NetFlix 2011 Annual Report Download - page 72

The tax effects of temporary differences and tax carryforwards that give rise to significant portions of the
deferred tax assets are presented below:
As of December 31,
2011 2010
(in thousands)
Deferred tax assets/(liabilities):
Accruals and reserves ......................................... $ 9,193 $ 1,764
Depreciation ................................................. (17,381) (5,970)
Stock-based compensation ...................................... 39,337 19,084
R&D credits ................................................. 6,335 4,351
Other ...................................................... 844 461
Deferred tax assets ................................................ $38,328 $19,690
Deferred tax assets include $10.0 million and $2.2 million classified as “Other current assets” and $28.3
million and $17.5 million classified as “Other non-current assets” in the Consolidated Balance Sheets as of
December 31, 2011 and 2010, respectively. In evaluating its ability to realize the net 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, 2011 and 2010, it was considered more likely than not that substantially
all deferred tax assets would be realized, and no significant valuation allowance was recorded.
In December 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010
were signed into law. One of the major components of this legislation is the reinstatement of the Federal R&D
credit retroactively to January 1, 2010. As a result, the Company recorded a Federal R&D credit of
approximately $1.8 million as a discrete item in the fourth quarter of 2010.
The Company classifies unrecognized tax benefits that are not expected to result in payment or receipt of
cash within one year as “Other non-current liabilities” in the Consolidated Balance Sheets. As of December 31,
2011, the total amount of gross unrecognized tax benefits was $28.1 million, of which $22.4 million, if
recognized, would favorably impact the Company’s effective tax rate. 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, 2009 .............................................. $13,244
Increases related to tax positions taken during prior periods ...................... 1,150
Increases related to tax positions taken during the current period .................. 6,283
Balance as of December 31, 2010 .............................................. $20,677
Decreases related to tax positions taken during prior periods ..................... (46)
Increases related to tax positions taken during the current period .................. 10,739
Decreases related to expiration of statute of limitations ......................... (3,237)
Balance as of December 31, 2011 .............................................. $28,133
The Company includes interest and penalties related to unrecognized tax benefits within the provision for
income taxes. As of December 31, 2011, the total amount of gross interest and penalties accrued was $2.4
million, which is classified as “Other non-current liabilities” in the Consolidated Balance Sheet.
The Company files U.S. federal and state tax returns. The Company is currently under examination by the
IRS for the years 2008 and 2009, and the year 2010 remains subject to examination by the IRS. The statute of
limitations for years 1997 through 2007 expired in September 2011 which resulted in a discrete benefit of
approximately $3.5 million in the three months ended September 30, 2011. The Company is currently under
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