NetFlix 2013 Annual Report Download - page 60

Property and Equipment, Net
Property and equipment and accumulated depreciation consisted of the following:
As of December 31,
2013 2012
(in thousands)
Computer equipment ................... 3years $ 102,867 $ 84,193
Operations and other equipment .......... 5years 96,361 100,207
Software ............................ 3years 36,439 39,073
Furniture and fixtures .................. 3years 21,011 18,208
Building ............................ 30years 40,681 40,681
Leasehold improvements ............... Over life of lease 51,194 45,393
Capital work-in-progress ................................ 8,643 8,282
Property and equipment, gross ............................ 357,196 336,037
Less: Accumulated depreciation ........................... (223,591) (204,356)
Property and equipment, net .............................. $133,605 $ 131,681
5. Long-term Debt
Senior Convertible Notes
In November 2011, the Company issued $200.0 million aggregate principal amount of zero coupon senior
convertible notes due on December 1, 2018 (the “Convertible Notes”) in a private placement offering to TCV
VII, L.P., TCV VII(A), L.P., and TCV Member Fund, L.P. A general partner of these funds also serves on the
Company’s Board of Directors, and as such, the issuance of the notes is considered a related party transaction.
The net proceeds to the Company were approximately $197.8 million. Debt issuance costs of $2.2 million (of
which $0.3 million was paid in the year ended December 31, 2012) were recorded in “Other non-current assets”
on the Consolidated Balance Sheets and were amortized over the term of the notes as interest expense. At any
time following May 28, 2012, the Company could have elected to cause the conversion of the Convertible Notes
into shares of the Company’s common stock when specified conditions were satisfied, including that the daily
volume weighted average price of the Company’s common stock was equal to 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 did not require
separate accounting treatment as a derivative instrument because it was both indexed to the Company’s own
stock and would be classified in stockholders’ equity if freestanding. Additionally, the Convertible Notes did not
require or permit any portion of the obligation to be settled in cash and accordingly the liability and equity
(conversion option) components were not required to be accounted for separately.
In April 2013, after all specified conditions were satisfied, the Company elected to cause the conversion of
all outstanding Convertible Notes with an aggregate principal amount of $200.0 million in accordance with the
terms of the Indenture governing such notes. Pursuant to this conversion, the Company issued 2.3 million shares
of common stock to the holders of the Convertible Notes at a conversion ratio of 11.6553. The fair market value
of one share of common stock on the date of conversion was $216.99 per share.
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 were amortized over the term of the notes as interest expense. The notes
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