NetFlix 2014 Annual Report Download - page 65

Download and view the complete annual report

Please find page 65 of the 2014 NetFlix annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 82

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82

Table of Contents
As of December 31, 2014 , there were 2,785,721 shares available for future issuance under the 2002 Employee Stock Purchase Plan. The
Company’s ESPP was suspended in 2011 and there were no offerings subsequent to 2011.
Stock
-Based Compensation
Vested stock options granted after June 30, 2004 and before January 1, 2007 can be exercised up to one year following termination of
employment. Vested stock options granted after January 2007 will remain exercisable for the full ten year contractual term regardless of
employment status. The following table summarizes the assumptions used to value option grants using the lattice-binomial model and the
valuation data:
The Company considers several factors in determining the suboptimal exercise factor including the historical and estimated option
exercise behavior and the employee groupings.
The Company estimates expected volatility based on a blend of historical volatility of the Company’s common stock and implied
volatility of tradable forward call options to purchase shares of its common stock. The Company believes that implied volatility of publicly
traded options in its common stock is expected to be more reflective of market conditions and, therefore, can reasonably be expected to be a
better indicator of expected volatility than historical volatility of its common stock. Low trade volume of the Company's tradable forward call
options prior to 2011 precluded sole reliance on implied volatility, and as such the Company includes historical volatility in the computation of
expected volatility.
In valuing shares issued under the Company’s employee stock option plans, the Company bases the risk-free interest rate on U.S.
Treasury zero-coupon issues with terms similar to the contractual term of the options. The Company does not anticipate paying any cash
dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. The Company does not
use a post-vesting termination rate as options are fully vested upon grant date.
Stock Repurchase Program
Under the stock repurchase plan announced on June 11, 2010, the Company was authorized to repurchase up to $300 million of its
common stock through the end of 2012. As of December 31, 2012, the Company has repurchased $259.0 million of its common stock under
this plan. As of December 31, 2012, the plan has expired and the remaining $41.0 million was unused. There were no stock repurchases in
2012, 2013 or 2014.
58
Year Ended December 31,
2014
2013
2012
Dividend yield
—
%
—
%
—
%
Expected volatility
41% -
48%
51% -
54%
55% -
65%
Risk-free interest rate
2.39% -
2.83%
1.87% -
2.71%
1.61% -
2.01%
Suboptimal exercise factor
2.66 -
5.44
2.33 -
3.92
2.26 -
3.65
Valuation data:
Weighted-average fair value (per share)
211.22
113.74
$
41.00
Total stock-based compensation expense (in thousands)
115,239
73,100
73,948
Total income tax benefit related to stock options (in thousands)
43,999
28,096
28,537