NetFlix 2004 Annual Report Download - page 84

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NETFLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share, per share and percentages)
continue to monitor these and other relevant factors used to estimate expected volatility for future option grants.
In addition, the Company bases its expected life assumption on historical experience as well as the terms and
vesting periods of the options granted. Beginning with the second quarter of 2004, the Company bifurcated its
option grants into two employee groupings who have exhibited different exercise behavior and changed the
estimate of the expected life from 1.5 years for all option grants in the first quarter of 2004 to 1 year for one
group and 2.5 years for the other group in the second quarter of 2004.
The weighted-average fair value of employee stock options granted during 2002, 2003 and 2004 was $5.19,
$5.98 and $8.45 per share, respectively. The weighted-average fair value of shares granted under the employee
stock purchase plan during 2003 and 2004 was $4.43 and $10.00 per share, respectively.
9. Income Taxes
The provision for income tax expense consists of the following:
Year Ended December 31,
2002 2003 2004
Currently payable
Federal ........................................... $— $— $ 4
State ............................................. — — 1
Total current .......................................... — — $ 5
Amounts credited to equity for realized benefit of additional tax
stockoptiondeductions................................ — — 176
Total income tax provision ............................... $— $— $181
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,
2002 2003 2004
Expected tax expense (benefit) at U.S federal statutory rate
of34% ....................................... $(7,463) $ 2,214 $ 7,404
State income taxes net of federal income tax effect ....... — — 28
Valuation allowance ............................... 4,105 (5,914) (3,816)
Stock-based compensation .......................... 3,343 3,644 (3,471)
Other........................................... 15 56 36
Totalincometaxexpense........................... $ — $ — $ 181
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