NetFlix 2003 Annual Report Download - page 73

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NETFLIX, INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(in thousands, except share, per share and per DVD data)
In November 2000, in connection with an operating lease, the Company issued a warrant that provided the
lessor the right to purchase 40,000 shares of common stock at $3.00 per share. The Company accounted for the
fair value of the warrant of approximately $216 as an increase to additional paid-in capital with a corresponding
increase to other assets. This asset is being amortized over the term of the related operating lease, which is five
years. As of December 31, 2003, the warrant to purchase 40,000 shares of the Company’s common stock
remained outstanding.
In July 2001, in connection with borrowings under subordinated promissory notes, the Company issued to
the note holders warrants to purchase 13,637,894 shares of the Company’s common stock at $1.50 per share. The
Company accounted for the fair value of the warrants of $10,884 as an increase to additional paid-in capital with
a corresponding discount on subordinated notes payable. As of December 31, 2003, warrants to purchase
9,112,870 shares of the Company’s common stock remained outstanding.
In July 2001, in connection with a capital lease agreement, the Company granted warrants to purchase
170,000 shares of common stock at an exercise price of $1.50 per share. The fair value of approximately $172
was recorded as an increase to additional paid-in capital with a corresponding reduction to the capital lease
obligations. The debt discount is being accreted to interest expense over the term of the lease agreement, which is
45 months. As of December 31, 2003, no warrants were outstanding in connection with the capital lease
agreement.
In July 2001, the Company issued a warrant to purchase 100,000 shares of Series F preferred stock at $9.38
per share to a Web portal company in connection with an integration and distribution agreement. The fair market
value of the warrants of approximately $18 was recorded as marketing expense and an increase to additional
paid-in capital. These shares automatically converted into 66,666 shares of the Company’s common stock at
$14.07 per share upon the closing of the initial public offering in May 2002. As of December 31, 2003, the
warrant to purchase 66,666 shares of the Company’s common stock remained outstanding.
The Company calculated the fair value of the warrants using the Black-Scholes valuation model with the
following assumptions: the terms of the warrants; risk-free rates between 4.92% to 6.37%; volatility of 80%; and
dividend yield of 0.0%.
F-15