NetFlix 2008 Annual Report Download - page 42

Operating Activities
During 2008, our operating activities consisted primarily of net income of $83.0 million, increased by
non-cash adjustments of $225.1 million offset by a decrease in net changes in operating assets and liabilities of
$24.1 million. The majority of the non-cash adjustments came from the amortization of the content library of
$209.8 million which increased by $6.3 million over the prior period as we continue to purchase additional titles
in order to support our larger subscriber base. The decrease in net changes in operating assets and liabilities was
mainly driven by acquisitions of content library related to our streaming content, as we continued to increase our
investments in streaming content in 2008. Cash provided by operating activities increased $6.6 million in 2008 as
compared to 2007. This was primarily due to an increase in net income of $16.4 million, increased non-cash
adjustments of $29.8 million and a decrease in net changes in operating assets and liabilities of $39.6 million.
During 2007, our operating activities consisted primarily of net income of $66.6 million, increased by
non-cash adjustments of $195.3 million and net changes in operating assets and liabilities of $15.5 million. The
majority of the non-cash adjustments came from the amortization of the content library of $203.4 million which
increased by $62.3 million over the prior period as we continued to purchase additional titles, including
streaming content in 2007, in order to support our larger subscriber base. Cash provided by operating activities
increased $29.2 million in 2007 as compared to 2006. This was primarily due to an increase in net income of
$17.8 million, increased non-cash adjustments of $31.1 million and a decrease in net changes in operating assets
and liabilities of $19.7 million. See Note 1 of our Notes to Consolidated Financial Statements for information
related to reclassifications in cash flows in 2007.
Investing Activities
Our investing activities consisted primarily of purchases and sales of available-for-sale securities,
acquisitions of content library related to DVDs and purchases of property and equipment. Cash used in investing
activities decreased $291.1 million in 2008 as compared to 2007. This decrease was primarily driven by a
decrease in the purchases of short-term investments of $148.4 million coupled with an increase in the proceeds
from the sale of short-term investments of $106.5 million. In addition, content acquisitions related to acquisitions
of DVDs decreased by $45.8 million as more DVDs were obtained through revenue sharing agreements in 2008.
Cash used in investing activities increased $250.2 million in 2007 as compared to 2006. During the first
quarter of 2007, we started an investment portfolio which is comprised of short-term investments consisting of
corporate debt securities, government and agency securities and asset and mortgage-backed securities. Content
acquisitions were $39.1 million higher in 2007 as compared to 2006. Purchases of property and equipment
consisted of expenditures related to Company expansion, primarily to our headquarters in Los Gatos, California.
In March 2006, we exercised our option to lease a building adjacent to our headquarters in Los Gatos, California.
The building comprises approximately 80,000 square feet of office space and has an initial term of 5 years. The
building was completed in the first quarter of 2008. Additionally, purchases of property and equipment consisted
of automation equipment for our various shipping centers in order to achieve increased operational efficiencies.
Financing Activities
Our financing activities consist primarily of repurchases of our common stock, issuance of common stock,
and the excess tax benefit from stock-based compensation. Cash used by financing activities increased by $112.2
million in 2008 as compared to 2007 primarily due to an increase in stock repurchases of $100.0 million in 2008
as compared to 2007. In addition, the excess tax benefits from stock-based compensation decreased by $21.0
million in 2008, as the Company utilized the remaining benefits from its net operating losses. This use of cash
was offset by an increase in proceeds from the issuance of our common stock of $9.3 million.
Cash provided by financing activities decreased by $190.2 million in 2007 as compared to 2006 primarily
due to stock repurchases of $99.9 million in 2007 and a decrease of $103.4 million in issuances of common stock
as we had raised $101.1 million in a secondary offering in 2006. We did not have any stock repurchases during
2006. This use of cash was offset by the excess tax benefits from stock-based compensation of $26.2 million.
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