NetFlix 2008 Annual Report Download - page 64

NETFLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The estimated fair value of short-term investments by contractual maturity as of December 31, 2008 is as
follows:
(in thousands)
Due within one year .............................................. $ 32,689
Due after one year and through 5 years ............................... 118,127
Due after 5 years and through 10 years ............................... —
Due after 10 years ............................................... 6,574
Total short-term investments ....................................... $157,390
The Company measures certain financial assets at fair value on a recurring basis, including cash equivalents
and available-for-sale securities. In accordance with SFAS 157, fair value is a market-based measurement that
should be determined based on the assumptions that market participants would use in pricing an asset or
liability. As a basis for considering such assumptions, SFAS 157 establishes a three-level hierarchy which
prioritizes the inputs used in measuring fair value. The three hierarchy levels are defined as follows:
Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets. The fair value
of available-for-sale securities included in the Level 1 category is based on quoted prices that are readily and
regularly available in an active market. The Level 1 category includes money market funds of $60.9 million at
December 31, 2008, which are included in cash and cash equivalents in the consolidated balance sheets.
Level 2—Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for
similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are
observable, either directly or indirectly. The fair value of available-for-sale securities included in the Level 2
category is based on the market values obtained from an independent pricing service that were evaluated using
pricing models that vary by asset class and may incorporate available trade, bid and other market information and
price quotes from well established independent pricing vendors and broker-dealers. The Level 2 category
includes short-term investments and cash equivalents of $174.0 million at December 31, 2008, which are
primarily comprised of corporate debt securities, government and agency securities and asset and mortgage-
backed securities. All of the residential and commercial mortgage-backed securities are “AAA” rated. The
mortgage bonds owned represent the senior tranches of the capital structure and provide credit enhancement
through over-collateralization and their subordination characteristics.
Level 3—Valuations based on inputs that are unobservable and involve management judgment and the
reporting entity’s own assumptions about market participants and pricing. The Company has no material Level 3
financial assets measured at fair value in the consolidated balance sheets as of December 31, 2008.
The hierarchy level assigned to each security in the Company’s available-for-sale portfolio and cash
equivalents is based on its assessment of the transparency and reliability of the inputs used in the valuation of
such instrument at the measurement date. The Company did not have any material financial liabilities that were
covered by SFAS 157 as of December 31, 2008.
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