NetFlix 2006 Annual Report Download - page 30

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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. If factors change and we
employ different assumptions for estimating stock-based compensation expense in future periods or if we decide
to use a different valuation model, the future periods may differ significantly from what we have recorded in the
current period and could materially affect the fair value estimate of stock-based payments, our operating income,
net income and net income per share.
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, lease
expiration and the primary use of each of our principal properties:
Location
Estimated
Square
Footage
Lease
Expiration Date Primary Use
Los Gatos, California ...... 81,000 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 Receiving and storage center, processing and
shipping center for San Francisco Bay Area
Hillsboro, Oregon ......... 27,000 November 2009 Customer service center
Burbank, California ....... 18,000 April 2012 Encoding
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 October
2011. We also operate a datacenter in a leased third-party facility in Santa Clara, California.
In March 2006, we exercised our option to lease a building adjacent to our headquarters in Los Gatos,
California. The building will comprise approximately 80,000 square feet of office space and have an initial term
of 5 years. The building is expected to be completed in the first quarter of 2008.
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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