NetFlix 2012 Annual Report Download - page 67

not bear interest, except in specified circumstances. The initial conversion rate for the Convertible Notes is
11.6553 shares of the Company’s common stock, par value $0.001 per share, per $1,000 principal amount of
notes. This is equivalent to an initial conversion price of approximately $85.80 per share of common stock.
Holders may surrender their notes for conversion at any time prior to the close of business day immediately
preceding the maturity date of the notes. The Convertible Notes are repayable in whole or in part upon the
occurrence of a change of control, at the option of the holders, at a purchase price in cash equal to 120% of
the principal amount. At any time following May 28, 2012, the Company may elect to cause the conversion of
the Convertible Notes into shares of the Company’s common stock when specified conditions are satisfied,
including that the daily volume weighted average price of the Company’s 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.
The Company determined that the embedded conversion option in the Convertible Notes does not require
separate accounting treatment as a derivative instrument because it is both indexed to the Company’s own stock
and would be classified in stockholder’s equity if freestanding. Additionally, the Convertible Notes do not
require or permit any portion of the obligation to be settled in cash and accordingly the liability and equity
(conversion option) components are not required to be accounted for separately.
The Convertible Notes include, among other terms and conditions, limitations on the Company’s ability to
pay cash dividends or to repurchase shares of its common stock, subject to specified exceptions. At
December 31, 2012, the Company was in compliance with these covenants.
Based on quoted market prices of the Company’s publicly traded debt (a Level 3 input for this financial
instrument), the fair value of the Convertible Notes as of December 31, 2012 and 2011 was approximately
$212.5 million and $206.5 million, respectively.
Senior Notes
In November 2009, the Company issued $200.0 million aggregate principal amount of 8.50% senior notes
due November 15, 2017 (the “8.50% Notes”). The net proceeds to the Company were approximately
$193.9 million. Debt issuance costs of $6.1 million were recorded in “Other non-current assets” on the
Consolidated Balance Sheets and are amortized over the term of the notes as interest expense. The notes were
issued at par and are senior unsecured obligations of the Company. Interest 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. The 8.50% Notes
are repayable in whole or in part upon the occurrence of a change of control, at the option of the holders, at a
purchase price in cash equal to 101% of the principal plus accrued interest. The Company may redeem the 8.50%
Notes prior to November 15, 2013 in whole or in part at a redemption price of 100% of the principal plus accrued
interest, plus a “make-whole” premium which as of December 31, 2012 would have been approximately $25
million. On or after November 15, 2013, the Company may redeem the 8.50% Notes in whole or in part at
specified prices ranging from 104.25% to 100% of the principal plus accrued interest.
The 8.50% Notes include, among other terms and conditions, limitations on the Company’s ability to create,
incur, assume or be liable for indebtedness (other than specified types of permitted indebtedness); dispose of
assets outside the ordinary course (subject to specified exceptions); acquire, merge or consolidate with or into
another person or entity (other than specified types of permitted acquisitions); create, incur or allow any lien on
any of its property or assign any right to receive income (except for specified permitted liens); make investments
(other than specified types of investments); or pay dividends, make distributions, or purchase or redeem the
Company’s equity interests (each subject to specified exceptions). At December 31, 2012 and 2011, the
Company was in compliance with these covenants.
Based on quoted market prices in less active markets (Level 2), the fair value of the 8.50% Notes was
approximately $212.5 million and $206.5 million as of December 31, 2012 and 2011, respectively.
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