x
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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|
77-0467272
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(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification Number)
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Title of each class
|
|
Name of Exchange on which registered
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Common stock, $0.001 par value
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|
NASDAQ Stock Market LLC
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(NASDAQ Global Select Market)
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Large accelerated filer
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x
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Accelerated filer
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o
|
|
Non-accelerated filer
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o
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(Do not check if a smaller reporting company)
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Smaller reporting company
|
o
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Emerging growth company
|
o
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Page
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PART I
|
||
Item 1.
|
||
Item 1A.
|
||
Item 1B.
|
||
Item 2.
|
||
Item 3.
|
||
Item 4.
|
||
PART II
|
||
Item 5.
|
||
Item 6.
|
||
Item 7.
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||
Item 7A.
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||
Item 8.
|
||
Item 9.
|
||
Item 9A.
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||
Item 9B.
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||
PART III
|
||
Item 10.
|
||
Item 11.
|
||
Item 12.
|
||
Item 13.
|
||
Item 14.
|
||
PART IV
|
||
Item 15.
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Item 1.
|
Business
|
Item 1A.
|
Risk Factors
|
•
|
the need to adapt our content and user interfaces for specific cultural and language differences, including licensing a certain portion of our content assets before we have developed a full appreciation for its performance within a given territory;
|
•
|
difficulties and costs associated with staffing and managing foreign operations;
|
•
|
management distraction;
|
•
|
political or social unrest and economic instability;
|
•
|
compliance with U.S. laws such as the Foreign Corrupt Practices Act, export controls and economic sanctions, and local laws prohibiting corrupt payments to government officials;
|
•
|
difficulties in understanding and complying with local laws, regulations and customs in foreign jurisdictions;
|
•
|
regulatory requirements or government action against our service, whether in response to enforcement of actual or purported legal and regulatory requirements or otherwise, that results in disruption or non-availability of our service or particular content in the applicable jurisdiction;
|
•
|
less favorable foreign intellectual property laws;
|
•
|
adverse tax consequences such as those related to changes in tax laws or tax rates or their interpretations, and the related application of judgment in determining our global provision for income taxes, deferred tax assets or liabilities or other tax liabilities given the ultimate tax determination is uncertain;
|
•
|
fluctuations in currency exchange rates, which we do not use foreign exchange contracts or derivatives to hedge against and which could impact revenues and expenses of our 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 different sources of competition;
|
•
|
censorship requirements that cause us to remove or edit popular content, leading to consumer disappointment or dissatisfaction with our service;
|
•
|
low usage and/or penetration of internet-connected consumer electronic devices;
|
•
|
different and more stringent user protection, data protection, privacy and other laws, including data localization requirements;
|
•
|
availability of reliable broadband connectivity and wide area networks in targeted areas for expansion;
|
•
|
integration and operational challenges as well as potential unknown liabilities in connection with companies we may acquire or control; and
|
•
|
differing, and often more lenient, laws and consumer understanding/attitudes regarding the illegality of piracy.
|
•
|
make it difficult for us to satisfy our financial obligations, including making scheduled principal and interest payments on our Notes and our other obligations;
|
•
|
limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general business purposes;
|
•
|
limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general business purposes;
|
•
|
require us to use a substantial portion of our cash flow from operations to make debt service payments and pay our other obligations when due;
|
•
|
limit our flexibility to plan for, or react to, changes in our business and industry;
|
•
|
place us at a competitive disadvantage compared to our less leveraged competitors; and
|
•
|
increase our vulnerability to the impact of adverse economic and industry conditions.
|
•
|
authorize our board of directors, without stockholder approval, to issue up to 10,000,000 shares of undesignated preferred stock;
|
•
|
provide for a classified board of directors;
|
•
|
prohibit our stockholders from acting by written consent;
|
•
|
establish advance notice requirements for proposing matters to be approved by stockholders at stockholder meetings; and
|
•
|
prohibit stockholders from calling a special meeting of stockholders.
|
•
|
variations in our operating results, including our membership acquisition and retention, revenues, contribution profits, net income and free cash flow;
|
•
|
variations between our actual operating results and the expectations of securities analysts, investors and the 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, including the amount of short interest in our stock; and
|
•
|
the operating results of our competitors.
|
Item 1B.
|
Unresolved Staff Comments
|
Item 2.
|
Properties
|
Item 3.
|
Legal Proceedings
|
Item 4.
|
Mine Safety Disclosures
|
Item 5.
|
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|
|
2017
|
2016
|
||||||||||||||
|
High
|
Low
|
High
|
Low
|
||||||||||||
First quarter
|
$
|
148.29
|
|
$
|
124.31
|
|
$
|
122.18
|
|
$
|
79.95
|
|
||||
Second quarter
|
166.87
|
|
138.66
|
|
111.85
|
|
84.81
|
|
||||||||
Third quarter
|
191.50
|
|
144.25
|
|
101.27
|
|
84.50
|
|
||||||||
Fourth quarter
|
204.38
|
|
176.58
|
|
129.29
|
|
97.63
|
|
Item 6.
|
Selected Financial Data
|
|
Year ended December 31,
|
|||||||||||||||||||
|
2017
|
2016
|
2015
|
2014
|
2013
|
|||||||||||||||
|
(in thousands, except per share data)
|
|||||||||||||||||||
Revenues
|
$
|
11,692,713
|
|
$
|
8,830,669
|
|
$
|
6,779,511
|
|
$
|
5,504,656
|
|
$
|
4,374,562
|
|
|||||
Operating income
|
838,679
|
|
379,793
|
|
305,826
|
|
402,648
|
|
228,347
|
|
||||||||||
Net income
|
558,929
|
|
186,678
|
|
122,641
|
|
266,799
|
|
112,403
|
|
||||||||||
Earnings per share:
|
||||||||||||||||||||
Basic
|
$
|
1.29
|
|
$
|
0.44
|
|
$
|
0.29
|
|
$
|
0.63
|
|
$
|
0.28
|
|
|||||
Diluted
|
$
|
1.25
|
|
$
|
0.43
|
|
$
|
0.28
|
|
$
|
0.62
|
|
$
|
0.26
|
|
|||||
Weighted-average common shares outstanding:
|
||||||||||||||||||||
Basic
|
431,885
|
|
428,822
|
|
425,889
|
|
420,544
|
|
407,385
|
|
||||||||||
Diluted
|
446,814
|
|
438,652
|
|
436,456
|
|
431,894
|
|
425,327
|
|
|
Year Ended December 31,
|
|||||||||||||||||||
|
2017
|
2016
|
2015
|
2014
|
2013
|
|||||||||||||||
|
(in thousands)
|
|||||||||||||||||||
Net cash (used in) provided by operating activities
|
$
|
(1,785,948
|
)
|
$
|
(1,473,984
|
)
|
$
|
(749,439
|
)
|
$
|
16,483
|
|
$
|
97,831
|
|
|||||
Free cash flow (1)
|
(2,019,659
|
)
|
(1,659,755
|
)
|
(920,557
|
)
|
(126,699
|
)
|
(16,300
|
)
|
(1)
|
Free cash flow is defined as net cash (used in) provided by operating and investing activities, excluding the non-operational cash flows from purchases, maturities and sales of short-term investments. See Liquidity and Capital Resources for a reconciliation of "free cash flow" to "net cash (used in) provided by operating activities."
|
|
As of December 31,
|
|||||||||||||||||||
|
2017
|
2016
|
2015
|
2014
|
2013
|
|||||||||||||||
|
(in thousands)
|
|||||||||||||||||||
Cash, cash equivalents and short-term investments
|
$
|
2,822,795
|
|
$
|
1,733,782
|
|
$
|
2,310,715
|
|
$
|
1,608,496
|
|
$
|
1,200,405
|
|
|||||
Total content assets, net
|
14,681,989
|
|
11,000,808
|
|
7,218,815
|
|
4,939,460
|
|
3,838,364
|
|
||||||||||
Working capital
|
2,203,662
|
|
1,133,634
|
|
1,902,216
|
|
1,263,899
|
|
883,049
|
|
||||||||||
Total assets
|
19,012,742
|
|
13,586,610
|
|
10,202,871
|
|
7,042,500
|
|
5,404,025
|
|
||||||||||
Long-term debt
|
6,499,432
|
|
3,364,311
|
|
2,371,362
|
|
885,849
|
|
491,462
|
|
||||||||||
Non-current content liabilities
|
3,329,796
|
|
2,894,654
|
|
2,026,360
|
|
1,575,832
|
|
1,345,590
|
|
||||||||||
Total content liabilities
|
7,502,837
|
|
6,527,365
|
|
4,815,383
|
|
3,693,073
|
|
3,121,573
|
|
||||||||||
Total stockholders’ equity
|
3,581,956
|
|
2,679,800
|
|
2,223,426
|
|
1,857,708
|
|
1,333,561
|
|
|
As of / Year Ended December 31,
|
||||||||||||||
|
2017
|
2016
|
2015
|
2014
|
2013
|
||||||||||
|
(in thousands)
|
||||||||||||||
Net global streaming membership additions during period (1)
|
23,786
|
|
19,034
|
|
17,371
|
|
13,041
|
|
11,083
|
|
|||||
Global streaming memberships (1)
|
117,582
|
|
93,796
|
|
74,762
|
|
57,391
|
|
44,350
|
|
(1)
|
A membership (also referred to as a subscription) is defined as the right to receive Netflix service following sign-up and a method of payment being provided. Memberships are assigned to territories based on 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 certain new and rejoining members. Total members include those who are on a free-trial as long as a method of payment has been provided. A membership is canceled and ceases to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations become effective at the end of the prepaid membership period, while involuntary cancellation of the service, as a result of a failed method of payment, becomes effective immediately.
|
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
As of/ Year Ended December 31,
|
Change
|
|||||||||||||||||
|
2017
|
2016
|
2015
|
2017 vs. 2016
|
2016 vs. 2015
|
|||||||||||||
|
(in thousands, except revenue per membership and percentages)
|
|||||||||||||||||
Global streaming memberships at end of period
|
117,582
|
|
93,796
|
|
74,762
|
|
25
|
%
|
25
|
%
|
||||||||
Global streaming average monthly revenue per paying membership
|
$
|
9.43
|
|
$
|
8.61
|
|
$
|
8.15
|
|
10
|
%
|
6
|
%
|
|||||
Revenues
|
$
|
11,692,713
|
|
$
|
8,830,669
|
|
$
|
6,779,511
|
|
32
|
%
|
30
|
%
|
|||||
Operating income
|
$
|
838,679
|
|
$
|
379,793
|
|
$
|
305,826
|
|
121
|
%
|
24
|
%
|
|||||
Operating margin
|
7
|
%
|
4
|
%
|
5
|
%
|
75
|
%
|
(20
|
)%
|
||||||||
Net income
|
$
|
558,929
|
|
$
|
186,678
|
|
$
|
122,641
|
|
199
|
%
|
52
|
%
|
•
|
We define contribution profit (loss) as revenues less cost of revenues and marketing expenses incurred by the segment. We believe this is an important measure of our operating segment performance as it represents each segment's performance before global corporate costs. As markets within our International streaming segment become profitable, we increasingly focus on our global operating margin as a measure of profitability.
|
•
|
For the Domestic and International streaming segments, amortization of the streaming content assets makes up the vast majority of cost of revenues. Increasingly, we obtain multi-territory or global rights for our streaming content and allocate these rights between Domestic and International streaming segments based on estimated fair market value. Expenses associated with the acquisition, licensing and production of streaming content, streaming delivery costs and other operations costs make up the remainder of cost of revenues. We have built our own global content delivery network ("Open Connect") to help us efficiently stream a high volume of content to our members over the internet. Streaming delivery expenses, therefore, include equipment costs related to Open Connect and all third-party costs, such
|
•
|
For the Domestic and International streaming segments, marketing expenses consist primarily of advertising expenses and certain payments made to our marketing partners, including consumer electronics manufacturers, MVPD's, mobile operators and ISP's. Advertising expenses include promotional activities such as digital and television advertising. Marketing expenses are incurred by our Domestic and International streaming segments given our focus on building consumer awareness of the streaming offerings, and in particular our original content.
|
As of/ Year Ended December 31,
|
Change
|
|||||||||||||||||||||||||
|
2017
|
2016
|
2015
|
2017 vs. 2016
|
2016 vs. 2015
|
|||||||||||||||||||||
|
(in thousands, except revenue per membership and percentages)
|
|||||||||||||||||||||||||
Memberships:
|
||||||||||||||||||||||||||
Net additions
|
5,319
|
|
4,693
|
|
5,624
|
|
626
|
|
13
|
%
|
(931
|
)
|
(17
|
)%
|
||||||||||||
Memberships at end of period
|
54,750
|
|
49,431
|
|
44,738
|
|
5,319
|
|
11
|
%
|
4,693
|
|
10
|
%
|
||||||||||||
Paid memberships at end of period
|
52,810
|
|
47,905
|
|
43,401
|
|
4,905
|
|
10
|
%
|
4,504
|
|
10
|
%
|
||||||||||||
Average monthly revenue per paying membership
|
$
|
10.18
|
|
$
|
9.21
|
|
$
|
8.50
|
|
$
|
0.97
|
|
11
|
%
|
$
|
0.71
|
|
8
|
%
|
|||||||
Contribution profit:
|
||||||||||||||||||||||||||
Revenues
|
$
|
6,153,025
|
|
$
|
5,077,307
|
|
$
|
4,180,339
|
|
$
|
1,075,718
|
|
21
|
%
|
$
|
896,968
|
|
21
|
%
|
|||||||
Cost of revenues
|
3,319,230
|
|
2,855,789
|
|
2,487,193
|
|
463,441
|
|
16
|
%
|
368,596
|
|
15
|
%
|
||||||||||||
Marketing
|
553,331
|
|
382,832
|
|
317,646
|
|
170,499
|
|
45
|
%
|
65,186
|
|
21
|
%
|
||||||||||||
Contribution profit
|
2,280,464
|
|
1,838,686
|
|
1,375,500
|
|
441,778
|
|
24
|
%
|
463,186
|
|
34
|
%
|
||||||||||||
Contribution margin
|
37
|
%
|
36
|
%
|
33
|
%
|
As of /Year Ended December 31,
|
Change
|
|||||||||||||||||||||||||
|
2017
|
2016
|
2015
|
2017 vs. 2016
|
2016 vs. 2015
|
|||||||||||||||||||||
|
(in thousands, except revenue per membership and percentages)
|
|||||||||||||||||||||||||
Memberships:
|
||||||||||||||||||||||||||
Net additions
|
18,467
|
|
14,341
|
|
11,747
|
|
4,126
|
|
29
|
%
|
2,594
|
|
22
|
%
|
||||||||||||
Memberships at end of period
|
62,832
|
|
44,365
|
|
30,024
|
|
18,467
|
|
42
|
%
|
14,341
|
|
48
|
%
|
||||||||||||
Paid memberships at end of period
|
57,834
|
|
41,185
|
|
27,438
|
|
16,649
|
|
40
|
%
|
13,747
|
|
50
|
%
|
||||||||||||
Average monthly revenue per paying membership
|
$
|
8.66
|
|
$
|
7.81
|
|
$
|
7.48
|
|
$
|
0.85
|
|
11
|
%
|
$
|
0.33
|
|
4
|
%
|
|||||||
Contribution profit (loss):
|
||||||||||||||||||||||||||
Revenues
|
$
|
5,089,191
|
|
$
|
3,211,095
|
|
$
|
1,953,435
|
|
$
|
1,878,096
|
|
58
|
%
|
$
|
1,257,660
|
|
64
|
%
|
|||||||
Cost of revenues
|
4,137,911
|
|
2,911,370
|
|
1,780,375
|
|
1,226,541
|
|
42
|
%
|
1,130,995
|
|
64
|
%
|
||||||||||||
Marketing
|
724,691
|
|
608,246
|
|
506,446
|
|
116,445
|
|
19
|
%
|
101,800
|
|
20
|
%
|
||||||||||||
Contribution profit (loss)
|
226,589
|
|
(308,521
|
)
|
(333,386
|
)
|
535,110
|
|
173
|
%
|
24,865
|
|
7
|
%
|
||||||||||||
Contribution margin
|
4
|
%
|
(10
|
)%
|
(17
|
)%
|
As of/ Year Ended December 31,
|
Change
|
|||||||||||||||||||||||||
|
2017
|
2016
|
2015
|
2017 vs. 2016
|
2016 vs. 2015
|
|||||||||||||||||||||
|
(in thousands, except revenue per membership and percentages)
|
|||||||||||||||||||||||||
Memberships:
|
||||||||||||||||||||||||||
Net losses
|
(731
|
)
|
(790
|
)
|
(863
|
)
|
(59
|
)
|
(7
|
)%
|
(73
|
)
|
(8
|
)%
|
||||||||||||
Memberships at end of period
|
3,383
|
|
4,114
|
|
4,904
|
|
(731
|
)
|
(18
|
)%
|
(790
|
)
|
(16
|
)%
|
||||||||||||
Paid memberships at end of period
|
3,330
|
|
4,029
|
|
4,787
|
|
(699
|
)
|
(17
|
)%
|
(758
|
)
|
(16
|
)%
|
||||||||||||
Average monthly revenue per paying membership
|
$10.17
|
$10.22
|
$10.30
|
$(0.05)
|
—
|
%
|
$(0.08)
|
(1
|
)%
|
|||||||||||||||||
Contribution profit:
|
||||||||||||||||||||||||||
Revenues
|
$
|
450,497
|
|
$
|
542,267
|
|
$
|
645,737
|
|
$
|
(91,770
|
)
|
(17
|
)%
|
$
|
(103,470
|
)
|
(16
|
)%
|
|||||||
Cost of revenues
|
202,525
|
|
262,742
|
|
323,908
|
|
(60,217
|
)
|
(23
|
)%
|
(61,166
|
)
|
(19
|
)%
|
||||||||||||
Contribution profit
|
247,972
|
|
279,525
|
|
321,829
|
|
(31,553
|
)
|
(11
|
)%
|
(42,304
|
)
|
(13
|
)%
|
||||||||||||
Contribution margin
|
55
|
%
|
52
|
%
|
50
|
%
|
|
Year Ended December 31,
|
Change
|
||||||||||||||||||||||||
|
2017
|
2016
|
2015
|
2017 vs. 2016
|
2016 vs. 2015
|
|||||||||||||||||||||
|
(in thousands, except percentages)
|
|||||||||||||||||||||||||
Technology and development
|
$
|
1,052,778
|
|
$
|
852,098
|
|
$
|
650,788
|
|
$
|
200,680
|
|
24
|
%
|
$
|
201,310
|
|
31
|
%
|
|||||||
As a percentage of revenues
|
9
|
%
|
10
|
%
|
10
|
%
|
|
Year Ended December 31,
|
Change
|
||||||||||||||||||||||||
|
2017
|
2016
|
2015
|
2017 vs. 2016
|
2016 vs. 2015
|
|||||||||||||||||||||
|
(in thousands, except percentages)
|
|||||||||||||||||||||||||
General and administrative
|
$
|
863,568
|
|
$
|
577,799
|
|
$
|
407,329
|
|
$
|
285,769
|
|
49
|
%
|
$
|
170,470
|
|
42
|
%
|
|||||||
As a percentage of revenues
|
7
|
%
|
7
|
%
|
6
|
%
|
|
Year Ended December 31,
|
Change
|
||||||||||||||||||||||||
|
2017
|
2016
|
2015
|
2017 vs. 2016
|
2016 vs. 2015
|
|||||||||||||||||||||
|
(in thousands, except percentages)
|
|||||||||||||||||||||||||
Interest expense
|
$
|
(238,204
|
)
|
$
|
(150,114
|
)
|
$
|
(132,716
|
)
|
$
|
88,090
|
|
59
|
%
|
$
|
17,398
|
|
13
|
%
|
|||||||
As a percentage of revenues
|
2
|
%
|
2
|
%
|
2
|
%
|
|
Year Ended December 31,
|
Change
|
||||||||||||||||||||||||
|
2017
|
2016
|
2015
|
2017 vs. 2016
|
2016 vs. 2015
|
|||||||||||||||||||||
|
(in thousands, except percentages)
|
|||||||||||||||||||||||||
Interest and other income (expense)
|
$
|
(115,154
|
)
|
$
|
30,828
|
|
$
|
(31,225
|
)
|
$
|
(145,982
|
)
|
(474
|
)%
|
$
|
62,053
|
|
199
|
%
|
|
Year Ended December 31,
|
Change
|
|||||||||||||||||||||||
|
2017
|
2016
|
2015
|
2017 vs. 2016
|
2016 vs. 2015
|
||||||||||||||||||||
|
(in thousands, except percentages)
|
||||||||||||||||||||||||
Provision for (benefit from) income taxes
|
$
|
(73,608
|
)
|
$
|
73,829
|
|
$
|
19,244
|
|
$
|
(147,437
|
)
|
(200
|
)%
|
54,585
|
|
284
|
%
|
|||||||
Effective tax rate
|
(15
|
)%
|
28
|
%
|
14
|
%
|
Year Ended December 31,
|
|||||||
2017
|
2016
|
||||||
(in thousands)
|
|||||||
Cash and cash equivalents and short-term investments
|
$
|
2,822,795
|
|
$
|
1,733,782
|
|
|
Long-term debt
|
6,499,432
|
|
3,364,311
|
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
2016
|
2015
|
||||||||
(in thousands)
|
|||||||||||
Net cash used in operating activities
|
$
|
(1,785,948
|
)
|
$
|
(1,473,984
|
)
|
$
|
(749,439
|
)
|
||
Net cash provided by (used in) investing activities
|
34,329
|
|
49,765
|
|
(179,192
|
)
|
|||||
Net cash provided by financing activities
|
3,076,990
|
|
1,091,630
|
|
1,640,277
|
|
|||||
Non-GAAP free cash flow reconciliation:
|
|||||||||||
Net cash used in operating activities
|
(1,785,948
|
)
|
(1,473,984
|
)
|
(749,439
|
)
|
|||||
Acquisition of DVD content assets
|
(53,720
|
)
|
(77,177
|
)
|
(77,958
|
)
|
|||||
Purchases of property and equipment
|
(173,302
|
)
|
(107,653
|
)
|
(91,248
|
)
|
|||||
Other assets
|
(6,689
|
)
|
(941
|
)
|
(1,912
|
)
|
|||||
Non-GAAP free cash flow
|
$
|
(2,019,659
|
)
|
$
|
(1,659,755
|
)
|
$
|
(920,557
|
)
|
|
Payments due by Period
|
|||||||||||||||||||
Contractual obligations (in thousands):
|
Total
|
Less than
1 year
|
1-3 years
|
3-5 years
|
More than
5 years
|
|||||||||||||||
Streaming content obligations (1)
|
$
|
17,694,642
|
|
$
|
7,446,947
|
|
$
|
8,210,159
|
|
$
|
1,894,001
|
|
$
|
143,535
|
|
|||||
Debt (2)
|
9,048,828
|
|
311,339
|
|
627,444
|
|
1,761,465
|
|
6,348,580
|
|
||||||||||
Lease obligations (3)
|
737,378
|
|
101,987
|
|
193,815
|
|
162,606
|
|
278,970
|
|
||||||||||
Other purchase obligations (4)
|
544,933
|
|
253,443
|
|
220,181
|
|
46,590
|
|
24,719
|
|
||||||||||
Total
|
$
|
28,025,781
|
|
$
|
8,113,716
|
|
$
|
9,251,599
|
|
$
|
3,864,662
|
|
$
|
6,795,804
|
|
(1)
|
As of December 31, 2017, streaming content obligations were comprised of $4.2 billion included in "Current content liabilities" and $3.3 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $10.2 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not then meet the criteria for recognition.
|
(2)
|
Long-term debt obligations include our Notes consisting of principal and interest payments. See Note 4 Long-term Debt in the accompanying notes to our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for further details.
|
(3)
|
Lease obligations include lease financing obligations of $15.6 million related to our current Los Gatos, California headquarters for which we are the deemed owner for accounting purposes, commitments of $508.3 million for our headquarters in Los Gatos, California, and our office space in Los Angeles, California and other commitments of $213.5 million and for facilities under non-cancelable operating leases. These leases have expiration dates varying through approximately 2027.
|
(4)
|
Other purchase obligations include all other non-cancelable contractual obligations. These contracts are primarily related to streaming delivery and DVD content acquisition.
|
Item 7A.
|
Quantitative and Qualitative Disclosures about Market Risk
|
Item 8.
|
Financial Statements and Supplementary Data
|
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
Item 9A.
|
Controls and Procedures
|
(a)
|
Evaluation of Disclosure Controls and Procedures
|
(b)
|
Management’s Annual Report on Internal Control Over Financial Reporting
|
(c)
|
Changes in Internal Control Over Financial Reporting
|
/s/ Ernst & Young LLP
|
|
San Jose, California
|
|
January 29, 2018
|
Item 9B.
|
Other Information
|
Item 10.
|
Directors, Executive Officers and Corporate Governance
|
Item 11.
|
Executive Compensation
|
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
Item 13.
|
Certain Relationships and Related Transactions, and Director Independence
|
Item 14.
|
Principal Accounting Fees and Services
|
Item 15.
|
Exhibits, Financial Statement Schedules
|
(a)
|
The following documents are filed as part of this Annual Report on Form 10-K:
|
(1)
|
Financial Statements:
|
(2)
|
Financial Statement Schedules:
|
(3)
|
Exhibits:
|
Item 16.
|
Form 10-K Summary
|
|
Page
|
/s/ Ernst & Young LLP
|
|
We have served as the Company's auditor since 2012.
|
|
San Jose, California
|
|
January 29, 2018
|
|
Year ended December 31,
|
|||||||||||
|
2017
|
2016
|
2015
|
|||||||||
Revenues
|
$
|
11,692,713
|
|
$
|
8,830,669
|
|
$
|
6,779,511
|
|
|||
Cost of revenues
|
7,659,666
|
|
6,029,901
|
|
4,591,476
|
|
||||||
Marketing
|
1,278,022
|
|
991,078
|
|
824,092
|
|
||||||
Technology and development
|
1,052,778
|
|
852,098
|
|
650,788
|
|
||||||
General and administrative
|
863,568
|
|
577,799
|
|
407,329
|
|
||||||
Operating income
|
838,679
|
|
379,793
|
|
305,826
|
|
||||||
Other income (expense):
|
||||||||||||
Interest expense
|
(238,204
|
)
|
(150,114
|
)
|
(132,716
|
)
|
||||||
Interest and other income (expense)
|
(115,154
|
)
|
30,828
|
|
(31,225
|
)
|
||||||
Income before income taxes
|
485,321
|
|
260,507
|
|
141,885
|
|
||||||
Provision for (benefit from) income taxes
|
(73,608
|
)
|
73,829
|
|
19,244
|
|
||||||
Net income
|
$
|
558,929
|
|
$
|
186,678
|
|
$
|
122,641
|
|
|||
Earnings per share:
|
||||||||||||
Basic
|
$
|
1.29
|
|
$
|
0.44
|
|
$
|
0.29
|
|
|||
Diluted
|
$
|
1.25
|
|
$
|
0.43
|
|
$
|
0.28
|
|
|||
Weighted-average common shares outstanding:
|
||||||||||||
Basic
|
431,885
|
|
428,822
|
|
425,889
|
|
||||||
Diluted
|
446,814
|
|
438,652
|
|
436,456
|
|
Year ended December 31,
|
|||||||||||
2017
|
2016
|
2015
|
|||||||||
Net income
|
$
|
558,929
|
|
$
|
186,678
|
|
$
|
122,641
|
|
||
Other comprehensive income (loss):
|
|
|
|
|
|
|
|||||
Foreign currency translation adjustments
|
27,409
|
|
(5,464
|
)
|
(37,887
|
)
|
|||||
Change in unrealized gains (losses) on available-for-sale securities, net of tax of $378, $126, and $(598), respectively
|
599
|
|
207
|
|
(975
|
)
|
|||||
Total other comprehensive income (loss)
|
28,008
|
|
(5,257
|
)
|
(38,862
|
)
|
|||||
Comprehensive income
|
$
|
586,937
|
|
$
|
181,421
|
|
$
|
83,779
|
|
|
Year Ended December 31,
|
|||||||||||
|
2017
|
2016
|
2015
|
|||||||||
Cash flows from operating activities:
|
||||||||||||
Net income
|
$
|
558,929
|
|
$
|
186,678
|
|
$
|
122,641
|
|
|||
Adjustments to reconcile net income to net cash used in operating activities:
|
||||||||||||
Additions to streaming content assets
|
(9,805,763
|
)
|
(8,653,286
|
)
|
(5,771,652
|
)
|
||||||
Change in streaming content liabilities
|
900,006
|
|
1,772,650
|
|
1,162,413
|
|
||||||
Amortization of streaming content assets
|
6,197,817
|
|
4,788,498
|
|
3,405,382
|
|
||||||
Amortization of DVD content assets
|
60,657
|
|
78,952
|
|
79,380
|
|
||||||
Depreciation and amortization of property, equipment and intangibles
|
71,911
|
|
57,528
|
|
62,283
|
|
||||||
Stock-based compensation expense
|
182,209
|
|
173,675
|
|
124,725
|
|
||||||
Excess tax benefits from stock-based compensation
|
—
|
|
(65,121
|
)
|
(80,471
|
)
|
||||||
Other non-cash items
|
57,207
|
|
40,909
|
|
31,628
|
|
||||||
Foreign currency remeasurement loss on long-term debt
|
140,790
|
|
—
|
|
—
|
|
||||||
Deferred taxes
|
(208,688
|
)
|
(46,847
|
)
|
(58,655
|
)
|
||||||
Changes in operating assets and liabilities:
|
||||||||||||
Other current assets
|
(234,090
|
)
|
46,970
|
|
18,693
|
|
||||||
Accounts payable
|
74,559
|
|
32,247
|
|
51,615
|
|
||||||
Accrued expenses
|
114,337
|
|
68,706
|
|
48,810
|
|
||||||
Deferred revenue
|
177,974
|
|
96,751
|
|
72,135
|
|
||||||
Other non-current assets and liabilities
|
(73,803
|
)
|
(52,294
|
)
|
(18,366
|
)
|
||||||
Net cash used in operating activities
|
(1,785,948
|
)
|
(1,473,984
|
)
|
(749,439
|
)
|
||||||
Cash flows from investing activities:
|
||||||||||||
Acquisitions of DVD content assets
|
(53,720
|
)
|
(77,177
|
)
|
(77,958
|
)
|
||||||
Purchases of property and equipment
|
(173,302
|
)
|
(107,653
|
)
|
(91,248
|
)
|
||||||
Other assets
|
(6,689
|
)
|
(941
|
)
|
(1,912
|
)
|
||||||
Purchases of short-term investments
|
(74,819
|
)
|
(187,193
|
)
|
(371,915
|
)
|
||||||
Proceeds from sale of short-term investments
|
320,154
|
|
282,484
|
|
259,079
|
|
||||||
Proceeds from maturities of short-term investments
|
22,705
|
|
140,245
|
|
104,762
|
|
||||||
Net cash provided by (used in) investing activities
|
34,329
|
|
49,765
|
|
(179,192
|
)
|
||||||
Cash flows from financing activities:
|
||||||||||||
Proceeds from issuance of debt
|
3,020,510
|
|
1,000,000
|
|
1,500,000
|
|
||||||
Issuance costs
|
(32,153
|
)
|
(10,700
|
)
|
(17,629
|
)
|
||||||
Proceeds from issuance of common stock
|
88,378
|
|
36,979
|
|
77,980
|
|
||||||
Excess tax benefits from stock-based compensation
|
—
|
|
65,121
|
|
80,471
|
|
||||||
Other financing activities
|
255
|
|
230
|
|
(545
|
)
|
||||||
Net cash provided by financing activities
|
3,076,990
|
|
1,091,630
|
|
1,640,277
|
|
||||||
Effect of exchange rate changes on cash and cash equivalents
|
29,848
|
|
(9,165
|
)
|
(15,924
|
)
|
||||||
Net increase (decrease) in cash and cash equivalents
|
1,355,219
|
|
(341,754
|
)
|
695,722
|
|
||||||
Cash and cash equivalents, beginning of year
|
1,467,576
|
|
1,809,330
|
|
1,113,608
|
|
||||||
Cash and cash equivalents, end of year
|
$
|
2,822,795
|
|
$
|
1,467,576
|
|
$
|
1,809,330
|
|
|||
Supplemental disclosure:
|
||||||||||||
Income taxes paid
|
$
|
113,591
|
|
$
|
26,806
|
|
$
|
27,658
|
|
|||
Interest paid
|
213,313
|
|
138,566
|
|
111,761
|
|
||||||
Increase (decrease) in investing activities included in liabilities
|
(32,643
|
)
|
27,504
|
|
(4,978
|
)
|
|
As of December 31,
|
|||||||
|
2017
|
2016
|
||||||
Assets
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
2,822,795
|
|
$
|
1,467,576
|
|
||
Short-term investments
|
—
|
|
266,206
|
|
||||
Current content assets, net
|
4,310,934
|
|
3,726,307
|
|
||||
Other current assets
|
536,245
|
|
260,202
|
|
||||
Total current assets
|
7,669,974
|
|
5,720,291
|
|
||||
Non-current content assets, net
|
10,371,055
|
|
7,274,501
|
|
||||
Property and equipment, net
|
319,404
|
|
250,395
|
|
||||
Other non-current assets
|
652,309
|
|
341,423
|
|
||||
Total assets
|
$
|
19,012,742
|
|
$
|
13,586,610
|
|
||
Liabilities and Stockholders’ Equity
|
||||||||
Current liabilities:
|
||||||||
Current content liabilities
|
$
|
4,173,041
|
|
$
|
3,632,711
|
|
||
Accounts payable
|
359,555
|
|
312,842
|
|
||||
Accrued expenses
|
315,094
|
|
197,632
|
|
||||
Deferred revenue
|
618,622
|
|
443,472
|
|
||||
Total current liabilities
|
5,466,312
|
|
4,586,657
|
|
||||
Non-current content liabilities
|
3,329,796
|
|
2,894,654
|
|
||||
Long-term debt
|
6,499,432
|
|
3,364,311
|
|
||||
Other non-current liabilities
|
135,246
|
|
61,188
|
|
||||
Total liabilities
|
15,430,786
|
|
10,906,810
|
|
||||
Commitments and contingencies (Note 5)
|
|
|
|
|
||||
Stockholders’ equity:
|
||||||||
Preferred stock, $0.001 par value; 10,000,000 shares authorized at December 31, 2017 and 2016; no shares issued and outstanding at December 31, 2017 and 2016
|
—
|
|
—
|
|
||||
Common stock, $0.001 par value; 4,990,000,000 shares authorized at December 31, 2017 and December 31, 2016, respectively; 433,392,686 and 430,054,212 issued and outstanding at December 31, 2017 and December 31, 2016, respectively
|
1,871,396
|
|
1,599,762
|
|
||||
Accumulated other comprehensive loss
|
(20,557
|
)
|
(48,565
|
)
|
||||
Retained earnings
|
1,731,117
|
|
1,128,603
|
|
||||
Total stockholders’ equity
|
3,581,956
|
|
2,679,800
|
|
||||
Total liabilities and stockholders’ equity
|
$
|
19,012,742
|
|
$
|
13,586,610
|
|
|
Common Stock and Additional Paid-in Capital
|
Accumulated Other Comprehensive Income (Loss) |
Retained Earnings |
Total Stockholders’ Equity |
||||||||||||||
|
Shares
|
Amount
|
|
|
||||||||||||||
Balances as of December 31, 2014
|
422,910,887
|
|
$
|
1,042,870
|
|
$
|
(4,446
|
)
|
$
|
819,284
|
|
$
|
1,857,708
|
|
||||
Net income
|
—
|
|
—
|
|
—
|
|
122,641
|
|
122,641
|
|
||||||||
Other comprehensive loss
|
—
|
|
—
|
|
(38,862
|
)
|
—
|
|
(38,862
|
)
|
||||||||
Issuance of common stock upon exercise of options
|
5,029,553
|
|
77,334
|
|
—
|
|
—
|
|
77,334
|
|
||||||||
Stock-based compensation expense
|
—
|
|
124,725
|
|
—
|
|
—
|
|
124,725
|
|
||||||||
Excess stock option income tax benefits
|
—
|
|
79,880
|
|
—
|
|
—
|
|
79,880
|
|
||||||||
Balances as of December 31, 2015
|
427,940,440
|
|
$
|
1,324,809
|
|
$
|
(43,308
|
)
|
$
|
941,925
|
|
$
|
2,223,426
|
|
||||
Net income
|
—
|
|
—
|
|
—
|
|
186,678
|
|
186,678
|
|
||||||||
Other comprehensive loss
|
—
|
|
—
|
|
(5,257
|
)
|
—
|
|
(5,257
|
)
|
||||||||
Issuance of common stock upon exercise of options
|
2,113,772
|
|
36,979
|
|
—
|
|
—
|
|
36,979
|
|
||||||||
Stock-based compensation expense
|
—
|
|
173,675
|
|
—
|
|
—
|
|
173,675
|
|
||||||||
Excess stock option income tax benefits
|
—
|
|
64,299
|
|
—
|
|
—
|
|
64,299
|
|
||||||||
Balances as of December 31, 2016
|
430,054,212
|
|
$
|
1,599,762
|
|
$
|
(48,565
|
)
|
$
|
1,128,603
|
|
$
|
2,679,800
|
|
||||
Net income
|
—
|
|
—
|
|
—
|
|
558,929
|
|
558,929
|
|
||||||||
Other comprehensive income
|
—
|
|
—
|
|
28,008
|
|
—
|
|
28,008
|
|
||||||||
Issuance of common stock upon exercise of options
|
3,338,474
|
|
89,425
|
|
—
|
|
—
|
|
89,425
|
|
||||||||
Stock-based compensation expense
|
—
|
|
182,209
|
|
—
|
|
—
|
|
182,209
|
|
||||||||
Cumulative Effect Adjustment of ASU 2016-09 (Note 1)
|
—
|
|
—
|
|
—
|
|
43,585
|
|
43,585
|
|
||||||||
Balances as of December 31, 2017
|
433,392,686
|
|
$
|
1,871,396
|
|
$
|
(20,557
|
)
|
$
|
1,731,117
|
|
$
|
3,581,956
|
|
1.
|
Organization and Summary of Significant Accounting Policies
|
|
Year ended December 31,
|
||||||||||
|
2017
|
2016
|
2015
|
||||||||
|
(in thousands, except per share data)
|
||||||||||
Basic earnings per share:
|
|||||||||||
Net income
|
$
|
558,929
|
|
$
|
186,678
|
|
$
|
122,641
|
|
||
Shares used in computation:
|
|||||||||||
Weighted-average common shares outstanding
|
431,885
|
|
428,822
|
|
425,889
|
|
|||||
Basic earnings per share
|
$
|
1.29
|
|
$
|
0.44
|
|
$
|
0.29
|
|
||
Diluted earnings per share:
|
|||||||||||
Net income
|
$
|
558,929
|
|
$
|
186,678
|
|
$
|
122,641
|
|
||
Shares used in computation:
|
|||||||||||
Weighted-average common shares outstanding
|
431,885
|
|
428,822
|
|
425,889
|
|
|||||
Employee stock options
|
14,929
|
|
9,830
|
|
10,567
|
|
|||||
Weighted-average number of shares
|
446,814
|
|
438,652
|
|
436,456
|
|
|||||
Diluted earnings per share
|
$
|
1.25
|
|
$
|
0.43
|
|
$
|
0.28
|
|
|
Year ended December 31,
|
|||||||
|
2017
|
2016
|
2015
|
|||||
|
(in thousands)
|
|||||||
Employee stock options
|
189
|
|
1,545
|
|
517
|
|
2.
|
Short-term Investments
|
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Estimated
Fair Value
|
Cash and cash equivalents
|
Short-term investments
|
Non-current assets (1)
|
||||||||||||||||||||
|
(in thousands)
|
||||||||||||||||||||||||||
Cash
|
$
|
1,267,523
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,267,523
|
|
$
|
1,264,126
|
|
$
|
—
|
|
$
|
3,397
|
|
||||||
Level 1 securities:
|
|||||||||||||||||||||||||||
Money market funds
|
204,967
|
|
—
|
|
—
|
|
204,967
|
|
203,450
|
|
—
|
|
1,517
|
|
|||||||||||||
Level 2 securities:
|
|||||||||||||||||||||||||||
Corporate debt securities
|
199,843
|
|
110
|
|
(731
|
)
|
199,222
|
|
—
|
|
199,222
|
|
—
|
|
|||||||||||||
Government securities
|
35,944
|
|
—
|
|
(128
|
)
|
35,816
|
|
—
|
|
35,816
|
|
—
|
|
|||||||||||||
Certificate of deposit
|
9,833
|
|
—
|
|
—
|
|
9,833
|
|
—
|
|
9,833
|
|
—
|
|
|||||||||||||
Agency securities
|
21,563
|
|
—
|
|
(228
|
)
|
21,335
|
|
—
|
|
21,335
|
|
—
|
|
|||||||||||||
Total
|
$
|
1,739,673
|
|
$
|
110
|
|
$
|
(1,087
|
)
|
$
|
1,738,696
|
|
$
|
1,467,576
|
|
$
|
266,206
|
|
$
|
4,914
|
|
3.
|
Balance Sheet Components
|
As of December 31,
|
|||||||
2017
|
2016
|
||||||
(in thousands)
|
|||||||
Licensed content, net
|
$
|
11,771,778
|
|
$
|
9,595,315
|
|
|
Produced content, net
|
|||||||
Released, less amortization
|
1,427,256
|
|
335,400
|
|
|||
In production
|
1,311,137
|
|
1,010,463
|
|
|||
In development and pre-production
|
158,517
|
|
34,215
|
|
|||
2,896,910
|
|
1,380,078
|
|
||||
DVD, net
|
13,301
|
|
25,415
|
|
|||
Total
|
$
|
14,681,989
|
|
$
|
11,000,808
|
|
|
Current content assets, net
|
$
|
4,310,934
|
|
$
|
3,726,307
|
|
|
Non-current content assets, net
|
$
|
10,371,055
|
|
$
|
7,274,501
|
|
As of December 31,
|
Estimated Useful Lives (in Years)
|
|||||||||
2017
|
2016
|
|||||||||
(in thousands)
|
||||||||||
Information technology assets
|
$
|
223,850
|
|
$
|
185,345
|
|
3 years
|
|||
Furniture and fixtures
|
49,217
|
|
32,185
|
|
3 years
|
|||||
Buildings
|
40,681
|
|
40,681
|
|
30 years
|
|||||
Leasehold improvements
|
229,848
|
|
107,945
|
|
Over life of lease
|
|||||
DVD operations equipment
|
59,316
|
|
70,152
|
|
5 years
|
|||||
Corporate aircraft
|
30,039
|
|
—
|
|
8 years
|
|||||
Capital work-in-progress
|
8,267
|
|
108,296
|
|
||||||
Property and equipment, gross
|
641,218
|
|
544,604
|
|
||||||
Less: Accumulated depreciation
|
(321,814
|
)
|
(294,209
|
)
|
||||||
Property and equipment, net
|
$
|
319,404
|
|
$
|
250,395
|
|
4.
|
Long-term Debt
|
Level 2 Fair Value as of
|
|||||||||||||||||
Principal Amount at Par
|
Issuance Date
|
Maturity
|
Interest Due Dates
|
December 31, 2017 |
December 31, 2016 |
||||||||||||
(in millions)
|
(in millions)
|
||||||||||||||||
4.875% Senior Notes
|
$
|
1,600
|
|
October 2017
|
April 2028
|
April 15 and October 15
|
$
|
1,571
|
|
$
|
—
|
|
|||||
3.625% Senior Notes (1)
|
1,561
|
|
May 2017
|
May 2027
|
May 15 and November 15
|
1,575
|
|
—
|
|
||||||||
4.375% Senior Notes
|
1,000
|
|
October 2016
|
November 2026
|
May 15 and November 15
|
983
|
|
975
|
|
||||||||
5.50% Senior Notes
|
700
|
|
February 2015
|
February 2022
|
April 15 and October 15
|
739
|
|
758
|
|
||||||||
5.875% Senior Notes
|
800
|
|
February 2015
|
February 2025
|
April 15 and October 15
|
856
|
|
868
|
|
||||||||
5.750% Senior Notes
|
400
|
|
February 2014
|
March 2024
|
March 1 and September 1
|
427
|
|
431
|
|
||||||||
5.375% Senior Notes
|
500
|
|
February 2013
|
February 2021
|
February 1 and August 1
|
530
|
|
539
|
|
5.
|
Commitments and Contingencies
|
As of December 31,
|
|||||||
2017
|
2016
|
||||||
|
(in thousands)
|
||||||
Less than one year
|
$
|
7,446,947
|
|
$
|
6,200,611
|
|
|
Due after one year and through 3 years
|
8,210,159
|
|
6,731,336
|
|
|||
Due after 3 years and through 5 years
|
1,894,001
|
|
1,386,934
|
|
|||
Due after 5 years
|
143,535
|
|
160,606
|
|
|||
Total streaming content obligations
|
$
|
17,694,642
|
|
$
|
14,479,487
|
|
Year Ending December 31,
|
Future
Minimum
Payments
|
||
|
(in thousands)
|
||
2018
|
$
|
101,987
|
|
2019
|
97,560
|
|
|
2020
|
96,255
|
|
|
2021
|
85,188
|
|
|
2022
|
77,418
|
|
|
Thereafter
|
278,970
|
|
|
Total minimum payments
|
$
|
737,378
|
|
6.
|
Guarantees—Indemnification Obligations
|
7.
|
Stockholders’ Equity
|
|
Shares Available
for Grant
|
Options Outstanding
|
Weighted- Average Remaining Contractual Term (in Years)
|
Aggregate
Intrinsic Value
(in Thousands)
|
|||||||||||
|
Number of
Shares
|
Weighted- Average Exercise Price (per Share) |
|||||||||||||
Balances as of December 31, 2014
|
20,025,208
|
|
22,845,417
|
|
$
|
21.65
|
|
||||||||
Granted
|
(3,179,892
|
)
|
3,179,892
|
|
82.67
|
|
|||||||||
Exercised
|
—
|
|
(5,029,553
|
)
|
15.38
|
|
|||||||||
Balances as of December 31, 2015
|
16,845,316
|
|
20,995,756
|
|
$
|
32.39
|
|
||||||||
Granted
|
(3,555,363
|
)
|
3,555,363
|
|
102.03
|
|
|||||||||
Exercised
|
—
|
|
(2,113,772
|
)
|
17.48
|
|
|||||||||
Balances as of December 31, 2016
|
13,289,953
|
|
22,437,347
|
|
$
|
44.83
|
|
||||||||
Granted
|
(2,550,038
|
)
|
2,550,038
|
|
159.56
|
|
|||||||||
Exercised
|
—
|
|
(3,338,474
|
)
|
26.79
|
|
|||||||||
Expired
|
—
|
|
(1,561
|
)
|
3.25
|
|
|||||||||
Balances as of December 31, 2017
|
10,739,915
|
|
21,647,350
|
|
$
|
61.13
|
|
5.97
|
$
|
2,833,198
|
|
||||
Vested and exercisable at
December 31, 2017
|
21,647,350
|
|
$
|
61.13
|
|
5.97
|
$
|
2,833,198
|
|
|
Year Ended December 31,
|
|||||||||||
|
2017
|
2016
|
2015
|
|||||||||
Dividend yield
|
—
|
%
|
—
|
%
|
—
|
%
|
||||||
Expected volatility
|
34% - 37%
|
|
40% - 50%
|
|
36% - 53%
|
|
||||||
Risk-free interest rate
|
2.24% - 2.45%
|
|
1.57% - 2.04%
|
|
2.03% - 2.29%
|
|
||||||
Suboptimal exercise factor
|
2.48 - 2.63
|
|
2.48
|
|
2.47 - 2.48
|
|
||||||
Valuation data:
|
||||||||||||
Weighted-average fair value (per share)
|
$
|
71.45
|
|
$
|
48.85
|
|
$
|
39.22
|
|
|||
Total stock-based compensation expense (in thousands)
|
182,209
|
|
173,675
|
|
124,725
|
|
||||||
Total income tax impact on provision (in thousands)
|
61,842
|
|
65,173
|
|
47,125
|
|
8.
|
Accumulated Other Comprehensive Loss
|
Foreign currency
|
Change in unrealized gains on available-for-sale securities
|
Total
|
|||||||||
(in thousands)
|
|||||||||||
Balances as of December 31, 2015
|
$
|
(42,502
|
)
|
$
|
(806
|
)
|
$
|
(43,308
|
)
|
||
Other comprehensive income (loss) before reclassifications
|
(5,464
|
)
|
310
|
|
(5,154
|
)
|
|||||
Amounts reclassified from accumulated other comprehensive (loss) income
|
—
|
|
(103
|
)
|
(103
|
)
|
|||||
Net (increase) decrease in other comprehensive loss
|
(5,464
|
)
|
207
|
|
(5,257
|
)
|
|||||
Balances as of December 31, 2016
|
$
|
(47,966
|
)
|
$
|
(599
|
)
|
$
|
(48,565
|
)
|
||
Other comprehensive income before reclassifications
|
27,409
|
|
728
|
|
28,137
|
|
|||||
Amounts reclassified from accumulated other comprehensive (loss) income
|
—
|
|
(129
|
)
|
(129
|
)
|
|||||
Net decrease in other comprehensive loss
|
27,409
|
|
599
|
|
28,008
|
|
|||||
Balances as of December 31, 2017
|
$
|
(20,557
|
)
|
$
|
—
|
|
$
|
(20,557
|
)
|
9.
|
Income Taxes
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
2016
|
2015
|
||||||||
|
(in thousands)
|
||||||||||
United States
|
$
|
144,100
|
|
$
|
188,078
|
|
$
|
95,644
|
|
||
Foreign
|
341,221
|
|
72,429
|
|
46,241
|
|
|||||
Income before income taxes
|
$
|
485,321
|
|
$
|
260,507
|
|
$
|
141,885
|
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
2016
|
2015
|
||||||||
|
(in thousands)
|
||||||||||
Current tax provision:
|
|||||||||||
Federal
|
$
|
54,245
|
|
$
|
54,315
|
|
$
|
52,557
|
|
||
State
|
(7,601
|
)
|
5,790
|
|
(1,576
|
)
|
|||||
Foreign
|
88,436
|
|
60,571
|
|
26,918
|
|
|||||
Total current
|
135,080
|
|
120,676
|
|
77,899
|
|
|||||
Deferred tax provision:
|
|||||||||||
Federal
|
(153,963
|
)
|
(24,383
|
)
|
(37,669
|
)
|
|||||
State
|
(52,695
|
)
|
(14,080
|
)
|
(17,635
|
)
|
|||||
Foreign
|
(2,030
|
)
|
(8,384
|
)
|
(3,351
|
)
|
|||||
Total deferred
|
(208,688
|
)
|
(46,847
|
)
|
(58,655
|
)
|
|||||
Provision for income taxes
|
$
|
(73,608
|
)
|
$
|
73,829
|
|
$
|
19,244
|
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
2016
|
2015
|
||||||||
|
(in thousands)
|
||||||||||
Expected tax expense at U.S. Federal statutory rate of 35%
|
$
|
169,860
|
|
$
|
91,179
|
|
$
|
49,658
|
|
||
State income taxes, net of Federal income tax effect
|
6,404
|
|
7,261
|
|
4,783
|
|
|||||
Foreign earnings at other than U.S. rates
|
(87,514
|
)
|
14,639
|
|
5,310
|
|
|||||
Federal and California R&D tax credits
|
(79,868
|
)
|
(41,144
|
)
|
(29,363
|
)
|
|||||
Excess tax benefits on stock-based compensation
|
(157,888
|
)
|
—
|
|
—
|
|
|||||
Tax Cuts and Jobs Act of 2017
|
79,077
|
|
—
|
|
—
|
|
|||||
Release of tax reserves on previously unrecognized tax benefits
|
—
|
|
—
|
|
(13,438
|
)
|
|||||
Other
|
(3,679
|
)
|
1,894
|
|
2,294
|
|
|||||
Provision for income taxes
|
$
|
(73,608
|
)
|
$
|
73,829
|
|
$
|
19,244
|
|
||
Effective Tax Rate
|
(15
|
)%
|
28
|
%
|
14
|
%
|
|
As of December 31,
|
||||||
|
2017
|
2016
|
|||||
|
(in thousands)
|
||||||
Deferred tax assets:
|
|||||||
Stock-based compensation
|
$
|
149,367
|
|
$
|
188,458
|
|
|
Accruals and reserves
|
34,170
|
|
29,231
|
|
|||
Depreciation and amortization
|
(70,382
|
)
|
(93,760
|
)
|
|||
Federal and California tax R&D credits
|
260,686
|
|
107,283
|
|
|||
Federal foreign tax credits
|
102,242
|
|
—
|
|
|||
Other
|
51,614
|
|
(2,363
|
)
|
|||
Gross deferred tax assets
|
527,697
|
|
228,849
|
|
|||
Valuation allowance
|
(49,431
|
)
|
(1,601
|
)
|
|||
Net deferred tax assets
|
$
|
478,266
|
|
$
|
227,248
|
|
Balances as of December 31, 2015
|
$
|
17,117
|
|
Increases related to tax positions taken during prior periods
|
1,047
|
|
|
Decreases related to tax positions taken during prior periods
|
(7,105
|
)
|
|
Increases related to tax positions taken during the current period
|
8,713
|
|
|
Decreases related to settlements with taxing authorities
|
(33
|
)
|
|
Balances as of December 31, 2016
|
19,739
|
|
|
Increases related to tax positions taken during prior periods
|
—
|
|
|
Decreases related to tax positions taken during prior periods
|
(3,226
|
)
|
|
Increases related to tax positions taken during the current period
|
26,389
|
|
|
Decreases related to expiration of statute of limitations
|
—
|
|
|
Balances as of December 31, 2017
|
$
|
42,902
|
|
10.
|
Employee Benefit Plan
|
11.
|
Segment Information
|
As of December 31,
|
|||||||
2017
|
2016
|
||||||
(in thousands)
|
|||||||
United States
|
$
|
289,875
|
|
$
|
236,977
|
|
|
International
|
29,529
|
|
13,418
|
|
|
As of/Year ended December 31, 2017
|
||||||||||||||
|
Domestic
Streaming
|
International
Streaming
|
Domestic
DVD
|
Consolidated
|
|||||||||||
|
(in thousands)
|
||||||||||||||
Total memberships at end of period (1)
|
54,750
|
|
62,832
|
|
3,383
|
|
|
|
|||||||
Revenues
|
$
|
6,153,025
|
|
$
|
5,089,191
|
|
$
|
450,497
|
|
$
|
11,692,713
|
|
|||
Cost of revenues
|
3,319,230
|
|
4,137,911
|
|
202,525
|
|
7,659,666
|
|
|||||||
Marketing
|
553,331
|
|
724,691
|
|
—
|
|
1,278,022
|
|
|||||||
Contribution profit
|
$
|
2,280,464
|
|
$
|
226,589
|
|
$
|
247,972
|
|
2,755,025
|
|
||||
Other operating expenses
|
1,916,346
|
|
|||||||||||||
Operating income
|
838,679
|
|
|||||||||||||
Other income (expense)
|
(353,358
|
)
|
|||||||||||||
Benefit from income taxes
|
(73,608
|
)
|
|||||||||||||
Net income
|
$
|
558,929
|
|
|
Year ended December 31, 2017
|
||||||||||||||
|
Domestic
Streaming
|
International
Streaming
|
Domestic
DVD
|
Consolidated
|
|||||||||||
|
(in thousands)
|
||||||||||||||
Amortization of content assets
|
$
|
2,756,947
|
|
$
|
3,440,870
|
|
$
|
60,657
|
|
$
|
6,258,474
|
|
|
As of/Year ended December 31, 2016
|
||||||||||||||
|
Domestic
Streaming
|
International
Streaming
|
Domestic
DVD
|
Consolidated
|
|||||||||||
|
(in thousands)
|
||||||||||||||
Total memberships at end of period (1)
|
49,431
|
|
44,365
|
|
4,114
|
|
—
|
|
|||||||
Revenues
|
$
|
5,077,307
|
|
$
|
3,211,095
|
|
$
|
542,267
|
|
$
|
8,830,669
|
|
|||
Cost of revenues
|
2,855,789
|
|
2,911,370
|
|
262,742
|
|
6,029,901
|
|
|||||||
Marketing
|
382,832
|
|
608,246
|
|
—
|
|
991,078
|
|
|||||||
Contribution profit (loss)
|
$
|
1,838,686
|
|
$
|
(308,521
|
)
|
$
|
279,525
|
|
1,809,690
|
|
||||
Other operating expenses
|
1,429,897
|
|
|||||||||||||
Operating income
|
379,793
|
|
|||||||||||||
Other income (expense)
|
(119,286
|
)
|
|||||||||||||
Provision for income taxes
|
73,829
|
|
|||||||||||||
Net income
|
$
|
186,678
|
|
|
Year ended December 31, 2016
|
||||||||||||||
|
Domestic
Streaming
|
International
Streaming
|
Domestic
DVD
|
Consolidated
|
|||||||||||
|
(in thousands)
|
||||||||||||||
Amortization of content assets
|
$
|
2,337,950
|
|
$
|
2,450,548
|
|
$
|
78,952
|
|
$
|
4,867,450
|
|
|
As of/Year ended December 31, 2015
|
||||||||||||||
|
Domestic
Streaming
|
International
Streaming
|
Domestic
DVD
|
Consolidated
|
|||||||||||
|
(in thousands)
|
||||||||||||||
Total memberships at end of period (1)
|
44,738
|
|
30,024
|
|
4,904
|
|
—
|
|
|||||||
Revenues
|
$
|
4,180,339
|
|
$
|
1,953,435
|
|
$
|
645,737
|
|
$
|
6,779,511
|
|
|||
Cost of revenues
|
2,487,193
|
|
1,780,375
|
|
323,908
|
|
4,591,476
|
|
|||||||
Marketing
|
317,646
|
|
506,446
|
|
—
|
|
824,092
|
|
|||||||
Contribution profit (loss)
|
$
|
1,375,500
|
|
$
|
(333,386
|
)
|
$
|
321,829
|
|
1,363,943
|
|
||||
Other operating expenses
|
1,058,117
|
|
|||||||||||||
Operating income
|
305,826
|
|
|||||||||||||
Other income (expense)
|
(163,941
|
)
|
|||||||||||||
Provision for income taxes
|
19,244
|
|
|||||||||||||
Net income
|
$
|
122,641
|
|
|
Year ended December 31, 2015
|
||||||||||||||
|
Domestic
Streaming
|
International
Streaming
|
Domestic
DVD
|
Consolidated
|
|||||||||||
|
(in thousands)
|
||||||||||||||
Amortization of content assets
|
$
|
1,905,069
|
|
$
|
1,500,313
|
|
$
|
79,380
|
|
$
|
3,484,762
|
|
(1)
|
A membership (also referred to as a subscription) is defined as the right to receive Netflix service following sign-up and a method of payment being provided. Memberships are assigned to territories based on the geographic location used at time of sign-up as determined by the Company's internal systems, which utilize industry standard geo-location technology. The Company offers free-trial memberships to certain new and rejoining members. Total members include those who are on a free-trial as long as a method of payment has been provided. A membership is canceled and ceases to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations become effective at the end of the prepaid membership period, while involuntary cancellation of the service, as a result of a failed method of payment, becomes effective immediately.
|
12.
|
Selected Quarterly Financial Data (Unaudited)
|
December 31
|
September 30
|
June 30
|
March 31
|
||||||||||||
|
(in thousands, except for per share data)
|
||||||||||||||
2017
|
|||||||||||||||
Total revenues
|
$
|
3,285,755
|
|
$
|
2,984,859
|
|
$
|
2,785,464
|
|
$
|
2,636,635
|
|
|||
Gross profit
|
1,178,401
|
|
991,879
|
|
883,156
|
|
979,611
|
|
|||||||
Net income
|
185,517
|
|
129,590
|
|
65,600
|
|
178,222
|
|
|||||||
Earnings per share:
|
|||||||||||||||
Basic
|
$
|
0.43
|
|
$
|
0.30
|
|
$
|
0.15
|
|
$
|
0.41
|
|
|||
Diluted
|
0.41
|
|
0.29
|
|
0.15
|
|
0.40
|
|
|||||||
2016
|
|||||||||||||||
Total revenues
|
$
|
2,477,541
|
|
$
|
2,290,188
|
|
$
|
2,105,204
|
|
$
|
1,957,736
|
|
|||
Gross profit
|
823,122
|
|
757,344
|
|
632,106
|
|
588,196
|
|
|||||||
Net income
|
66,748
|
|
51,517
|
|
40,755
|
|
27,658
|
|
|||||||
Earnings per share:
|
|||||||||||||||
Basic
|
$
|
0.16
|
|
$
|
0.12
|
|
$
|
0.10
|
|
$
|
0.06
|
|
|||
Diluted
|
0.15
|
|
0.12
|
|
0.09
|
|
0.06
|
|
Exhibit
Number
|
Exhibit Description
|
Incorporated by Reference
|
Filed
Herewith
|
|||||||||
Form
|
File No.
|
Exhibit
|
Filing Date
|
|||||||||
10-Q
|
001-35727
|
3.1
|
July 17, 2015
|
|||||||||
8-K
|
000-49802
|
3.1
|
March 20, 2009
|
|||||||||
10-Q
|
000-49802
|
3.3
|
August 2, 2004
|
|||||||||
S-1/A
|
333-83878
|
4.1
|
April 16, 2002
|
|||||||||
8-K
|
001-35727
|
4.1
|
February 1, 2013
|
|||||||||
8-K
|
001-35727
|
4.1
|
February 19, 2014
|
|||||||||
8-K
|
001-35727
|
4.1
|
February 5, 2015
|
|||||||||
8-K
|
001-35727
|
4.2
|
February 5, 2015
|
|||||||||
8-K
|
001-35727
|
4.1
|
October 27, 2016
|
|||||||||
10-Q
|
001-35727
|
4.7
|
April 20, 2017
|
|||||||||
8-K
|
001-35727
|
4.1
|
May 3, 2017
|
|||||||||
8-K
|
001-35727
|
4.1
|
October 26, 2017
|
|||||||||
S-1/A
|
333-83878
|
10.1
|
March 20, 2002
|
|||||||||
Def 14A
|
000-49802
|
A
|
March 31, 2006
|
|||||||||
Def 14A
|
000-49802
|
A
|
April 20, 2011
|
|||||||||
8-K
|
001-35727
|
Item 5.02
|
January 24, 2018
|
|||||||||
10-K
|
000-49802
|
10.7
|
February 1, 2013
|
|||||||||
8-K
|
001-35727
|
10.1
|
February 19, 2014
|
|||||||||
Def 14A
|
001-35727
|
A
|
April 28, 2014
|
|||||||||
8-K
|
001-35727
|
10.1
|
February 5, 2015
|
Exhibit
Number
|
Exhibit Description
|
Incorporated by Reference
|
Filed
Herewith
|
|||||||||
Form
|
File No.
|
Exhibit
|
Filing Date
|
|||||||||
8-K
|
001-35727
|
10.2
|
February 5, 2015
|
|||||||||
8-K
|
001-35727
|
10.1
|
October 27, 2016
|
|||||||||
8-K
|
001-35727
|
10.2
|
October 27, 2016
|
|||||||||
8-K
|
001-35727
|
10.1
|
April 27, 2017
|
|||||||||
8-K
|
001-35727
|
10.1
|
May 3, 2017
|
|||||||||
10-Q
|
001-35727
|
10.14
|
July 19, 2017
|
|||||||||
10-Q
|
001-35727
|
10.15
|
October 18, 2017
|
|||||||||
8-K
|
001-35727
|
10.1
|
October 26, 2017
|
|||||||||
X
|
||||||||||||
X
|
||||||||||||
24
|
Power of Attorney (see signature page)
|
|||||||||||
X
|
||||||||||||
X
|
||||||||||||
X
|
Exhibit
Number
|
Exhibit Description
|
Incorporated by Reference
|
Filed
Herewith
|
|||||||||
Form
|
File No.
|
Exhibit
|
Filing Date
|
|||||||||
101
|
The following financial information from Netflix, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on January 29, 2018, formatted in XBRL includes: (i) Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016 and 2015, (ii) Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015, (iii) Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015, (iv) Consolidated Balance Sheets as of December 31, 2017 and 2016, (v) Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2017, 2016 and 2015 and (vi) the Notes to Consolidated Financial Statements.
|
X
|
|
Netflix, Inc.
|
||||
Dated:
|
January 29, 2018
|
|
By:
|
|
/S/ REED HASTINGS
|
|
|
Reed Hastings
Chief Executive Officer
(principal executive officer)
|
|||
Dated:
|
January 29, 2018
|
|
By:
|
|
/S/ DAVID WELLS
|
|
|
David Wells
Chief Financial Officer
(principal financial and accounting officer)
|
Signature
|
Title
|
Date
|
||
/S/ REED HASTINGS
|
President, Chief Executive Officer and Director (principal executive officer)
|
January 29, 2018
|
||
Reed Hastings
|
||||
/S/ DAVID WELLS
|
Chief Financial Officer (principal financial and accounting officer)
|
January 29, 2018
|
||
David Wells
|
||||
/S/ RICHARD BARTON
|
Director
|
January 29, 2018
|
||
Richard Barton
|
||||
/S/ TIMOTHY M. HALEY
|
Director
|
January 29, 2018
|
||
Timothy M. Haley
|
||||
/S/ JAY C. HOAG
|
Director
|
January 29, 2018
|
||
Jay C. Hoag
|
||||
/S/ ANN MATHER
|
Director
|
January 29, 2018
|
||
Ann Mather
|
||||
/S/ A. GEORGE BATTLE
|
Director
|
January 29, 2018
|
||
A. George Battle
|
||||
/S/ LESLIE J. KILGORE
|
Director
|
January 29, 2018
|
||
Leslie J. Kilgore
|
||||
/S/ BRAD SMITH
|
Director
|
January 29, 2018
|
||
Brad Smith
|
||||
/S/ ANNE SWEENEY
|
Director
|
January 29, 2018
|
||
Anne Sweeney
|
||||
/S/ RODOLPHE BELMER
|
Director
|
January 29, 2018
|
||
Rodolphe Belmer
|
Legal Name
|
Jurisdiction
|
Percent Owned
|
|||
Netflix Entretenimento Brasil LTDA
|
Brazil
|
100
|
%
|
||
Netflix International B.V.
|
The Netherlands
|
100
|
%
|
||
Netflix K.K.
|
Japan
|
100
|
%
|
||
Netflix Streaming Services, Inc.
|
United States
|
100
|
%
|
||
Netflix Studios, LLC
|
United States
|
100
|
%
|
||
Netflix Global, LLC
|
United States
|
100
|
%
|
||
Netflix Pte. Ltd.
|
Singapore
|
100
|
%
|
||
Netflix Streaming Services International B.V.
|
The Netherlands
|
100
|
%
|
(1)
|
Registration Statement (Form S-8 No. 333-89024) pertaining to Netflix.com, Inc. 1997 Stock Plan, as amended, Netflix, Inc. 2002 Stock Plan, Netflix, Inc. 2002 Employee Stock Purchase Plan, and Netflix.com, Inc. Stand-Alone Stock Option Agreements,
|
(2)
|
Registration Statement (Form S-8 No. 333-104250) pertaining to Netflix, Inc. 2002 Stock Plan and Netflix, Inc. 2002 Employee Stock Purchase Plan,
|
(3)
|
Registration Statement (Form S-8 No. 333-113198) pertaining to Netflix, Inc. 2002 Stock Plan and Netflix, Inc. 2002 Employee Stock Purchase Plan
|
(4)
|
Registration Statement (Form S-8 No. 333-123501) pertaining to Netflix, Inc. 2002 Stock Plan and Netflix, Inc. 2002 Employee Stock Purchase Plan,
|
(5)
|
Registration Statement (Form S-8 No. 333-136403) pertaining to Netflix, Inc. Amended and Restated 2002 Stock Plan and Netflix, Inc. 2002 Employee Stock Purchase Plan
|
(6)
|
Registration Statement (Form S-8 No. 333-145147) pertaining to Netflix, Inc. 2002 Employee Stock Purchase Plan,
|
(7)
|
Registration Statement (Form S-8 No. 333-160946) pertaining to Netflix, Inc. 2002 Employee Stock Purchase Plan,
|
(8)
|
Registration Statement (Form S-8 No. 333-177561) pertaining to Netflix, Inc. 2011 Stock Plan,
|
San Jose, California
January 29, 2018
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/s/ Ernst & Young LLP
|
1.
|
I have reviewed this Annual Report on Form 10-K of Netflix, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Dated: January 29, 2018
|
|
By:
|
|
/S/ REED HASTINGS
|
|
|
|
Reed Hastings
|
|||
|
|
Chief Executive Officer
|
1.
|
I have reviewed this Annual Report on Form 10-K of Netflix, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Dated: January 29, 2018
|
|
By:
|
|
/S/ DAVID WELLS
|
|
|
David Wells
|
||
|
|
Chief Financial Officer
|
Dated: January 29, 2018
|
|
By:
|
|
/S/ REED HASTINGS
|
|
|
Reed Hastings
|
||
|
|
Chief Executive Officer
|
Dated: January 29, 2018
|
|
By:
|
|
/S/ DAVID WELLS
|
|
|
David Wells
|
||
|
|
Chief Financial Officer
|