NetFlix 2004 Annual Report Download - page 72

NETFLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share, per share and percentages)
comprehensive loss and the components of accumulated other comprehensive income are presented in the
accompanying consolidated statements of stockholders’ equity (deficit). Tax effects of other comprehensive
income (loss) are not material for any period presented.
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.
The shares used in the computation of net income (loss) per share are as follows (rounded to the nearest
thousand):
Year Ended December 31,
2002 2003 2004
Weighted-average shares outstanding—basic ...... 28,204,000 47,786,000 51,988,000
Effect of dilutive potential common shares:
Warrants .............................. — 9,972,000 8,571,000
Employeestockoptions .................. — 5,126,000 4,154,000
Weighted-average shares outstanding—diluted .... 28,204,000 62,884,000 64,713,000
For 2003 and 2004, 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 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,
2002 2003 2004
Warrants ....................................... 12,556,000 — —
Employeestockoptions ........................... 8,201,000 113,000 676,000
The weighted average exercise price of excluded outstanding stock options was $1.49, $17.03 and $30.71
for the years ended December 31, 2002, 2003 and 2004, respectively.The weighted average exercise price of the
excluded warrants was $1.61 for the year ended December 31, 2002.
Segment Reporting
The Company is an online movie rental subscription service and substantially all of its revenues are derived
from monthly subscription fees. In the third quarter of 2004, the Company prepared to launch its online movie
subscription service in the United Kingdom. However, in October 2004, the Company announced its withdrawal
from the United Kingdom so that it could focus on defending its market leadership position in the United States.
As a result of the measures it undertook to prepare for the launch of its online subscription service in the
United Kingdom, the Company reorganized its business in the third quarter of 2004 into two geographical
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