NetFlix 2006 Annual Report Download - page 63

NETFLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share data and percentages)
In the fourth quarter of 2005, the Company substantially liquidated the assets and liabilities of its United
Kingdom subsidiary and accordingly, the cumulative translation adjustment was reclassified from accumulated
other comprehensive income in stockholders’ equity and reported in “Interest and Other Expense” for the period.
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, 2005 and 2006, Other assets included restricted cash of $500 and $1,530, respectively,
related to workers’ compensation insurance deposits. In addition, Other current assets included $2,201 set aside
for plaintiffs’ attorneys’ fees and expenses in the Chavez vs. Netflix, Inc. lawsuit.
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-catalog DVDs
is estimated to be 1 year and 3 years, respectively. In estimating the useful life of its DVD library, the Company
takes into account library utilization as well as an estimate for lost or damaged DVDs. See Note 2 for further
discussion.
Amortization of Intangible Assets
Intangible assets are carried at cost less accumulated amortization. The Company amortizes the intangible
assets with finite lives using the straight-line method over the estimated economic lives of the assets, ranging
from approximately 10 to 14 years. See Note 3 for further discussion.
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 five
years, or the lease term for leasehold improvements, if applicable. See Note 4 for further discussion.
Impairment of Long-Lived Assets
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-
lived assets such as property and equipment and intangible assets subject to 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. The Company evaluated its long-lived assets and no impairment charges were recorded for any of
the years presented.
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