Go Daddy 2015 Annual Report Download - page 111

Table of Contents
GoDaddy Inc.
Notes to Consolidated Financial Statements
(In millions, except share amounts which are reflected in thousands and per share amounts)
additional reasonably possible potential losses above the amount accrued for such matters would be material to our consolidated financial statements. Regardless of
the outcome, legal proceedings may have an adverse effect on us because of defense costs, diversion of management resources and other factors.
In December 2014 , we entered into a settlement agreement with an insurance carrier under which we would receive $7.5 million . As a result of this
settlement, we reduced general and administrative expenses by $5.1 million in 2014 , representing the total costs incurred through December 31, 2014 . We also
recorded $2.4 million in other long-term liabilities, as such amount represented our best estimate of the potential future losses. The full amount of the settlement
was recorded in prepaid expenses and other current assets as of December 31, 2014 and was received from the insurance carrier in January 2015 . During 2015, we
determined there was no longer a probable future loss and reversed the remaining accrued amount as a reduction of general and administrative expenses.
Indemnifications
In the normal course of business, we have made certain indemnities under which we may be required to make payments in relation to certain transactions.
These include indemnities to our directors and officers to the maximum extent permitted under applicable state laws and indemnifications related to certain lease
agreements. In addition, certain advertiser and reseller partner agreements contain indemnification provisions, which are generally consistent with those prevalent
in the industry. We have not incurred material obligations under indemnification provisions historically, and do not expect to incur material obligations in the
future. Accordingly, we have not recorded any liabilities related to such indemnities as of December 31, 2015 and 2014 .
We include service level commitments to our customers guaranteeing certain levels of uptime reliability and performance for our hosting and premium DNS
products. These guarantees permit those customers to receive credits in the event we fail to meet those levels, with exceptions for certain service interruptions
including but not limited to periodic maintenance. We have not incurred any material costs as a result of such commitments during any of the periods presented,
and have not recorded any liabilities related to such obligations as of December 31, 2015 and 2014 .
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 U.S. 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 complex and subject to change. We may be audited in the future, which could result in changes to our indirect
tax estimates. We continually evaluate those jurisdictions in which nexus exists, and believe we maintain adequate indirect tax accruals.
In 2013 , we recorded an indirect tax liability of $26.5 million in general and administrative expense, reflecting our best estimate of the probable liability,
based on an analysis of our business activities, revenues likely subject to indirect taxes and applicable regulations in each taxing jurisdiction. Of this amount, $10.1
million related to periods prior to December 16, 2011 and was indemnified by Holdings, for which an indemnification asset was recognized.
During 2014 , we continued our process of evaluating those jurisdictions in which nexus exists, and where products are taxable under applicable tax
regulations. We revised our indirect tax liability calculation and identified an error related to the over accrual of the indirect tax liability and related
indemnification asset as of December 31, 2013 . Based on this additional analysis, we determined $6.4 million of the amount recorded in 2013 was in error, of
which $2.9 million related to periods indemnified by Holdings and $1.8 million related to 2012 . We reversed $3.5 million of previously recorded expense for
indirect taxes to correct this error based on our revised analysis, and determined the amounts related to prior annual and interim periods were not material to our
consolidated financial statements.
During 2014 , we made payments totaling $17.2 million to various jurisdictions for indirect tax liabilities relating to prior periods. We recorded an expense
of $4.1 million to increase our indirect tax liability for current period sales activity and reduced our liability by $1.2 million due to changes in estimates. We also
received $6.6 million from Holdings as payment for
105