NetFlix 2010 Annual Report Download - page 66

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The following table summarizes information on outstanding and exercisable options as of December 31,
2010:
Options Outstanding and Exercisable
Exercise Price
Number of
Options
Weighted-Average
Remaining
Contractual Life
(Years)
Weighted-Average
Exercise Price
$1.50 323,212 1.01 $ 1.50
$ 3.00 – $11.92 325,554 3.99 10.83
$ 12.38 – $19.48 303,127 4.58 16.36
$ 20.02 – $23.36 295,297 6.16 21.76
$ 23.48 – $27.11 307,885 5.80 25.95
$ 27.24 – $30.94 308,394 6.27 29.44
$ 31.00 – $40.62 303,057 5.22 35.34
$ 40.94 – $61.03 336,232 8.74 50.16
$ 69.70 – $134.91 301,154 9.40 96.88
$154.66 – $200.14 88,218 9.83 172.56
2,892,130
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 a lattice-binomial model:
Year Ended December 31,
2010 2009 2008
Dividend yield ............... 0% 0% 0%
Expected volatility ............ 46%–54% 46%–56% 50%–60%
Risk-free interest rate .......... 2.65% – 3.67% 2.60% – 3.62% 3.68% – 4.00%
Suboptimal exercise factor ...... 1.78 – 3.28 1.73 – 2.01 1.76 – 2.04
The Company bifurcates its option grants into two employee groupings (executive and non-executive) based
on exercise behavior and considers several factors in determining the estimate of expected term for each group,
including the historical option exercise behavior, the terms and vesting periods of the options granted. In the year
ended December 31, 2010, the Company used a suboptimal exercise factor ranging from 2.15 to 3.28 for
executives and 1.78 to 2.09 for non-executives, which resulted in a calculated expected term of the option grants
of 6 years for executives and 4 years for non-executives. In the year ended December 31, 2009, the Company
used a suboptimal exercise factor ranging from 1.87 to 2.01 for executives and 1.73 to 1.76 for non-executives,
which resulted in a calculated expected term of the option grants of 4 years for executives and 3 years for
non-executives. In the year ended December 31, 2008, the Company used a suboptimal exercise factor ranging
from 1.90 to 2.04 for executives and 1.76 to 1.77 for non-executives, which resulted in a calculated expected
term of the option grants of 4 years for executives and 3 years for non-executives.
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