NetFlix 2008 Annual Report Download - page 72

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NETFLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
exercised their options on December 31, 2008. This amount changes based on the fair market value of the
Company’s common stock. Total intrinsic value of options exercised for the years ended December 31, 2008,
2007 and 2006 was $18.9 million, $13.7 million and $29.2 million, respectively.
Cash received from option exercises for the years ended December 31, 2008, 2007 and 2006 was $14.0
million, $5.8 million and $8.4 million, respectively.
The following table summarizes information on outstanding and exercisable options as of December 31,
2008:
Options Outstanding and Exercisable
Exercise Price Number of Options
Weighted-Average
Remaining
Contractual Life
(Years)
Weighted-Average
Exercise Price
$1.50 1,021,220 2.59 $ 1.50
$ 3.00 – $11.92 598,583 5.54 9.88
$12.38 – $19.34 588,838 6.66 16.41
$19.48 – $22.04 589,835 8.06 20.87
$22.15 – $25.35 588,033 8.17 23.26
$25.39 – $26.90 572,297 7.61 26.28
$27.10 – $29.22 566,277 7.42 27.72
$29.23 – $32.60 560,593 8.01 30.54
$34.75 – $36.37 227,434 5.11 35.56
$36.51 51,906 9.25 36.51
5,365,016 6.36 18.81
Stock-Based Compensation
Vested stock options granted before June 30, 2004 can be exercised up to three months following
termination of employment. Vested stock options granted after June 30, 2004 and before January 1, 2007 can be
exercised up to one year following termination of employment. For newly granted options, beginning in January
2007, employee stock options will remain exercisable for the full ten year contractual term regardless of
employment status. In conjunction with this change, the Company changed its method of calculating the fair
value of new stock-based compensation awards granted under its stock option plans from a Black-Scholes model
to a lattice-binomial model. The Company believes that the lattice-binomial model is more capable of
incorporating the features of the Company’s employee stock options than closed-form models such as the Black-
Scholes model. The lattice-binomial model has been applied prospectively to options granted in 2007. The
following table summarizes the assumptions used to value option grants using the Black-Scholes model in 2006
and a lattice-binomial model in 2007 and 2008:
Year Ended December 31,
2008 2007 2006
Dividend yield ............................. 0% 0% 0%
Expected volatility .......................... 50%–60% 43%–52% 48%
Risk-free interest rate ....................... 3.68% – 4.00% 4.40% – 4.92% 4.76%
Expected term (in years) ..................... — — 3.93
Suboptimal exercise factor ................... 1.76-2.04 1.77-2.09 —
F-23