NetFlix 2009 Annual Report Download - page 48

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. 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. 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.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The primary objective of our investment activities is to preserve principal, while at the same time
maximizing income we receive from investments without significantly increased risk. To achieve this objective,
we follow an established investment policy and set of guidelines to monitor and help mitigate our exposure to
interest rate and credit risk. The policy sets forth credit quality standards and limits our exposure to any one
issuer, as well as our maximum exposure to various asset classes. We maintain a portfolio of cash equivalents
and short-term investments in a variety of securities. These securities are classified as available-for-sale and are
recorded at fair value with unrealized gains and losses, net of tax, included in accumulated other comprehensive
income within stockholders equity in the consolidated balance sheet.
As of December 31, 2009, we had no material impairment charges associated with our short-term
investment portfolio. Although we believe our current investment portfolio has very little risk of material
impairment, we cannot predict future market conditions or market liquidity and can provide no assurance that our
investment portfolio will remain materially unimpaired. Some of the securities we invest in may be subject to
market risk due to changes in prevailing interest rates which may cause the principal amount of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate
and the prevailing interest rate later rises, the value of our investment will decline. At December 31, 2009, our
cash equivalents were generally invested in money market funds, which are not subject to market risk because
the interest paid on such funds fluctuates with the prevailing interest rate. Our short-term investments were
comprised of corporate debt securities, government and agency securities and asset and mortgage-backed
securities. Approximately 52% of the portfolio is invested in government and agency issued securities.
At December 31, 2009, we had securities classified as short-term investments of $186.0 million. Changes in
interest rates could adversely affect the market value of these investments. The table below separates these
investments, based on stated maturities, to show the approximate exposure to interest rates.
(in thousands)
Due within one year .............................................. $ 44,455
Due within five years ............................................. 137,763
Due within ten years ............................................. —
Due after ten years ............................................... 3,800
Total .......................................................... $186,018
A sensitivity analysis was performed on our investment portfolio as of December 31, 2009. The analysis is
based on an estimate of the hypothetical changes in market value of the portfolio that would result from an
immediate parallel shift in the yield curve of various magnitudes. This methodology assumes a more immediate
change in interest rates to reflect the current economic environment.
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