NetFlix 2012 Annual Report Download - page 76

2012, the total amount of gross unrecognized tax benefits was $43.3 million, of which $35.7 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, 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
Increases related to tax positions taken during prior periods ...................... 8,487
Decreases related to tax positions taken during prior periods ..................... (320)
Increases related to tax positions taken during the current period .................. 7,037
Balance as of December 31, 2012 .............................................. $43,337
The Company includes interest and penalties related to unrecognized tax benefits within the provision for
income taxes. As of December 31, 2012 and December 31, 2011, the total amount of gross interest and penalties
accrued was $3.1 million and $2.4 million, respectively, which is classified as “Other non-current liabilities” in
the Consolidated Balance Sheets. Interest and penalties included in our provision for income taxes were not
material in all the periods presented.
The Company files U.S. federal, state and foreign tax returns. The Company is currently under examination
by the IRS for the years 2008 through 2011. The Company is also currently under examination by the state of
California for the years 2006 and 2007. The years 1997 through 2005, as well as 2008 through 2011, remain
subject to examination by the state of California.
Given the potential outcome of the current examinations as well as the impact of the current examinations
on the potential expiration of the statute of limitations, it is reasonably possible that the balance of unrecognized
tax benefits could significantly change within the next twelve months. However, at this time, an estimate of the
range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.
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. During 2012, 2011 and 2010, the Company’s matching contributions totaled
$5.2 million, $4.0 million and $2.8 million, respectively.
10. Segment Information
Beginning in the fourth quarter of 2011, the Company has three operating segments: Domestic streaming,
International streaming and Domestic DVD. Segment information is presented along the same lines that the
Company’s chief operating decision maker reviews the operating results in assessing performance and allocating
resources. The Company’s chief operating decision maker reviews revenue and contribution profit for each of the
reportable segments. Contribution profit (loss) is defined as revenues less cost of revenues and marketing
expenses.
Revenues and the related credit card fees are attributed to the operating segment based on the nature of the
underlying subscription (DVD or streaming) and the geographic region from which the subscription originates.
Cost of revenues are primarily attributed to the operating segment based on the amounts directly incurred by the
segment to obtain content and deliver it to the specific region. Allocations of certain corporate costs related to
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