NetFlix 2006 Annual Report Download - page 45

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The increase in general and administrative expenses in absolute dollars in 2005 as compared to 2004 was
primarily attributable to an increase in legal costs as well as an increase in personnel-related costs, insurance
costs and professional fees, to support our growing operations. General and administrative costs in 2005 included
an accrual of $8.1 million (net of expected insurance proceeds for reimbursement of legal defense costs of $0.9
million) related to the proposed settlement costs of the Chavez vs. Netflix, Inc. lawsuit. As a percentage of
revenues, the increase in general and administrative expenses was primarily due to a greater increase in general
and administrative expenses than increase in revenues.
We expect our general and administrative expenses will continue to increase in absolute dollars in 2007 in
order to support our growing operations.
Gain on Disposal of DVDs
Year Ended December 31,
2004 2005 2006
(in thousands, except percentages)
Gain on disposal of DVDs .................................. $(2,560) $(1,987) $(4,797)
As a percentage of revenues ............................. (0.5)% (0.3)% (0.5)%
Percentage change over prior period .......................... (22.4)% 141.4%
The increase in gain on disposal of DVDs in absolute dollars in 2006 as compared to 2005 was primarily
attributable to an increase in volume of DVDs sold, offset in part by an increase in the cost of DVD sales.
The decrease in gain on disposal of DVDs in absolute dollars in 2005 as compared to 2004 was primarily
attributable to an increase in the cost of DVD sales.
Interest and Other Income
Year Ended December 31,
2004 2005 2006
(in thousands, except percentages)
Interest and other income, net ................................ $2,592 $5,753 $15,904
As a percentage of revenues .............................. 0.4% 0.9% 1.6%
Percentage change over prior period ........................... 122.0% 176.4%
The increase in interest and other income in 2006 as compared to 2005 was primarily due to higher interest
income earned on our cash and cash equivalents due to increased interest rates as well as higher average cash
balances resulting from a net increase in cash flows and net proceeds of $101.1 million from the secondary
public offering of our common stock in May 2006.
The increase in interest and other income in 2005 as compared to 2004 was primarily due to higher interest
income earned on our cash and cash equivalents due to increased interest rates as well as higher average cash
balances.
Provision for (Benefit from) Income Taxes
2004 2005 2006
(in thousands, except percentages)
Provision for (benefit from) income taxes ....................... $181 $(33,692) $31,236
Effective tax rate .......................................... 0.8% (404.2)% 38.9%
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