NetFlix 2013 Annual Report Download - page 34

(4) Other purchase obligations include all other non-cancelable contractual obligations. These contracts are
primarily related to streaming content delivery, DVD content acquisition, and miscellaneous open purchase
orders for which we have not received the related services or goods.
As of December 31, 2013, we had gross unrecognized tax benefits of $68.2 million and an additional
$3.9 million for gross interest and penalties classified as “Other non-current liabilities” on the Consolidated
Balance Sheets. At this time, we are not able to make a reasonably reliable estimate of the timing of payments in
individual years due to uncertainties in the timing of tax audit outcomes; therefore, such amounts are not
included in the above contractual obligation table.
Off-Balance Sheet Arrangements
As part of our ongoing business, we do not engage into any transactions with unconsolidated entities, such
as entities often referred to as structured finance or special purpose entities, whereby we have financial
guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose
us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an
unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to us.
Indemnifications
The information set forth under Note 7 of Item 8, Financial Statements and Supplementary Data under the
caption “Guarantees—Indemnification Obligations” is incorporated herein by reference.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the reported periods. The Securities and
Exchange Commission (“SEC”) has defined a company’s critical accounting policies as the ones that are most
important to the portrayal of a company’s financial condition and results of operations, and which require a
company to make its most difficult and subjective judgments. Based on this definition, we have identified the
critical accounting policies and judgments addressed below. We base our estimates on historical experience and
on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ
from these estimates.
Streaming Content
We license rights to stream TV shows, movies, and original content to members for unlimited viewing.
These licenses are for a fixed fee and specify license windows that generally range from six months to five years.
Payment terms may extend over the license window, or may require more up-front payments as is typically the
case for original content or content that is licensed in an earlier window through an output arrangement.
We capitalize the fee per title and record a corresponding liability at the gross amount of liabilities when the
license period begins, the cost of the title is known and the title is accepted and available for streaming. The
portion available for streaming within one year is recognized as “Current content library” and the remaining
portion as “Non-current content library” on the Consolidated Balance sheets. The acquisition of streaming
content licenses rights and the changes in related liabilities, are classified within cash used in operating activities
on the Consolidated Statements of Cash Flows.
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