NetFlix 2011 Annual Report Download - page 58

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Convertible Notes, incremental shares issuable upon the assumed exercise of stock options, and for 2010 and
2009, shares that were purchasable pursuant to the Company’s employee stock purchase plan (“ESPP”). The
Company’s ESPP was suspended in 2011 and there were no offerings in 2011. The computation of net income
per share is as follows:
Year ended December 31,
2011 2010 2009
(in thousands, except per share data)
Basic earnings per share:
Net income ...................................... $226,126 $160,853 $115,860
Shares used in computation:
Weighted-average common shares outstanding ...... 52,847 52,529 56,560
Basic earnings per share ............................ $ 4.28 $ 3.06 $ 2.05
Diluted earnings per share:
Net income ...................................... $226,126 $160,853 $115,860
Convertible Notes interest expense, net of tax ........... 17 — —
Numerator for diluted earnings per share ............... 226,143 160,853 115,860
Shares used in computation:
Weighted-average common shares outstanding ...... 52,847 52,529 56,560
Convertible Notes shares ....................... 217 — —
Employee stock options and employee stock purchase
plan shares ................................ 1,305 1,775 1,856
Weighted-average number of shares .............. 54,369 54,304 58,416
Diluted earnings per share .............................. $ 4.16 $ 2.96 $ 1.98
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. The following table
summarizes the potential common shares excluded from the diluted calculation:
Year ended December 31,
2011 2010 2009
(in thousands)
Employee stock options ........................................... 225 14 64
Stock-Based Compensation
The Company grants stock options to its employees on a monthly basis. The Company has elected to grant
all options as fully vested non-qualified stock options. As a result of immediate vesting, stock-based
compensation expense is fully recognized on the grant date, and no estimate is required for post-vesting option
forfeitures. See Note 7 to the consolidated financial statements for further information regarding stock-based
compensation.
Stock Repurchases
To facilitate a stock repurchase program, shares are repurchased by the Company in the open market and are
accounted for when the transaction is settled. Shares held for future issuance are classified as Treasury
stock. Shares formally or constructively retired are deducted from common stock for par value and from
additional paid in capital for the excess over par value. If additional paid in capital has been exhausted, the
excess over par value is deducted from Retained earnings. Direct costs incurred to acquire the shares are included
in the total cost of the shares.
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