and included in property and equipment when the Company was involved in the construction funding and did not meet the “sale-leaseback” criteria.
Impairment of Long-Lived Assets 
Impairment of Long-Lived Assets
Long-lived assets such as DVD content library, property and equipment and intangible assets subject to depreciation and amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of an asset group exceeds fair value of the asset group. There were no events or changes in circumstances that would indicate that the carrying amount of an asset group may not be recoverable in any of the years presented.
Revenue Recognition 
Revenue Recognition
Subscription revenues are recognized ratably over each subscriber’s monthly subscription period. Revenues are presented net of the taxes that are collected from customers and remitted to governmental authorities. Deferred revenue consists of subscriptions revenues billed to subscribers that have not been recognized and gift subscriptions that have not been redeemed.
Marketing 
Marketing
Marketing expenses consist primarily of advertising expenses and also include payments made to the Company’s affiliates and consumer electronics partners and payroll related expenses. Advertising expenses include promotional activities such as television and online advertising, as well as allocated costs of revenues relating to free trial periods. Advertising costs are expensed as incurred.
Income Taxes 
Income Taxes
The Company records a tax provision for the anticipated tax consequences of the reported results of operations using the asset and liability method. Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which future realization is uncertain. There was no significant valuation allowance as of December 31, 2012 or 2011.
The Company did not recognize certain tax benefits from uncertain tax positions within the provision for income taxes. The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. See Note 8 to the consolidated financial statements for further information regarding income taxes.
Foreign Currency 
Foreign Currency
The Company translates the assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. Revenues and expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are recognized in cumulative translation adjustment included in accumulated other comprehensive income in stockholders’ equity. The cumulative translation adjustment as of December 31, 2012 was $1.4 million. There was no material cumulative translation adjustments as of December 31, 2011 or 2010. The amount of income tax allocated to cumulative translation adjustments is immaterial for each of the years ended December 31, 2012, 2011, and 2010.
For transactions that are not denominated in the functional currency, the Company remeasures monetary assets and liabilities at exchange rates in effect at the end of each period. Gains and losses from these remeasurements are recognized in interest and other income (expense).
Earnings Per Share 
Earnings Per Share
Basic earnings per share is computed using the weighted-average number of outstanding shares of common stock during the period. Diluted earnings per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential common shares outstanding during the period. Potential common shares consist of shares issuable upon the assumed conversion of the Company’s Convertible Notes, incremental shares issuable upon the assumed exercise of stock options, and for 2010, shares that were purchasable pursuant to the Company’s employee stock purchase plan (“ESPP”). The Company’s ESPP was suspended in 2011 and there were no offerings in 2011 or 2012.
Stock-Based Compensation 
Stock-Based Compensation
The Company grants stock options to its employees on a monthly basis. The Company has elected to grant all options as fully vested non-qualified stock options. As a result of immediate vesting, stock-based compensation expense is fully recognized on the grant date, and no estimate is required for post-vesting option forfeitures. See Note 7 to the consolidated financial statements for further information regarding stock-based compensation.
Stock Repurchases 
Stock Repurchases
To facilitate a stock repurchase program, shares are repurchased by the Company in the open market and are accounted for when the transaction is settled. Shares held for future issuance are classified as Treasury stock. Shares formally or constructively retired are deducted from common stock for par value and from additional paid-in capital for the excess over par value. If additional paid in capital has been exhausted, the excess over par value is deducted from Retained earnings. Direct costs incurred to acquire the shares are included in the total cost of the shares.
Organization And Summary Of Significant Accounting Policies (Tables)
Computation Of Net Income Per Share 
The computation of earnings per share is as follows:
 
 
Year ended December 31,
 
2012
 
2011
 
2010
 
(in thousands, except per share data)
Basic earnings per share:
 
 
 
 
 
Net income
$
17,152

 
$
226,126

 
$
160,853

Shares used in computation:
 
 
 
 
 
Weighted-average common shares outstanding
55,521

 
52,847

 
52,529

Basic earnings per share
$
0.31

 
$
4.28

 
$
3.06

Diluted earnings per share:
 
 
 
 
 
Net income
$
17,152

 
$
226,126

 
$
160,853

Convertible Notes interest expense, net of tax
195

 
17

 
—

Numerator for diluted earnings per share
17,347

 
226,143

 
160,853

Shares used in computation:
 
 
 
 
 
Weighted-average common shares outstanding
55,521

 
52,847

 
52,529

Convertible notes shares
2,331

 
217

 
—

Employee stock options and employee stock purchase plan shares
1,052

 
1,305

 
1,775

Weighted-average number of shares
58,904

 
54,369

 
54,304

Diluted earnings per share
$
0.29

 
$
4.16

 
$
2.96

Summary Of Potential Common Shares Excluded From Diluted Calculation 
The following table summarizes the potential common shares excluded from the diluted calculation:
 
 
Year ended December 31,
 
2012
 
2011
 
2010
 
(in thousands)
Employee stock options
1,207

 
225

 
14

Short-Term Investments (Tables)
Available-For-Sale Securities Reported At Fair Value 
The following table summarizes, by major security type, the Company’s assets that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.
 
 
December 31, 2012
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(in thousands)
Cash
$
284,661

 
$
—

 
$
—

 
$
284,661

Level 1 securities:
 
 
 
 
 
 
 
Money market funds
10,500

 
—

 
—

 
10,500

Level 2 securities:
 
 
 
 
 
 
 
Corporate debt securities
150,322

 
1,605

 
(32
)
 
151,895

Government and agency securities
166,643

 
285

 
—

 
166,928

Asset and mortgage-backed securities
138,340

 
750

 
(125
)
 
138,965

Total (1)
$
750,466

 
$
2,640

 
$
(157
)
 
$
752,949


 
December 31, 2011
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(in thousands)
Cash
$
388,941

 
$
—

 
$
—

 
$
388,941

Level 1 securities:
 
 
 
 
 
 
 
Money market funds
123,608

 
—

 
—

 
123,608

Level 2 securities:
 
 
 
 
 
 
 
Corporate debt securities
112,264

 
603

 
(214
)
 
112,653

Government and agency securities
175,464

 
694

 
(56
)
 
176,102

Asset and mortgage-backed securities
941

 
62

 
—

 
1,003

Total (2)
$
801,218

 
$
1,359

 
$
(270
)
 
$
802,307


 
(1)
Includes $290.3 million that is included in cash and cash equivalents, $457.8 million included in short-term investments and $4.8 million of restricted cash that is included in other non-current assets related to workers compensation deposits.
(2)
Includes $508.1 million included in cash and cash equivalents, $289.8 million included in short-term investments and $4.5 million of restricted cash that is included in other current assets and other non-current assets.
F
Estimated Fair Value Of Short-Term Investments By Contractual Maturity 
he estimated fair value of short-term investments by contractual maturity as of December 31, 2012 is as follows:
 
 
 
(in thousands)
Due within one year
 
$
94,739

Due after one year and through 5 years
 
312,096

Due after 5 years and through 10 years
 
6,679

Due after 10 years
 
44,273

Total short-term investments
 
$
457,787

Balance Sheet Components (Tables)
Components Of Content Library 
Content library consisted of the following:
 
 
As of December 31,
 
2012
 
2011
 
(in thousands)
Total content library, gross
$
5,001,524

 
$
3,151,439

Accumulated amortization
(2,127,354
)
 
(1,184,796
)
Total content library, net
2,874,170

 
1,966,643

Current content library, net
1,368,162

 
919,709

Non-current content library, net
$
1,506,008

 
$
1,046,934

Components Of Content Liabilities 
Content liabilities consisted of the following:
 
 
As of December 31,
 
2012
 
2011
 
(in thousands)
Current content liabilities
$
1,366,847

 
$
935,036

Non-current content liabilities
1,076,622

 
739,628

Total content liabilities
$
2,443,469

 
$
1,674,664

Property And Equipment And Accumulated Depreciation 
Property and equipment and accumulated depreciation consisted of the following:
 
 
 
As of December 31,
 
 
2012
 
2011
 
 
(in thousands)
Computer equipment
 
3 years
 
$
84,193

 
$
67,090

Operations and other equipment
 
5 years
 
100,207

 
100,306

Software
 
3 years
 
39,073

 
35,356

Furniture and fixtures
 
3 years
 
18,208

 
17,310

Building
 
30 years
 
40,681

 
40,681

Leasehold improvements
 
Over life of lease
 
45,393

 
44,473

Capital work-in-progress
 
8,282

 
822

Property and equipment, gross
 
336,037

 
306,038

Less: Accumulated depreciation
 
(204,356
)
 
(169,685
)
Property and equipment, net
 
$
131,681

 
$
136,353

Commitments And Contingencies (Tables)
Future Minimum Payments Under Lease Financing Obligations And Non-Cancelable Operating Leases 
Future minimum payments under lease financing obligations and non-cancelable operating leases as of December 31, 2012 are as follows:
 
Year Ending December 31,
Future
Minimum
Payments
 
(in thousands)
2013
$
24,016

2014
16,651

2015
17,393

2016
17,718

2017
13,839

Thereafter
49,741

Total minimum payments
$
139,358

Expected Timing Of Payments For Commitments 
The expected timing of payments for these agreements to acquire and license streaming content that represent current or long-term liabilities as well as obligations not reflected on the Consolidated Balance Sheets is as follows:

 
As of
 
 
December 31, 2012
 
December 31, 2011
 
 
(in thousands)
 
Less than one year
$
2,299,562

 
$
1,713,445

(1)
Due after one year and through 3 years
2,715,294

 
2,384,373

 
Due after 3 years and through 5 years
540,346

 
650,480

 
Due after 5 years
78,483

 
74,696

 
Total streaming content obligations
$
5,633,685

 
$
4,822,994

 


(1)
Prior period amounts have been presented to conform to the current period presentation which includes the streaming portion of "Current content liabilities" reflected on the Consolidated Balance Sheets. Note that total streaming content obligations remain unchanged with this presentation. Specifically, payments for streaming content obligations expected to be made in less than one year as of December 31, 2011, as shown above, include $0.9 billion of "Current content liabilities" reflected on the Consolidated Balance Sheets.
Stockholders' Equity (Tables)
Summary Of Activity Related To Stock Option Plans 
A summary of the activities related to the Company’s stock option plans is as follows:
 
 
Shares Available
for Grant
 
Options Outstanding
 
Weighted- Average Remaining Contractual Term (in Years)
 
Aggregate
Intrinsic Value
(in Thousands)
 
Number of
Shares
 
Weighted- Average Exercise Price
 
Balances as of December 31, 2009
2,591,267

 
4,241,438

 
$
22.74

 
 
 
 
Granted
(552,765
)
 
552,765

 
99.58

 
 
 
 
Exercised
—

 
(1,902,073
)
 
24.75

 
 
 
 
Balances as of December 31, 2010
2,038,502

 
2,892,130

 
36.11

 
 
 
 
Authorized
5,700,000

 
—

 
—

 
 
 
 
Granted
(724,994
)
 
724,994

 
154.09

 
 
 
 
Exercised
—

 
(659,370
)
 
29.11

 
 
 
 
Balances as of December 31, 2011
7,013,508

 
2,957,754

 
66.59

 
 
 
 
Granted
(1,803,798
)
 
1,803,798

 
73.94

 
 
 
 
Exercised
—

 
(188,552
)
 
21.85

 
 
 
 
Canceled
48

 
(48
)
 
35.95

 
 
 
 
Expired
(1,160,721
)
 
—

 


 
 
 
 
Balances as of December 31, 2012
4,049,037

 
4,572,952

 
71.33

 
7.05
 
$
163,975

Vested and exercisable at
December 31, 2012
 
 
4,572,952

 
71.33

 
7.05
 
$
163,975

Summary Of Assumptions Used To Value Stock Option Grants Using Lattice-Binomial Model 
The following table summarizes the assumptions used to value option grants using the lattice-binomial model:
 
 
 
Year Ended December 31,
 
 
2012
 
2011
 
2010
Dividend yield
 
—
%
 
—
%
 
—
%
Expected volatility
 
55 % - 65%

 
51% – 65%

 
46% – 54%

Risk-free interest rate
 
1.61% - 2.01%

 
2.05% – 3.42%

 
2.65% – 3.67%

Suboptimal exercise factor
 
2.26 - 3.65

 
2.17 – 3.64

 
1.78 – 3.28

Summary Of Stock Repurchases 
The following table presents a summary of the Company’s stock repurchases:
 
 
Year ended December 31,
 
2011
 
2010
 
(in thousands, except per share data)
Total number of shares repurchased
900

 
2,606

Dollar amount of shares repurchased
$
199,666

 
$
210,259

Average price paid per share
$
221.88

 
$
80.67

Range of price paid per share
$160.11 – $248.78

 
$60.23 – $126.01

Income Taxes (Tables)
Schedule of Income before Income Taxes 
Income before provision for income taxes was as follows:
 
Year Ended December 31,
 
2012
 
2011
 
2010
 
(in thousands)
United States
$
27,885

 
$
359,786

 
$
267,696

Foreign
2,595

 
(264
)
 
—

Income before income taxes
$
30,480

 
$
359,522

 
$
267,696

Components Of Provision For Income Taxes 
The components of provision for income taxes for all periods presented were as follows:
 
 
Year Ended December 31,
 
2012
 
2011
 
2010
 
(in thousands)
Current tax provision:
 
 
 
 
 
Federal
$
34,387

 
$
123,406

 
$
86,002

State
7,850

 
28,657

 
21,803

Foreign
1,162

 
(70
)
 
—

Total current
43,399

 
151,993

 
107,805

Deferred tax provision:
 
 
 
 
 
Federal
(26,903
)
 
(14,008
)
 
(1,615
)
State
(3,168
)
 
(4,589
)
 
653

Total deferred
(30,071
)
 
(18,597
)
 
(962
)
Provision for income taxes
$
13,328

 
$
133,396

 
$
106,843

Reconciliation Of Provision For Income Taxes 
A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate to income before income taxes is as follows:
 
 
Year Ended December 31,
 
2012
 
2011
 
2010
 
(in thousands)
Expected tax expense at U.S. federal statutory rate of 35%
$
10,667

 
$
125,833

 
$
93,694

State income taxes, net of Federal income tax effect
2,914

 
15,042

 
15,349

R&D tax credit
(1,803
)
 
(8,365
)
 
(3,207
)
Other
1,550

 
886

 
1,007

Provision for income taxes
$
13,328

 
$
133,396

 
$
106,843

Deferred Tax Assets And Liabilities 
The tax effects of temporary differences and tax carryforwards that give rise to significant portions of the deferred tax assets are presented below:
 
 
As of December 31,
 
2012
 
2011
 
(in thousands)
Deferred tax assets (liabilities):
 
 
 
Stock-based compensation
$
66,827

 
$
39,337

Accruals and reserves
11,155

 
9,193

Depreciation
(18,356
)
 
(17,381
)
R&D credits
8,480

 
6,335

Other
(244
)
 
844

Deferred tax assets
$
67,862

 
$
38,328

Summary Of Changes In Unrecognized Tax Benefits 
The aggregate changes in the Company’s total gross amount of unrecognized tax benefits are summarized as follows (in thousands):
 
Balance as of December 31, 2010
$
20,677

Decreases related to tax positions taken during prior periods
(46
)
Increases related to tax positions taken during the current period
10,739

Decreases related to expiration of statute of limitations
(3,237
)
Balance as of December 31, 2011
$
28,133

Increases related to tax positions taken during prior periods
8,487

Decreases related to tax positions taken during prior periods
(320
)
Increases related to tax positions taken during the current period
7,037

Balance as of December 31, 2012
$
43,337

Segment Information (Tables)
Information On Reportable Segments And Reconciliation To Consolidated Net Income
The following table represents segment information for the year ended December 31, 2012:
 
 
As of/Year ended December 31, 2012
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total subscriptions at end of period (1)
27,146

 
6,121

 
8,224

 
—

Revenues
$
2,184,868

 
$
287,542

 
$
1,136,872

 
$
3,609,282

Cost of revenues
1,558,864

 
475,570

 
591,432

 
2,625,866

Marketing
276,072

 
201,283

 
7,374

 
484,729

Contribution profit (loss)
$
349,932

 
$
(389,311
)
 
$
538,066

 
$
498,687

Other operating expenses
 
 
 
 
 
 
448,695

Operating income
 
 
 
 
 
 
49,992

Other income (expense)
 
 
 
 
 
 
(19,512
)
Provision for income taxes
 
 
 
 
 
 
13,328

Net income
 
 
 
 
 
 
$
17,152



 
As of/Year ended December 31, 2012
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total content library, net
$
2,317,070

 
$
527,235

 
$
29,865

 
$
2,874,170

Amortization of content library
1,152,446

 
438,772

 
65,396

 
1,656,614


The following table represents the Company's segment information for the fourth quarter of 2011:
 
As of/Three Months ended December 31, 2011
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total subscriptions at end of period (1)
21,671

 
1,858

 
11,165

 
—

Revenues
$
476,334

 
$
28,988

 
$
370,253

 
$
875,575

Cost of revenues
345,026

 
55,909

 
174,220

 
575,155

Marketing
79,198

 
32,822

 
2,268

 
114,288

Contribution profit (loss)
$
52,110

 
$
(59,743
)
 
$
193,765

 
$
186,132

Other operating expenses
 
 
 
 
 
 
124,260

Operating income
 
 
 
 
 
 
61,872

Other income (expense)
 
 
 
 
 
 
(5,037
)
Provision for income taxes
 
 
 
 
 
 
21,616

Net income
 
 
 
 
 
 
$
35,219


The following tables represents the Company’s segment information for the years ended December 31, 2011 and 2010 based on the Company’s segment reporting prior to the fourth quarter of 2011:
 
 
As of/Year ended December 31, 2011
 
Domestic
 
International
 
Consolidated
 
(in thousands)
Total unique subscribers at end of period (1) (2)
24,395

 
1,858

 
26,253

Revenues
$
3,121,727

 
$
82,850

 
$
3,204,577

Cost of revenues
1,932,419

 
107,482

 
2,039,901

Marketing
$
324,121

 
$
78,517

 
402,638

Contribution profit (loss)
$
865,187

 
$
(103,149
)
 
$
762,038

Other operating expenses
 
 
 
 
385,970

Operating income
 
 
 
 
376,068

Other income (expense)
 
 
 
 
(16,546
)
Provision for income taxes
 
 
 
 
133,396

Net income
 
 
 
 
$
226,126




 
As of/Year ended December 31, 2010
 
Domestic
 
International
 
Consolidated
 
(in thousands)
Total unique subscribers at end of period (1) (2)
19,501

 
509

 
20,010

Revenues
$
2,159,008

 
$
3,617

 
$
2,162,625

Cost of revenues
1,350,542

 
6,813

 
1,357,355

Marketing
$
284,917

 
$
8,922

 
293,839

Contribution profit (loss)
$
523,549

 
$
(12,118
)
 
$
511,431

Other operating expenses
 
 
 
 
227,790

Operating income
 
 
 
 
283,641

Other income (expense)
 
 
 
 
(15,945
)
Provision for income taxes
 
 
 
 
106,843

Net income
 
 
 
 
$
160,853



(1)
A subscription is defined as the right to receive either the Netflix streaming service or Netflix DVD service. In connection with the Company's subscription services, the Company offers free-trial memberships to new and certain rejoining members. A method of payment is required to be provided even during the free-trial period for the membership to be defined as a subscription and included in the above metrics. Total unique subscribers and total subscriptions include those subscribers who are on a free-trial. A subscription would cease to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations become effective at the end of the monthly subscription period, while involuntary cancellation of the service, as a result of a failed method of payment, becomes effective immediately.

(2)
For purposes of determining the number of unique subscribers, domestic subscribers who have elected both a DVD and a streaming subscription plan are considered a single unique subscriber.
Selected Quarterly Financial Data (Tables)
Selected Quarterly Financial Data
 
December 31
 
September 30
 
June 30
 
March 31
 
(in thousands, except for per share data)
2012
 
Total revenues
$
945,239

 
$
905,089

 
$
889,163

 
$
869,791

Gross profit
249,372

 
242,451

 
245,735

 
245,858

Net income (loss)
7,897

 
7,675

 
6,164

 
(4,584
)
Earnings (loss) per share:
 
 
 
 
 
 
 
Basic
$
0.14

 
$
0.14

 
$
0.11

 
$
(0.08
)
Diluted
0.13

 
0.13

 
0.11

 
(0.08
)
2011
 
 
 
 
 
 
 
Total revenues
$
875,575

 
$
821,839

 
$
788,610

 
$
718,553

Gross profit
300,420

 
285,222

 
298,632

 
280,402

Net income (1)
35,219

 
62,460

 
68,214

 
60,233

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.66

 
$
1.19

 
$
1.30

 
$
1.14

Diluted
0.64

 
1.16

 
1.26

 
1.11

 
(1)
Net income for the three months ended December 31, 2011 includes $9.0 million of expense related to a legal settlement and $9.5 million of expense related to termination benefits associated with the Company’s retraction of plans to separate and rebrand the DVD-by-mail service.
Organization And Summary Of Significant Accounting Policies (Narrative) (Details) (USD $)
In Millions, unless otherwise specified
9 Months Ended 12 Months Ended 15 Months Ended
Sep. 30, 2011
segments
Dec. 31, 2012
segments
Y
M
country
member
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2012
segments
country
member
Organization And Summary Of Significant Accounting Policies [Line Items]
 
 
 
 
 
Number of Members
 
33,000,000 
 
 
33,000,000 
Number of Countries
 
40 
 
 
40 
Number of Hours
 
1000000000 hours 
 
 
 
Number of Operating Segments
2 
3 
 
 
3 
License agreement, payment terms minimum (months)
 
6 
 
 
 
License agreement, payment terms maximum (years)
 
5 
 
 
 
New release DVD useful life
 
1 year 
 
 
 
Back-catalog DVD useful life
 
3 years 
 
 
 
Advertising expense
 
$ 377.2 
$ 299.1 
$ 212.4 
 
Income tax examination, likelihood of unfavorable settlement, percentage
 
50.00% 
 
 
 
Cumulative translation adjustment
 
1.4 
 
 
1.4 
Foreign currency transaction gain (loss)
 
$ (4.0)
 
 
 
Minimum [Member]
 
 
 
 
 
Organization And Summary Of Significant Accounting Policies [Line Items]
 
 
 
 
 
Streaming license agreement payment term period
 
3 years 
 
 
 
Maximum [Member]
 
 
 
 
 
Organization And Summary Of Significant Accounting Policies [Line Items]
 
 
 
 
 
Streaming license agreement payment term period
 
5 years 
 
 
 
Property And Equipment [Member]
 
 
 
 
 
Organization And Summary Of Significant Accounting Policies [Line Items]
 
 
 
 
 
Estimated useful life (years)
 
30 years 
 
 
 
Cash Equivalents [Member] |
Original Maturity Number Of Days Or Less [Member]
 
 
 
 
 
Organization And Summary Of Significant Accounting Policies [Line Items]
 
 
 
 
 
Investments original maturity (in days)
 
90 
 
 
 
Available-For-Sale Securities [Member] |
Original Maturity Number Of Days Or More [Member]
 
 
 
 
 
Organization And Summary Of Significant Accounting Policies [Line Items]
 
 
 
 
 
Investments original maturity (in days)
 
90 
 
 
 
Organization And Summary Of Significant Accounting Policies (Computation Of Net Income Per Share) (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 12 Months Ended
Dec. 31, 2012
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Sep. 30, 2011
Jun. 30, 2011
Mar. 31, 2011
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Organization, Consolidation and Presentation of Financial Statements [Abstract]
 
 
 
 
 
 
 
 
 
 
 
Net income
$ 7,897 
$ 7,675 
$ 6,164 
$ (4,584)
$ 35,219 1
$ 62,460 1
$ 68,214 1
$ 60,233 1
$ 17,152 
$ 226,126 
$ 160,853 
Weighted-average common shares outstanding (in shares)
 
 
 
 
 
 
 
 
55,521 
52,847 
52,529 
Basic earnings per share (in dollars per share)
$ 0.14 
$ 0.14 
$ 0.11 
$ (0.08)
$ 0.66 
$ 1.19 
$ 1.30 
$ 1.14 
$ 0.31 
$ 4.28 
$ 3.06 
Convertible Notes interest expense, net of tax
 
 
 
 
 
 
 
 
195 
17 
0 
Numerator for diluted earnings per share
 
 
 
 
 
 
 
 
$ 17,347 
$ 226,143 
$ 160,853 
Convertible notes shares
 
 
 
 
 
 
 
 
2,331 
217 
0 
Employee stock options and employee stock purchase plan shares
 
 
 
 
 
 
 
 
1,052 
1,305 
1,775 
Weighted-average number of shares (in shares)
 
 
 
 
 
 
 
 
58,904 
54,369 
54,304 
Diluted earnings per share (in dollars per share)
$ 0.13 
$ 0.13 
$ 0.11 
$ (0.08)
$ 0.64 
$ 1.16 
$ 1.26 
$ 1.11 
$ 0.29 
$ 4.16 
$ 2.96 
Organization And Summary Of Significant Accounting Policies (Summary Of Potential Common Shares Excluded From Diluted Calculation) (Details)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Organization, Consolidation and Presentation of Financial Statements [Abstract]
 
 
 
Employee stock options
1,207 
225 
14 
Short-Term Investments (Available-For-Sale Securities Reported At Fair Value) (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
$ 750,466 1
$ 801,218 2
Gross Unrealized Gains
2,640 1
1,359 2
Gross Unrealized Losses
(157)1
(270)2
Estimated Fair Value
752,949 1
802,307 2
Cash [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
284,661 
388,941 
Gross Unrealized Gains
0 
0 
Gross Unrealized Losses
0 
0 
Estimated Fair Value
284,661 
388,941 
Level 1 Securities [Member] |
Money Market Funds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
10,500 
123,608 
Gross Unrealized Gains
0 
0 
Gross Unrealized Losses
0 
0 
Estimated Fair Value
10,500 
123,608 
Level 2 Securities [Member] |
Corporate Debt Securities [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
150,322 
112,264 
Gross Unrealized Gains
1,605 
603 
Gross Unrealized Losses
(32)
(214)
Estimated Fair Value
151,895 
112,653 
Level 2 Securities [Member] |
Government And Agency Securities [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
166,643 
175,464 
Gross Unrealized Gains
285 
694 
Gross Unrealized Losses
0 
(56)
Estimated Fair Value
166,928 
176,102 
Level 2 Securities [Member] |
Asset And Mortgage Backed Securities [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
138,340 
941 
Gross Unrealized Gains
750 
62 
Gross Unrealized Losses
(125)
0 
Estimated Fair Value
138,965 
1,003 
Cash and Cash Equivalents [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Estimated Fair Value
290,300 
508,100 
Short-term Investments [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Estimated Fair Value
457,800 
289,800 
Restricted Cash [Member] |
Workers Compensation Deposits [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Estimated Fair Value
 
4,500 
Other Non-current Assets [Member] |
Workers Compensation Deposits [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Estimated Fair Value
$ 4,800 
 
Short-Term Investments (Estimated Fair Value Of Short-Term Investments By Contractual Maturity) (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Short-term Investments [Abstract]
 
 
Due within one year
$ 94,739 
 
Due after one year and through 5 years
312,096 
 
Due after 5 years and through 10 years
6,679 
 
Due after 10 years
44,273 
 
Total short-term investments
$ 457,787 
$ 289,758 
Balance Sheet Components (Narrative) (Details)
12 Months Ended
Dec. 31, 2012
Y
M
Balance Sheet Related Disclosures [Abstract]
 
License agreement, payment terms minimum (months)
6 
License agreement, payment terms maximum (years)
5 
Balance Sheet Components (Components Of Content Library) (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Balance Sheet Related Disclosures [Abstract]
 
 
Total content library, gross
$ 5,001,524 
$ 3,151,439 
Accumulated amortization
(2,127,354)
(1,184,796)
Total content library, net
2,874,170 
1,966,643 
Current content library, net
1,368,162 
919,709 
Non-current content library, net
$ 1,506,008 
$ 1,046,934 
Balance Sheet Components (Components Of Content Liabilities) (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Balance Sheet Related Disclosures [Abstract]
 
 
Current content liabilities
$ 1,366,847 
$ 935,036 
Non-current content liabilities
1,076,622 
739,628 
Total content liabilities
$ 2,443,469 
$ 1,674,664 
Balance Sheet Components (Property And Equipment And Accumulated Depreciation) (Details) (USD $)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
$ 336,037,000 
$ 306,038,000 
Less: Accumulated depreciation
(204,356,000)
(169,685,000)
Property and equipment, net
131,681,000 
136,353,000 
Computer Equipment [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
84,193,000 
67,090,000 
Property and equipment, useful life, years
3 years 
 
Open Connect [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Increase in Operations and other equipment
30,000,000 
 
Percent increase in Operations and other equipment
10.00% 
 
Operations And Other Equipment [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
100,207,000 
100,306,000 
Property and equipment, useful life, years
5 years 
 
Software, including internal-use software [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
39,073,000 
35,356,000 
Property and equipment, useful life, years
3 years 
 
Furniture And Fixtures [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
18,208,000 
17,310,000 
Property and equipment, useful life, years
3 years 
 
Building [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
40,681,000 
40,681,000 
Property and equipment, useful life, years
30 years 
 
Leasehold Improvements [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
45,393,000 
44,473,000 
Capital Work-In-Progress [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
$ 8,282,000 
$ 822,000 
Long-Term Debt (Senior Convertible Notes) (Narrative) (Details) (USD $)
12 Months Ended 1 Months Ended 12 Months Ended 12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Nov. 30, 2011
Senior Convertible Notes [Member]
Dec. 31, 2012
Senior Convertible Notes [Member]
Dec. 31, 2011
Senior Convertible Notes [Member]
Dec. 31, 2012
Minimum [Member]
Senior Convertible Notes [Member]
Dec. 31, 2012
Maximum [Member]
Senior Convertible Notes [Member]
Debt Instrument [Line Items]
 
 
 
 
 
 
 
 
Long-term debt outstanding
$ 200,000,000 
$ 200,000,000 
 
$ 200,000,000 
 
 
 
 
Debt Instrument, Maturity Date
 
 
 
Dec. 01, 2018 
 
 
 
 
Proceeds from issuance of debt, net of issuance costs
(295,000)
198,060,000 
0 
197,800,000 
 
 
 
 
Debt issuance costs, net
 
 
 
2,200,000 
 
 
 
 
Payment of debt issuance costs
 
 
 
 
300,000 
 
 
 
Conversion rate of convertible notes to common stock shares
 
 
 
 
11.6553 
 
 
 
Common stock, par value
$ 0.001 
$ 0.001 
 
 
$ 0.001 
 
 
 
Conversion rate of convertible notes, principal amount
 
 
 
 
1,000 
 
 
 
Initial conversion price per share of common stock
 
 
 
 
$ 85.80 
 
 
 
Debt instrument, convertible into shares, earliest date
 
 
 
 
May 28, 2012 
 
 
 
Debt instrument, redeemable notes purchase price, percentage
 
 
 
 
120.00% 
 
 
 
Weighted average price of common stock
 
 
 
 
$ 111.54 
 
 
 
Trading days prior to conversion date required for conversion
 
 
 
 
 
 
50 
65 
Senior notes, fair value
 
 
 
 
$ 212,500,000 
$ 206,500,000 
 
 
Long-Term Debt (Senior Notes) (Narrative) (Details) (USD $)
12 Months Ended 1 Months Ended 12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Nov. 30, 2009
8.50% Senior Notes [Member]
Dec. 31, 2012
8.50% Senior Notes [Member]
Dec. 31, 2011
8.50% Senior Notes [Member]
Dec. 31, 2012
Prior To November 15, 2013 [Member]
8.50% Senior Notes [Member]
Dec. 31, 2012
On Or After November 15, 2013 [Member]
Maximum [Member]
8.50% Senior Notes [Member]
Dec. 31, 2012
On Or After November 15, 2013 [Member]
Minimum [Member]
8.50% Senior Notes [Member]
Debt Instrument [Line Items]
 
 
 
 
 
 
 
 
 
Long-term debt outstanding
$ 200,000,000 
$ 200,000,000 
 
$ 200,000,000 
 
 
 
 
 
Senior notes interest rate
 
 
 
8.50% 
 
 
 
 
 
Senior notes, maturity date
 
 
 
Nov. 15, 2017 
 
 
 
 
 
Proceeds from issuance of debt, net of issuance costs
(295,000)
198,060,000 
0 
193,900,000 
 
 
 
 
 
Debt issuance costs, net
 
 
 
 
6,100,000 
 
 
 
 
Senior notes, interest payment commencement date
 
 
 
 
May 15, 2010 
 
 
 
 
Debt instrument, redeemable notes purchase price, percentage
 
 
 
 
101.00% 
 
100.00% 
104.25% 
100.00% 
Make-whole premium
 
 
 
 
25,000,000 
 
 
 
 
Senior notes, fair value
 
 
 
 
$ 212,500,000 
$ 206,500,000 
 
 
 
Commitments And Contingencies (Narrative) (Details) (USD $)
12 Months Ended 3 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2012
Los Gatos Buildings [Member]
Mar. 31, 2010
Los Gatos Buildings [Member]
Y
Commitments and Contingencies [Line Items]
 
 
 
 
 
Total costs of buildings and improvements
$ 40,700,000 
 
 
 
 
Extended lease term
 
 
 
 
5 
Operating leases, increase in future minimum payments due
 
 
 
 
14,000,000 
Lease financing obligation
 
 
 
31,800,000 
 
Current portion of lease financing obligation in accrued expenses
 
 
 
1,200,000 
 
Non-current portion of lease financing obligation in other non-current liabilities
 
 
 
30,600,000 
 
Operating leases, remaining future minimum payments due
 
 
 
15,100,000 
 
Operating lease financing obligation under extended lease term
 
 
 
25,800,000 
 
Rent expense
29,700,000 
16,900,000 
14,900,000 
 
 
Total streaming content obligations
5,633,685,000 
4,822,994,000 
 
 
 
Lease term
 
 
 
10 years 
 
Total minimum payments
$ 139,358,000 
 
 
$ 63,400,000 
 
Commitments And Contingencies (Future Minimum Payments Under Lease Financing Obligations And Non-Cancelable Operating Leases) (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Commitments and Contingencies Disclosure [Abstract]
 
2013
$ 24,016 
2014
16,651 
2015
17,393 
2016
17,718 
2017
13,839 
Thereafter
49,741 
Total minimum payments
$ 139,358 
Commitments And Contingencies (Expected Timing Of Payments For Commitments) (Details) (USD $)
Dec. 31, 2012
Dec. 31, 2011
Commitments and Contingencies Disclosure [Abstract]
 
 
Less than one year
$ 2,299,562,000 1
$ 1,713,445,000 1
Due after one year and through 3 years
2,715,294,000 
2,384,373,000 
Due after 3 years and through 5 years
540,346,000 
650,480,000 
Due after 5 years
78,483,000 
74,696,000 
Total streaming content obligations
5,633,685,000 
4,822,994,000 
Recorded unconditional purchase obligation
 
$ 900,000,000 
Commitments And Contingencies Commitments and Contingencies (Legal Proceedings) (Details) (Pending Litigation [Member])
Feb. 29, 2012
lawsuits_filed
Jan. 27, 2012
lawsuits_filed
May 2, 2012
Superior Court of California, Santa Clara County [Member]
lawsuits_filed
Feb. 9, 2012
Superior Court of California, Santa Clara County [Member]
lawsuits_filed
Nov. 23, 2011
Superior Court of California, Santa Clara County [Member]
lawsuits_filed
Apr. 2, 2012
United States District Court for the Northern District of California [Member]
lawsuits_filed
Feb. 24, 2012
United States District Court for the Northern District of California [Member]
lawsuits_filed
Feb. 13, 2012
United States District Court for the Northern District of California [Member]
lawsuits_filed
Jan. 13, 2012
United States District Court for the Northern District of California [Member]
lawsuits_filed
Loss Contingencies [Line Items]
 
 
 
 
 
 
 
 
 
Shareholder suits
1 
1 
1 
1 
6 
1 
1 
1 
3 
Stockholders' Equity (Narrative) (Details) (USD $)
0 Months Ended 1 Months Ended 12 Months Ended 30 Months Ended 72 Months Ended 12 Months Ended 0 Months Ended 12 Months Ended
Jun. 30, 2004
Nov. 28, 2011
Dec. 31, 2012
employee_groups
Dec. 31, 2011
Dec. 31, 2010
Jan. 1, 2007
Dec. 31, 2012
Dec. 31, 2010
Employee Stock [Member]
Jun. 11, 2010
Stock Repurchase Program [Member]
Dec. 31, 2012
Stock Repurchase Program [Member]
Dec. 31, 2012
Stock Option Plans [Member]
Dec. 31, 2011
Stock Option Plans [Member]
Dec. 31, 2010
Stock Option Plans [Member]
Dec. 31, 2012
Employee Stock [Member]
Dec. 31, 2012
Stock-Based Compensation [Member]
Dec. 31, 2011
Stock-Based Compensation [Member]
Dec. 31, 2010
Stock-Based Compensation [Member]
Dec. 31, 2012
2002 Employee Stock Purchase Plan [Member]
Dec. 31, 2012
2011 Stock Plan [Member]
Mar. 31, 2012
2002 Stock Plan [Member]
Dec. 31, 2012
Series A [Member]
Dec. 31, 2012
Undesignated Stock [Member]
Components of Stockholders' Equity [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock, par value
 
 
$ 0.001 
$ 0.001 
 
 
$ 0.001 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock, par value
 
 
$ 0.001 
$ 0.001 
 
 
$ 0.001 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 0.001 
$ 0.001 
Right to purchase preferred stock, conversion ratio
 
 
0.001 
 
 
 
0.001 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Right to purchase preferred stock, exercise price
 
 
$ 350,000 
 
 
 
$ 350,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percent ownership threshold of common stock to become exercisable
 
 
10.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percent ownership threshold of common stock to become exercisable for certain institutional investors
 
 
20.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock, shares issued
 
2,900,000 
55,398,615 
55,398,615 
 
 
55,398,615 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from public offering of common stock, net of issuance costs
 
$ 200,000,000 
$ (464,000)
$ 199,947,000 
$ 0 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance costs
 
 
 
500,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock, shares authorized
 
 
10,000,000 
10,000,000 
 
 
10,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,000,000 
9,000,000 
Preferred stock, shares issued
 
 
0 
0 
 
 
0 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock, shares outstanding
 
 
0 
0 
 
 
0 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of voting rights per share
 
 
1 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stockholders, voting rights
 
 
one vote 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares available for future issuance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,785,721 
4,000,000 
1,200,000 
 
 
Total intrinsic value of options exercised
 
 
 
 
 
 
 
 
 
 
14,700,000 
128,100,000 
176,000,000 
 
 
 
 
 
 
 
 
 
Cash received from option exercised
 
 
 
 
 
 
 
2,700,000 
 
 
4,100,000 
19,600,000 
47,100,000 
 
 
 
 
 
 
 
 
 
Purchase price of common stock acquired by employees on closing price
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
85.00% 
 
 
 
 
Common stock purchase period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6 months 
 
 
 
 
Common stock look-back period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6 months 
 
 
 
 
Employees can invest maximum their gross compensation through payroll deductions for share purchase
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15.00% 
 
 
 
 
Maximum number of shares employee can purchase
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8,334 
 
 
 
 
Shares purchased during period
 
 
 
 
 
 
 
46,112 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares purchased average price
 
 
 
 
 
 
 
$ 58.41 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise period after employment termination
3 months 
 
 
 
 
1 year 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Full exercise period
 
 
 
 
 
 
10 years 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of employee groups
 
 
2 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividend yield
 
 
0.00% 
0.00% 
0.00% 
 
 
 
 
 
 
 
 
0.00% 
 
 
 
 
 
 
 
 
Expected volatility
 
 
 
 
 
 
 
 
 
 
 
 
 
45.00% 
 
 
 
 
 
 
 
 
Risk-free interest rate
 
 
 
 
 
 
 
 
 
 
 
 
 
0.24% 
 
 
 
 
 
 
 
 
Expected life (in years)
 
 
 
 
 
 
 
 
 
 
 
 
 
6 months 
 
 
 
 
 
 
 
 
Weighted-average fair value of employee stock options granted per share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 41.00 
$ 84.94 
$ 49.31 
 
 
 
 
 
Weighted-average fair value of shares granted under ESPP per share
 
 
 
 
 
 
 
$ 21.27 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock based compensation expense
 
 
73,900,000 
61,600,000 
28,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax benefit
 
 
28,500,000 
22,800,000 
11,200,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock repurchase plan, authorized amount
 
 
 
 
 
 
 
 
300,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock repurchase program, amount repurchased
 
 
 
 
 
 
 
 
 
259,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
Stock repurchase program, remaining authorized repurchase amount
 
 
 
 
 
 
 
 
 
$ 41,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
Stockholders' Equity (Summary Of Activity Related To Stock Option Plans) (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
 
 
 
Shares Available for Grant, Beginning Balances
7,013,508 
2,038,502 
2,591,267 
Options Outstanding, Number of Shares, Beginning Balances
2,957,754 
2,892,130 
4,241,438 
Options Outstanding, Weighted-Average Exercise Price, Beginning Balances
$ 66.59 
$ 36.11 
$ 22.74 
Shares Available for Grant, Authorized
 
5,700,000 
 
Shares Available for Grant, Granted
(1,803,798)
(724,994)
(552,765)
Options Outstanding, Number of Shares, Granted
1,803,798 
724,994 
552,765 
Options Outstanding, Weighted-Average Exercise Price, Granted
$ 73.94 
$ 154.09 
$ 99.58 
Options Outstanding, Number of Shares, Exercised
(188,552)
(659,370)
(1,902,073)
Options Outstanding, Weighted-Average Exercise Price, Exercised
$ 21.85 
$ 29.11 
$ 24.75 
Shares Available for Grant, Canceled
48 
 
 
Options Outstanding, Number of Shares, Canceled
(48)
 
 
Options Outstanding, Weighted-Average Exercise Price, Canceled
$ 35.95 
 
 
Shares Available for Grant, Expired
(1,160,721)
 
 
Shares Available for Grant, Ending Balances
4,049,037 
7,013,508 
2,038,502 
Options Outstanding, Number of Shares, Ending Balances
4,572,952 
2,957,754 
2,892,130 
Options Outstanding, Weighted-Average Exercise Price, Ending Balances
$ 71.33 
$ 66.59 
$ 36.11 
Weighted-Average Remaining Contractual Term, Ending Balances (in Years)
7 years 0 months 18 days 
 
 
Aggregate Intrinsic Value, Ending Balances
$ 163,975 
 
 
Options Outstanding, Number of Shares, Vested and exercisable
4,572,952 
 
 
Options Outstanding, Weighted-Average Exercise Price, Vested and exercisable
$ 71.33 
 
 
Weighted-Average Remaining Contractual Term, Vested and exercisable (in Years)
7 years 0 months 18 days 
 
 
Aggregate Intrinsic Value, Vested and exercisable
$ 163,975 
 
 
Stockholders' Equity (Summary Of Assumptions Used To Value Stock Option Grants Using Lattice-Binomial Model) (Details)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Share Based Payment Award Valuation Assumptions [Line Items]
 
 
 
Dividend yield
0.00% 
0.00% 
0.00% 
Expected volatility, minimum
55.00% 
51.00% 
46.00% 
Expected volatility, maximum
65.00% 
65.00% 
54.00% 
Risk-free interest rate, minimum
1.61% 
2.05% 
2.65% 
Risk-free interest rate, maximum
2.01% 
3.42% 
3.67% 
Minimum [Member]
 
 
 
Share Based Payment Award Valuation Assumptions [Line Items]
 
 
 
Suboptimal exercise factor
2.26 
2.17 
1.78 
Maximum [Member]
 
 
 
Share Based Payment Award Valuation Assumptions [Line Items]
 
 
 
Suboptimal exercise factor
3.65 
3.64 
3.28 
Stockholders' Equity (Summary Of Stock Repurchases) (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Components of Stockholders' Equity [Line Items]
 
 
Total number of shares repurchased
900,000 
2,606,000 
Dollar amount of shares repurchased
$ 199,666 
$ 210,259 
Average price paid per share
$ 221.88 
$ 80.67 
Minimum [Member]
 
 
Components of Stockholders' Equity [Line Items]
 
 
Average price paid per share
$ 160.11 
$ 60.23 
Maximum [Member]
 
 
Components of Stockholders' Equity [Line Items]
 
 
Average price paid per share
$ 248.78 
$ 126.01 
Income Taxes Income Taxes (Schedule of Income before Income Taxes) (Details) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Income Tax Disclosure [Abstract]
 
 
 
United States
$ 27,885 
$ 359,786 
$ 267,696 
Foreign
2,595 
(264)
0 
Income before income taxes
$ 30,480 
$ 359,522 
$ 267,696 
Income Taxes (Narrative) (Details) (USD $)
12 Months Ended 3 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Mar. 31, 2013
Scenario, Forecast [Member]
Operating Loss Carryforwards [Line Items]
 
 
 
 
Undistributed earnings of foreign subsidiaries
$ 1,600,000 
 
 
 
Income tax benefits attributable to the exercise of employee stock options
4,400,000 
45,500,000 
62,200,000 
 
Deferred tax assets, other current assets
11,000,000 
10,000,000 
 
 
Deferred tax assets, other non-current assets
56,900,000 
28,300,000 
 
 
Federal R&D credit recorded by the Company
 
 
 
3,100,000 
Unrecognized tax benefits
43,337,000 
28,133,000 
20,677,000 
 
Reduction in provision for income taxes due to impact of effective tax rate
35,700,000 
 
 
 
Gross interest and penalties accrued
$ 3,100,000 
$ 2,400,000 
 
 
Income Taxes (Components Of Provision For Income Taxes) (Details) (USD $)
3 Months Ended 12 Months Ended
Dec. 31, 2011
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Income Tax Disclosure [Abstract]
 
 
 
 
Current tax provision, Federal
 
$ 34,387,000 
$ 123,406,000 
$ 86,002,000 
Current tax provision, State
 
7,850,000 
28,657,000 
21,803,000 
Current tax provision, Foreign
 
1,162,000 
(70,000)
0 
Total current
 
43,399,000 
151,993,000 
107,805,000 
Deferred tax provision, Federal
 
(26,903,000)
(14,008,000)
(1,615,000)
Deferred tax provision, State
 
(3,168,000)
(4,589,000)
653,000 
Total deferred
 
(30,071,000)
(18,597,000)
(962,000)
Provision for income taxes
$ 21,616,000 
$ 13,328,000 
$ 133,396,000 
$ 106,843,000 
Income Taxes (Reconciliation Of Provision For Income Taxes) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 12 Months Ended
Dec. 31, 2011
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Income Tax Disclosure [Abstract]
 
 
 
 
Expected tax expense at U.S. federal statutory rate of 35%
 
$ 10,667 
$ 125,833 
$ 93,694 
State income taxes, net of Federal income tax effect
 
2,914 
15,042 
15,349 
R&D tax credit
 
(1,803)
(8,365)
(3,207)
Other
 
1,550 
886 
1,007 
Provision for income taxes
$ 21,616 
$ 13,328 
$ 133,396 
$ 106,843 
Federal statutory rate
 
35.00% 
 
 
Income Taxes (Deferred Tax Assets And Liabilities) (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Income Tax Disclosure [Abstract]
 
 
Stock-based compensation
$ 66,827 
$ 39,337 
Accruals and reserves
11,155 
9,193 
Depreciation
(18,356)
(17,381)
R&D credits
8,480 
6,335 
Other
(244)
844 
Deferred tax assets
$ 67,862 
$ 38,328 
Income Taxes (Schedule of Income before Income Taxes) (Details) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Reconciliation of Unrecognized Tax Benefits, Excluding Amounts Pertaining to Examined Tax Returns [Roll Forward]
 
 
Beginning Balance
$ 28,133 
$ 20,677 
Decreases related to tax positions taken during prior periods
(320)
(46)
Increases related to tax positions taken during prior periods
8,487 
 
Increases related to tax positions taken during the current period
7,037 
10,739 
Decreases related to expiration of statute of limitations
 
(3,237)
Ending Balance
$ 43,337 
$ 28,133 
Employee Benefit Plan (Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Compensation and Retirement Disclosure [Abstract]
 
 
 
Eligible employees maximum contribution percentage
60.00% 
 
 
Contributions by employer
$ 5.2 
$ 4.0 
$ 2.8 
Segment Information (Information On Reportable Segments And Reconciliation To Consolidated Net Income) (Details) (USD $)
3 Months Ended 9 Months Ended 12 Months Ended 15 Months Ended
Dec. 31, 2012
subscription
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
subscription
unique_subscriber
Sep. 30, 2011
separate_subscription_plans
Jun. 30, 2011
Mar. 31, 2011
Sep. 30, 2011
segments
unique_subscriber
Dec. 31, 2012
segments
subscription
unique_subscriber
Dec. 31, 2011
subscription
unique_subscriber
Dec. 31, 2010
unique_subscriber
Dec. 31, 2012
segments
subscription
Segment Reporting Information [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of Operating Segments
 
 
 
 
 
 
 
 
2 
3 
 
 
3 
Number of Separate Subscription Plans
 
 
 
 
 
2 
 
 
 
 
 
 
 
Total subscriptions at end of period
0 1
 
 
 
0 
 
 
 
 
0 1
0 
 
0 1
Total unique subscribers at end of period
 
 
 
 
26,253,000 1 2
 
 
 
 
 
26,253,000 1 2
20,010,000 1 2
 
Revenues
$ 945,239,000 
$ 905,089,000 
$ 889,163,000 
$ 869,791,000 
$ 875,575,000 
$ 821,839,000 
$ 788,610,000 
$ 718,553,000 
 
$ 3,609,282,000 
$ 3,204,577,000 
$ 2,162,625,000 
 
Cost of revenues
 
 
 
 
575,155,000 
 
 
 
 
2,625,866,000 
2,039,901,000 
1,357,355,000 
 
Marketing
 
 
 
 
114,288,000 
 
 
 
 
484,729,000 
402,638,000 
293,839,000 
 
Contribution profit (loss)
 
 
 
 
186,132,000 
 
 
 
 
498,687,000 
762,038,000 
511,431,000 
 
Other operating expenses
 
 
 
 
124,260,000 
 
 
 
 
448,695,000 
385,970,000 
227,790,000 
 
Operating income
 
 
 
 
61,872,000 
 
 
 
 
49,992,000 
376,068,000 
283,641,000 
 
Other income (expense)
 
 
 
 
(5,037,000)
 
 
 
 
(19,512,000)
(16,546,000)
(15,945,000)
 
Provision for income taxes
 
 
 
 
21,616,000 
 
 
 
 
13,328,000 
133,396,000 
106,843,000 
 
Net income
7,897,000 
7,675,000 
6,164,000 
(4,584,000)
35,219,000 3
62,460,000 3
68,214,000 3
60,233,000 3
 
17,152,000 
226,126,000 
160,853,000 
 
Total content library, net
2,874,170,000 
 
 
 
1,966,643,000 
 
 
 
 
2,874,170,000 
1,966,643,000 
 
2,874,170,000 
Amortization of content library
 
 
 
 
 
 
 
 
 
1,656,614,000 
 
 
 
Domestic [Member]
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-lived tangible assets
127,700,000 
 
 
 
 
 
 
 
 
127,700,000 
 
 
127,700,000 
Total unique subscribers at end of period
 
 
 
 
24,395,000 1 2
 
 
 
 
 
24,395,000 1 2
19,501,000 1 2
 
Revenues
 
 
 
 
 
 
 
 
 
 
3,121,727,000 
2,159,008,000 
 
Cost of revenues
 
 
 
 
 
 
 
 
 
 
1,932,419,000 
1,350,542,000 
 
Marketing
 
 
 
 
 
 
 
 
 
 
324,121,000 
284,917,000 
 
Contribution profit (loss)
 
 
 
 
 
 
 
 
 
 
865,187,000 
523,549,000 
 
International [Member]
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-lived tangible assets
4,000,000 
 
 
 
 
 
 
 
 
4,000,000 
 
 
4,000,000 
Total unique subscribers at end of period
 
 
 
 
1,858,000 1 2
 
 
 
 
 
1,858,000 1 2
509,000 1 2
 
Revenues
 
 
 
 
 
 
 
 
 
 
82,850,000 
3,617,000 
 
Cost of revenues
 
 
 
 
 
 
 
 
 
 
107,482,000 
6,813,000 
 
Marketing
 
 
 
 
 
 
 
 
 
 
78,517,000 
8,922,000 
 
Contribution profit (loss)
 
 
 
 
 
 
 
 
 
 
(103,149,000)
(12,118,000)
 
Domestic Streaming [Member]
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
Total subscriptions at end of period
27,146,000 1
 
 
 
21,671,000 
 
 
 
 
27,146,000 1
21,671,000 
 
27,146,000 1
Revenues
 
 
 
 
476,334,000 
 
 
 
 
2,184,868,000 
 
 
 
Cost of revenues
 
 
 
 
345,026,000 
 
 
 
 
1,558,864,000 
 
 
 
Marketing
 
 
 
 
79,198,000 
 
 
 
 
276,072,000 
 
 
 
Contribution profit (loss)
 
 
 
 
52,110,000 
 
 
 
 
349,932,000 
 
 
 
Total content library, net
2,317,070,000 
 
 
 
 
 
 
 
 
2,317,070,000 
 
 
2,317,070,000 
Amortization of content library
 
 
 
 
 
 
 
 
 
1,152,446,000 
 
 
 
International Streaming [Member]
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
Total subscriptions at end of period
6,121,000 1
 
 
 
1,858,000 
 
 
 
 
6,121,000 1
1,858,000 
 
6,121,000 1
Revenues
 
 
 
 
28,988,000 
 
 
 
 
287,542,000 
 
 
 
Cost of revenues
 
 
 
 
55,909,000 
 
 
 
 
475,570,000 
 
 
 
Marketing
 
 
 
 
32,822,000 
 
 
 
 
201,283,000 
 
 
 
Contribution profit (loss)
 
 
 
 
(59,743,000)
 
 
 
 
(389,311,000)
 
 
 
Total content library, net
527,235,000 
 
 
 
 
 
 
 
 
527,235,000 
 
 
527,235,000 
Amortization of content library
 
 
 
 
 
 
 
 
 
438,772,000 
 
 
 
Domestic DVD [Member]
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
Total subscriptions at end of period
8,224,000 1
 
 
 
11,165,000 
 
 
 
 
8,224,000 1
11,165,000 
 
8,224,000 1
Revenues
 
 
 
 
370,253,000 
 
 
 
 
1,136,872,000 
 
 
 
Cost of revenues
 
 
 
 
174,220,000 
 
 
 
 
591,432,000 
 
 
 
Marketing
 
 
 
 
2,268,000 
 
 
 
 
7,374,000 
 
 
 
Contribution profit (loss)
 
 
 
 
193,765,000 
 
 
 
 
538,066,000 
 
 
 
Total content library, net
29,865,000 
 
 
 
 
 
 
 
 
29,865,000 
 
 
29,865,000 
Amortization of content library
 
 
 
 
 
 
 
 
 
$ 65,396,000 
 
 
 
[1] A subscription is defined as the right to receive either the Netflix streaming service or Netflix DVD service. In connection with the Company's subscription services, the Company offers free-trial memberships to new and certain rejoining members. A method of payment is required to be provided even during the free-trial period for the membership to be defined as a subscription and included in the above metrics. Total unique subscribers and total subscriptions include those subscribers who are on a free-trial. A subscription would cease to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations become effective at the end of the monthly subscription period, while involuntary cancellation of the service, as a result of a failed method of payment, becomes effective immediately.
Subsequent Event (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Feb. 1, 2013
5.375% Senior Notes [Member]
Subsequent Event [Member]
Dec. 31, 2012
5.375% Senior Notes [Member]
Subsequent Event [Member]
Dec. 31, 2012
8.50% Senior Notes [Member]
Nov. 30, 2009
8.50% Senior Notes [Member]
Subsequent Event [Line Items]
 
 
 
 
 
 
Long-term debt outstanding
$ 200,000 
$ 200,000 
$ 500,000 
 
 
$ 200,000 
Senior notes interest rate
 
 
5.375% 
 
 
8.50% 
Debt instrument, redeemable notes purchase price, percentage
 
 
 
101.00% 
101.00% 
 
Redemption price prior to maturity percent
 
 
 
100.00% 
 
 
Selected Quarterly Financial Data (Details) (USD $)
3 Months Ended 12 Months Ended
Dec. 31, 2012
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Sep. 30, 2011
Jun. 30, 2011
Mar. 31, 2011
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Selected Quarterly Financial Information [Abstract]
 
 
 
 
 
 
 
 
 
 
 
Total revenues
$ 945,239,000 
$ 905,089,000 
$ 889,163,000 
$ 869,791,000 
$ 875,575,000 
$ 821,839,000 
$ 788,610,000 
$ 718,553,000 
$ 3,609,282,000 
$ 3,204,577,000 
$ 2,162,625,000 
Gross profit
249,372,000 
242,451,000 
245,735,000 
245,858,000 
300,420,000 
285,222,000 
298,632,000 
280,402,000 
 
 
 
Net income (loss)
7,897,000 
7,675,000 
6,164,000 
(4,584,000)
35,219,000 1
62,460,000 1
68,214,000 1
60,233,000 1
17,152,000 
226,126,000 
160,853,000 
Basic (in dollars per share)
$ 0.14 
$ 0.14 
$ 0.11 
$ (0.08)
$ 0.66 
$ 1.19 
$ 1.30 
$ 1.14 
$ 0.31 
$ 4.28 
$ 3.06 
Diluted (in dollars per share)
$ 0.13 
$ 0.13 
$ 0.11 
$ (0.08)
$ 0.64 
$ 1.16 
$ 1.26 
$ 1.11 
$ 0.29 
$ 4.16 
$ 2.96 
Legal settlement
 
 
 
 
9,000,000 
 
 
 
 
 
 
Termination benefits expense
 
 
 
 
$ 9,500,000