NetFlix 2009 Annual Report Download - page 70

NETFLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Credit Agreement
In September 2009, the Company entered into a credit agreement which provided for a $100 million three-
year revolving line of credit. Loans under the credit agreement bore interest, at the Company’s option, at either a
base rate determined in accordance with the credit Agreement, plus a spread of 1.75% to 2.25%, or an adjusted
LIBOR rate plus a spread of 2.75% to 3.25%. In October 2009, the Company borrowed $20 million under the
credit agreement. The proceeds, net of issuance costs, to the Company were approximately $19.0 million. In
connection with the issuance of the 8.50% Notes, the Company repaid all outstanding amounts under and
terminated the credit agreement. Issuance costs related to the line of credit are included in interest expense.
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.
Because the terms of the Company’s original facilities lease agreements required the Company’s
involvement in the construction funding of the buildings at its Los Gatos, California headquarters site, the
Company is the “deemed owner” (for accounting purposes only) of these buildings. Accordingly, the Company
recorded an asset of $40.7 million, representing the total costs of the buildings and improvements, including the
costs paid by the lessor (the legal owner of the buildings), with corresponding liabilities. Upon completion of
construction of each building, the Company did not meet the sale-leaseback criteria for de-recognition of the
building assets and liabilities. Therefore the leases are accounted for as financing obligations.
Future minimum payments under lease financing obligations and non-cancelable operating leases as of
December 31, 2009 are as follows:
Year Ending December 31,
Future
Minimum
Payments
(in thousands)
2010 .......................................................... $17,214
2011 .......................................................... 13,950
2012 .......................................................... 11,506
2013 .......................................................... 5,064
2014 .......................................................... 3,144
Thereafter ...................................................... 1,868
Total minimum payments ......................................... $52,746
Future minimum payments under lease financing obligations as of December 31, 2009 total $12.4
million. The lease financing obligation balance at the end of the lease term will be approximately $32.6 million
which reflects the net book value of the buildings to be relinquished to the lessor.
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