NetFlix 2008 Annual Report Download - page 67

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NETFLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
4. Warrants
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 $10.9 million as an increase to additional paid-in capital
with a corresponding discount on subordinated notes payable. As of December 31, 2004, warrants to purchase
9,100,120 shares of the Company’s common stock remained outstanding. Warrants to purchase 1,894 shares
were exercised in 2005 and accordingly, as of December 31, 2005, warrants to purchase 9,098,226 shares of the
Company’s common stock remained outstanding. In 2006, the remaining warrants were exercised, and
accordingly, there were no warrants outstanding as of December 31, 2006. There were no warrants issued in
2007 or 2008.
5. Commitments and Contingencies
The Company leases facilities under non-cancelable operating leases with various expiration dates through
2016. The facilities generally require the Company to pay property taxes, insurance and maintenance costs.
Further, several lease agreements contain rent escalation clauses or rent holidays. For purposes of recognizing
minimum rental expenses on a straight-line basis over the terms of the leases, the Company uses the date of
initial possession to begin amortization, which is generally when the Company enters the space and begins to
make improvements in preparation of intended use. For scheduled rent escalation clauses during the lease terms
or for rental payments commencing at a date other than the date of initial occupancy, the Company records
minimum rental expenses on a straight-line basis over the terms of the leases in the consolidated statements of
operations. The Company has the option to extend or renew most of its leases which may increase the future
minimum lease commitments.
Future minimum payments under lease financing obligations and non-cancelable operating leases as of
December 31, 2008 are as follows:
Year Ending December 31,
Future
Minimum
Payments
(in thousands)
2009 .......................................................... $16,658
2010 .......................................................... 14,142
2011 .......................................................... 10,654
2012 .......................................................... 8,823
2013 .......................................................... 2,612
Thereafter ...................................................... 1,439
Total minimum payments ......................................... $54,328
Rent expense associated with the operating leases was $15.3 million, $11.9 million and $10.8 million for the
years ended December 31, 2008, 2007 and 2006, respectively.
The Company also has $116.7 million of commitments at December 31, 2008 related to streaming content
license agreements that have been executed but for which the streaming content does not meet the criteria in
SFAS 63 to be classified as an asset.
F-18