NetFlix 2003 Annual Report Download - page 79

NETFLIX, INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(in thousands, except share, per share and per DVD data)
The weighted-average fair value of employee stock options granted during 2001, 2002 and 2003 was $0.16,
$5.19 and $5.98 per share, respectively. The weighted-average fair value of shares granted under the employee
stock purchase plan during 2002 and 2003 was $2.90 and $4.43 per share, respectively.
9. Income Taxes
Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 34
percent to pretax income (loss) as a result of the following:
Year Ended December 31,
2001 2002 2003
Expected tax expense (benefit) at U.S federal statutory rate of
34%............................................ $(13,130) $(7,463) $ 2,214
Current year net operating loss for which no tax benefit is
recognized ...................................... 11,330 4,105 —
Utilization of net operating loss and reversal of other
temporary differences .............................. — — (5,914)
Stock-based compensation ............................ 1,864 3,343 3,644
Other............................................. (64) 15 56
Totalincometaxexpense............................. $ — $ — $ —
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
liabilities are presented below:
As of December 31,
2002 2003
Deferred tax assets: .........................................
Net operating loss carryforwards ............................ $34,270 $40,657
Accruals and reserves ..................................... 10,880 7,602
Other .................................................. 80 592
Gross deferred tax assets .................................... 45,230 48,851
Less: valuation allowance .................................... (45,230) (48,851)
Net deferred tax assets ...................................... $ — $ —
Management has established a valuation allowance for the portion of deferred tax assets for which
realization is uncertain. The total valuation allowance for the years ended December 31, 2002 and 2003
decreased $1,301 and increased $3,621, respectively.
As of December 31, 2003, the Company had net operating loss carryforwards for federal and California
income tax purposes of approximately $108,951 and $56,010, respectively, to reduce future income subject to
income tax. The federal net operating loss carryforwards will expire beginning in 2012 to 2023 and the California
net operating loss carryforwards expire beginning in 2005 to 2013, if not utilized. The State of California has
temporarily suspended the ability to utilize the California net operating loss carryforwards for the 2002 and 2003
tax years.
F-21