Go Daddy 2015 Annual Report Download - page 164

Table of Contents
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savings, which is recorded as an additional liability under the TRAs. This increase in tax basis also creates additional deferred tax
assets and may also decrease gains, or increase losses, on future dispositions of certain assets to the extent tax basis is allocated to
those assets.
For purposes of calculating the income tax savings we are deemed to realize under the TRAs, we will calculate the U.S.
federal income tax savings using the actual applicable U.S. federal income tax rate and will calculate the state and local income
tax savings using 5% for the assumed combined state and local tax rate, which represents an approximation of our combined state
and local income tax rate, net of federal income tax benefits.
The term of the TRAs commenced upon the completion of our IPO and will continue until all such tax benefits have been
utilized or expire, unless we exercise our rights to terminate the agreements or payments under the agreements are accelerated in
the event we materially breach any of our material obligations under the agreements.
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. 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 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; 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.
See Notes 2 and 12 to our consolidated financial statements for additional information regarding the payable to related
parties pursuant to the TRAs.
The TRAs are subject to a number of risks and uncertainties. For a description of these risks, see "Risk Factors—Risks
Related to Our Company and Our Organizational Structure."
Indirect Taxes
We are subject to indirect taxation in some, but not all, of the various states and foreign jurisdictions in which we conduct
business. Laws and regulations attempting to subject communications and commerce conducted over the Internet to various
indirect taxes are becoming more prevalent, both in the United States and internationally, and may impose additional burdens on
us in the future. Increased regulation could negatively affect our business directly, as well as the businesses of our customers.
Taxing authorities may impose indirect taxes on the Internet-related revenue we generate based on regulations currently being
applied to similar, but not directly comparable, industries. There are many transactions and calculations where the ultimate
indirect tax determination is uncertain. In addition, domestic and international indirect taxation laws are subject to change. We
may be audited in the future, which could result in changes to our indirect tax estimates.