NetFlix 2009 Annual Report Download - page 60

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NETFLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Description of Business
Netflix, Inc. (the “Company”) was incorporated on August 29, 1997 and began operations on April 14,
1998. The Company is a subscription service streaming movies and TV episodes over the Internet and sending
DVDs by mail to more than 12 million subscribers. The Company’s subscribers can instantly watch unlimited
movies and TV episodes streamed to their TVs and computers and can receive DVDs delivered quickly to their
homes. The Company offers a variety of subscription plans, with no due dates, no late fees, no shipping fees and
no pay-per-view fees. Aided by proprietary recommendation and merchandising technology, subscribers can
select from a growing library of titles that can be watched instantly and a vast array of titles on DVD.
Subscribers can:
• Watch streaming content without commercial interruption on their computers and TVs. The viewing
experience is enabled by Netflix controlled software that can run on a variety of consumer electronics
devices (“Netflix Ready Devices”). These Netflix Ready Devices currently include Blu-ray disc players,
Internet-connected TVs, digital video players and game consoles.
• Receive DVDs by U.S. mail and return them to the Company at their convenience using the Company’s
prepaid mailers. After a DVD has been returned, the Company mails the next available DVD in a
subscriber’s queue.
The Company is organized in a single operating segment. All revenues are currently generated in the United
States, and there are no long-lived assets outside the United States. Substantially all revenues are derived from
monthly subscription fees.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiary. Intercompany balances and transactions have been eliminated.
Reclassification
Certain prior period amounts have been reclassified to conform to current presentation. These
reclassifications did not significantly impact any prior amounts of reported total assets or total liabilities, and did
not impact stockholders’ equity, results of operations or cash flows.
Subsequent Events
The Company has evaluated subsequent events through February 19, 2010, the date which these financial
statements were available to be issued.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the reporting periods. Significant items
subject to such estimates and assumptions include the estimate of useful lives and residual value of its content
library; the valuation of stock-based compensation; and the recognition and measurement of income tax assets
and liabilities. The Company bases its estimates on historical experience and on various other assumptions that
the Company believes to be reasonable under the circumstances. Actual results may differ from these estimates.
F-7