Go Daddy 2015 Annual Report Download - page 162

Table of Contents
34
Equity-Based Compensation
Our equity-based awards are comprised primarily of options. We grant options at exercise prices equal to the fair market
value of our Class A common stock as reported on the NYSE on the date of grant. We measure and recognize compensation
expense for equity-based awards made to employees, service providers and directors based on the grant date fair values of the
awards. For awards with service or performance-based vesting conditions, the grant date fair value is estimated using the Black-
Scholes option-pricing model, which requires management to make assumptions and apply judgment in determining the grant
date fair value of equity-based awards.
The most significant assumptions and judgments include estimating the expected term of awards, the expected volatility of
our Class A common stock, the risk-free interest rates and the expected dividend yield of our Class A common stock. The
assumptions used in our option pricing model represent management’s best estimates. If factors change and different assumptions
are used, our equity-based compensation expense could be materially different in the future.
In addition to the above assumptions, we also estimate a forfeiture rate for our awards, which is based on an analysis of our
historical forfeitures. We will continue to evaluate the appropriateness of the forfeiture rate based on our actual forfeiture
experience, analysis of employee turnover and other factors. Changes in our estimated forfeiture rate can have a significant
impact on our equity-based compensation expense since the cumulative effect of adjusting the forfeiture rate is recognized in the
period in which the estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an
adjustment is made resulting in a decrease to the equity-based compensation expense previously recognized. If a revised forfeiture
rate is lower than the previously estimated forfeiture rate, an adjustment is made resulting in an increase to the equity-based
compensation expense previously recognized.
On a quarterly basis, we estimate when and if performance-based awards will be earned. Equity-based compensation
expense is recognized only for awards considered probable of being earned. The grant date fair value of each award ultimately
expected to vest is recognized as equity-based compensation expense, net of estimated forfeitures, over the requisite service
period.
We will continue to use judgment in evaluating the assumptions related to our equity-based awards on a prospective basis.
As we continue to accumulate additional data related to our awards, we may refine our estimates, which could materially impact
our future equity-based compensation expense.
See Notes 2 and 6 to our consolidated financial statements for additional information regarding equity-based compensation.
Business Combinations
We have made and may continue to make business acquisitions. We include the results of operations of acquired businesses
in our consolidated financial statements as of the respective dates of acquisition. The purchase price of acquisitions, including
estimates of the fair value of contingent consideration when applicable, is allocated to the tangible and intangible assets acquired
and the liabilities assumed, including deferred revenue, based on their estimated fair values on the respective acquisition dates,
with the excess recorded as goodwill. Contingent consideration is then adjusted to fair value in subsequent periods as an increase
or decrease in general and administrative expenses. Acquisition related costs are expensed as incurred.
See Notes 2 and 3 to our consolidated financial statements for additional information regarding business combinations.
Goodwill and Indefinite-Lived Intangible Assets
We annually assess our goodwill and indefinite-lived intangible assets for impairment during the fourth quarter. We will also
perform an assessment at other times if events or changes in circumstances indicate the carrying value of these assets may not be
recoverable.
We first make a qualitative assessment of whether it is more-likely-than-not our single reporting unit’s fair value is less than
its carrying value to determine whether it is necessary to perform the two-step impairment test. The qualitative assessment
includes considering various factors including macroeconomic conditions, industry and market conditions and our historical and
projected operating results. We are only required to perform the two-step impairment test if our qualitative assessment determines