Netflix NFLX

In December 2023, 2025, the Financial FASB issued ASU 2025-10, Government Grants (Topic 832): Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, for Government Grants Received by Business Entities, which requires public entities, establishes authoritative guidance on an annual basis, to provide the recognition, measurement, presentation, and disclosure of government grants. Under ASU 2025-10, government grants are recognized when it is probable that the entity will both comply with the conditions of the grant and the grant will be received. The ASU provides specific categories accounting models for grants related to assets and grants related to income, including options to recognize government grants as deferred income or as a reduction of the asset’s cost basis. The ASU also requires enhanced disclosures regarding the nature of government grants, significant terms and conditions, accounting policies applied, and amounts recognized in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. financial statements. ASU 2023-09 2025-10 is effective for fiscal years beginning after December 15, 2024, 2028, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-09. 2025-10.

Similar to other U.S. companies doing business in Brazil, the Company is involved in a number of matters with Brazilian the local tax authorities regarding as they pertain to non-income tax assessments. Although the Company believes it has meritorious defenses to these matters, there There is inherent complexity and uncertainty with respect to regarding these matters, and the final outcome outcomes may be materially different from our expectations. During the year ended December 31, 2025, developments in another taxpayer’s judicial proceedings influenced our evaluation of the Company’s most significant non-income tax matter in Brazil and we now believe that it is probable that a loss will be incurred. The cumulative loss recognized as an operating expense in the third quarter of the current potential exposure year related to non-income tax assessments with respect to the various issues with Brazilian tax authorities regarding non-income tax assessments is estimated to be was approximately $ 400 million, which is expected 619 million. We continue to increase over time. accrue incremental non-income taxes that the Company believes are probable of being assessed.

In connection with licensing streaming content, we typically enter into multi-year commitments with studios and other content providers. We also enter into multi-year commitments for content that we produce, either directly or through third parties, including elements associated with these productions such as non-cancelable commitments under talent agreements. The payment terms of these agreements are not tied to member usage or the size of our membership base (“fixed cost”) but may be determined by costs of production or tied to such factors as titles licensed and/or theatrical exhibition receipts. Such commitments, to the extent estimable under accounting standards, are included in the Contractual Obligations section of Part II, Item 7, "Management's “Management's Discussion and Analysis of Financial Condition and Results of Operations" Operations” and Note 8, 9, Commitments and Contingencies in the accompanying notes to our consolidated financial statements included in Part II, Item 8, "Financial “Financial Statements and Supplementary Data" Data” of this Annual Report on Form 10-K. Given the multiple-year duration and largely fixed cost nature of content commitments, if business performance does not meet our expectations, our margins may be adversely impacted. Further, we may be unable to react to any reduction in our cash flows from operations, including those caused by a downturn in the economy, by reducing our streaming content obligations in the near-term. Payment terms for certain content commitments, such as content we directly produce, will typically require more up-front cash payments than other content licenses or arrangements whereby we do not fund the production of such content. To the extent revenue growth does not meet our expectations, our liquidity and results of operations could be adversely affected as a result of content commitments and accelerated payment requirements of certain agreements. In addition, the long-term and largely fixed cost nature of our content commitments may limit our flexibility in planning for, or reacting to changes in our business and the market segments in which we operate. If we license and/or produce content that is not favorably received by consumers in a territory, or is unable to be shown in a territory, acquisition and retention may be adversely impacted and given the long-term and fixed cost nature of our content commitments, we may not be able to adjust our content offerings quickly and our results of operations may be adversely impacted.

Net cash provided by (used in) investing activities The increase in our effective tax rate for the year ended December 31, 2024 decreased $2,724 million 2025, as compared to the year ended December 31, 2023, 2024, is primarily due to there being no maturities of investments a decrease in tax benefits associated with federal research and development tax credits as well as the year ended December 31, 2024, as compared growth in income before taxes exceeding the growth in excess tax benefits from stock-based compensation. See Note 11 Income Taxes to maturities of investments of $1,395 million in the year ended December 31, 2023, coupled with an increase in purchases of investments of $1,237 million and an increase in purchases of property and equipment of $91 million. consolidated financial statements for further information regarding income taxes.