NetFlix 2008 Annual Report Download - page 61

NETFLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
on the technical merits of the position. The tax benefits recognized in the financial statements from such
positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized
upon settlement. The Company recognizes interest and penalties related to uncertain tax positions in income tax
expense. See Note 8 to the consolidated financial statements for further information regarding income taxes
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 the Company’s employee
stock purchase plan using the treasury stock method. The computation of net income per share is as follows:
Year ended December 31,
2008 2007 2006
(in thousands, except per share data)
Basic earnings per share:
Net income ............................................ $83,026 $66,608 $48,839
Shares used in computation:
Weighted-average common shares outstanding ............ 60,961 67,076 62,577
Basic earnings per share .................................. $ 1.36 $ 0.99 $ 0.78
Diluted earnings per share:
Net income ............................................ $83,026 $66,608 $48,839
Shares used in computation:
Weighted-average common shares outstanding ............ 60,961 67,076 62,577
Warrants .......................................... — — 4,093
Employee stock options and employee stock purchase plan
shares .......................................... 1,875 1,826 2,405
Weighted-average number of shares .................... 62,836 68,902 69,075
Diluted earnings per share .................................... $ 1.32 $ 0.97 $ 0.71
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 years ended December 31, 2008 and 2007. For the year ended December 31,
2006, 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
2008 2007 2006
(in thousands)
Employee stock options ...................................... 726 1,973 1,196
F-12