NetFlix 2009 Annual Report Download - page 79

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 are presented below (in thousands):
Year Ended December 31,
2009 2008
Deferred tax assets:
Accruals and reserves ........................................ $ 1,144 $ 1,378
Depreciation ............................................... (3,259) 2,947
Stock-based compensation .................................... 16,824 17,440
R&D credits ................................................ 3,178 2,636
Other ..................................................... 1,166 1,103
Deferred tax assets .............................................. $19,053 $25,504
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, 2009 and
2008, it was considered more likely than not that substantially all deferred tax assets would be realized, and no
valuation allowance was recorded.
The Company classifies gross interest and penalties and unrecognized tax benefits that are not expected to
result in payment or receipt of cash within one year as non-current liabilities in the consolidated balance sheet.
As of December 31, 2009, the total amount of gross unrecognized tax benefits was $13.2 million, of which $10.7
million, if recognized, would favorably impact the Company’s effective tax rate. As of December 31, 2008, the
Company had $10.9 million gross unrecognized benefits, of which $8.7 million, if recognized, would favorably
impact the Company’s effective tax rate. The Company’s unrecognized tax benefits are classified as other
non-current liabilities in the Consolidated Balance Sheet. The aggregate changes in the Company’s total gross
amount of unrecognized tax benefits are summarized as follows (in thousands):
Balance as of December 31, 2007 .............................................. $ —
Increases related to tax positions taken during the current period .................. 10,859
Balance as of December 31, 2008 .............................................. $10,859
Increases related to tax positions taken during the current period .................. 2,385
Balance as of December 31, 2009 .............................................. $13,244
The Company includes interest and penalties related to unrecognized tax benefits within the provision for
income taxes. As of the date of adoption, the Company had no accrued gross interest and penalties relating to
unrecognized tax benefits. As of December 31, 2009, the total amount of gross interest and penalties accrued was
$0.9 million, which is classified as other non-current liabilities in the consolidated balance sheet.
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 US federal income tax examinations by the IRS for years after 2000 and
state income tax examination by state taxing authorities for years after 1999. The Company does not believe it is
reasonably possible that its unrecognized tax benefits would significantly change over the next twelve months.
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