NetFlix 2008 Annual Report Download - page 25

Following certain periods of volatility in the market price of our securities, we became the subject of
securities litigation. We may experience more such litigation following future periods of volatility. This type of
litigation may result in substantial costs and a diversion of management’s attention and resources.
We record substantial expenses related to our issuance of stock options that may have a material negative
impact on our operating results for the foreseeable future.
Our stock-based compensation expenses totaled $12.3 million, $12.0 million and $12.7 million during 2008,
2007 and 2006, 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 lattice-binomial model used by
us requires the input of highly subjective assumptions, including the option’s price volatility of the underlying
stock. If facts and circumstances 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 period
expenses 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, the current uncertain economic climate 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 ........ 165,000 March 2013 Corporate office, general and administrative,
marketing and technology and development
Sunnyvale, California ........ 115,000 April 2009 Receiving and storage center, processing and
shipping center for the San Francisco Bay Area
Columbus, Ohio ............ 90,000 July 2016 Receiving and storage center, processing and
shipping center for the Columbus Area
Hillsboro, Oregon ........... 49,000 April 2011 Customer service center
Beverly Hills, California ...... 20,000 August 2010 Content acquisition, general and administrative
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 July
2016. We also operate a data center in a leased third-party facility in Santa Clara, California.
In the second quarter of 2009, our central receiving and storage center will be moved from its current
location in Sunnyvale, California to Columbus, Ohio. We believe our properties are suitable and adequate for our
present needs, and we periodically evaluate whether additional facilities are necessary.
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