NetFlix 2003 Annual Report Download - page 68

NETFLIX, INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(in thousands, except share, per share and per DVD data)
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.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and net unrealized gains (losses) on available-
for-sale investments. The balance in accumulated other comprehensive income consists of accumulated net
unrealized gains on available-for-sale investments.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted-average number of outstanding shares of
common stock during the period. Diluted net income (loss) 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 primarily of incremental shares issuable upon the assumed exercise
of stock options and warrants to purchase common stock using the treasury stock method,and shares issuable
upon the conversion of convertible securities using the if-converted method.
The shares used in the computation of net income (loss) per share are as follows (rounded to the nearest
thousand):
Year Ended December 31,
2001 2002 2003
Weighted-average shares outstanding—basic ....... 3,652,000 28,204,000 47,786,000
Effect of dilutive potential common shares:
Warrants ............................... — — 9,972,000
Employeestockoptions ................... — — 5,126,000
Weighted-average shares outstanding—diluted ..... 3,652,000 28,204,000 62,884,000
For 2003, warrants and employee stock options with exercises 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.
For 2001 and 2002, all potential common shares have been excluded from the diluted calculation because the
Company was in a net loss position, and their inclusion would have been anti-dilutive. The following table
summarizes the potential common shares excluded from the diluted calculation (rounded to the nearest
thousand):
Year Ended December 31,
2001 2002 2003
Warrants ..................................... 14,036,000 12,556,000 —
Employeestockoptions ......................... 5,999,000 8,201,000 113,000
Redeemable convertible preferred stock ............ 19,320,000 — —
Convertible preferred stock ...................... 6,246,000 — —
Segment Reporting
The Company is an online movie rental subscription service and substantially all revenues are derived from
monthly subscription fees. The Company is organized in a single operating segment for purposes of making
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