NetFlix 2007 Annual Report Download - page 46

Indemnifications
In the ordinary course of business, we enter into contractual arrangements under which we agree 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 our 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, which procedures typically allow
us to challenge the other party’s claim. Further, our obligations under these agreements may be limited in terms
of time and/or amount, and in some instances, we may have recourse against third parties for certain payments
made by it under these agreements. In addition, we have entered into indemnification agreements with our
directors and certain of our officers that will require us, 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.
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141-R, Business
Combinations (SFAS No. 141-R), to replace SFAS No. 141, Business Combinations. SFAS No. 141-R requires
the use of the acquisition method of accounting, defines the acquirer, establishes the acquisition date and
broadens the scope to all transactions and other events in which one entity obtains control over one or more other
businesses. This statement is effective for financial statements issued for fiscal years beginning on or after
December 15, 2008. We do not expect the adoption of this standard to have a material effect on our financial
position or results of operations.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. SFAS No. 159 allows companies to choose to measure many financial instruments and
certain other items at fair value. The statement requires that unrealized gains and losses on items for which the
fair value option has been elected to be reported in earnings. SFAS No. 159 also amends certain provisions of
SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007, although earlier adoption is permitted. We do not expect the
adoption of this standard to have a material effect on our financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 establishes a
framework for measuring the fair value of assets and liabilities. This framework is intended to provide increased
consistency in how fair value determinations are made under various existing accounting standards which permit,
or in some cases require, estimates of fair market value. SFAS No. 157 was effective for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged,
provided that the reporting entity has not yet issued financial statements for that fiscal year, including any
financial statements for an interim period within that fiscal year. In December 2007, the FASB issued proposed
FASB Staff Position (“FSP”) No. 157-b (FSP No. 157-b), which would delay the effective date of SFAS No. 157
for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value
in the financial statements on a recurring basis. FSP No. 157-b partially defers the effective date of SFAS
No. 157 to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years for items
within the scope of FSP No. 157-b. We do not expect the adoption of this standard to have a material effect on
our financial position or results of operations.
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes.
The interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s financial
statements in accordance with SFAS No. 109, Accounting for Income Taxes. Specifically, the pronouncement
prescribes a recognition threshold and a measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides
guidance on the related derecognition, classification, interest and penalties, accounting for interim periods,
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