NetFlix 2006 Annual Report Download - page 76

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NETFLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share data and percentages)
second quarter through the fourth quarter of 2006, the Company used an estimate of expected life of 4.5 years for
one group and 3 years for the other group. The Company used an estimate of expected life of 4 years for one
group and 3 years for the other group from the second quarter of 2005 through the first quarter of 2006.
The Company bases the risk-free interest rate on U.S. Treasury zero-coupon issues with remaining terms
similar to the expected term on 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 weighted-average fair value of employee stock options granted during 2004, 2005 and 2006 was $8.45,
$6.16 and $10.76 per share, respectively. The weighted-average fair value of shares granted under the employee
stock purchase plan during 2004, 2005 and 2006 was $10.00, $6.68 and $7.49 per share, respectively. As of
December 31, 2006, total unrecognized compensation cost related to unvested stock options is $9 which is
expected to be recognized over the next five months. Total unrecognized compensation cost related to shares
granted under the employee stock purchase plan as of December 31, 2006 is $515 which is expected to be
recognized over the next eleven months.
The following table summarizes stock-based compensation expense, net of tax, related to stock option plans
and employee stock purchases under SFAS 123R which was allocated as follows:
Year Ended December 31,
2004 2005 2006
Fulfillment ........................................ $ 1,702 $ 1,225 $ 925
Technology and development ......................... 6,561 4,446 3,608
Marketing ......................................... 2,507 2,565 2,138
General and administrative ........................... 5,817 6,091 6,025
Stock-based compensation expense before income taxes .... 16,587 14,327 12,696
Income tax benefit .................................. — — (4,937)
Total stock-based compensation after income-taxes ........ $16,587 $14,327 $ 7,759
9. Income Taxes
The components of provision for (benefit from) income taxes for all periods presented were as follows:
Year Ended December 31,
2004 2005 2006
Current tax provision:
Federal ........................................ $ 4 $ 633 $10,282
State .......................................... 1 580 4,804
Total current ................................ 5 1,213 15,086
Deferred tax provision:
Federal ........................................ — (31,453) 15,005
State .......................................... — (3,452) 1,145
Total deferred ............................... — (34,905) 16,150
Amounts credited directly to equity for realized benefit of
additional tax stock option deductions .................. 176 — —
Provision for (benefit from) income taxes ................. $181 $(33,692) $31,236
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