NetFlix 2012 Annual Report Download - page 63

Download and view the complete annual report

Please find page 63 of the 2012 NetFlix annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 88

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88

Earnings Per Share
Basic earnings per share is computed using the weighted-average number of outstanding shares of common
stock during the period. Diluted earnings per share is computed using the weighted-average number of
outstanding shares of common stock and, when dilutive, potential common shares outstanding during the period.
Potential common shares consist of shares issuable upon the assumed conversion of the Company’s Convertible
Notes, incremental shares issuable upon the assumed exercise of stock options, and for 2010, 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 or 2012. The computation of earnings per share is as
follows:
Year ended December 31,
2012 2011 2010
(in thousands, except per share data)
Basic earnings per share:
Net income ....................................... $17,152 $226,126 $160,853
Shares used in computation:
Weighted-average common shares outstanding ....... 55,521 52,847 52,529
Basic earnings per share ............................. $ 0.31 $ 4.28 $ 3.06
Diluted earnings per share:
Net income ....................................... $17,152 $226,126 $160,853
Convertible Notes interest expense, net of tax ............ 195 17 —
Numerator for diluted earnings per share ................ 17,347 226,143 160,853
Shares used in computation:
Weighted-average common shares outstanding ....... 55,521 52,847 52,529
Convertible notes shares ......................... 2,331 217 —
Employee stock options and employee stock purchase
plan shares ................................. 1,052 1,305 1,775
Weighted-average number of shares ............... 58,904 54,369 54,304
Diluted earnings per share ............................... $ 0.29 $ 4.16 $ 2.96
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,
2012 2011 2010
(in thousands)
Employee stock options ........................................... 1,207 225 14
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
59