NetFlix 2011 Annual Report Download - page 33

General and Administrative
General and administrative expenses consist of payroll and related expenses for executive and
administrative personnel, as well as recruiting, professional fees and other general corporate expenses. General
and administrative expenses also include the gain on disposal of DVDs.
Year ended December 31, Change
2011 2010 2011 vs. 2010
(in thousands, except percentages)
General and administrative ......................... $117,937 $64,461 83.0%
As a percentage of revenues ........................ 3.6% 2.9%
The $53.5 million increase in general and administrative expenses was primarily attributable to an increase
in personnel-related costs of $33.6 million attributed to an $11.5 million increase in stock-based compensation
and a 32% increase in average headcount. Legal costs increased $6.6 million primarily resulting from an increase
in costs associated with various claims against us. We expect legal costs to continue at a high level for the
foreseeable future as we defend these claims. Other miscellaneous expenses primarily related to the use of
outside and professional services, taxes, and insurance increased by $13.3 million.
Year ended December 31, Change
2010 2009 2010 vs. 2009
(in thousands, except percentages)
General and administrative ........................ $64,461 $46,773 37.8%
As a percentage of revenues ........................ 2.9% 2.8%
The $17.7 million increase in general and administrative expenses was primarily attributable to an increase
in personnel-related costs of $11.7 million attributed to a $7.6 million increase in stock-based compensation
expense and a 23.1% increase in headcount. Legal costs increased $8.9 million primarily resulting from ongoing
litigation of claims against the Company as well as a $2.1 million release of accruals in 2009 that was associated
with a former class action suit that settled in 2008. The terms of the class action settlement provided certain
former and current subscribers with an optional free month subscription or free one-month upgrade to be utilized
prior to the third quarter of 2009. The accrual related to those subscribers who did not utilize the free month prior
to expiration was released in 2009.
Legal Settlement
Subsequent to December 31, 2011, we engaged in mediation of a legal claim pending in the Northern
District of California made in January 2011 related to our compliance with the Video Privacy Protection Act.
This mediation resulted in a settlement of the matter which includes payment of $9.0 million, which is
recognized in the Consolidated Statement of Operations for the year ended December 31, 2011, and is anticipated
to be paid in 2012. The Company had previously evaluated this claim and determined it to be immaterial and that
a potential loss was not probable. Accordingly, no amount had been accrued prior to the mediation and
settlement.
Interest Expense
Interest expense consists of the interest on our lease financing obligations and the interest on our 8.50%
senior notes including the amortization of debt issuance costs. Starting in the fourth quarter of 2011, interest
expense includes the amortization of debt issuance costs on our Convertible Notes issued in November 2011.
Also, in the fourth quarter of 2009, we expensed the debt issuance costs related to our line of credit.
Year ended December 31, Change
2011 2010 2011 vs. 2010
(in thousands, except percentages)
Interest expense ..................................... $20,025 $19,629 2.0%
As a percentage of revenues ............................ 0.6% 0.9%
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