NetFlix 2007 Annual Report Download - page 62

NETFLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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. The Company
recognizes interest and penalties related to uncertain tax positions in income tax expense.
Comprehensive Income
The Company reports comprehensive income or loss in accordance with the provisions of SFAS No. 130,
Reporting Comprehensive Income, which establishes standards for reporting comprehensive income and its
components in the financial statements. Other comprehensive income consists of unrealized gains and losses on
available-for-sale securities, net of tax. Total comprehensive income and the components of accumulated other
comprehensive income are presented in the accompanying consolidated statements of stockholders’ equity.
Net Income Per Share
Basic net income per share is computed using the weighted-average number of outstanding shares of
common stock during the period. Diluted net income 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, warrants to purchase common stock and shares currently purchasable pursuant to our employee
stock purchase plan using the treasury stock method. The computation of net income per share is as follows:
Year ended December 31,
2007 2006 2005
(in thousands, except per share data)
Basic earnings per share:
Netincome ............................................ $66,952 $49,082 $42,027
Shares used in computation:
Weighted-average common shares outstanding . . . . . . . . . . . . 67,076 62,577 53,528
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.00 $ 0.78 $ 0.79
Diluted earnings per share:
Netincome ............................................ $66,952 $49,082 $42,027
Shares used in computation:
Weighted-average common shares outstanding . . . . . . . . . . . . 67,076 62,577 53,528
Warrants .......................................... — 4,093 8,354
Employee stock options and employee stock purchase plan
shares .......................................... 1,826 2,405 3,636
Weighted-average number of shares . . . . . . . . . . . . . . . . . . . . 68,902 69,075 65,518
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.97 $ 0.71 $ 0.64
Employee stock options with exercise 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. There were no
outstanding warrants during the year ended December 31, 2007. For the years ended December 31, 2006 and
2005, no outstanding warrants were excluded from the diluted calculation as their exercise prices were lower than
the average market price of the common stock. The following table summarizes the potential common shares
excluded from the diluted calculation:
Year ended December 31
2007 2006 2005
(in thousands)
Employeestockoptions ......................................... 1,973 1,196 1,023
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