NetFlix 2007 Annual Report Download - page 74

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NETFLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The tax effects of temporary differences and tax carryforwards that give rise to significant portions of the
deferred tax assets and liabilities are presented below:
Year Ended December 31,
2007 2006
Deferred tax assets:
Accrualsandreserves .......................................... $ 2,986 $ 3,109
Depreciation ................................................. 473 1,393
Stock-basedcompensation ...................................... 15,736 12,769
Other ....................................................... (699) 1,564
Grossdeferredtaxassets ............................................ 18,496 18,835
Valuation allowance against deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . — (80)
Netdeferredtaxassets.............................................. $18,496 $18,755
The total valuation allowance for the years ended December 31, 2007 and 2006 decreased by $0.08 million
and $0.016 million, respectively.
As a result of the Company’s analysis of expected future income at December 31, 2005, it was considered
more likely than not that substantially all deferred tax assets would be realized, resulting in the release of the
previously recorded valuation allowance and generating a $34.9 million tax benefit. In evaluating its ability to
realize the deferred tax assets, the Company considered all available positive and negative evidence, including its
past operating results and the forecast of future market growth, forecasted earnings, future taxable income, and
prudent and feasible tax planning strategies. As of December 31, 2007 it was considered more likely than not that
substantially all deferred tax assets would be realized, and no valuation allowance was recorded.
As of December 31, 2006, the Company had unrecognized net operating loss carryforwards for federal tax
purposes of approximately $56 million attributable to excess tax deductions related to stock options. In 2007 all
of the unrecognized net operating loss was used to reduce the taxable income and the benefit was credited to
equity.
The Company files income tax returns in the U.S. federal jurisdiction and all of the states where income tax
is imposed. The Company is subject to U.S. federal or state income tax examinations by tax authorities for years
after 1997.
9. Employee Benefit Plan
The Company maintains a 401(k) savings plan covering substantially all of its employees. Eligible
employees may contribute up to 60% of their annual salary through payroll deductions, but not more than the
statutory limits set by the Internal Revenue Service. The Company matches employee contributions at the
discretion of the Board of Directors. During 2007, 2006 and 2005, the Company’s matching contributions totaled
$1.5 million, $1.4 million and $0.9 million, respectively.
F-23