NetFlix 2011 Annual Report Download - page 73

examination by the state of California for the years 2006 and 2007. The years 1997 through 2005, as well as 2008
through 2010, remain subject to examination by the state of California.
Given the potential outcome of the current examinations as well as the impact of the current examinations
on the potential expiration of the statute of limitations, it is reasonably possible that the balance of unrecognized
tax benefits could significantly change within the next twelve months. However, at this time, an estimate of the
range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.
9. Employee Benefit Plan
The Company maintains a 401(k) savings plan covering substantially all of its employees. Eligible
employees may contribute up to 60% of their annual salary through payroll deductions, but not more than the
statutory limits set by the Internal Revenue Service. The Company matches employee contributions at the
discretion of the Board of Directors. During 2011, 2010 and 2009, the Company’s matching contributions totaled
$4.0 million, $2.8 million and $2.3 million, respectively.
10. Segment Information
Effective in the fourth quarter of 2011, the Company has three operating segments: Domestic streaming,
International streaming and Domestic DVD. Segment information is presented along the same lines that the
Company’s chief operating decision maker reviews the operating results in assessing performance and allocating
resources. The Company’s chief operating decision maker reviews revenue and contribution profit for each of the
reportable segments. Contribution profit is defined as revenues less cost of revenues and marketing expenses.
There are no internal revenue transactions between the Company’s reporting segments. In addition, the Company
does not identify or allocate its assets by reportable segment and all of the Company’s long-lived tangible assets
are held in the United States. The Domestic and International streaming segments derive revenue from monthly
subscription services consisting solely of streaming content. The Domestic DVD segment derives revenue from
monthly subscription services consisting solely of DVD-by-mail.
Between the fourth quarter of 2010 and the third quarter of 2011, the Company had two operating segments:
Domestic and International. During this time, the Company’s domestic streaming content and DVD-by-mail
operations were combined. Subscribers in the United States were able to receive both streaming content and
DVDs under a single hybrid plan. Accordingly, revenues were generated and marketing expenses were incurred
in connection with the subscription offerings as a whole. Therefore, it is impracticable to allocate revenues or
marketing expenses or present discrete segment information for the Domestic streaming and Domestic DVD
segments for periods prior to the fourth quarter of 2011.
In the third quarter of 2011, the Company made certain changes to its domestic pricing and plan structure
which require subscribers who wish to receive both DVDs-by-mail and streaming content to have two separate
subscription plans. Following this change, beginning in the fourth quarter of 2011, the Company was able to
generate discrete financial information for its Domestic DVD and Domestic streaming operations and began
reporting this information to the chief operating decision maker for review.
Prior to the fourth quarter of 2010, the Company had a single segment as international operations had not
yet commenced.
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