Go Daddy 2015 Annual Report Download - page 98

Table of Contents
GoDaddy Inc.
Notes to Consolidated Financial Statements
(In millions, except share amounts which are reflected in thousands and per share amounts)
Advertising costs are expensed either as incurred, at the time a commercial initially airs or when a promotion first appears in the media. Advertising
expenses were $177.6 million , $139.4 million and $121.1 million during 2015 , 2014 and 2013 , respectively. At December 31, 2015 , we had contractual
commitments for certain marketing agreements with future payments totaling $20.4 million due in 2016 .
Customer Care
Customer care expenses primarily consist of personnel costs associated with our customer consultation and care team. Customer care expenses also include
third-party customer care center operating costs.
General and Administrative
General and administrative expenses primarily consist of personnel and related overhead costs for our executive leadership, accounting, finance, legal and
human resource functions. General and administrative expenses also include professional service fees for audit, legal, tax, accounting and acquisitions, rent for all
office space, insurance and other general costs.
Equity-Based Compensation
Equity-based awards are accounted for using the fair value method. Grant date fair values are determined using the Black-Scholes option pricing model and a
single option award approach. The measurement date for performance vesting options is the date on which the applicable performance criteria are approved by our
Board. Key assumptions used in the determination of fair value are as follows:
Expected term. The expected term represents the period equity-based awards are expected to be outstanding. Because of the lack of sufficient historical
data necessary to calculate the expected term, we use the simple average of the vesting period and the contractual term to estimate the expected term for
our equity-based awards.
Expected volatility. We determine the expected stock price volatility based on the historical volatilities of our peer group since there is not a sufficient
trading history for our Class A common stock. Industry peers consist of several public companies in the technology industry similar to us in size, stage
of life cycle and financial leverage. We intend to continue to consistently apply this process using the same or similar public companies until a
sufficient trading history of our Class A common stock becomes available. If circumstances change such that the identified companies are no longer
similar to us, we will revise our peer group to substitute more suitable companies in this calculation.
Expected dividend yield. We use a dividend rate of 0.0% based on our expectation of not paying dividends in the foreseeable future.
Risk-free interest rate. We base the risk-free interest rate on the yield curve of a zero-coupon U.S. Treasury bond with a maturity equal to the expected
term of the award on the grant date.
The fair value of awards granted was estimated using the following weighted-average assumptions:
Year Ended December 31,
2015
2014
2013
Expected term (in years) 6.3
6.5
6.5
Expected volatility 39.1%
42.2%
43.9%
Expected dividend yield —
—
—
Risk-free interest rate 1.7%
1.9%
1.2%
Historical data is used to estimate the expected number of future award forfeitures, which is adjusted based on actual experience.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events included in the financial statements. Under this method, we
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