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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission File Number: 001-35727
 
Netflix, Inc.
(Exact name of Registrant as specified in its charter)
 
Delaware
77-0467272
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
 
 
 
100 Winchester Circle,
Los Gatos,
California
95032
(Address of principal executive offices)
(Zip Code)
(408) 540-3700
(Registrant’s telephone number, including area code)
 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.001 per share
NFLX
NASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No     
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes      No  
As of June 30, 2020, there were 441,015,443 shares of the registrant’s common stock, par value $0.001, outstanding.



Table of Contents
 
 
 
Page
 
Part I. Financial Information
 
Item 1.
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Part II. Other Information
 
Item 1.
Item 1A.
Item 6.
 
 


2

Table of Contents


NETFLIX, INC.
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)

 
Three Months Ended
 
Six Months Ended
 
June 30,
2020
 
June 30,
2019
 
June 30,
2020
 
June 30,
2019
Revenues
$
6,148,286

 
$
4,923,116

 
$
11,915,977

 
$
9,444,108

Cost of revenues
3,643,707

 
3,005,657

 
7,243,408

 
5,876,271

Marketing
434,370

 
603,150

 
938,200

 
1,219,728

Technology and development
435,045

 
383,233

 
888,862

 
755,997

General and administrative
277,236

 
224,657

 
529,323

 
426,609

Operating income
1,357,928

 
706,419

 
2,316,184

 
1,165,503

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(189,151
)
 
(152,033
)
 
(373,234
)
 
(287,562
)
Interest and other income (expense)
(133,175
)
 
(53,470
)
 
(111,478
)
 
22,634

Income before income taxes
1,035,602

 
500,916

 
1,831,472

 
900,575

Provision for income taxes
315,406

 
230,266

 
402,209

 
285,873

Net income
$
720,196

 
$
270,650

 
$
1,429,263

 
$
614,702

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
1.63

 
$
0.62

 
$
3.25

 
$
1.41

Diluted
$
1.59

 
$
0.60

 
$
3.15

 
$
1.36

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
Basic
440,569

 
437,587

 
439,961

 
437,271

Diluted
453,945

 
452,195

 
453,220

 
452,063











See accompanying notes to the consolidated financial statements.

3

Table of Contents

NETFLIX, INC.
Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands)
 
Three Months Ended
 
Six Months Ended
 
June 30,
2020
 
June 30,
2019
 
June 30,
2020
 
June 30,
2019
Net income
$
720,196

 
$
270,650

 
$
1,429,263

 
$
614,702

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments 
12,982

 
5,248

 
(10,551
)
 
(770
)
Comprehensive income
$
733,178

 
$
275,898

 
$
1,418,712

 
$
613,932

























See accompanying notes to the consolidated financial statements.

4

Table of Contents

NETFLIX, INC.

Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
   
Three Months Ended
 
Six Months Ended
   
June 30,
2020
 
June 30,
2019
 
June 30,
2020
 
June 30,
2019
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income
$
720,196

 
$
270,650

 
$
1,429,263

 
$
614,702

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
 
 
 
Additions to content assets
(2,510,782
)
 
(3,325,103
)
 
(5,805,057
)
 
(6,322,849
)
Change in content liabilities
(108,432
)
 
(12,414
)
 
150,513

 
(27,112
)
Amortization of content assets
2,607,159

 
2,231,915

 
5,090,544

 
4,356,601

Depreciation and amortization of property, equipment and intangibles
26,661

 
25,496

 
55,178

 
49,057

Stock-based compensation expense
104,210

 
103,848

 
201,229

 
205,048

Other non-cash items
70,301

 
60,695

 
135,749

 
106,403

Foreign currency remeasurement loss on debt
119,161

 
61,284

 
26,101

 
3,684

Deferred taxes
223,308

 
35,519

 
269,927

 
42,146

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Other current assets
3,066

 
(24,231
)
 
(124,287
)
 
(56,307
)
Accounts payable
(112,027
)
 
(2,674
)
 
(261,180
)
 
(127,141
)
Accrued expenses and other liabilities
(105,450
)
 
(26,705
)
 
108,741

 
130,942

Deferred revenue
42,508

 
84,085

 
104,516

 
131,878

Other non-current assets and liabilities
(38,803
)
 
(26,119
)
 
(80,249
)
 
(30,605
)
Net cash provided by (used in) operating activities
1,041,076

 
(543,754
)
 
1,300,988

 
(923,553
)
Cash flows from investing activities:
 
 
 
 
 
 
 
Purchases of property and equipment
(141,741
)
 
(39,584
)
 
(239,756
)
 
(99,965
)
Change in other assets
(260
)
 
(10,452
)
 
(548
)
 
(30,174
)
Net cash used in investing activities
(142,001
)
 
(50,036
)
 
(240,304
)
 
(130,139
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Proceeds from issuance of debt
1,009,464

 
2,243,196

 
1,009,464

 
2,243,196

Debt issuance costs
(7,559
)
 
(18,192
)
 
(7,559
)
 
(18,192
)
Proceeds from issuance of common stock
89,060

 
21,896

 
132,754

 
44,868

Net cash provided by financing activities
1,090,965

 
2,246,900

 
1,134,659

 
2,269,872

Effect of exchange rate changes on cash, cash equivalents and restricted cash
11,819

 
4,998

 
(59,083
)
 
(16
)
Net increase in cash, cash equivalents and restricted cash
2,001,859

 
1,658,108

 
2,136,260

 
1,216,164

Cash, cash equivalents and restricted cash at beginning of period
5,178,187

 
3,370,097

 
5,043,786

 
3,812,041

Cash, cash equivalents and restricted cash at end of period
$
7,180,046

 
$
5,028,205

 
$
7,180,046

 
$
5,028,205

See accompanying notes to the consolidated financial statements.

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Table of Contents

NETFLIX, INC.
Consolidated Balance Sheets
(in thousands, except share and par value data)

 
As of
   
June 30,
2020
 
December 31,
2019
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
7,153,248

 
$
5,018,437

Other current assets
1,410,891

 
1,160,067

Total current assets
8,564,139

 
6,178,504

Content assets, net
25,155,117

 
24,504,567

Property and equipment, net
751,941

 
565,221

Other non-current assets
2,704,084

 
2,727,420

Total assets
$
37,175,281

 
$
33,975,712

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Current content liabilities
$
4,664,733

 
$
4,413,561

Accounts payable
446,668

 
674,347

Accrued expenses and other liabilities
986,595

 
843,043

Deferred revenue
1,029,261

 
924,745

Short-term debt
499,161

 

Total current liabilities
7,626,418

 
6,855,696

Non-current content liabilities
3,208,164

 
3,334,323

Long-term debt
15,294,998

 
14,759,260

Other non-current liabilities
1,710,948

 
1,444,276

Total liabilities
27,840,528

 
26,393,555

Commitments and contingencies (Note 7)


 


Stockholders’ equity:
 
 
 
Common stock, $0.001 par value; 4,990,000,000 shares authorized at June 30, 2020 and December 31, 2019; 441,015,443 and 438,806,649 issued and outstanding at June 30, 2020 and December 31, 2019, respectively
3,127,813

 
2,793,929

Accumulated other comprehensive loss
(34,072
)
 
(23,521
)
Retained earnings
6,241,012

 
4,811,749

Total stockholders’ equity
9,334,753

 
7,582,157

Total liabilities and stockholders’ equity
$
37,175,281

 
$
33,975,712





See accompanying notes to the consolidated financial statements.

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Table of Contents

NETFLIX, INC.
Consolidated Statements of Stockholders’ Equity
(unaudited)
(in thousands)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
2020
 
June 30,
2019
 
June 30,
2020
 
June 30,
2019
Total stockholders' equity, beginning balances
 
$
8,409,294

 
$
5,703,058

 
$
7,582,157

 
$
5,238,765

 
 
 
 
 
 
 
 
 
Common stock and additional paid-in capital:
 
 
 
 
 
 
 
 
Beginning balances
 
$
2,935,532

 
$
2,439,773

 
$
2,793,929

 
$
2,315,988

Issuance of common stock upon exercise of options
 
88,071

 
22,744

 
132,655

 
45,329

Stock-based compensation expense
 
104,210

 
103,848

 
201,229

 
205,048

Ending balance
 
$
3,127,813

 
$
2,566,365

 
$
3,127,813

 
$
2,566,365

 
 


 


 
 
 
 
Accumulated other comprehensive loss:
 
 
 
 
 
 
 
 
Beginning balances
 
$
(47,054
)
 
$
(25,600
)
 
$
(23,521
)
 
$
(19,582
)
Other comprehensive income (loss)
 
12,982

 
5,248

 
(10,551
)
 
(770
)
Ending balance
 
$
(34,072
)
 
$
(20,352
)
 
$
(34,072
)
 
$
(20,352
)
 
 
 
 
 
 
 
 
 
Retained earnings:
 
 
 
 
 
 
 
 
Beginning balances
 
$
5,520,816

 
$
3,288,885

 
$
4,811,749

 
$
2,942,359

Net income
 
720,196

 
270,650

 
1,429,263

 
614,702

Adoption of ASU 2016-02, Leases (Topic 842)
 

 

 

 
2,474

Ending balances
 
$
6,241,012

 
$
3,559,535

 
$
6,241,012

 
$
3,559,535

 
 
 
 
 
 
 
 
 
Total stockholders' equity, ending balances
 
$
9,334,753

 
$
6,105,548

 
$
9,334,753

 
$
6,105,548
























See accompanying notes to the consolidated financial statements.


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Table of Contents

NETFLIX, INC.
Notes to Consolidated Financial Statements
(unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying interim consolidated financial statements of Netflix, Inc. and its wholly owned subsidiaries (the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States (“U.S.”) and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (the “SEC”) on January 29, 2020. The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the content asset amortization policy and the recognition and measurement of income tax assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On a regular basis, the Company evaluates the assumptions, judgments and estimates. Actual results may differ from these estimates.
The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Interim results are not necessarily indicative of the results for a full year.
There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Recently adopted accounting pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326), in order to improve financial reporting of expected credit losses on financial instruments and other commitments to extend credit. ASU 2016-13 requires that an entity measure and recognize expected credit losses for financial assets held at amortized cost and replaces the incurred loss impairment methodology in prior GAAP with a methodology that requires consideration of a broader range of information to estimate credit losses. The Company adopted ASU 2016-13 in the first quarter of 2020 and the impact of the adoption was not material to the Company's consolidated financial statements as credit losses are not expected to be significant based on historical collection trends, the financial condition of payment partners, and external market factors. The Company will continue to actively monitor the impact of the recent coronavirus (COVID-19) pandemic on expected credit losses.


2. Revenue Recognition
The Company's primary source of revenues is from monthly membership fees. Members are billed in advance of the start of their monthly membership and revenues are recognized ratably over each monthly membership period. Revenues are presented net of the taxes that are collected from members and remitted to governmental authorities. The Company is the principal in all its relationships where partners, including consumer electronics (“CE”) manufacturers, multichannel video programming distributors (“MVPDs”), mobile operators and internet service providers (“ISPs”), provide access to the service as the Company retains control over service delivery to its members. Typically, payments made to the partners, such as for marketing, are expensed, but in the case where the price that the member pays is established by the partners and there is no standalone price for the Netflix service (for instance, in a bundle), these payments are recognized as a reduction of revenues.
The following tables summarize streaming revenue, paid net membership additions (losses), and paid memberships at end of period by region for the three and six months ended June 30, 2020 and June 30, 2019, respectively:

United States and Canada (UCAN)
 
 
As of/ Three Months Ended
 
As of/ Six Months Ended
 
 
June 30, 2020
 
June 30, 2019
 
June 30, 2020
 
June 30, 2019
 
 
(in thousands)
Revenues
 
$
2,839,670

 
$
2,501,199

 
$
5,542,446

 
$
4,758,050

Paid net membership additions (losses)
 
2,935

 
(132
)
 
5,242

 
1,744

Paid memberships at end of period (1)
 
72,904

 
66,501

 
72,904

 
66,501



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Europe, Middle East, and Africa (EMEA)
 
 
As of/ Three Months Ended
 
As of/ Six Months Ended
 
 
June 30, 2020
 
June 30, 2019
 
June 30, 2020
 
June 30, 2019
 
 
(in thousands)
Revenues
 
$
1,892,537

 
$
1,319,087

 
$
3,616,011

 
$
2,552,466

Paid net membership additions
 
2,749

 
1,687

 
9,705

 
6,411

Paid memberships at end of period (1)
 
61,483

 
44,229

 
61,483

 
44,229


Latin America (LATAM)
 
 
As of/ Three Months Ended
 
As of/ Six Months Ended
 
 
June 30, 2020
 
June 30, 2019
 
June 30, 2020
 
June 30, 2019
 
 
(in thousands)
Revenues
 
$
785,368

 
$
677,136

 
$
1,578,821

 
$
1,307,608

Paid net membership additions
 
1,750

 
343

 
4,651

 
1,813

Paid memberships at end of period (1)
 
36,068

 
27,890

 
36,068

 
27,890


Asia-Pacific (APAC)
 
 
As of/ Three Months Ended
 
As of/ Six Months Ended
 
 
June 30, 2020
 
June 30, 2019
 
June 30, 2020
 
June 30, 2019
 
 
(in thousands)
Revenues
 
$
569,140

 
$
349,494

 
$
1,052,800

 
$
669,096

Paid net membership additions
 
2,657

 
801

 
6,259

 
2,335

Paid memberships at end of period (1)
 
22,492

 
12,942

 
22,492

 
12,942

(1) A paid membership (also referred to as a paid subscription) is defined as a membership that has the right to receive Netflix service following sign-up and a method of payment being provided, and that is not part of a free trial or other promotional offering by the Company to certain new and rejoining members. A membership is canceled and ceases to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations generally become effective at the end of the prepaid membership period. Involuntary cancellations, as a result of a failed method of payment, becomes effective immediately. 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.

Total U.S. revenues, inclusive of DVD revenues not reported in the tables above, were $2.7 billion and $5.2 billion, respectively, for the three and six months ended June 30, 2020, and $2.4 billion and $4.5 billion, respectively, for the three and six months ended June 30, 2019. DVD revenues were $62 million and $126 million, respectively, for the three and six months ended June 30, 2020, and $76 million and $157 million, respectively, for the three and six months ended June 30, 2019.
Deferred revenue consists of membership fees billed that have not been recognized, as well as gift cards and other prepaid memberships that have not been fully redeemed. As of June 30, 2020, total deferred revenue was $1,029 million, the vast majority of which was related to membership fees billed that are expected to be recognized as revenue within the next month. The remaining deferred revenue balance, which is related to gift cards and other prepaid memberships, will be recognized as revenue over the period of service after redemption, which is expected to occur over the next 12 months. The $105 million increase in deferred revenue as compared to the balance of $925 million for the year ended December 31, 2019 is a result of the increase in membership fees billed due to increased memberships.


9

Table of Contents


3. Earnings Per Share

Basic earnings per share is computed using the weighted-average number of outstanding shares of common stock during the period. Diluted earnings per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential common shares outstanding during the period. Potential common shares consist of incremental shares issuable upon the assumed exercise of stock options. The computation of earnings per share is as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30,
2020
 
June 30,
2019
 
June 30,
2020
 
June 30,
2019
 
(in thousands, except per share data)
Basic earnings per share:
 
 
 
 
 
 
 
Net income
$
720,196

 
$
270,650

 
$
1,429,263

 
$
614,702

Shares used in computation:
 
 
 
 
 
 
 
Weighted-average common shares outstanding
440,569

 
437,587

 
439,961

 
437,271

Basic earnings per share
$
1.63

 
$
0.62

 
$
3.25

 
$
1.41

 
 
 
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
Net income
$
720,196

 
$
270,650

 
$
1,429,263

 
$
614,702

Shares used in computation:
 
 
 
 
 
 
 
Weighted-average common shares outstanding
440,569

 
437,587

 
439,961

 
437,271

Employee stock options
13,376

 
14,608

 
13,259

 
14,792

Weighted-average number of shares
453,945

 
452,195

 
453,220

 
452,063

Diluted earnings per share
$
1.59

 
$
0.60

 
$
3.15

 
$
1.36



Employee stock options with exercise prices greater than the average market price of the common stock were excluded from the diluted calculation as their inclusion would have been anti-dilutive. The following table summarizes the potential common shares excluded from the diluted calculation:
 
Three Months Ended
 
Six Months Ended
 
June 30,
2020
 
June 30,
2019
 
June 30,
2020
 
June 30,
2019
 
(in thousands)
Employee stock options
39

 
750

 
777

 
701


 

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Table of Contents

4. Cash, Cash Equivalents and Restricted Cash

The following tables summarize the Company's cash, cash equivalents, and restricted cash as of June 30, 2020 and December 31, 2019:

 
As of June 30, 2020
 
Cash and cash equivalents
 
Other Current Assets
 
Non-current Assets
 
Total
 
(in thousands)
Cash
$
2,980,468

 
$
2,483

 
$
24,062

 
$
3,007,013

Level 1 securities:
 
 
 
 
 
 
 
Money market funds
3,872,780

 

 
253

 
3,873,033

Level 2 securities:
 
 
 
 
 
 
 
Foreign Time Deposits
300,000

 

 

 
300,000

 
 
 
 
 
 
 
 
 
$
7,153,248

 
$
2,483

 
$
24,315

 
$
7,180,046


 
As of December 31, 2019
 
Cash and cash equivalents
 
Other Current Assets
 
Non-current Assets
 
Total
 
(in thousands)
Cash
$
3,103,525

 
$
1,863

 
$
22,161

 
$
3,127,549

Level 1 securities:
 
 
 
 
 
 
 
Money market funds
1,614,912

 

 
1,325

 
1,616,237

Level 2 securities:
 
 
 
 
 
 
 
Foreign Time Deposits
300,000

 

 

 
300,000

 
 
 
 
 
 
 
 
 
$
5,018,437

 
$
1,863

 
$
23,486

 
$
5,043,786


Other current assets include restricted cash for self insurance. Non-current assets include restricted cash related to workers compensation deposits and letter of credit agreements. The fair value of cash equivalents included in the Level 2 category is based on observable inputs, such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly.
See Note 6 to the consolidated financial statements for further information regarding the fair value of the Company’s senior notes.
There were no material gross realized gains or losses in the three and six months ended June 30, 2020 and 2019, respectively.


11


5. Balance Sheet Components

Content Assets, Net
Content assets consisted of the following:
 
As of
 
June 30,
2020
 
December 31,
2019
 
(in thousands)
Licensed content, net
$
14,632,723

 
$
14,703,352

 
 
 
 
Produced content, net


 


Released, less amortization
5,034,139

 
4,382,685

In production
4,717,598

 
4,750,664

In development and pre-production
770,657

 
667,866

 
10,522,394

 
9,801,215

 
 
 
 
Total
$
25,155,117

 
$
24,504,567

 
 
 
 


As of June 30, 2020, approximately $5,776 million, $3,756 million, and $2,410 million of the $14,633 million unamortized cost of the licensed content is expected to be amortized in each of the next three years.  As of June 30, 2020, approximately $1,813 million, $1,395 million, and $1,012 million of the $5,034 million unamortized cost of the produced content that has been released is expected to be amortized in each of the next three years.
As of June 30, 2020, the amount of accrued participations and residuals was not material.
The following table represents the amortization of content assets:
 
Three Months Ended
 
June 30,
2020
 
June 30,
2019
 
(in thousands)
Licensed content
$
1,883,070

 
$
1,797,179

Produced content
724,089

 
434,736

Total
$
2,607,159

 
$
2,231,915



 
Six Months Ended
 
June 30,
2020
 
June 30,
2019
 
(in thousands)
Licensed content
$
3,743,240

 
$
3,571,468

Produced content
1,347,304

 
785,133

Total
$
5,090,544

 
$
4,356,601



12


Property and Equipment, Net
Property and equipment and accumulated depreciation consisted of the following:
 
 
As of
 
 
 
 
June 30,
2020
 
December 31,
2019
 
Estimated Useful Lives
 
 
(in thousands)
 
 
Land
 
$
13,560

 
$
6,125

 
 
Buildings
 
41,896

 
33,141

 
30 years
Leasehold improvements
 
378,345

 
354,999

 
Over life of lease
Furniture and fixtures
 
93,092

 
87,465

 
3-15 years
Information technology
 
258,875

 
243,565

 
3 years
Corporate aircraft
 
109,641

 
108,995

 
8 years
Machinery and equipment
 
43,863

 
46,415

 
3-5 years
Capital work-in-progress
 
272,875

 
100,521

 
 
Property and equipment, gross
 
1,212,147

 
981,226

 
 
Less: Accumulated depreciation
 
(460,206
)
 
(416,005
)
 
 
Property and equipment, net
 
$
751,941

 
$
565,221

 
 



Leases
The Company has entered into operating leases primarily for real estate. These operating leases are included in "Other non-current assets" on the Company's Consolidated Balance Sheets, and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligations to make lease payments are included in "Accrued expenses and other liabilities" and "Other non-current liabilities" on the Company's Consolidated Balance Sheets.  As of June 30, 2020, total right-of-use assets were approximately $1,812 million and total operating lease liabilities were approximately $1,914 million, of which $227 million and $1,687 million were classified in "Accrued expenses and other liabilities" and "Other non-current liabilities", respectively. As of December 31, 2019, total right-of-use assets were approximately $1,532 million and total operating lease liabilities were approximately $1,613 million, of which $190 million and $1,423 million were classified in "Accrued expenses and other liabilities" and "Other non-current liabilities", respectively. The Company has entered into various short-term operating leases, primarily for marketing billboards, with an initial term of twelve months or less. These leases are not recorded on the Company's Consolidated Balance Sheets. All operating lease expense is recognized on a straight-line basis over the lease term.
Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments.
Information related to the Company's right-of-use assets and related lease liabilities were as follows:
 
Three Months Ended
 
June 30, 2020
 
June 30, 2019
 
(in thousands)
Cash paid for operating lease liabilities
$
59,473

 
$
41,320

Right-of-use assets obtained in exchange for new operating lease obligations
364,606

 
230,499



 
Six Months Ended
 
June 30, 2020
 
June 30, 2019
 
(in thousands)
Cash paid for operating lease liabilities
$
116,963

 
$
78,973

Right-of-use assets obtained in exchange for new operating lease obligations (1)
416,430

 
1,072,894

(1) In the six months ended June 30, 2019, the balance includes $743 million for operating leases existing on January 1, 2019.


13


Other Current Assets
Other current assets consisted of the following:
 
 
As of
 
 
June 30,
2020
 
December 31,
2019
 
 
(in thousands)
Trade receivables
 
$
565,668

 
$
454,399

Prepaid expenses
 
204,752

 
180,999

Other
 
640,471

 
524,669

Total other current assets
 
$
1,410,891

 
$
1,160,067




6. Debt
As of June 30, 2020, the Company had aggregate outstanding notes of $15,794 million, net of $114 million of issuance costs, with varying maturities (the "Notes"). Of the outstanding balance, $499 million, net of issuance costs, is classified as short-term debt on the Consolidated Balance Sheets. As of December 31, 2019, the Company had aggregate outstanding long-term notes of $14,759 million, net of $114 million of issuance costs. Each of the Notes were issued at par and are senior unsecured obligations of the Company. Interest is payable semi-annually at fixed rates. A portion of the outstanding notes is denominated in foreign currency (comprised of 5,170 million) and is remeasured into U.S. dollars at each balance sheet date (with remeasurement loss totaling $119 million and $26 million, respectively, for the three and six months ended June 30, 2020).
The following table provides a summary of the Company's outstanding debt and the fair values based on quoted market prices in less active markets as of June 30, 2020 and December 31, 2019:
 
 
Principal Amount at Par
 
 
 
 
Level 2 Fair Value as of
 
 
June 30, 2020
 
December 31, 2019
Issuance Date
 
Maturity
 
June 30, 2020
 
December 31, 2019
 
 
(in millions)
 
 
 
 
(in millions)
5.375% Senior Notes
 
$
500

 
$
500

February 2013
 
February 2021
 
$
512

 
$
518

5.500% Senior Notes
 
700

 
700

February 2015
 
February 2022
 
733

 
744

5.750% Senior Notes
 
400

 
400

February 2014
 
March 2024
 
437

 
444

5.875% Senior Notes
 
800

 
800

February 2015
 
February 2025
 
892

 
896

3.000% Senior Notes (1)
 
527

 

April 2020
 
June 2025
 
545

 

3.625% Senior Notes
 
500

 

April 2020
 
June 2025
 
504

 

4.375% Senior Notes
 
1,000

 
1,000

October 2016
 
November 2026
 
1,043

 
1,026

3.625% Senior Notes (1)
 
1,461

 
1,459

May 2017
 
May 2027
 
1,524

 
1,565

4.875% Senior Notes
 
1,600

 
1,600

October 2017
 
April 2028
 
1,712

 
1,670

5.875% Senior Notes
 
1,900

 
1,900

April 2018
 
November 2028
 
2,164

 
2,111

4.625% Senior Notes (1)
 
1,236

 
1,234

October 2018
 
May 2029
 
1,375

 
1,378

6.375% Senior Notes
 
800

 
800

October 2018
 
May 2029
 
934

 
916

3.875% Senior Notes (1)
 
1,348

 
1,346

April 2019
 
November 2029
 
1,418

 
1,429

5.375% Senior Notes
 
900

 
900

April 2019
 
November 2029
 
989

 
960

3.625% Senior Notes (1)
 
1,236

 
1,234

October 2019
 
June 2030
 
1,274

 
1,273

4.875% Senior Notes
 
1,000

 
1,000

October 2019
 
June 2030
 
1,073

 
1,019

 
 
$
15,908

 
$
14,873

 
 
 
 
$
17,129

 
$
15,949


(1) The following Senior Notes have a principal amount denominated in euro: 3.000% Senior Notes for 470 million, 3.625% Senior Notes for 1,300 million, 4.625% Senior Notes for 1,100 million, 3.875% Senior Notes for 1,200 million, and 3.625% Senior Notes for 1,100 million.
The expected timing of principal and interest payments for these Notes are as follows:

14

Table of Contents

 
As of 
 
June 30,
2020
 
December 31, 2019
 
(in thousands)
Less than one year
$
1,262,421

 
$
736,969

Due after one year and through three years
2,117,306

 
2,581,471

Due after three years and through five years
3,582,529

 
1,705,201

Due after five years
14,614,847

 
15,699,800

Total debt obligations
$
21,577,103

 
$
20,723,441



Each of the Notes are repayable in whole or in part upon the occurrence of a change of control, at the option of the holders, at a purchase price in cash equal to 101% of the principal plus accrued interest. The Company may redeem the Notes prior to maturity in whole or in part at an amount equal to the principal amount thereof plus accrued and unpaid interest and an applicable premium. The Notes include, among other terms and conditions, limitations on the Company's ability to create, incur or allow certain liens; enter into sale and lease-back transactions; create, assume, incur or guarantee additional indebtedness of certain of the Company's subsidiaries; and consolidate or merge with, or convey, transfer or lease all or substantially all of the Company's and its subsidiaries assets, to another person. As of June 30, 2020 and December 31, 2019, the Company was in compliance with all related covenants.
Revolving Credit Facility
As of June 30, 2020, the Company has a $750 million unsecured revolving credit facility ("Revolving Credit Agreement") which matures on March 29, 2024. Revolving loans may be borrowed, repaid and reborrowed until March 29, 2024, at which time all amounts borrowed must be repaid. The Company may use the proceeds of future borrowings under the Revolving Credit Agreement for working capital and general corporate purposes. As of June 30, 2020, no amounts have been borrowed under the Revolving Credit Agreement.
The borrowings under the Revolving Credit Agreement bear interest, at the Company’s option, of either (i) a floating rate equal to a base rate (the “Alternate Base Rate”) or (ii) a rate equal to an adjusted London interbank offered rate (the “Adjusted LIBO Rate”), plus a margin of 0.75%. The Alternate Base Rate is defined as the greatest of (A) the rate of interest published by the Wall Street Journal, from time to time, as the prime rate, (B) the federal funds rate, plus 0.500% and (C) the Adjusted LIBO Rate for a one-month interest period, plus 1.00%. The Adjusted LIBO Rate is defined as the London interbank offered rate for deposits in U.S. dollars, for the relevant interest period, adjusted for statutory reserve requirements, but in no event shall the Adjusted LIBO Rate be less than 0.00% per annum. Regulatory authorities that oversee financial markets have announced that after the end of 2021, they would no longer compel banks currently reporting information used to set the LIBO Rate to continue to make rate submissions. As a result, it is possible that beginning in 2022, the LIBO Rate will no longer be available as a reference rate. Under the terms of the Company's Revolving Credit Agreement, in the event of the discontinuance of the LIBO Rate, a mutually agreed-upon alternate benchmark rate will be established to replace the LIBO Rate. The Company and Lenders shall in good faith establish an alternate benchmark rate which places the Lenders and the Company in the same economic position that existed immediately prior to the discontinuation of the LIBO Rate. The Company does not anticipate that the discontinuance of the LIBO Rate will materially impact its liquidity or financial position.
The Company is also obligated to pay a commitment fee on the undrawn amounts of the Revolving Credit Agreement at an annual rate of 0.10%. The Revolving Credit Agreement requires the Company to comply with certain covenants, including covenants that limit or restrict the ability of the Company’s subsidiaries to incur debt and limit or restrict the ability of the Company and its subsidiaries to grant liens and enter into sale and leaseback transactions; and, in the case of the Company or a guarantor, merge, consolidate, liquidate, dissolve or sell, transfer, lease or otherwise dispose of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole. As of June 30, 2020 and December 31, 2019, the Company was in compliance with all related covenants.


7. Commitments and Contingencies

Content
As of June 30, 2020, the Company had $19.1 billion of obligations comprised of $4.7 billion included in "Current content liabilities" and $3.2 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $11.2 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not yet meet the criteria for asset recognition.

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As of December 31, 2019, the Company had $19.5 billion of obligations comprised of $4.4 billion included in "Current content liabilities" and $3.3 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $11.8 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not yet meet the criteria for asset recognition.
The expected timing of payments for these content obligations is as follows:
 
As of 
 
June 30,
2020
 
December 31,
2019
 
(in thousands)
Less than one year
$
8,415,792

 
$
8,477,367

Due after one year and through three years
8,315,449

 
8,352,731

Due after three years and through five years
1,941,731

 
2,041,340

Due after five years
460,368

 
618,644

Total content obligations
$
19,133,340

 
$
19,490,082


Content obligations include amounts related to the acquisition, licensing and production of content. Obligations that are in non-U.S. dollar currencies are translated to the U.S. dollar at period end rates. An obligation for the production of content includes non-cancelable commitments under creative talent and employment agreements as well as other production related commitments. An obligation for the acquisition and licensing of content is incurred at the time the Company enters into an agreement to obtain future titles. Once a title becomes available, a content liability is recorded on the Consolidated Balance Sheets. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and/or fees for which are not yet determinable as of the reporting date. Traditional film output deals, or certain TV series license agreements where the number of seasons to be aired is unknown, are examples of such license agreements. The Company does not include any estimated obligation for these future titles beyond the known minimum amount. However, the unknown obligations are expected to be significant.
Legal Proceedings
From time to time, in the normal course of its operations, the Company is subject to litigation matters and claims, including claims relating to employee relations, business practices and patent infringement. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and the Company's view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as incurred. The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Company's operations or its financial position, liquidity or results of operations.
The Company is involved in litigation matters not listed herein but does not consider the matters to be material either individually or in the aggregate at this time. The Company's view of the matters not listed may change in the future as the litigation and events related thereto unfold.
Indemnification
In the ordinary course of business, the Company has entered into contractual arrangements under which it has agreed to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements and out of intellectual property infringement claims made by third parties. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract.
The Company's obligations under these agreements may be limited in terms of time or amount, and in some instances, the Company may have recourse against third parties for certain payments. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers that will require it, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The terms of such obligations vary.
It is not possible to make a reasonable estimate of the maximum potential amount of future payments under these or similar agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. No amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification obligations.


8. Stockholders’ Equity
Stock Option Plan

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On June 4, 2020, the Company's stockholders approved the 2020 Stock Plan, which was adopted by the Company’s Board of Directors on March 4, 2020 subject to stockholder approval. The 2020 Stock Plan is the successor to the 2011 Stock Plan. The 2020 Stock Plan provides for the grant of incentive stock options to employees and for the grant of non-statutory stock options, stock appreciation rights, restricted stock and restricted stock units to employees, directors and consultants. The 2020 Stock plan authorized 17,500,000 new shares to be available for award grants. As of the date the 2020 Stock Plan was adopted by the Company's Board of Directors, 5,530,106 shares were available to be granted under the 2011 Stock Plan. These shares are available for award grants under the 2020 Stock Plan.
A summary of the activities related to the Company’s stock option plans is as follows: