NetFlix 2012 Annual Report Download - page 59

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 the world’s leading Internet television network with more than 33 million members in
over 40 countries enjoying one billion hours of TV shows and movies per month. In the United States,
subscribers can receive DVDs delivered quickly to their homes.
The Company is organized into three operating segments, Domestic streaming, International streaming and
Domestic DVD. Substantially all of the Company’s revenues are generated in the United States, and substantially
all of the Company’s long-lived tangible assets are held in the United States. The Company’s revenues are
derived from monthly subscription fees.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries. Intercompany balances and transactions have been eliminated.
Reclassification
Certain prior period amounts have been reclassified to conform to the current presentation. Specifically
content liabilities are now presented separately from all other accounts payable and accrued liabilities on both the
Consolidated Balance Sheets and the Consolidated Statements of Cash Flows. Additionally, the amount for Legal
settlement as presented in prior periods is now included in the General and Administrative line on the
Consolidated Statements of Operations. These reclassifications did not impact any prior amounts of reported total
assets, total liabilities, stockholders’ equity, results of operations or cash flows.
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 amortization policy for the content library; the recognition
and measurement of income tax assets and liabilities; and the valuation of stock-based compensation. 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.
Cash Equivalents and Short-term Investments
The Company considers investments in instruments purchased with an original maturity of 90 days or less to
be cash equivalents. The Company classifies short-term investments, which consist of marketable securities with
original maturities in excess of 90 days as available-for-sale. Short-term investments are reported at fair value
with unrealized gains and losses included in “Accumulated other comprehensive income” within stockholders’
equity in the Consolidated Balance Sheets. The amortization of premiums and discounts on the investments,
realized gains and losses, and declines in value judged to be other-than-temporary on available-for-sale securities
are included in “Interest and other income (expense)” in the Consolidated Statements of Operations. The
Company uses the specific identification method to determine cost in calculating realized gains and losses upon
the sale of short-term investments.
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