NetFlix 2004 Annual Report Download - page 69

NETFLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share, per share and percentages)
Foreign Currency Translation and Transactions
The financial statements of the Company’s United Kingdom subsidiary was prepared in its local currency
and translated into U.S. dollars for reporting purposes. The assets and liabilities are translated at exchange rates
in effect at the balance sheet date, while results of operations are translated at average exchange rates for the
respective periods. The cumulative effects of exchange rate changes on net assets are included as a part of
accumulated other comprehensive income. Net foreign currency transaction gains and losses were not significant
for any of the years presented.
Cash and Cash Equivalents
The Company considers highly liquid instruments with original maturities of three months or less, at the
date of purchase, to be cash equivalents. The Company’s cash and cash equivalents are principally on deposit in
short-term asset management accounts at two large financial institutions.
Restricted Cash
As of December 31, 2004, other assets included restricted cash of $1,000 related to a workers’ compensation
insurance deposit.
Short-Term Investments
The Company’s short-term investments are classified as available-for-sale and are recorded at fair market
value. Net unrealized gains (losses) are reflected in accumulated other comprehensive income. When the fair
value of an investment declines below its original cost, the Company considers all available evidence to evaluate
whether the decline in value is other-than-temporary. Among other things, the Company considers the duration
and extent to which the market value has declined relative to its cost basis and economic factors influencing the
markets, its ability and intent to hold the investments until a market price recovery, and the severity and duration
of the impairment. No impairment charges were recorded for the periods presented. Gains and losses on
securities sold are determined based on the average cost method and are included in “Interest and other income”
in the Consolidated Statements of Operations.
At December 31, 2003, the Company’s short-term investments were invested in the Vanguard Short-Term
Bond Index Fund—Admiral Shares (the “Fund”). The target index for the Fund, the Lehman Brothers 1-5 Year
Government/Credit Index, is comprised of U.S Treasury and agency securities and investment-grade corporate
bonds with maturities of one to five years. As of December 31, 2003, the Fund had investments in 517 issues
with an average quality of AAA/AA1, an average duration of 2.5 years and an average maturity of 2.7 years. As
of December 31, 2003, the cost, unrealized gain and market value of the Company’s short-term investments were
$44,701, $596 and $45,297, respectively.
During the second quarter of 2004, the Company completed the sale of its short-term investments and
recorded a realized loss of $274 from the transaction. All proceeds from the sale were re-invested in the
Company’s money market fund, which is classified as cash equivalents.
Amortization of DVD Library
The Company amortizes its DVD library, less estimated salvage value, on a “sum-of-the-months”
accelerated basis over its estimated useful life. The useful life of the new-release DVDs and back-catalogue
F-9