NetFlix 2011 Annual Report Download - page 37

fee obligations with payment terms that are due beyond one year are classified on the Consolidated Balance
Sheets as “Non-current content liabilities.” Minimum commitments for licenses and known titles that do not meet
the criteria for asset recognition in the content library are included in Note 5 of Item 8, Financial Statements and
Supplementary Data.
The following tables reconcile net cash provided by operating activities, a GAAP financial measure, to free
cash flow, a non-GAAP financial measure.
Year Ended December 31,
2011 2010
(in thousands)
Non-GAAP free cash flow reconciliation:
Net cash provided by operating activities ........................ $317,712 $ 276,401
Acquisition of DVD content library ............................ (85,154) (123,901)
Purchases of property and equipment ........................... (49,682) (33,837)
Other assets ............................................... 3,674 12,344
Non-GAAP free cash flow ............................... $186,550 $ 131,007
Free cash flow for the year ended December 31, 2011 increased $55.5 million primarily due to an increase
of $98.9 million in net income as adjusted for the increase in non-cash stock based compensation of $33.6
million and decreased tax prepayments of $20.2 million. This was partially offset by an increase in excess
content payments over expenses of $53.2 million, a $12.9 million increase in excess property and equipment
payments over expense and decreased deferred revenue of $5.5 million. Payments for content increased $727.6
million while content expenses increased $674.4 million.
Year Ended December 31,
2010 2009
(in thousands)
Non-GAAP free cash flow reconciliation:
Net cash provided by operating activities ....................... $276,401 $ 325,063
Acquisition of DVD content library ............................ (123,901) (193,044)
Purchases of property and equipment ........................... (33,837) (45,932)
Other assets ............................................... 12,344 11,035
Non-GAAP free cash flow .............................. $131,007 $ 97,122
Free cash flow for the year ended December 31, 2010 increased $33.9 million primarily due to an increase
of $60.4 million in net income as adjusted for the increase in non-cash stock based compensation of $15.4
million, decreased property and equipment payments over expense of $11.9 million and increased deferred
revenue of $10.0 million. This was partially offset by an increase in excess streaming and DVD content payments
over expenses of $32.8 million coupled with increased tax prepayments of $14.0 million. Payments for content
increased $198.7 million while content expenses increased $165.9 million.
Effect of Exchange Rates
Revenues, as well as certain expenses, primarily content licensing and marketing, incurred in the
International streaming segment, are denominated in the local currency. During the year ended December 31,
2011 and 2010, the gains or losses on foreign exchange transactions and the effect of exchange rate changes on
cash and cash equivalents were immaterial.
Contractual Obligations
For the purposes of this table, contractual obligations for purchases of goods or services are defined as
agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or
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