NetFlix 2012 Annual Report Download - page 37

such financing on terms acceptable to us or at all. If we raise additional funds through the issuance of equity,
equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of
our common stock, and our stockholders may experience dilution.
In November 2011, we issued $200.0 million of senior convertible notes (the “Convertible Notes”) and
raised an additional $200.0 million through a public offering of common stock. The Convertible Notes consist of
$200.0 million aggregate principal amount due on December 1, 2018 and do not bear interest. We intend to
exercise our option to cause the conversion of the Convertible Notes into shares of our common stock if the
specified conditions are satisfied, including that the daily volume weighted average price of our common stock is
equal or greater than $111.54 for at least 50 trading days during a 65 trading day period prior to the conversion
date.
In November 2009, we issued $200.0 million of our 8.50% senior notes due November 15, 2017 (the
“8.50% Notes”). Interest on the 8.50% Notes is payable semi-annually at a rate of 8.50% per annum on May 15
and November 15 of each year, commencing on May 15, 2010. See Note 4 of Item 8, Financial Statements and
Supplementary Data for additional information.
As of December 31, 2012, $42.5 million of cash and cash equivalents were held by our foreign subsidiaries.
If these funds are needed for our operations in the U.S., we would be required to accrue and pay U.S. income
taxes and foreign withholding taxes on a portion of these funds when repatriated back to the U.S. See Note 8 of
Item 8, Financial Statements and Supplementary Data for additional details.
On June 11, 2010, we announced that our Board of Directors authorized a stock repurchase program
allowing us to repurchase $300.0 million of our common stock through the end of 2012. Under this plan, we
repurchased $259.0 million. At December 31, 2012 this authorization expired and the remaining $41.0 million
was not used.
Free Cash Flow
We define free cash flow as cash provided by operating and investing activities excluding the non-
operational cash flows from purchases, maturities and sales of short-term investments. We believe free cash flow
is an important liquidity metric because it measures, during a given period, the amount of cash generated that is
available to repay debt obligations, make investments, and for certain other activities. Free cash flow is
considered a non-GAAP financial measure and should not be considered in isolation of, or as a substitute for, net
income, operating income, cash flow from operating activities, or any other measure of financial performance or
liquidity presented in accordance with GAAP.
In comparing free cash flow to net income, the major recurring differences are excess content payments
over expenses, stock-based compensation expense, deferred revenue, taxes and semi-annual interest payments on
the 8.50% Notes. Our receivables from customers settle quickly and deferred revenue is a source of cash flow.
For streaming content, we typically enter into multi-year licenses with various content providers that may result
in an increase in content library and a corresponding increase in liabilities on the Consolidated Balance Sheets.
The payment terms for these license fees may extend over the term of the license agreements, which typically
range from six months to five years.
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