NetFlix 2012 Annual Report Download - page 75

foreign subsidiaries as of December 31, 2012. The Company intends to reinvest these earnings indefinitely in its
foreign subsidiaries. If these earnings were distributed to the United States in the form of dividends or otherwise,
the Company would be subject to additional U.S. income taxes net of available foreign tax credits associated with
these earnings. The amount of unrecognized deferred income tax liability related to these earnings is immaterial.
Income tax benefits attributable to the exercise of employee stock options at $4.4 million, $45.5 million and
$62.2 million for the years ended December 31, 2012, 2011 and 2010, respectively, were recorded directly to
additional paid-in-capital.
A reconciliation of the provision for income taxes, with the amount computed by applying the statutory
federal income tax rate to income before income taxes is as follows:
Year Ended December 31,
2012 2011 2010
(in thousands)
Expected tax expense at U.S. federal statutory rate of 35% ..... $10,667 $125,833 $ 93,694
State income taxes, net of Federal income tax effect ........... 2,914 15,042 15,349
R&D tax credit ........................................ (1,803) (8,365) (3,207)
Other ................................................ 1,550 886 1,007
Provision for income taxes ............................... $13,328 $133,396 $106,843
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,
2012 2011
(in thousands)
Deferred tax assets (liabilities):
Stock-based compensation ............................. $66,827 $ 39,337
Accruals and reserves ................................. 11,155 9,193
Depreciation ........................................ (18,356) (17,381)
R&D credits ........................................ 8,480 6,335
Other .............................................. (244) 844
Deferred tax assets ....................................... $67,862 $ 38,328
Deferred tax assets include $11.0 million and $10.0 million classified as “Other current assets” and
$56.9 million and $28.3 million classified as “Other non-current assets” in the Consolidated Balance Sheets as of
December 31, 2012 and 2011, 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, 2012 and 2011, it was considered more likely than not that all deferred
tax assets would be realized, and no significant valuation allowance was recorded.
On January 2, 2013, the American Taxpayer Relief Act of 2012 (H.R. 8) was signed into law which
retroactively extends the Federal research and development credit from January 1, 2012 through December 31,
2013. As a result, the Company will recognize the retroactive benefit of the Federal research and development
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.
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,
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