Go Daddy 2015 Annual Report Download - page 114

Table of Contents
GoDaddy Inc.
Notes to Consolidated Financial Statements
(In millions, except share amounts which are reflected in thousands and per share amounts)
As of December 31, 2015 , we have $131.9 million (net of tax) of future tax benefits related to U.S. federal, state and foreign NOLs and $2.6 million of
benefits related to federal and state credits and incentives. This includes $12.2 million of U.S. federal, state and foreign NOLs belonging to our taxable subsidiaries
filing separate income tax returns. A portion of the operating losses will begin to expire in 2028 and continue through 2035 .
As of December 31, 2015 , we have determined undistributed net earnings of $5.1 million related to certain subsidiaries are indefinitely reinvested in
operations outside the U.S. These earnings could become subject to additional taxes if remitted as dividends or loaned to a U.S. affiliate. The resulting U.S. income
tax liabilities could be offset, in whole or in part, by credits allowable for taxes paid to foreign jurisdictions. The actual tax costs will depend on the income tax
laws and circumstances at the time of the realization events.
We have filed income tax returns for years through 2014 . These returns are subject to examination by the taxing authorities in the respective jurisdictions,
generally for three or four years after they were filed. Based on our analysis of tax positions taken on income tax returns filed, we have determined a liability
related to uncertain income tax positions is not required. Although we believe the amounts reflected in our tax returns substantially comply with applicable federal,
state and foreign tax regulations, the respective taxing authorities may take contrary positions based on their interpretation of the law. A tax position successfully
changed by a taxing authority could result in an adjustment to our benefit for income taxes in the period in which a final determination is made.
Payable to Related Parties Pursuant to the TRAs
In the Investor Corp Mergers, we received certain tax attributes, including the OBAs and NOL carryforwards, from the Reorganization Parties. These OBAs
entitle us to the depreciation and amortization previously allocable to the Reorganization Parties. These deductions are allowed prior to the utilization of any NOL
or tax credit carryforwards against income taxes.
Based on current projections of taxable income, and before deduction of any specially allocated depreciation and amortization, we anticipate having enough
taxable income to utilize a portion of these specially allocated deductions related to the OBAs. Accordingly, during the second quarter of 2015 , we initially
recorded a liability of $170.4 million payable to the Reorganization Parties under the TRAs, representing approximately 85% of the calculated tax savings based on
the portion of the OBAs we anticipate being able to utilize in future years. During the third quarter of 2015, we increased this liability to $170.9 million , with the
$0.5 million charge recorded as an increase in general and administrative expenses. During the fourth quarter of 2015, we corrected an immaterial error in the
determination of the liability we currently deem probable and estimable under the TRAs and reduced this liability to $151.6 million , as of December 31, 2015,
with $18.8 million recorded as an increase to additional paid-in capital and $0.5 million recorded as a reduction in general and administrative expenses.
The projection of future taxable income involves significant judgment. Actual taxable income may differ from our estimates, which could significantly
impact the liability under the TRAs. Because we anticipate these additional depreciation and amortization deductions being greater than our taxable income, the
excess deductions allocated to us will increase the amount of our NOL carryforwards. We have determined we will be unable to utilize all of our deferred tax assets
subject to the TRAs; therefore, we have not recorded a liability under the TRAs related to the tax savings we may realize from the utilization of NOL
carryforwards. If utilization of these NOL carryforwards becomes more-likely-than-not in the future, at such time, we will record a liability under the TRAs of up
to an additional $112.4 million related to the tax attributes received in the Investor Corp Mergers, which will be recorded as a charge to our consolidated statement
of operations. Additionally, if the tax attributes are not utilized in future years, it is reasonably possible no amounts would be paid under the TRAs. In this scenario,
the reduction of the liability under the TRAs would result in a benefit to our consolidated statement of operations.
Tax Distributions to Desert Newco's Owners
Desert Newco is subject to an operating agreement put in place at the date of the Merger. The agreement has numerous provisions related to allocations of
income and loss, as well as timing and amounts of distributions to its owners. This agreement also includes a provision requiring cash distributions enabling its
owners to pay their taxes on income passing through from Desert Newco. These tax distributions are computed based on an assumed income tax rate equal to the
sum of (i) the maximum marginal federal income tax rate applicable to an individual and (ii) 7% . The assumed income tax rate currently totals 46.6% , which will
increase to 50.4% in certain cases when the tax on net investment income is applicable.
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