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Netflix Inc · 10-Q · For 6/30/07

Filed On 8/6/07 3:02pm ET · SEC File 0-49802 · Accession Number 1193125-7-171865

  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 8/06/07  Netflix Inc                       10-Q        6/30/07    4:71                                     RR Donnelley/FA

Quarterly Report · Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    456K 
 2: EX-31.1     Certification of Ceo Pursuant to Section 302        HTML      9K 
 3: EX-31.2     Certification of Cfo Pursuant to Section 302        HTML      9K 
 4: EX-32.1     Certification of Ceo and Cfo Pursuant to Section    HTML      8K 
                          906

10-Q · Quarterly Report
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (RTF, XML, et al.) Condensed Consolidated Balance Sheets as of December 31, 2006 and June 30, 2007 Condensed Consolidated Financial Statements Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2006 and 2007 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2006 and 2007 Controls and Procedures Exhibit Index Exhibits Legal Proceedings Management s Discussion and Analysis of Financial Condition and Results of Operations Notes to Condensed Consolidated Financial Statements Part I. Financial Information Part II. Other Information Quantitative and Qualitative Disclosures About Market Risk Risk Factors Signatures Submission of Matters to a Vote of Security Holders Table of Contents Unregistered Sales of Equity Securities and Use of Proceeds
1	1st Page
"	Table of Contents
"	Part I. Financial Information
"	Item 1. Condensed Consolidated Financial Statements
"	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2006 and 2007
"	Condensed Consolidated Balance Sheets as of December 31, 2006 and June 30, 2007
"	Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2006 and 2007
"	Notes to Condensed Consolidated Financial Statements
"	Item 2. Management s Discussion and Analysis of Financial Condition and Results of Operations
"	Item 3. Quantitative and Qualitative Disclosures About Market Risk
"	Item 4. Controls and Procedures
"	Part II. Other Information
"	Item 1. Legal Proceedings
"	Item 1A. Risk Factors
"	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
"	Item 4. Submission of Matters to a Vote of Security Holders
"	Item 6. Exhibits
"	Signatures
"	Exhibit Index

This is an EDGAR HTML document rendered as filed. [ Alternative Formats ]

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

¨	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: 000-49802

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)

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 x NO ¨ .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act) Yes ¨ No x

As of July 31, 2007, there were 67,272,036 shares of the registrant’s common stock, par value $0.001, outstanding.

Table of Contents


		Page
Part I. Financial Information		3

	Item 1. Condensed Consolidated Financial Statements	3

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

	Item 3. Quantitative and Qualitative Disclosures About Market Risk	25

	Item 4. Controls and Procedures	25

Part II. Other Information		26

	Item 1. Legal Proceedings	26

	Item 1A. Risk Factors	26

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	26

	Item 4. Submission of Matters to a Vote of Security Holders	26

	Item 6. Exhibits	27

Signatures		28

Exhibit Index		29

PART I. FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements

Index to Condensed Consolidated Financial Statements


		Page
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2006 and 2007		4

Condensed Consolidated Balance Sheets as of December 31, 2006 and June 30, 2007		5

Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2006 and 2007		6

Notes to Condensed Consolidated Financial Statements		7

Netflix, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)


	Three Months Ended						Six Months Ended
	June 30, 2006			June 30, 2007			June 30, 2006			June 30, 2007
Revenues	$	239,351		$	303,693		$	463,477		$	609,013
Cost of revenues:
Subscription		128,605			166,838			254,825			332,027
Fulfillment expenses*		21,974			29,855			44,019			59,638

Total cost of revenues		150,579			196,693			298,844			391,665

Gross profit		88,772			107,000			164,633			217,348
Operating expenses:
Technology and development *		12,043			18,907			23,249			34,622
Marketing *		47,031			45,255			99,999			117,393
General and administrative *		6,773			13,847			15,065			26,035
Gain on disposal of DVDs		(964	)		(2,282	)		(2,351	)		(3,190	)
Gain on legal settlement		—			(7,000	)		—			(7,000	)

Total operating expenses		64,883			68,727			135,962			167,860

Operating income		23,889			38,273			28,671			49,488
Other income:
Interest and other income		3,701			4,972			6,153			10,322

Income before income taxes		27,590			43,245			34,824			59,810
Income taxes		10,553			17,665			13,383			24,366

Net income	$	17,037		$	25,580		$	21,441		$	35,444

Net income per share:
Basic	$	0.29		$	0.38		$	0.38		$	0.52
Diluted	$	0.25		$	0.37		$	0.32		$	0.50
Weighted average common shares outstanding:
Basic		58,383			68,031			56,808			68,360
Diluted		69,175			69,891			67,813			70,276

* Stock-based compensation included in expense line items:
Fulfillment expenses	$	223		$	82		$	483		$	228
Technology and development		867			831			1,832			1,588
Marketing		529			521			1,083			1,052
General and administrative		1,468			1,384			2,999			2,753

See accompanying notes to condensed consolidated financial statements.

Netflix, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share and par value data)


	As of
	December 31, 2006			June 30, 2007
Assets
Current assets:
Cash and cash equivalents	$	400,430		$	184,182
Short-term investments		—			193,770
Prepaid expenses		4,742			6,234
Prepaid revenue sharing expenses		9,456			6,095
Deferred tax assets		3,155			3,179
Other current assets		10,635			17,110

Total current assets		428,418			410,570
Content library, net		104,908			113,902
Property and equipment, net		55,503			67,355
Deferred tax assets		15,600			16,336
Other assets		4,350			4,137

Total assets	$	608,779		$	612,300

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	93,864		$	70,757
Accrued expenses		29,905			35,754
Deferred revenue		69,678			60,522

Total current liabilities		193,447			167,033
Deferred rent		1,121			1,186

Total liabilities		194,568			168,219
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value; 160,000,000 shares authorized at December 31, 2006 and June 30, 2007; 68,612,463 and 67,638,182 issued and outstanding at December 31, 2006 and June 30, 2007, respectively		69			68
Additional paid-in capital		454,731			449,679
Accumulated other comprehensive loss		—			(521	)
Accumulated deficit		(40,589	)		(5,145	)

Total stockholders’ equity		414,211			444,081

Total liabilities and stockholders’ equity	$	608,779		$	612,300

See accompanying notes to condensed consolidated financial statements.

Netflix, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


		Three Months Ended						Six Months Ended
		June 30, 2006			June 30, 2007			June 30, 2006			June 30, 2007
Cash flows from operating activities:
Net income		$	17,037		$	25,580		$	21,441		$	35,444
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment			3,854			5,126			7,463			9,727
Amortization of content library			31,910			50,985			59,191			100,427
Amortization of intangible assets			11			25			23			49
Amortization of discounts and premiums on investments			—			11			—			(71	)
Stock-based compensation expense			3,087			2,818			6,397			5,621
Excess tax benefits from stock-based compensation			(2,952	)		(12,018	)		(3,642	)		(16,094	)
Gain on disposal of property and equipment			—			—			(23	)		—
Gain on disposal of short-term investments			—			(47	)		—			(194	)
Gain on disposal of DVDs			(2,029	)		(5,197	)		(4,078	)		(7,794	)
Deferred taxes			7,315			(505	)		9,373			(760	)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets			(6,091	)		5,660			(3,787	)		(4,606	)
Accounts payable			(219	)		(10,850	)		2,654			549
Accrued expenses			153			14,244			3,592			21,943
Deferred revenue			1,104			(3,712	)		496			(9,156	)
Deferred rent			119			1			189			65

Net cash provided by operating activities			53,299			72,121			99,289			135,150

Cash flows from investing activities:
Purchases of short-term investments			—			(53,906	)		—			(318,140	)
Proceeds from sale of short-term investments			—			28,693			—			124,115
Purchases of property and equipment			(3,892	)		(8,968	)		(10,578	)		(26,981	)
Acquisition of intangible asset			(585	)		—			(585	)		—
Acquisitions of content library			(46,142	)		(64,337	)		(75,984	)		(132,878	)
Proceeds from sale of DVDs			2,753			7,370			5,234			12,996
Proceeds from disposal of property and equipment			—			—			23			—
Other assets			74			267			(217	)		164

Net cash used in investing activities			(47,792	)		(90,881	)		(82,107	)		(340,724	)

Cash flows from financing activities:	</

Netflix Inc · 10-Q · For 6/30/07

Filed On 8/6/07 3:02pm ET · SEC File 0-49802 · Accession Number 1193125-7-171865

Quarterly Report · Form 10-QFiling Table of Contents

10-Q · Quarterly ReportDocument Table of Contents

This is an EDGAR HTML document rendered as filed. [ Alternative Formats ]

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Quarterly Report · Form 10-Q
Filing Table of Contents

10-Q · Quarterly Report
Document Table of Contents