8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________

FORM 8-K

__________________________________

Current Report

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):

January 19, 2016

__________________________________

NETFLIX, INC.

(Exact name of registrant as specified in its charter)

__________________________________

Delaware	001-35727	77-0467272
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

100 Winchester Circle

Los Gatos, CA

95032

(Address of principal executive offices)

(Zip Code)

(408) 540-3700

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

__________________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

On January 19, 2016, Netflix, Inc. (the “Company”) announced its financial results for the quarter ended December 31, 2015. The Letter to Shareholders, which is attached hereto as Exhibit 99.1 and is incorporated herein by reference, includes reference to the non-GAAP financial measures of net income on a pro forma basis excluding the release of tax reserves, to free cash flow and EBITDA. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles in the United States. Management believes that the non-GAAP measure of net income on a pro forma basis excluding the release of tax reserves provides useful information as this measure excludes effects that are not indicative of our core operating results. Management believes that free cash flow and EBITDA are important liquidity metrics because they measure, during a given period, the amount of cash generated that is available to repay debt obligations, make investments and for certain other activities.  However, these non-GAAP measures should be considered in addition to, not as a substitute for or superior to, net income, operating income, diluted earnings per share and net cash provided by operating activities, or other financial measures prepared in accordance with GAAP. Reconciliation to the GAAP equivalent of these non-GAAP measures are contained in tabular form in Exhibit 99.1.

The information in this report shall not be treated as “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, except as expressly stated by specific reference in such filing.

Item 9.01 Financial Statement and Exhibits.

(d)   Exhibit

99.1 Letter to Shareholders dated January 19, 2016.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	NETFLIX, INC.
Date: January 19, 2016
	/s/ David Wells
	David Wells
	Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description of Exhibit
99.1*	Letter to Shareholders dated January 19, 2016

* This exhibit is intended to be furnished and shall not be deemed “filed” for purposes of the Securities Exchange Act of 1934.

The Letter to Shareholders will be attached as Exhibit 99.1.

EX-99.1

Exhibit 99.1

January 19, 2016

Fellow shareholders,

On January 1st, just a few hours after the quarter closed, we crossed 75 million members. Our quarter-end 74.76 million members put us at over 17 million net additions for the year, showing how much the world is embracing Internet TV. We think we’ll grow by over 6 million members in Q1 given our expansion of Netflix to virtually everywhere but China. We bring great stories from all over the world to people all over the world. Our summary results and Q1 forecast are below.

(in millions except per share data and Streaming Content Obligations)	Q4 '14			Q1 '15			Q2 '15			Q3 '15			Q4 '15			Q1 '16 Forecast
Total Streaming:
Revenue	$	1,305		$	1,400		$	1,481		$	1,581		$	1,672		$	1,813
Contribution Profit	$	178		$	247		$	248		$	277		$	270		$	302
Contribution Margin	13.6		%	17.7		%	16.7		%	17.5		%	16.2		%	16.7		%
Paid Memberships	54.48			59.62			62.71			66.02			70.84			77.19
Total Memberships	57.39			62.27			65.55			69.17			74.76			80.86
Net Additions	4.33			4.88			3.28			3.62			5.59			6.10
US Streaming:
Revenue	$	917		$	985		$	1,026		$	1,064		$	1,106		$	1,160
Contribution Profit	$	257		$	312		$	340		$	344		$	379		$	416
Contribution Margin	28.0		%	31.7		%	33.1		%	32.4		%	34.3		%	35.9		%
Paid Memberships	37.70			40.32			41.06			42.07			43.40			45.40
Total Memberships	39.11			41.40			42.30			43.18			44.74			46.49
Net Additions	1.90			2.28			0.90			0.88			1.56			1.75
International Streaming:
Revenue	$	388		$	415		$	455		$	517		$	566		$	653
Contribution Profit (Loss)	$	(79	)	$	(65	)	$	(92	)	$	(68	)	$	(109	)	$	(114	)
Contribution Margin	-20.3		%	-15.6		%	-20.2		%	-13.1		%	-19.2		%	-17.5		%
Paid Memberships	16.78			19.30			21.65			23.95			27.44			31.79
Total Memberships	18.28			20.88			23.25			25.99			30.02			34.37
Net Additions	2.43			2.60			2.37			2.74			4.04			4.35
Total (including DVD):
Operating Income	$	65		$	97		$	75		$	74		$	60		$	50
Net Income*	$	83		$	24		$	26		$	29		$	43		$	11
EPS*	$	0.19		$	0.05		$	0.06		$	0.07		$	0.10		$	0.03
Free Cash Flow	$	(78	)	$	(163	)	$	(229	)	$	(252	)	$	(276	)
EBITDA	$	110		$	140		$	119		$	123		$	111
Shares (FD)*	432.5			433.8			436.1			437.6			438.3
Streaming Content Obligations** ($B)	9.5			9.8			10.1			10.4			10.9
*EPS and shares adjusted for 7-for-1 stock split. Q4'14 Net Income/EPS includes a $39m / $0.10 benefit from a tax accrual release related to resolution of tax audit. Q4'15 Net Income/EPS includes a $13m / $0.03 benefit from a tax accrual release related to resolution of tax audits.
**Corresponds to our total known streaming content obligations as defined in our financial statements and related notes in our most recently filed SEC Form 10-K

1

Q4 Results and Q1 Forecast

In the fourth quarter, we added a record 5.59 million members as our big shows such as Narcos and Marvel’s Jessica Jones helped us grow membership to 74.76 million. This 5.59 million compares to a forecast of 5.15 million and to prior year net additions of 4.33 million. For Q1, we are forecasting 6.10 million net additions vs. prior year of 4.88 million. On earnings, we stayed profitable in Q4 despite foreign exchange headwinds, and delivered operating income of $60m and net income of $43m. We expect similar modest operating income results for Q1, assuming current foreign exchange, as we invest in our international expansion. As a reminder, the guidance we provide is our actual internal forecast at the time we report, and we strive for accuracy in our guidance.

In September, we launched in Japan, followed by Spain, Portugal and Italy in October. We are very pleased with the first few months of membership growth in these markets. Our international contribution loss of $109 million in Q4 increased sequentially due to these launches. We anticipate Q1 international losses of about $114 million.

In early January at CES, we announced the availability of Netflix everywhere in the world except China. Pricing is comparable to our existing plans and we have added support for Korean, Arabic, and Simplified & Traditional Chinese languages. Our move into 130 additional countries broadens our addressable market by 190 million broadband homes, on top of the 360 million we counted at the end of 2015¹. While the opportunity is large, our growth in these new markets will unfold over many years as we improve our service. We are starting by primarily targeting outward-looking, affluent consumers with international credit cards and smartphones. As with every market we’ve launched, our approach is to listen, learn and improve rapidly, adding more content, additional languages and a better Netflix experience over time. Our global availability sets us up for continued growth for many years and we continue to expect material global profits beginning in 2017.

In Q4, average subscriber price grew 4-5% y/y around the world, excluding the impact of foreign currency (-$106 million y/y impact on revenue). In the US it was 4.3%, leading to 21% year over year growth in streaming revenue. We are seeing increased adoption of our Ultra-HD plan ($11.99) as more UHD TVs are purchased and as we are a leading source of UHD content for consumers.

In the US, we ended 2015 with nearly 45 million members, although our Q4 US net adds were down year over year, as expected (1.56m actual versus 1.90m prior year). Our high penetration in the US seems to be making net additions harder than in the past. Our forecast for Q1 US net additions is 1.75m, against a prior year actual of 2.28m. New credit/debit card rollover continues to be a background issue. In Q2 and Q3, we’ll be releasing a substantial number of our US members from price grandfathering on the HD plan and they will have the option of continuing at $7.99 but now on the SD plan, or continuing on HD at $9.99 a month. Given these members have been with us at least 2 years, we expect only slightly elevated churn. Our 2020 US contribution target remains at 40% and we are already at 34%.

In the last remaining major market, China, we have work and uncertainty ahead. We are building relationships, understanding the market, and seeking the conditions we require to provide our service to entertainment lovers there. Our expectations are modest and long-term. We may be able to get started this year and thus deliver on “whole world by end of 2016” or it may take longer. Most of our focus is on the 130 countries we launched on January 6, which are now embracing Netflix as a new entertainment option.

_______________________

¹ Source: SNL Kagan and Euromonitor.

2

Content

In Q4 ‘15, we launched an unprecedented number of original series and films, while maintaining a high bar on quality. We unveiled five new original series in Q4, including Marvel’s Jessica Jones and Master of None, starring Aziz Ansari. Both combined with Narcos, Sense8, Marvel’s Daredevil and Bloodline to claim six of the Top 10 new TV shows of 2015² according to IMDB. In late December, we debuted a ten-part documentary series Making a Murderer, which has enthralled audiences and critics³ alike and triggered a national conversation⁴ on fairness of the American criminal justice system.

Our first original feature films also premiered in Q4. Beasts of No Nation, a gripping journey into the world of African child soldiers from writer and director Cary Fukunaga and starring Idris Elba, was a favorite of critics and has picked up several major awards nominations. Adam Sandler’s first Netflix original film The Ridiculous Six, which debuted globally on December 11, was the most viewed movie on Netflix in every territory the week of its debut and the most-viewed movie ever on Netflix in the first 30 days on service. Two of our original documentaries, What Happened, Miss Simone? and Winter on Fire, are both nominated for Academy Awards, our third and fourth nominations in three years for best documentary feature.

In 2016, we plan to launch over 600 hours of original programming, up from about 450 hours in 2015. Beyond the sheer volume of content, the breadth of our original programming will continue to expand with current plans for new seasons of 30 or so original series (including The Crown⁵ and The Get Down⁶), eight original feature films, 35 new seasons of original series for kids, a dozen documentaries, and nine stand up comedy specials.

We are now in our fourth year of original programming and we are putting special emphasis on shows that families can enjoy together, including the upcoming Fuller House, new seasons of Unbreakable Kimmy Schmidt, and Stranger Things. We are also stepping up our non-English language original productions, including Marseille, a French political drama starring Gerard Depardieu, and then, shows from Italy, Japan, Mexico and Brazil. We expect some of these series to gain fans well beyond the markets in which they were made.

Increasingly, our goal is to own more of our original programming to allow for greater creative and business control and to ensure global access to content. We are currently actively managing productions spanning the globe from Cambodia to Venice Beach.

The growth of Netflix has created some anxiety among TV networks and calls to be fearful⁷. Or, at the other extreme, an NBC executive recently said⁸ Internet TV is overblown and that linear TV is “TV like God intended.” Our investors are not as sure of God’s intentions for TV, and instead think that Internet TV is a fundamentally better entertainment experience that will gain share for many years. The challenge for traditional media companies, most of whom see the future pretty clearly, is to use the revenue from Netflix and other SVOD services to fund both great content and their own evolution into Internet TV networks. Seeso, BBC iPlayer, Hulu, CanalPlay, HBO Now, and CBS All Access are the beginnings of these efforts.

_______________________

² http://www.huffingtonpost.com/entry/top-new-shows-2015-imdb_us_5668a505e4b009377b23b326

³http://www.rottentomatoes.com/tv/making-a-murderer/

⁴http://www.people.com/article/making-a-murderer-who-killed-teresa

⁵https://www.youtube.com/watch?v=n8Q0bJ_zO7w&feature=youtu.be

⁶https://www.youtube.com/watch?v=zejyzr5vW3A&feature=youtu.be

⁷http://www.nytimes.com/2016/01/14/technology/why-media-titans-need-to-worry-about-netflix.html?ref=topics&_r=1

⁸http://deadline.com/2016/01/netflix-viewers-jessica-jones-master-of-none-orange-is-the-new-black-broadcast-erosion-1201682311/

3

Our titles are watched on the go and at home on a wide range of devices, making measurement of the viewing of any given title difficult for third parties. We don’t release title-level ratings as our business model is not dependent on advertising or affiliate fees. Instead, we release “ratings “ for Netflix as a whole every quarter with our membership growth report (75 million and counting!). It is member viewing and satisfaction that propels our growth.

Product

We have been innovating in support of our global launch, focusing on adding new languages, new payment options and fine-tuning our algorithms for our growing number of content catalogs. Additionally, this involves expanding and deepening our partnerships with device makers and mobile and TV operators to reach and serve our members around the world.

We recognize that in some parts of the world, mobile is the primary way many people access the Internet. We are improving our mobile experience, including sign up, credentials & authentication, the user interface, and streaming efficiency for cellular networks.

In Q4, we began rolling out complexity based encoding⁹. By encoding videos based on the type of content (a visually complex action movie vs. a simpler kids animated title, for example) rather than just based on the amount of bandwidth available to a member, we can deliver higher resolution streams at lower bit rates, resulting in bandwidth savings.

We have long used a blacklist to prevent cross-border content viewing via proxies and “unblockers.” Recently, we have begun to use a new blacklist and other techniques, as are other SVOD services, as desired by content licensors. Ultimately, our goal is to let members around the world enjoy all the content we have through global licensing.

Marketing

Promoting high quality, exclusive titles continues to be the best driver of consumer demand for Netflix. Our recent new market launches reflect this philosophy, and our all-digital, content-led marketing approach is working. Our brand strength is rising in many studies¹⁰, including a #2 ranking reported in AdWeek¹¹ for the USA. Around the world, our all digital approach makes us efficient and relevant to active Internet users everywhere.

Competition

Our focus on “winning moments of truth” means that we compete with all of the activities that consumers can engage in during their leisure time, such as reading a book, playing videogames, watching linear TV, movie theatre-going, etc. Given the broad array of options, we are privileged that our members around the world continue to devote more time to Netflix, streaming 42.5 billion hours in 2015, up from 29 billion hours in 2014.

______________________

⁹http://variety.com/2015/digital/news/netflix-better-streaming-quality-1201661116/

¹⁰https://www.prophet.com/about/news/658-apple-samsung-and-microsoft-named-most-relevant-brands-by-prophets-new-brand-relevance-index

¹¹http://www.adweek.com/news-gallery/advertising-branding/who-are-years-best-loved-brands-hint-half-are-probably-younger-you-168930

4

In addition, looking at just the online segment, the most recent Sandvine data illustrates that our share of peak North American downstream Internet traffic continues to grow. Please note that the deployment of complexity based encoding, as described above, will result in what appears to be slower growth in Netflix traffic in future third-party reports such as Sandvine (which measures peak megabits, not peak viewing hours).

As we have said previously, Internet TV will likely have multiple winners as the various services are not direct substitutes for each other given differing sets of content. A closer look at the Sandvine data shows that the entire Over-the-Top category is growing as consumers increasingly embrace Internet TV and on demand viewing and, even better, this growth is coming at the expense of piracy.

5

Free Cash Flow and Capital Structure

Free cash flow amounted to -$276 million in Q4 and -$921 million for the full year 2015. As a reminder, our investment in originals, particularly owned content, requires more cash upfront relative to licensed content, which will continue to dampen free cash flow. We finished Q4 with debt of $2.4 billion, unchanged from the prior quarter, and with cash & equivalents and short-term investments of $2.3 billion.

Given our expected cash needs, we are likely to raise additional debt in late 2016 or early 2017. We are managing our balance sheet to lower our blended cost of capital over time, while maintaining financial flexibility. Despite being FCF negative as we grow our original content and invest in international, our bonds trade like a BB credit (vs. their single B rating) due, in part, to the long-term growth of Internet TV globally and our low debt to market cap ratio, which provides bond investors with a very thick cushion of protection.

DVD

Our DVD-by-mail business in the US continues to serve more than 4.9 million members. We are pleased that our DVD business is managing the decline well, despite increasing postal costs, generating $80 million in contribution profit in Q4.

6

Reference

For quick reference, our eight most recent investor letters are: October 2015¹², July 2015¹³, April 2015¹⁴, January 2015¹⁵, October 2014¹⁶, July 2014¹⁷, April 2014¹⁸, January 2014^19. 

Summary

We are thrilled to be available worldwide ex-China. What fun we are having making our service popular in Thailand, Poland, Australia, Chile, France and over 180 other countries.

Sincerely,

Reed Hastings, CEO	David Wells, CFO

________________________

¹²http://files.shareholder.com/downloads/NFLX/4124769775x7871834x854558/9B28F30F-BF2F-4C5D-AAFF-AA9AA8F4779D/FINAL_Q3_15_Letter_to_Shareholders_With_Tables_.pdf

¹³http://files.shareholder.com/downloads/NFLX/4124769775x7871834x839404/C3CE9EE2-C8F3-40A1-AC9A-FFE0AFA20B21/FINAL_Q2_15_Letter_to_Shareholders_With_Tables_.pdf

¹⁴http://files.shareholder.com/downloads/NFLX/4124769775x7871834x821407/DB785B50-90FE-44DA-9F5B-37DBF0DCD0E1/Q1_15_Earnings_Letter_final_tables.pdf

¹⁵http://files.shareholder.com/downloads/NFLX/4124769775x7871834x804108/043a3015-36ec-49b9-907c-27960f1a7e57/Q4_14_Letter_to_shareholders.pdf

¹⁶http://files.shareholder.com/downloads/NFLX/3754169286x0x786677/6974d8e9-5cb3-4009-97b1-9d4a5953a6a5/Q3_14_Letter_to_shareholders.pdf

¹⁷http://files.shareholder.com/downloads/NFLX/3527949458x0x769748/9b21df7f-743c-4f0f-94da-9f13e384a3d2/July2014EarningsLetter_7.21.14_final.pdf

¹⁸http://files.shareholder.com/downloads/NFLX/3337146746x0x745654/fb5aaae0-b991-4e76-863c-3b859c8dece8/Q114%20Earnings%20Letter%204.21.14%20final.pdf

¹⁹http://files.shareholder.com/downloads/NFLX/3337146746x0x720306/119321bc-89c3-4306-93ac-93c02da2354f/Q4%2013%20Letter%20to%20shareholders.pdf

7

January 19th, 2016 Earnings Interview

Reed Hastings, David Wells and Ted Sarandos will participate in a live video interview today at 2:00 p.m. Pacific Time at youtube.com/netflixir. The discussion will be moderated by Ben Swinburne, Morgan Stanley and and Peter Kafka, Re/code. Questions that investors would like to see asked should be sent to benjamin.swinburne@morganstanley.com or peter@recode.net.

IR Contact:	PR Contact:
Spencer Wang	Jonathan Friedland
Vice President, Finance & Investor Relations	Chief Communications Officer
408 809-5360	310 734-2958

8

Use of Non-GAAP Measures

This shareholder letter and its attachments include reference to the non-GAAP financial measure of net income on a pro forma basis excluding the release of tax reserves, and to free cash flow and EBITDA. Management believes that the non-GAAP measure of net income on a pro forma basis excluding the release of tax reserves provides useful information as this measure excludes effects that are not indicative of our core operating results. Management believes that free cash flow and EBITDA are important liquidity metrics because they measure, during a given period, the amount of cash generated that is available to repay debt obligations, make investments and for certain other activities. However, these non-GAAP measures should be considered in addition to, not as a substitute for or superior to, net income, operating income, diluted earnings per share and net cash provided by operating activities, or other financial measures prepared in accordance with GAAP. Reconciliation to the GAAP equivalent of these non-GAAP measures are contained in tabular form on the attached unaudited financial statements.

Forward-Looking Statements

This shareholder letter contains certain forward-looking statements within the meaning of the federal securities laws, including statements regarding growth of international markets; expansion to China; churn related to price changes; volume and titles of future content offerings; original content strategy; growth of internet TV; raising capital; member growth domestically and internationally, including net, total and paid; revenue; contribution profit (loss) and contribution margin for both domestic (streaming and DVD) and international operations, as well as consolidated operating income, net income, earnings per share and free cash flow. The forward-looking statements in this letter are subject to risks and uncertainties that could cause actual results and events to differ, including, without limitation: our ability to attract new members and retain existing members; our ability to compete effectively; maintenance and expansion of device platforms for streaming; fluctuations in consumer usage of our service; service disruptions; production risks; actions of Internet Service Providers; and, competition, including consumer adoption of different modes of viewing in-home filmed entertainment. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed with the Securities and Exchange Commission on January 29, 2015. The Company provides internal forecast numbers. Investors should anticipate that actual performance will vary from these forecast numbers based on risks and uncertainties discussed above and in our Annual Report on Form 10-K. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this shareholder letter.

9

Netflix, Inc.

Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)

	Three Months Ended									Year Ended
	December 31, 2015			September 30, 2015			December 31, 2014			December 31, 2015			December 31, 2014
Revenues	$	1,823,333		$	1,738,355		$	1,484,728		$	6,779,511		$	5,504,656
Cost of revenues	1,249,365			1,173,958			1,014,332			4,591,476			3,752,760
Marketing	224,173			208,102			203,671			824,092			607,186
Technology and development	180,859			171,762			125,876			650,788			472,321
General and administrative	109,042			110,892			75,803			407,329			269,741
Operating income	59,894			73,641			65,046			305,826			402,648
Other income (expense):
Interest expense	(35,429		)	(35,333		)	(13,353		)	(132,716		)	(50,219		)
Interest and other income (expense)	(3,734		)	3,930			(6,177		)	(31,225		)	(3,060		)
Income before income taxes	20,731			42,238			45,516			141,885			349,369
(Benefit) provision for income taxes	(22,447		)	12,806			(37,855		)	19,244			82,570
Net income	$	43,178		$	29,432		$	83,371		$	122,641		$	266,799
Earnings per share:
Basic	$	0.10		$	0.07		$	0.20		$	0.29		$	0.63
Diluted	$	0.10		$	0.07		$	0.19		$	0.28		$	0.62
Weighted-average common shares outstanding:
Basic	427,668			426,869			422,244			425,889			420,544
Diluted	438,257			437,606			432,514			436,456			431,894

10

Netflix, Inc.

Consolidated Balance Sheets

(unaudited)

(in thousands, except share and par value data)

	As of
	December 31, 2015			December 31, 2014
Assets
Current assets:
Cash and cash equivalents	$	1,809,330		$	1,113,608
Short-term investments	501,385			494,888
Current content assets, net	2,905,998			2,166,134
Other current assets	215,127			152,423
Total current assets	5,431,840			3,927,053
Non-current content assets, net	4,312,817			2,773,326
Property and equipment, net	173,412			149,875
Other non-current assets	284,802			192,246
Total assets	$	10,202,871		$	7,042,500
Liabilities and Stockholders' Equity
Current liabilities:
Current content liabilities	$	2,789,023		$	2,117,241
Accounts payable	253,491			201,581
Accrued expenses	140,389			69,746
Deferred revenue	346,721			274,586
Total current liabilities	3,529,624			2,663,154
Non-current content liabilities	2,026,360			1,575,832
Long-term debt	2,371,362			885,849
Other non-current liabilities	52,099			59,957
Total liabilities	7,979,445			5,184,792
Stockholders' equity:
Common stock	1,324,809			1,042,870
Accumulated other comprehensive loss	(43,308		)	(4,446		)
Retained earnings	941,925			819,284
Total stockholders' equity	2,223,426			1,857,708
Total liabilities and stockholders' equity	$	10,202,871		$	7,042,500

NOTE - Certain prior year amounts have been reclassified to conform to the current year presentation.

11

Netflix, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

	Three Months Ended									Year Ended
	December 31, 2015			September 30, 2015			December 31, 2014			December 31, 2015			December 31, 2014
Cash flows from operating activities:
Net income	$	43,178		$	29,432		$	83,371		$	122,641		$	266,799
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Additions to streaming content assets	(1,550,326		)	(1,304,466		)	(1,013,822		)	(5,771,652		)	(3,773,019		)
Change in streaming content liabilities	240,250			104,684			125,770			1,162,413			593,125
Amortization of streaming content assets	961,861			871,403			730,353			3,405,382			2,656,279
Amortization of DVD content assets	18,793			18,589			20,178			79,380			71,491
Depreciation and amortization of property, equipment and intangibles	15,488			16,047			14,312			62,283			54,028
Stock-based compensation expense	35,860			32,834			30,251			124,725			115,239
Excess tax benefits from stock-based compensation	25,683			(37,726		)	(20,921		)	(80,471		)	(89,341		)
Other non-cash items	7,774			10,866			6,475			31,628			15,282
Deferred taxes	12,036			(29,417		)	7,501			(58,655		)	(30,063		)
Changes in operating assets and liabilities:
Other current assets	(62,755		)	66,695			(30,539		)	18,693			(9,198		)
Accounts payable	49,031			6,762			51,083			51,615			83,812
Accrued expenses	(39,619		)	10,883			4,050			48,810			55,636
Deferred revenue	16,982			27,985			21,630			72,135			58,819
Other non-current assets and liabilities	(18,981		)	(20,540		)	(68,153		)	(18,366		)	(52,406		)
Net cash (used in) provided by operating activities	(244,745		)	(195,969		)	(38,461		)	(749,439		)	16,483
Cash flows from investing activities:
Acquisition of DVD content assets	(20,799		)	(14,467		)	(23,365		)	(77,958		)	(74,790		)
Purchases of property and equipment	(12,854		)	(37,820		)	(15,491		)	(91,248		)	(69,726		)
Other assets	2,262			(3,760		)	(431		)	(1,912		)	1,334
Purchases of short-term investments	(146,582		)	(66,444		)	(71,597		)	(371,915		)	(426,934		)
Proceeds from sale of short-term investments	114,832			43,887			45,022			259,079			385,300
Proceeds from maturities of short-term investments	22,580			31,125			14,721			104,762			141,950
Net cash used in investing activities	(40,561		)	(47,479		)	(51,141		)	(179,192		)	(42,866		)
Cash flows from financing activities:
Proceeds from issuance of common stock	8,171			35,089			3,750			77,980			60,544
Proceeds from issuance of debt	—			—			—			1,500,000			400,000
Issuance costs	—			—			—			(17,629		)	(7,080		)
Excess tax benefits from stock-based compensation	(25,683		)	37,726			20,921			80,471			89,341
Principal payments of lease financing obligations	54			(61		)	(280		)	(545		)	(1,093		)
Net cash (used in) provided by financing activities	(17,458		)	72,754			24,391			1,640,277			541,712
Effect of exchange rate changes on cash and cash equivalents	(3,343		)	(7,741		)	(4,398		)	(15,924		)	(6,686		)
Net (decrease) increase in cash and cash equivalents	(306,107		)	(178,435		)	(69,609		)	695,722			508,643
Cash and cash equivalents, beginning of period	2,115,437			2,293,872			1,183,217			1,113,608			604,965
Cash and cash equivalents, end of period	$	1,809,330		$	2,115,437		$	1,113,608		$	1,809,330		$	1,113,608
	Three Months Ended									Year Ended
	December 31, 2015			September 30, 2015			December 31, 2014			December 31, 2015			December 31, 2014
Non-GAAP free cash flow reconciliation:
Net cash (used in) provided by operating activities	$	(244,745	)	$	(195,969	)	$	(38,461	)	$	(749,439	)	$	16,483
Acquisition of DVD content assets	(20,799		)	(14,467		)	(23,365		)	(77,958		)	(74,790		)
Purchases of property and equipment	(12,854		)	(37,820		)	(15,491		)	(91,248		)	(69,726		)
Other assets	2,262			(3,760		)	(431		)	(1,912		)	1,334
Non-GAAP free cash flow	$	(276,136	)	$	(252,016	)	$	(77,748	)	$	(920,557	)	$	(126,699	)

NOTE - Certain prior year amounts have been reclassified to conform to the current year presentation.

12

Netflix, Inc.

Segment Information

(unaudited)

(in thousands)

	As of / Three Months Ended									As of/ Year Ended
	December 31, 2015			September 30, 2015			December 31, 2014			December 31, 2015			December 31, 2014
Domestic Streaming
Total memberships at end of period	44,738			43,181			39,114			44,738			39,114
Paid memberships at end of period	43,401			42,068			37,698			43,401			37,698
Revenues	$	1,105,933		$	1,063,961		$	917,442		$	4,180,339		$	3,431,434
Cost of revenues	647,059			644,914			573,193			2,487,193			2,201,761
Marketing	79,833			74,835			87,423			317,646			293,453
Contribution profit	379,041			344,212			256,826			1,375,500			936,220
International Streaming
Total memberships at end of period	30,024			25,987			18,277			30,024			18,277
Paid memberships at end of period	27,438			23,951			16,778			27,438			16,778
Revenues	$	566,405		$	516,870		$	387,797		$	1,953,435		$	1,308,061
Cost of revenues	530,880			451,251			350,211			1,780,375			1,154,117
Marketing	144,340			133,267			116,248			506,446			313,733
Contribution profit (loss)	(108,815		)	(67,648		)	(78,662		)	(333,386		)	(159,789		)
Domestic DVD
Total memberships at end of period	4,904			5,060			5,767			4,904			5,767
Paid memberships at end of period	4,787			4,971			5,668			4,787			5,668
Revenues	$	150,995		$	157,524		$	179,489		$	645,737		$	765,161
Cost of revenues	71,426			77,793			90,928			323,908			396,882
Contribution profit	79,569			79,731			88,561			321,829			368,279
Consolidated
Revenues	$	1,823,333		$	1,738,355		$	1,484,728		$	6,779,511		$	5,504,656
Cost of revenues	1,249,365			1,173,958			1,014,332			4,591,476			3,752,760
Marketing	224,173			208,102			203,671			824,092			607,186
Contribution profit	349,795			356,295			266,725			1,363,943			1,144,710
Other operating expenses	289,901			282,654			201,679			1,058,117			742,062
Operating income	59,894			73,641			65,046			305,826			402,648
Other income (expense)	(39,163		)	(31,403		)	(19,530		)	(163,941		)	(53,279		)
(Benefit) provision for income taxes	(22,447		)	12,806			(37,855		)	19,244			82,570
Net income	$	43,178		$	29,432		$	83,371		$	122,641		$	266,799

13

Netflix, Inc.

Non-GAAP Information

(unaudited)

(in thousands, except per share data)

	Three Months Ended
	December 31, 2014			March 31, 2015		June 30, 2015		September 30, 2015		December 31, 2015
Non-GAAP Adjusted EBITDA reconciliation:
GAAP net income	$	83,371		$	23,696	$	26,335	$	29,432	$	43,178
Add:
Interest and other (income) expense	19,530			59,030		34,345		31,403		39,163
Provision (benefit) for income taxes	(37,855		)	14,730		14,155		12,806		(22,447		)
Depreciation and amortization of property, equipment and intangibles	14,312			15,167		15,581		16,047		15,488
Stock-based compensation expense	30,251			27,441		28,590		32,834		35,860
Adjusted EBITDA	$	109,609		$	140,064	$	119,006	$	122,522	$	111,242

	Three Months Ended
	December 31, 2014			December 31, 2015
Non-GAAP net income reconciliation:
GAAP net income	$	83,371		$	43,178
Less: Release of tax accrual	(38,612		)	(13,438		)
Non-GAAP net income	$	44,759		$	29,740
Non-GAAP earnings per share:
Basic	0.11			0.07
Diluted	0.10			0.07
Weighted-average common shares outstanding:
Basic	422,244			427,668
Diluted	432,514			438,257

14