NetFlix 2012 Annual Report Download - page 36

Interest expense was relatively flat as compared to the prior year. Interest expense in 2011 consists primarily
of $17.0 million of interest due on our 8.50% Notes.
Provision for Income Taxes
Year Ended December 31, Change
2012 2011 2012 vs. 2011
(in thousands, except percentages)
Provision for income taxes ......................... $13,328 $133,396 (90)%
Effective tax rate ................................ 44% 37%
In 2012, our effective tax rate differed from the federal statutory rate of 35% by $2.7 million primarily due
to state income taxes and nondeductible expenses partially offset by the California research and development
(“R&D”) credit. The increase in our effective tax rate for the year ended December 31, 2012 as compared to the
year ended December 31, 2011 was primarily attributable to the expiration of the Federal R&D credit on
December 31, 2011.
On January 2, 2013, the American Taxpayer Relief Act of 2012 (H.R. 8) was signed into law which
retroactively extends the Federal R&D credit from January 1, 2012 through December 31, 2013. As a result, we
will recognize the retroactive benefit of the 2012 Federal R&D credit of approximately $3.1 million as a discrete
item in the first quarter of 2013, the period in which the legislation, including the reinstatement, was enacted.
Year Ended December 31, Change
2011 2010 2011 vs. 2010
(in thousands, except percentages)
Provision for income taxes ........................ $133,396 $106,843 25%
Effective tax rate ............................... 37% 40%
In 2011, our effective tax rate differed from the federal statutory rate of 35% primarily due to state income
taxes of $15.0 million or 4.2% of income before income tax. This was partially offset by the expiration of a
statute of limitations for years 1997 through 2007 resulting in a discrete benefit of $3.5 million in the third
quarter of 2011 and Federal and California R&D credits of $5.1 million. The decrease in our effective tax rate for
the year ended December 31, 2011 as compared to the year ended December 31, 2010 was attributable to the
discrete benefit of $3.5 million, higher R&D tax credits and a lower effective tax rate for California.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments were $748.1 million and $797.8 million at December 31,
2012 and 2011, respectively. Our primary uses of cash include the acquisition and licensing of content, content
delivery expenses, marketing and payroll related expenses. We expect to continue to make significant
investments to license streaming content both domestically and internationally and expect to obtain more original
programs in 2013. These investments will impact our liquidity and we expect to have negative operating cash
flows and/or use of cash in future periods.
On January 29, 2013 we announced the pricing of an offering of $500 million aggregate principal amount of
5.375% senior notes due 2021 (the “5.375% Notes”). We expect the sale of the 5.375% Notes to close on
February 1, 2013 and we intend to use approximately $225 million of the net proceeds to redeem our 8.50%
Notes. Although we currently anticipate that the remaining proceeds from the 5.375% Notes together with our
available funds will be sufficient to meet our cash needs for the foreseeable future, we may be required or choose
to obtain additional financing. Our ability to obtain additional financing will depend on, among other things, our
development efforts, business plans, operating performance, current and projected compliance with our debt
covenants, and the condition of the capital markets at the time we seek financing. We may not be able to obtain
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