NetFlix 2005 Annual Report Download - page 36

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our employees on a monthly basis. The vesting periods provide for options to vest immediately, in comparison
with the three to four-year vesting periods for stock options granted prior to the third quarter of 2003. As a result
of immediate vesting, stock-based compensation expenses determined under SFAS No. 123 are fully recognized
in the same periods as the monthly stock option grants. In addition, we continue to amortize the deferred
compensation of stock options with three to four-year vesting periods granted prior to the third quarter of 2003
over the remaining vesting periods. Our stock-based compensation expenses totaled $10.7 million, $16.6 million
and $14.3 million during 2003, 2004 and 2005, respectively. We expect our stock-based compensation expenses
will continue to be significant in future periods, which will have an adverse impact on our operating results. The
Black-Scholes option-pricing model, used by us, requires the input of highly subjective assumptions, including
the option’s expected life and the price volatility of the underlying stock. Changes in the subjective input
assumptions can materially affect the fair value estimate.
Financial forecasting by us and financial analysts who may publish estimates of our performance may
differ materially from actual results.
Given the dynamic nature of our business and the inherent limitations in predicting the future, forecasts of
our revenues, gross margin, operating expenses, number of paying subscribers, number of DVDs shipped per day
and other financial and operating data may differ materially from actual results. Such discrepancies could cause a
decline in the trading price of our common stock.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We do not own any real estate. The following table sets forth the location, approximate square footage and
the primary use of each of our principal properties:
Location
Estimated
Square
footage
Lease
expiration date Primary Use
Los Gatos, California ...... 80,000 December 2012 Corporate Office, general and administrative,
marketing, and technology and development
Beverly Hills, California .... 18,000 August 2009 Content acquisition, general and administrative
Sunnyvale, California ...... 115,000 April 2009 Customer service center, receiving and storage
center, processing and shipping center for San
Francisco Bay Area
We operate a nationwide network of distribution centers that serve major metropolitan areas throughout the
United States. These fulfillment centers are under lease agreements that expire at various dates through
December 2010. We also operate a datacenter in a leased third-party facility in Santa Clara, California.
We believe our properties are suitable and adequate for our present needs, and we periodically evaluate
whether additional facilities are necessary.
Item 3. Legal Proceedings
Information with respect to this item may be found in Note 6 of the Notes to the Consolidated Financial
Statements in Item 8, which information is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
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