Option Grant and Exercise Terms

Table of Contents Content obligations include amounts related to the acquisition, licensing and production of content. An obligation for the production of content includes non-cancelable commitments under creative talent and employment agreements and other production related commitments. An obligation for the acquisition and licensing of content is incurred at the time we enter into an agreement to obtain future titles. Once a title becomes available, a content liability is recorded on the Consolidated Balance Sheets. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and/or fees for which are not yet determinable as of the reporting date. Traditional film output deals, or certain TV series license agreements where the number of seasons to be aired is unknown, are examples of these types of agreements. The contractual obligations table above does not include any estimated obligation for the unknown future titles, payment for which could range from less than one year to more than five years. However, these unknown obligations are expected to be significant and we believe could include approximately $1 billion to $4 billion over the next three years, with the payments for the vast majority of such amounts expected to occur after the next twelve months. The foregoing range is based on considerable management judgments and the actual amounts may differ. Once we know the title that we will receive and the license fees, we include the amount in the contractual obligations table above. (2)Debt obligations include our Notes consisting of principal and interest payments. See Note 6 Debt in the accompanying notes to our consolidated financial statements for further details. (3)See Note 5 Balance Sheet Components in the accompanying notes to our consolidated financial statements for further details regarding leases. As of December 31, 2021, the Company has additional operating leases for real estate that have not yet commenced of $366 million which has been included above. Total lease obligations as of December 31, 2021 increased $677 million from $2,839 million as of December 31, 2020 to $3,516 million as of December 31, 2021 due to growth in facilities to support our growing headcount and growing number of original productions. In addition, as of December 31, 2021, we had gross unrecognized tax benefits of $203 million, of which $39 million was classified in “Other non-current liabilities" in the Consolidated Balance Sheets. At this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made. Free Cash Flow We define free cash flow as cash provided by (used in) operating activities less purchases of property and equipment and change in other assets. We believe free cash flow is an important liquidity metric because it measures, during a given period, the amount of cash generated that is available to repay debt obligations, make strategic acquisitions and investments and for certain other activities like share repurchases. Free cash flow is considered a non-GAAP financial measure and should not be considered in isolation of, or as a substitute for, net income, operating income, cash flow provided by (used in) operating activities, or any other measure of financial performance or liquidity presented in accordance with GAAP. In assessing liquidity in relation to our results of operations, we compare free cash flow to net income, noting that the major recurring differences are excess content payments over amortization, non-cash stock-based compensation expense, non-cash remeasurement gain/loss on our euro-denominated debt, and other working capital differences. Working capital differences include deferred revenue, excess property and equipment purchases over depreciation, taxes and semi-annual interest payments on our outstanding debt. Our receivables from members generally settle quickly. 2021 Year Ended December 31, 2020 2019 Change 2021 vs. 2020 (in thousands) Net cash provided by (used in) operating activities Net cash used in investing activities $ Net cash provided by (used in) financing activities Non-GAAP reconciliation of free cash flow: Net cash provided by (used in) operating activities Purchases of property and equipment 392,610 (1,339,853) (1,149,776) $ 2,427,077 $ (2,887,322) $ (2,034,467) (84)% (505,354) (387,064) (834,499) (165)% 1,237,311 4,505,662 (2,387,087) (193)% 392,610 (524,585) 2,427,077 (2,887,322) (2,034,467) (84)% (497,923) (253,035) (26,662) (5)% Change in other assets (26,919) (7,431) (134,029) (19,488) (262)% Free cash flow $ (158,894) $ 1,921,723 $ (3,274,386) $ (2,080,617) (108)% Net cash provided by operating activities decreased $2,034 million from the year ended December 31, 2020 to $393 million for the year ended December 31, 2021 primarily driven by an increase in investments in content that require more 26

View entire presentation