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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ÈANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-35727
Netflix, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 77-0467272
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
100 Winchester Circle
Los Gatos, California 95032
(Address and zip code of principal executive offices)
(408) 540-3700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Exchange on which registered
Common stock, $0.001 par value NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ÈNo
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No È
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes ÈNo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ÈNo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. È
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer ÈAccelerated filer Non-accelerated filer Smaller reporting company
(do not check if smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No È
As of June 30, 2015, the aggregate market value of voting stock held by non-affiliates of the registrant, based upon the closing sales
price for the registrant’s common stock, as reported in the NASDAQ Global Select Market System, was $33,823,183,533. Shares of
common stock beneficially owned by each executive officer and director of the Registrant and by each person known by the Registrant to
beneficially own 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive determination for any other purpose.
As of January 27, 2016, there were 428,081,221 shares of the registrant’s common stock, par value $0.001, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the registrant’s Proxy Statement for Registrant’s 2016 Annual Meeting of Stockholders are incorporated by reference into Part
III of this Annual Report on Form 10-K.

Table of contents

  • Page 1
    ... shell company (as defined in Rule 12b-2 of the Act). Yes ' No È As of June 30, 2015, the aggregate market value of voting stock held by non-affiliates of the registrant, based upon the closing sales price for the registrant's common stock, as reported in the NASDAQ Global Select Market System, was...

  • Page 2

  • Page 3
    ......Principal Accounting Fees and Services ...40 40 40 40 40 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...Selected Financial Data ...Management's Discussion and Analysis of Financial Condition and Results of Operations ...Quantitative...

  • Page 4
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 5
    ... in our DVD memberships and the resources allocated to our DVD segment; contribution margins; contribution profits (losses); liquidity; free cash flows; revenues; net income; operating cash flows; stock price volatility; pricing changes; the impact of, and the Company's response to, new accounting...

  • Page 6
    ... derives revenues from monthly membership fees for services consisting solely of streaming content to our members outside the United States. The Domestic DVD segment derives revenues from monthly membership fees for services consisting solely of DVD-by-mail. For additional information regarding...

  • Page 7
    ... financial information to our investors using our investor relations Web site (http://ir.netflix.com), SEC filings, press releases, public conference calls and webcasts. We use these channels as well as social media to communicate with our members and the public about our company, our services...

  • Page 8
    ... memberships and attracting new memberships, our business will be adversely affected. Further, if excessive numbers of members cancel our service, we may be required to incur significantly higher marketing expenditures than we currently anticipate to replace these members with new members. Changes...

  • Page 9
    ... certain agreements. In addition, the long-term and fixed cost nature of our content commitments may limit our flexibility in planning for, or reacting to changes in our business and the market segments in which we operate. As we have expanded internationally, we have licensed content in advance of...

  • Page 10
    ... international operations and expose us to foreign currency exchange rate risk; • profit repatriation and other restrictions on the transfer of funds; • differing payment processing systems as well as consumer use and acceptance of electronic payment methods, such as payment cards; • new and...

  • Page 11
    ... affect our marketing expenses and membership levels may be adversely affected. We utilize a broad mix of marketing and public relations programs, including social media sites such as Facebook and Twitter, to promote our service to potential new members. We may limit or discontinue use or support of...

  • Page 12
    ...to deliver streaming content or fulfill DVD selections. Service interruptions, errors in our software or the unavailability of computer systems used in our operations could diminish the overall attractiveness of our membership service to existing and potential members. Our computer systems and those...

  • Page 13
    ...party Web hosting provider. In addition, we utilize third-party "cloud" computing services in connection with our business operations. We also utilize our own and third-party content delivery networks to help us stream TV shows and movies in high volume to Netflix members over the Internet. Problems...

  • Page 14
    ...course of business and in particular in connection with merchandising our service to our members, we collect and utilize data supplied by our members. We currently face certain legal obligations regarding the manner in which we treat such information. Other businesses have been criticized by privacy...

  • Page 15
    ... our members' data occur, our business could be adversely affected. We are subject to payment processing risk. Our members pay for our service using a variety of different payment methods, including credit and debit cards, gift cards, direct debit and online wallets. We rely on internal systems as...

  • Page 16
    ...other intellectual property rights are important to us and other companies. Our intellectual property rights extend to our technology, business processes and the content on our Web site. We use the intellectual property of third parties in merchandising our products and marketing our service through...

  • Page 17
    ... the technology used in its operations will not be meaningfully improved. To the extent that we experience service interruptions or other degradations in our DVD-by-mail service, members' satisfaction could be negatively impacted and we could experience an increase in DVD-bymail member cancellations...

  • Page 18
    ... financial community; • announcements of developments affecting our business, systems or expansion plans by us or others; • competition, including the introduction of new competitors, their pricing strategies and services; • market volatility in general; • the level of demand for our stock...

  • Page 19
    ..., forecasts of our revenues, contribution margins, net income and number of total and paid membership additions and other financial and operating data may differ materially from actual results. Such discrepancies could cause a decline in the trading price of our common stock. Item 1B. Unresolved...

  • Page 20
    ...Los Angeles, California, with a lease term of 10 years commencing after the construction of the facility, which is expected to be in 2017. We also lease office space in other countries to support international streaming operations. We believe that our existing facilities are adequate to meet current...

  • Page 21
    ...low sales prices per share of our common stock for the periods indicated, as reported by the NASDAQ Global Select Market. The per share amounts are adjusted for our sevenfor-one stock split that occurred in July 2015. Further information on the stock split can be found in Note 8 of Item 8, Financial...

  • Page 22
    ...dividends. The S&P North American Technology Internet Index is a modified-capitalization weighted index of stocks representing the Internet industry, including Internet content and access providers, Internet software and services companies and e-commerce companies. Historical stock price performance...

  • Page 23
    ...Item 8, Financial Statements and Supplementary Data for further detail on the Stock Split. Consolidated Statements of Operations: 2015 Year ended December 31, 2014 2013 2012 (in thousands, except per share data) 2011 Revenues ...Operating income ...Net income ...Earnings per share: Basic ...Diluted...

  • Page 24
    Consolidated Balance Sheets: 2015 2014 As of December 31, 2013 (in thousands) 2012 2011 Cash, cash equivalents and short-term investments ...Total content assets, net (1) ...Working capital (1) ...Total assets (1) ...Long-term debt (1) ...Long-term debt due to related party (1) ...Non-current ...

  • Page 25
    ... from price changes and plan mix. The decrease in operating income for the year ended December 31, 2015 as compared to the year ended December 31, 2014 is due primarily to increased marketing and headcount costs to support our international expansion in addition to increased content expenses...

  • Page 26
    ... expenses, customer service and payment processing fees, including those we pay to our integrated payment partners, tend to be lower as a percentage of total cost of revenues as compared to content licensing expenses. We have built our own global content delivery network ("Open Connect") to help us...

  • Page 27
    ...average number of paid memberships and a 4% increase in average monthly revenue per paying membership resulting from our price changes and plan mix. The increase in domestic streaming cost of revenues was primarily due to a $208.1 million increase in content expenses relating to our existing and new...

  • Page 28
    ..., we derive revenues from monthly membership fees for services consisting solely of streaming content to our members outside the United States. We launched our streaming service in Canada in September 2010 and have continuously expanded our services internationally as shown below. In January 2016 we...

  • Page 29
    ..., costs associated with our customer service call centers and payment processing fees, all driven by our growing member base, partially offset by decreases resulting from exchange rate fluctuations. Average paid international streaming memberships accounted for 35% of total average paid streaming...

  • Page 30
    ... our DVD-by-mail membership services. The price per plan for DVD-by-mail varies from $4.99 to $15.99 per month according to the plan chosen by the member. DVD-by-mail plans differ by the number of DVDs that a member may have out at any given point. Members electing access to high definition Blu-ray...

  • Page 31
    ...our streaming service and our international expansion. General and Administrative General and administrative expenses consist of payroll and related expenses for corporate personnel, as well as professional fees and other general corporate expenses. Year Ended December 31, Change 2015 2014 2013 2015...

  • Page 32
    ... further detail see Note 5 of Item 8, Financial Statements and Supplementary Data. Provision for Income Taxes Year Ended December 31, Change 2014 2013 2015 vs. 2014 (in thousands, except percentages) 2015 2014 vs. 2013 Provision for income taxes ...Effective tax rate ... $19,244 14% $82,570 24...

  • Page 33
    ... plans, operating performance and the condition of the capital markets at the time we seek financing. We may not be able to obtain such financing on terms acceptable to us or at all. If we raise additional funds through the issuance of equity or debt securities, those securities may have rights...

  • Page 34
    ... 31, 2015. The significant net cash used in operations is due primarily to the increase in investments in streaming content that requires more upfront payments. The payments for content excluding DVD assets increased $1,374.8 million or 40%. In addition we had increased payments associated with...

  • Page 35
    ... that are not reflected on the Consolidated Balance Sheets as they do not yet meet the criteria for asset recognition. Streaming content obligations increased $1.4 billion from $9.5 billion as of December 31, 2014 to $10.9 billion as of December 31, 2015 primarily due to multi-year commitments...

  • Page 36
    ...becomes available, a content liability is recorded on the Consolidated Balance Sheets. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and / or fees for which are not yet determinable as of the reporting date. Traditional film output deals...

  • Page 37
    ... the amortization expense. Payments for content, including additions to streaming assets and the changes in related liabilities, are classified within "Net cash (used in) provided by operating activities" on the Consolidated Statements of Cash Flows. For licenses we capitalize the fee per title and...

  • Page 38
    ... of our reported results of operations using the asset and liability method. Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts of existing assets and liabilities and their...

  • Page 39
    ... to monitor and help mitigate our exposure to interest rate and credit risk. The policy sets forth credit quality standards and limits our exposure to any one issuer, as well as our maximum exposure to various asset classes. We maintain a portfolio of cash equivalents and short-term investments in...

  • Page 40
    ...international expansion increases our exposure to exchange rate fluctuations and as a result such fluctuations could have a significant impact on our future results of operations. Item 8. Financial Statements and Supplementary Data The consolidated financial statements and accompanying notes listed...

  • Page 41
    ...their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Netflix have been detected. (b) Management's Annual Report on Internal Control Over Financial Reporting Our...

  • Page 42
    ...accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Netflix, Inc. as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each...

  • Page 43
    Item 9B. Other Information None. 39

  • Page 44
    ... Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" in our Proxy Statement for the Annual Meeting of Stockholders. Item 13. Certain Relationships and Related Transactions, and Director Independence Information required by this item is incorporated...

  • Page 45
    ... (1) Financial Statements: The financial statements are filed as part of this Annual Report on Form 10-K under "Item 8. Financial Statements and Supplementary Data." (2) Financial Statement Schedules: The financial statement schedules are omitted as they are either not applicable or the information...

  • Page 46
    ... Registered Public Accounting Firm ...Consolidated Statements of Operations ...Consolidated Statements of Comprehensive Income ...Consolidated Statements of Cash Flows ...Consolidated Balance Sheets ...Consolidated Statements of Stockholders' Equity ...Notes to Consolidated Financial Statements...

  • Page 47
    ...REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders of Netflix, Inc. We have audited the accompanying consolidated balance sheets of Netflix, Inc. as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income, stockholders' equity...

  • Page 48
    NETFLIX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) 2015 Year ended December 31, 2014 2013 Revenues ...Cost of revenues ...Marketing ...Technology and development ...General and administrative ...Operating income ...Other income (expense): Interest expense ......

  • Page 49
    NETFLIX, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Year ended December 31, 2015 2014 2013 Net income ...Other comprehensive income (loss): Foreign currency translation adjustments ...Change in unrealized gains (losses) on available-for-sale securities, net of tax of $(598...

  • Page 50
    ... STATEMENTS OF CASH FLOWS (in thousands) 2015 Year Ended December 31, 2014 2013 Cash flows from operating activities: Net income ...$ 122,641 $ 266,799 $ 112,403 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Additions to streaming content assets...

  • Page 51
    NETFLIX, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) As of December 31, 2015 2014 Assets Current assets: Cash and cash equivalents ...Short-term investments ...Current content assets, net ...Other current assets ...Total current assets ...Non-current content ...

  • Page 52
    NETFLIX, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except share data) Accumulated Other Comprehensive (Loss) Income Total Stockholders' Equity Common Stock and Additional Paid-in Capital Shares Amount Retained Earnings Balances as of December 31, 2012 ...389,110,169 Net ...

  • Page 53
    ... assets are held in the United States. The Company's revenues are derived from monthly membership 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. Use...

  • Page 54
    ... of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. The Company elected to...

  • Page 55
    ... expense. Payments for content, including additions to streaming assets and the changes in related liabilities, are classified within "Net cash (used in) provided by operating activities" on the Consolidated Statements of Cash Flows. For licenses, the Company capitalizes the fee per title...

  • Page 56
    ..., 2015, 2014 and 2013, respectively. Income Taxes The Company records a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Deferred income taxes are recognized by applying enacted statutory tax rates applicable...

  • Page 57
    ... stock options. The computation of earnings per share, as adjusted for the Stock Split, is as follows: Year ended December 31, 2015 2014 2013 (in thousands, except per share data) Basic earnings per share: Net income ...Shares used in computation: Weighted-average common shares outstanding ...Basic...

  • Page 58
    ... 2013, respectively, from "Other current assets" to "Additions to streaming content assets" on the Consolidated Statements of Cash Flows. 3. Short-term Investments The Company's investment policy is consistent with the definition of available-for-sale securities. The Company does not buy and hold...

  • Page 59
    ... of credit agreements. Fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. The hierarchy level assigned to each security in the Company's available-for-sale portfolio and cash equivalents is...

  • Page 60
    ... Useful Lives (in Years) Information technology assets ...Furniture and fixtures ...Building ...Leasehold improvements ...DVD operations equipment ...Capital work-in-progress ...Property and equipment, gross ...Less: Accumulated depreciation ...Property and equipment, net ...5. Long-term Debt...

  • Page 61
    ... billion of obligations that are not reflected on the Consolidated Balance Sheets as they do not yet meet the criteria for asset recognition. The expected timing of payments for these streaming content obligations is as follows: As of December 31, 2015 2014 (in thousands) Less than one year ...Due...

  • Page 62
    ...criteria for de-recognition of the building assets and liabilities. Therefore the leases are accounted for as financing obligations. In the third quarter of 2015, the Company extended the facilities leases for the original Los Gatos buildings for an additional three years term, increasing the future...

  • Page 63
    ... or its financial position, liquidity or results of operations. On January 13, 2012, the first of three purported shareholder class action lawsuits was filed in the United States District Court for the Northern District of California against the Company and certain of its officers and directors...

  • Page 64
    ... of the Company's current and former officers and directors breached their fiduciary duties, issued false and misleading statements primarily regarding the Company's streaming business, violated accounting rules concerning segment reporting, violated provisions of the California Corporations Code...

  • Page 65
    ... 2015 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on the last trading day of 2015. This amount changes based on the fair market value of the Company's common stock. Total...

  • Page 66
    ... using the lattice-binomial model and the valuation data, as adjusted for the Stock Split: 2015 Year Ended December 31, 2014 2013 Dividend yield ...Expected volatility ...Risk-free interest rate ...Suboptimal exercise factor ...Valuation data: Weighted-average fair value (per share) ...Total stock...

  • Page 67
    ...income related to realized gains on available-for-sale securities. These reclassifications impacted "Interest and other income (expense)" on the Consolidated Statements of Operations. 10. Income Taxes Income before provision for income taxes was as follows: Year Ended December 31, 2015 2014 2013 (in...

  • Page 68
    ... income tax liability related to these earnings is approximately $22.8 million. A reconciliation of the provision for income taxes, with the amount computed by applying the statutory Federal income tax rate to income before income taxes is as follows: Year Ended December 31, 2015 2014 2013 (in...

  • Page 69
    ... assets" on the Consolidated Balance Sheets as of December 31, 2015 and December 31, 2014. In evaluating its ability to realize the net deferred tax assets, the Company considered all available positive and negative evidence, including its past operating results and the forecast of future market...

  • Page 70
    ... tax rate. The aggregate changes in the Company's total gross amount of unrecognized tax benefits are summarized as follows (in thousands): Balance as of December 31, 2013 ...Decreases related to tax positions taken during prior periods ...Increases related to tax positions taken during the current...

  • Page 71
    ... fees for services consisting solely of streaming content to members outside of the United States. The Domestic DVD segment derives revenues from monthly membership fees for services consisting solely of DVD-by-mail. Revenues and the related payment card fees are attributed to the operating...

  • Page 72
    ...the geographic location used at time of sign-up as determined by our internal systems, which utilize industry standard geo-location technology. We offer free-trial memberships to new and certain rejoining members. Total members include those who are on a free-trial as long as a method of payment has...

  • Page 73
    ... processing delays by our banks or integrated payment partners. The number of members in a grace period at any given point is not material. 13. Selected Quarterly Financial Data (Unaudited) December 31 September 30 June 30 March 31 (in thousands, except for per share data) 2015 Total revenues...

  • Page 74
    ... report to be signed on its behalf by the undersigned, thereunto duly authorized. Netflix, Inc. Dated: January 28, 2016 By: /S/ REED HASTINGS Reed Hastings Chief Executive Officer (principal executive officer) /S/ DAVID WELLS David Wells Chief Financial Officer (principal financial and accounting...

  • Page 75
    ... to the requirements of the Securities and Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /S/ REED HASTINGS Reed Hastings DAVID WELLS David...

  • Page 76
    ... Indenture, dated as of February 5, 2015, by and between the Company and Wells Fargo Bank, National Association, as Trustee. Form of Indemnification Agreement entered into by the registrant with each of its executive officers and directors Amended and Restated 2002 Stock Plan 2011 Stock Plan Amended...

  • Page 77
    ... The following financial information from Netflix, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on January 28, 2016, formatted in XBRL includes: (i) Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013, (ii) 8-K 001...

  • Page 78
    ... and 2013, (iv) Consolidated Balance Sheets as of December 31, 2015 and 2014, (v) Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2015, 2014 and 2013 and (vi) the Notes to Consolidated Financial Statements. * X These certifications are not deemed filed by the SEC...

  • Page 79

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